-----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, JtgB6Yp1XqASdZbRQ5cG6KNNlFDOkhk44cteJWsk8AJGvF2jO5iMJCepJ9u3lOpi ctx2xI4GnX/1Z2WR/zinPQ== 0001047469-98-020910.txt : 19980519 0001047469-98-020910.hdr.sgml : 19980519 ACCESSION NUMBER: 0001047469-98-020910 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19980518 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUMULUS MEDIA INC CENTRAL INDEX KEY: 0001058623 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 364159663 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-48849 FILM NUMBER: 98626801 BUSINESS ADDRESS: STREET 1: 0 STREET 2: 330 EAST KILBOURN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142834500 MAIL ADDRESS: STREET 1: 330 EAST KILBOURN AVE STREET 2: 330 EAST KILBOURN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 S-1/A 1 FORM S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998 REGISTRATION NO. 333-48849 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------- CUMULUS MEDIA INC. (Exact name of Registrant as specified in its charter) ILLINOIS 4832 36-4159663 (State or other jurisdiction of (Primary standard industrial (IRS employer incorporation or organization) classification code number) identification number)
---------------------------- 330 EAST KILBOURN AVE. MILWAUKEE, WI 53202 (414) 283-4500 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) ---------------------------- RICHARD W. WEENING EXECUTIVE CHAIRMAN LEWIS W. DICKEY, JR. EXECUTIVE VICE CHAIRMAN CUMULUS MEDIA INC. 330 EAST KILBOURN AVE. MILWAUKEE, WI 53202 (414) 283-4500 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------------------- COPIES TO: WILLIAM F. SCHWITTER, ESQ. GEORGE R. KROUSE, JR., ESQ. PAUL, HASTINGS, JANOFSKY & WALKER LLP SIMPSON THACHER & BARTLETT 399 PARK AVENUE 425 LEXINGTON AVENUE NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017 (212) 318-6000 (212) 455-2000
---------------------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ---------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED AMOUNT PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) FEE(2) Class A Common Stock, par value $.01 per share.................................... shares(3) $ $100,000,000 $29,500 % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009...... shares(4)(5) $ $219,000,000 $64,605 % Subordinated Exchange Debentures due 2009..................................... $ (6) $ $219,000,000 (7) % Senior Subordinated Notes due 2008..................................... $ $ $150,000,000 $44,250
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (2) $102,660 of the total registration fees were previously paid in connection with the Company's filing on March 30, 1998. The remaining $35,695 are being paid in connection with this filing. (3) Includes shares issuable upon exercise of the Underwriters' over-allotment option. (4) Includes $33,000,000 of % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 being issued in exchange for $33,000,000 of the Registrant's Class A Preferred Stock. (5) Includes shares issuable to cover fixed payment obligations on the Series A Preferred Stock. (6) Includes $94,000,000 in aggregate principal amount of Exchange Debentures issuable to cover fixed payment obligations on the Exchange Debentures. (7) In accordance with Rule 457 (i) the registration fee is calculated and based solely on the offering price of the % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 and no additional fee is payable on the % Subordinated Exchangeable Debentures. ---------------------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains four forms of prospectus: one to be used in connection with the offering of the Class A Common Stock in the United States and Canada (the "U.S. Common Stock Prospectus"), one to be used in connection with a concurrent offering of the Class A Common Stock outside the United States and Canada (the "International Common Stock Prospectus"), one to be used in connection with a concurrent offering of Senior Subordinated Notes (the "Notes Prospectus") and one to be used in connection with a concurrent offering of Series A Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock Prospectus"). The U.S. Common Stock Prospectus, the International Common Stock Prospectus, the Preferred Stock Prospectus and the Notes Prospectus will be identical in all respects except that they will contain different front and back cover pages, the Notes Prospectus (i) will not contain the sections entitled "Prospectus Summary -- The Stock Offering," "Dividend Policy," "Dilution," "Principal and Selling Stockholders," "Description of Credit Facility and Notes," "Shares Eligible for Future Sales," or "Certain United States Tax Consequences to Non-United States Holders of Class A Common Stock," (ii) will contain a different legend following the "Certain Definitions and Market and Industry Data" section, and a different "Prospectus Summary -- Risk Factors" section, "Risk Factors" section and "Underwriting" section and (iii) will contain additional sections entitled "Prospectus Summary -- The Debt Offering," "Principal Stockholders," "Description of Credit Facility," "Description of Notes," and "Certain Federal Income Tax Considerations" and the Preferred Stock Prospectus (i) will not contain the sections entitled "Prospectus Summary -- The Stock Offerings," "Dilution," "Principal and Selling Stockholders," or "Certain United States Tax Consequences to Non-United States Holders of Class A Common Stock," (ii) will contain a different legend following the "Certain Definitions and Market and Industry Data" section, and a different "Prospectus Summary -- Risk Factors" section, "Risk Factors" section, "Shares Eligible for Future Sale" section and "Underwriting" section and (iii) will contain additional sections entitled "Prospectus Summary -- The Preferred Stock Offering," "Principal Stockholders," "Description of the Series A Preferred Stock and Exchange Debentures," and "Certain Federal Income Tax Considerations." The U.S. Common Stock Prospectus is included herein and is followed by (i) those pages to be used in the International Common Stock Prospectus which differ from those in the U.S. Common Stock Prospectus, (ii) those pages to be used in the Notes Prospectus which differ from those in the U.S. Common Stock Prospectus, and (iii) those pages to be used in the Preferred Stock Prospectus which differ from those in the U.S. Common Stock Prospectus. Each of the additional pages for the International Common Stock Prospectus included herein has been labeled "Alternate Page for International Common Stock Prospectus." If required pursuant to Rule 424(b) of the General Rules and the Regulations under the Securities Act of 1933, as amended, copies of each of the prospectuses in the forms in which they are used after the Registration Statement becomes effective will be filed with the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 18, 1998 [LOGO] SHARES CUMULUS MEDIA INC. CLASS A COMMON STOCK
--------------------- Of the shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), offered hereby, shares are being sold by Cumulus Media Inc. (the "Company") and shares are being sold by the Selling Stockholder (as defined herein). Of the shares of Class A Common Stock being offered, shares are being offered in the United States and Canada (the "U.S. Offering") by the U.S. Underwriters and shares are being offered in a concurrent offering outside the United States and Canada (the "International Offering") by the International Managers (together with the U.S. Underwriters, the "Underwriters"). The U.S. Offering and the International Offering are collectively referred to as the "Stock Offerings." The offering price and underwriting discounts and commissions for each of the Stock Offerings will be identical. Upon consummation of the Reorganization (as defined herein), the Company's authorized capital stock will include Class A Common Stock, Class B Common Stock, par value $.01 per share (the "Class B Common Stock"), and Class C Common Stock, par value $.01 per share (the "Class C Common Stock" and, together with the Class A Common Stock and the Class B Common Stock, the "Common Stock"). Except with respect to voting and conversion, the rights of holders of Class A Common Stock, Class B Common Stock and Class C Common Stock are identical. Except upon the occurrence of certain events, holders of Class B Common Stock are not entitled to vote, whereas each share of Class A Common Stock entitles its holder to one vote and subject to certain exceptions, each share of Class C Common Stock entitles its holder to ten votes. Under certain conditions and subject to prior governmental approval, shares of Class B Common Stock are convertible into shares of Class A Common Stock and/or shares of Class C Common Stock on a one-for-one basis at the option of the holder, and shares of Class C Common Stock are convertible into shares of Class A Common Stock on a one-for-one basis at the option of the holder. Following the Stock Offerings, existing stockholders of the Company, including the officers and directors of the Company, will continue to own approximately % of the Common Stock (representing % of the voting stock) and will have the ability to control the Company. See "Description of Capital Stock." Concurrently with the Stock Offerings, the Company is offering $ million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (the "Series A Preferred Stock"), (the "Preferred Stock Offering"), $ million of which are being offered directly by the Company, and not through the Underwriters, to The Northwestern Mutual Life Insurance Company, the sole owner of the NML Preferred Stock (as defined herein), which had an accreted value as of May 15, 1998 of $33,989,840, at a purchase price equal to the price to public and $ million of % Senior Subordinated Notes Due 2008 (the "Notes") (the "Debt Offering" and, together with the Stock Offerings and the Preferred Stock Offering, the "Offerings"). Consummation of each Offering is contingent upon consummation of each of the other Offerings. A portion of the proceeds of the Offerings will be used to repay the Credit Facility (as defined herein) for which affiliates of Lehman Brothers Inc. act as arranger and lender. Prior to the Stock Offerings, there has been no public market for the Class A Common Stock of the Company. It is anticipated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Class A Common Stock of the Company is expected to be approved for inclusion in the Nasdaq National Market system under the symbol "CMLS." There can be no assurance that an active public market for the Class A Common Stock will develop or be maintained after the consummation of the Stock Offerings. --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE CLASS A COMMON STOCK. --------------------- 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.
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PUBLIC AND COMMISSIONS(1) COMPANY(2) Per Share.................................. $ $ $ Total(3)................................... $ $ $
(1) The Company has agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Stock Offerings payable by the Company estimated to be $ . (3) The Company has granted the U.S. Underwriters a 30-day option to purchase up to an additional shares of Class A Common Stock on the same terms and conditions as set forth above solely to cover over-allotments, if any. The International Managers have been granted a similar option to purchase up to additional shares solely to cover over-allotments, if any. If both options are exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." --------------------- The shares of Class A Common Stock offered by this Prospectus are offered by the U.S. Underwriters subject to prior sale, to withdrawal, cancellation, or modification of the offer without notice, to delivery to and acceptance by the U.S. Underwriters and to certain further conditions. It is expected that delivery of the shares will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1998. --------------------- LEHMAN BROTHERS BEAR, STEARNS & CO. INC. BT ALEXs BROWN , 1998 [ARTWORK] 2 page gate fold Cover page of gate fold--collage of logos of radio stations owned by the Company. Inside of gatefold--U.S. map and to the bottom right a Caribbean map showing the locations of the Company's radio stations. 2 CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA The terms "Broadcast Cash Flow" and "EBITDA" are referred to in various places in this Prospectus. Broadcast Cash Flow consists of operating income (loss) before depreciation and amortization, non-cash stock compensation expense and corporate general and administrative expenses. EBITDA consists of operating income (loss) before depreciation and amortization and non-cash stock compensation expense. EBITDA, as defined by the Company, may not be comparable to similarly titled measures used by other companies. Although Broadcast Cash Flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that they are useful to an investor in evaluating the Company because they are measures widely used in the broadcast industry to evaluate a radio company's operating performance. However, Broadcast Cash Flow and EBITDA should not be considered in isolation or as substitutes for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of liquidity or profitability. The term "local marketing agreement" ("LMA") is referred to in various places in this Prospectus. A typical LMA is an agreement under which the Federal Communications Commission ("FCC") licensee of a radio station makes available, for a fee, air time on its station to a party which provides programming to be broadcast during such airtime and collects revenues from advertising it sells for broadcast during such programming. A station's or station group's "power ratio" is defined as such station's or station group's revenue market share divided by audience market share. "MSA" is defined as Metro Survey Area, as listed in the Arbitron Radio Metro and Television Market Population Estimates 1996-1997. Unless otherwise indicated herein, (i) market ranking by radio advertising revenue, radio market advertising revenue and radio market advertising data have been obtained from BIA'S MASTERACCESS ("BIA") compiled by BIA Research, Inc., (ii) total industry listener and revenue levels have been obtained from the Radio Advertising Bureau ("RAB"), (iii) all audience share data and audience rankings, including ranking by population, except where otherwise stated to the contrary, have been derived from surveys of people ages 12 and over ("Adults 12+"), listening Monday through Sunday, 6 a.m. to 12 midnight, and are based on the Fall 1997 Arbitron Market Report pertaining to each market, as reported by BIA, and (iv) revenue share data in each market presented have been obtained from BIA as adjusted for market information available to and known by the Company. ------------------------ CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF CLASS A COMMON STOCK FOLLOWING THE PRICING OF THE STOCK OFFERINGS TO COVER A SYNDICATE SHORT POSITION IN THE CLASS A COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE CLASS A COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ------------------------ 3 THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE STATEMENTS (INCLUDING, WITHOUT LIMITATION, THE STATEMENTS CONTAINED UNDER THE CAPTION "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS") REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS OR ITS OFFICERS PRIMARILY WITH RESPECT TO THE FUTURE OPERATING PERFORMANCE OF THE COMPANY. PROSPECTIVE PURCHASERS OF CLASS A COMMON STOCK ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND MAY INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS (INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES RELATING TO LEVERAGE, THE NEED FOR ADDITIONAL FUNDS, CONSUMMATION OF THE PENDING ACQUISITIONS, INTEGRATION OF THE PENDING ACQUISITIONS, THE ABILITY OF THE COMPANY TO ELIMINATE CERTAIN COSTS, THE MANAGEMENT OF RAPID GROWTH, THE POPULARITY OF RADIO AS A BROADCASTING AND ADVERTISING MEDIUM AND CHANGING CONSUMER TASTES), MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THE INFORMATION UNDER THE CAPTIONS "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES. THE OCCURRENCE OF ANY SUCH FACTORS NOT CURRENTLY EXPECTED BY THE COMPANY WOULD SIGNIFICANTLY ALTER THE RESULTS SET FORTH IN THESE STATEMENTS. THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS PROVIDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE SECURITIES ACT (AS DEFINED HEREIN) AND THE EXCHANGE ACT (AS DEFINED HEREIN) DO NOT APPLY TO INITIAL PUBLIC OFFERINGS AND THE COMPANY CANNOT AVAIL ITSELF OF THE PROTECTIONS PROVIDED THEREBY WITH RESPECT TO THE OFFERINGS. 4 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, (I) THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND THE REORGANIZATION HAS BEEN CONSUMMATED; (II) REFERENCES TO THE "COMPANY" INCLUDE THE COMPANY AND ITS SUBSIDIARIES; AND (III) ALL PRO FORMA INFORMATION CONTAINED IN THIS PROSPECTUS GIVES EFFECT TO THE REORGANIZATION, BORROWINGS UNDER THE CREDIT FACILITY AND THE APPLICATION OF PROCEEDS THEREFROM, ACQUISITIONS COMPLETED AS OF THE DATE HEREOF (THE "COMPLETED ACQUISITIONS"), THE PENDING ACQUISITIONS (AS DEFINED HEREIN), AND THE OFFERINGS AND THE APPLICATIONS OF PROCEEDS THEREFROM (COLLECTIVELY, THE "TRANSACTIONS"). THE COMPANY Cumulus Media Inc. ("Cumulus" or the "Company") is a radio broadcasting company focused on the acquisition, operation and development of radio stations in mid-size and smaller radio markets in the U.S. The Company currently owns and operates, or provides sales and marketing services under LMA agreements (pending FCC approval of acquisition) to, 105 stations in 22 markets. Upon consummation of the Pending Acquisitions, the Company will be one of the five largest radio broadcasting companies based on number of stations, and among the fifteen largest based on net revenues, in the U.S. and will own and operate 176 radio stations (124 FM and 52 AM) clustered in 35 markets. The Company has assembled market-leading clusters with stations comprising the first or second ranked radio group, in terms of revenue share and/or audience share, in all of its 34 U.S. markets. On a pro forma basis, after giving effect to the Transactions, the Company would have generated net revenues of approximately $111.0 million and $25.8 million and Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data") of approximately $24.5 million and $3.1 million for the year ended December 31, 1997 and for the three months ended March 31, 1998, respectively. Cumulus operates and develops clusters of stations in demographically attractive and fast growing mid-size and smaller markets. Relative to the 100 largest markets in the U.S., the Company believes that the mid-size and smaller markets (MSA 100-267) represent attractive operating environments and generally are characterized by: (i) a greater reliance on radio advertising as evidenced by the greater percentage of total media revenues captured by radio than the national average; (ii) rising advertising revenues as the larger national and regional retailers expand into these markets; (iii) small independent operators, many of whom lack the capital to produce high quality locally-originated programming and/or to employ more sophisticated research, marketing, management and sales techniques; and (iv) lower overall susceptibility to economic downturns. The Company believes that the attractive operating characteristics of mid-size and smaller markets coupled with the relaxation of FCC ownership limits create significant opportunities to form clusters within markets and regions that will enable the Company to achieve revenue growth and cost efficiencies. As a result, management believes that the Company can grow revenues at rates equal to or better than larger market growth rates and generate Broadcast Cash Flow margins that are comparable to the higher margins that previously were generally achievable only in the top 100 markets. The Company believes that mid-size and smaller radio markets provide an excellent opportunity to acquire attractive properties at favorable purchase prices due to the size and fragmented nature of ownership in these markets and to the historically greater attention given to the larger markets by radio station acquirors. According to BIA, there are approximately 1,600 FM and 1,000 AM stations in the 168 U.S. radio markets ranked MSA 100-267. These 2,600 stations are owned by approximately 1,100 different operators. In addition, there are nearly 4,700 stations in unranked markets owned by approximately 2,700 operators. The Company's principal strategy is to establish its position as a leader in its markets and regions and to expand into additional mid-size and smaller markets and regions where it believes a leadership position can be achieved by assembling clusters. Cumulus seeks to enhance the quality of radio for listeners and the 5 utility of the radio medium for advertisers in order to maximize the advertising revenues and Broadcast Cash Flow of its radio stations. To that end, Cumulus utilizes extensive research to properly position the formats of stations in a given market and also significantly increases the amount of locally-originated programming. Upon consummation of the Pending Acquisitions, the Company's portfolio of stations will be diversified in terms of format, target audience, geographic location and stage of development. Because of the size and diversity of its portfolio and its individual radio station groups or "clusters", the Company believes it is not reliant upon the performance of any single station or any specific format. MANAGEMENT TEAM Members of the Company's senior management team have an aggregate of over 75 years of experience in the media and radio broadcasting industry. To date, management has successfully negotiated 61 separate acquisition transactions on behalf of the Company. The Company's Executive Chairman and Treasurer, Richard W. Weening, has over 20 years of operating experience in media and information companies including significant experience in corporate finance and mergers and acquisitions. Lewis W. Dickey, Jr., Executive Vice Chairman, has over 15 years of experience in the radio and television broadcasting industry and is a successful owner-operator of radio stations in larger and mid-size markets. Mr. Dickey is also a nationally regarded business strategy and marketing consultant to the radio and television broadcasting industry. William M. Bungeroth, the Company's President, has over 20 years of experience in the radio broadcasting industry and has developed an expertise in enhancing revenue at stations under his management. Mr. Bungeroth manages the broadcasting business along with the General Managers of each market, the Director of Programming and the regional Directors of Sales. The Company's Vice President and Chief Financial Officer, Richard J. Bonick, Jr., has 20 years of experience in the radio broadcasting industry. Mr. Bonick manages the financial reporting and control systems as well as the operational aspects of the Company's broadcasting business. STATION PORTFOLIO The Company has four regions in the U.S. as its primary focus: the Midwest, Southeast, Southwest and Northeast. The following chart sets forth certain information with respect to the Company's stations in these regions, before and after giving effect to the Pending Acquisitions:
PENDING ACQUISITIONS (1) NUMBER OF NUMBER OF STATIONS --------------------------------------------------- STATIONS NUMBER OF NUMBER OF NUMBER OF FOLLOWING CURRENTLY STATIONS STATIONS TO STATIONS TO BE PENDING OWNED CURRENTLY BE PLACED ACQUIRED ACQUISITIONS MARKET ----------- UNDER UNDER WITHOUT ------------- MARKET(2) RANK FM AM LMA(3) LMA LMA FM - ----------------------- --------- ----- ----- --------------- --------------- ----------------- ------------- MIDWEST REGION Ann Arbor, MI.......... 146 2 2 -- -- -- 2 Appleton-Oshkosh/ Green Bay, WI.............. 138/182 3 2 2 -- -- 5 Dubuque, IA............ 217 -- -- 1 -- 4 4 Marion Carbondale, IL.. 209 -- -- 6 -- -- 4 Bismarck, ND........... 259 -- -- -- -- 4 3 Kalamazoo, MI.......... 172 -- -- -- -- 3 2 Faribault-Owatonna- Waseca, MN........... -- -- -- -- -- 8 4 Mankato, MN............ -- -- -- -- -- 3 2 Mason City, IA......... -- -- -- -- -- 7 5 Monroe, MI............. -- -- -- 1 -- -- 1 New Ulm-Springfield- Marshall, MN......... -- -- -- -- -- 3 2 Rochester, MN.......... -- -- -- -- -- 4 2 Toledo, OH............. 76 4 2 -- -- -- 4 SOUTHEAST REGION Albany, GA............. 205 -- -- 4 2 -- 4 Augusta, GA(6)......... 109 4 2 2 -- 1 6(2) Chattanooga, TN........ 102 -- -- 1 3 -- 3 Columbus, GA........... 166 3 2 -- -- -- 3 Florence, SC........... 198 2 2 5 1 -- 7 ADULTS 12+ REVENUE MARKET(2) AM SHARE (%) RANK(4) - ----------------------- ------------- ------------- ------------- MIDWEST REGION Ann Arbor, MI.......... 2 8.7 1 Appleton-Oshkosh/ Green Bay, WI.............. 2 20.2(5) 2 Dubuque, IA............ 1 34.8 1 Marion Carbondale, IL.. 2 32.4 2 Bismarck, ND........... 1 37.7 1 Kalamazoo, MI.......... 1 22.3 1 Faribault-Owatonna- Waseca, MN........... 4 -- 1 Mankato, MN............ 1 -- 1 Mason City, IA......... 2 -- 1 Monroe, MI............. 0 -- 1 New Ulm-Springfield- Marshall, MN......... 1 -- 1 Rochester, MN.......... 2 -- 2 Toledo, OH............. 2 31.2 2 SOUTHEAST REGION Albany, GA............. 2 23.2 2 Augusta, GA(6)......... 3 29.3 1 Chattanooga, TN........ 1 22.3 1 Columbus, GA........... 2 32.5 1 Florence, SC........... 3 42.2 1
6
PENDING ACQUISITIONS (1) NUMBER OF NUMBER OF STATIONS --------------------------------------------------- STATIONS NUMBER OF NUMBER OF NUMBER OF FOLLOWING CURRENTLY STATIONS STATIONS TO STATIONS TO BE PENDING OWNED CURRENTLY BE PLACED ACQUIRED ACQUISITIONS MARKET ----------- UNDER UNDER WITHOUT ------------- MARKET(2) RANK FM AM LMA(3) LMA LMA FM - ----------------------- --------- ----- ----- --------------- --------------- ----------------- ------------- Montgomery, AL......... 143 -- -- 4 -- -- 2 Myrtle Beach, SC....... 175 3 1 2 -- -- 5 Salisbury-Ocean City, MD................... 153 4 2 2 -- -- 6 Savannah, GA........... 154 -- -- 5 -- 2 5 Tallahassee, FL........ 165 3 1 1 -- -- 4 Wilmington, NC......... 178 4 1 -- -- -- 4 SOUTHWEST REGION Abilene, TX............ 224 3 -- 1 -- -- 4 Amarillo, TX........... 188 3 1 2 -- -- 4 Beaumont-Port Arthur, TX................... 128 -- -- 1 -- 4 3 Grand Junction, CO..... 247 -- -- -- -- 6 4 Lake Charles, LA....... 203 -- -- -- -- 4 3 Odessa-Midland, TX..... 174 -- -- 5 -- -- 4 Topeka, KS............. 180 -- -- -- -- 4 2 Wichita Falls, TX...... 236 3 -- 1 -- -- 4 NORTHEAST REGION Augusta-Waterville, ME................... 245 -- -- -- -- 6 5 Bangor, ME............. 263 -- -- -- -- 2 2 --- --- --- --- --- --- TOTAL 34 U.S. MARKETS.............. 41 18 46 6 65 124 ADULTS 12+ REVENUE MARKET(2) AM SHARE (%) RANK(4) - ----------------------- ------------- ------------- ------------- Montgomery, AL......... 2 34.4 1 Myrtle Beach, SC....... 1 20.3 1 Salisbury-Ocean City, MD................... 2 31.2 1 Savannah, GA........... 2 36.0 2 Tallahassee, FL........ 1 32.8 1 Wilmington, NC......... 1 17.3 2 SOUTHWEST REGION Abilene, TX............ 0 26.7 2 Amarillo, TX........... 2 30.6 2 Beaumont-Port Arthur, TX................... 2 29.4 2 Grand Junction, CO..... 2 42.7 1 Lake Charles, LA....... 1 49.7 1 Odessa-Midland, TX..... 1 39.7 1 Topeka, KS............. 2 24.1 2 Wichita Falls, TX...... 0 28.6 2 NORTHEAST REGION Augusta-Waterville, ME................... 1 25.6 1 Bangor, ME............. 0 30.4 1 -- TOTAL 34 U.S. MARKETS.............. 52
- ------------------------ (1) The Company expects to consummate most of the Pending Acquisitions during the second and third quarters of 1998, although there can be no assurance that the transactions will be consummated within that time frame. The pending acquisition of a Tallahassee FM station presently operated under an LMA is expected to close by the end of 1998. In two of the markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications. In addition, the FCC staff has raised questions concerning whether the Company will be permitted to acquire its full complement of proposed stations in some markets, based on local market concentration concerns. There can be no assurance that applications for other Pending Acquisitions will not be subjected to similar challenges or FCC staff inquiries. The FCC staff has also requested additional information regarding attributable media interests of one of the Company's non-attributable investors to determine compliance with the FCC's cross-interest policy in one market. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. (2) The listed markets correspond to station clusters of the Company, but may vary from the "markets" defined for purposes of the FCC's multiple-ownership rules, which are defined by reference to the signal coverages of the stations involved. Thus, in some instances (E.G., Augusta, GA, Florence, SC, and Salisbury-Ocean City, MD), the number of stations following the Pending Acquisitions as listed in the above table exceeds the number of radio stations specified in the FCC's rules that one person or entity may own, operate or control within a single market, but is still consistent with these rules. (3) Includes radio stations to which the Company currently provides programming and on which the Company sells advertising pursuant to an LMA. (4) Market revenue rankings for Faribault-Owatonna-Waseca, MN, Mankato, MN, Mason City, IA, Rochester, MN and New Ulm-Springfield-Marshall, MN are based on Company estimates. (5) Indicates Adults 12+ share of Appleton-Oshkosh market. (6) The FCC staff recently dismissed the assignment application for one of the six FM stations in Augusta, GA based on the unacceptability of the Company's supplemental engineering analysis in demonstrating compliance with the FCC's multiple-ownership rules. The Company will not be permitted to acquire more than five FM and three AM stations in this market unless it succeeds in obtaining FCC approval to modify the facilities of one or more of its currently owned stations or successfully appeals the FCC staff dismissal of its assignment application for the sixth FM station. The Company also owns and operates five radio stations and one leased frequency in various locations throughout the English-speaking Eastern Caribbean, including among other places, Trinidad, St. Kitts and St. Lucia. ACQUISITION STRATEGY Cumulus has focused its acquisition strategy on acquiring radio broadcasting stations in demographically attractive and fast growing mid-size to smaller markets that it believes offer substantial growth opportunities for the Company. In executing this strategy, the Company adheres to certain key acquisition criteria. Primary among these criteria are targeting markets with: (i) growing economies that are not dependent 7 upon any single industry or employer; (ii) a regional fit with the Company's overall portfolio concentration in the Midwest, Southeast, Southwest and Northeast regions of the U.S.; (iii) close proximity to larger markets that may lead to increased economic expansion into the Company's markets; (iv) previously unconsolidated markets with fragmented individual ownership of stations; (v) the opportunity to assemble a cluster of stations diversified in format to provide a range of target demographic options for advertisers; and (vi) the opportunity to increase sales performance through greater coverage of potential advertisers with more sales people per station. In targeting specific stations, the Company seeks stations with a position of leadership in their market in terms of ratings and format, with the opportunity to significantly increase revenues and Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data"). Additionally, Cumulus seeks high quality technical and operating facilities, capable local management and an FCC license which enables coverage of the entire market. The Company believes that its acquisition strategy will have a number of benefits, including: (i) growth and diversification of revenue and Broadcast Cash Flow across a greater number of stations and markets; (ii) improved Broadcast Cash Flow margins through the consolidation of facilities and the elimination of redundant expenses; (iii) enhanced utilization of certain corporate overhead functions, including its senior management team; (iv) improved leverage in various key vendor negotiations; (v) greater ability to recruit top industry management talent; and (vi) increased overall scale, which should facilitate the Company's future capital raising activities. INTEGRATION OF ACQUIRED BUSINESSES The Company has developed, through its 61 Completed and Pending Acquisitions, an efficient process for the integration of newly acquired properties into the Cumulus portfolio and respective geographic cluster, as well as into the overall Cumulus culture and operating philosophy. The Company's station integration plan consists of six key elements: (i) employ sophisticated market research to refine station formats, enrich the listener experience and increase audience and revenue share relative to other stations in the market; (ii) expand the size and the effectiveness of the sales organization through active recruitment and in-depth training to enhance demand for the station's spot inventory to increase both revenue and margin; (iii) add the station to the Cumulus in-market local area network and install the Company's proprietary system for real-time monitoring by management of station sales and inventory performance; (iv) install Cumulus's centralized networked accounting system for financial reporting, budget control, payables management and cash management; (v) establish revenue and expense budgets consistent with the programming and sales strategy and make necessary cost adjustments; and (vi) implement necessary improvements in transmission facilities, audio processing and studio facilities. From time to time, in compliance with applicable law, the Company will enter into an LMA or consulting arrangement with a target property prior to FCC final approval and the consummation of the acquisition in order to gain a "head start" on the integration process. OPERATING STRATEGY The Company's operating strategy has the following principal components: ASSEMBLE AND MANAGE MARKET CLUSTERS WITH REGIONAL CONCENTRATIONS. The Company has assembled the first or second ranked cluster of stations based on revenue share and/or audience share in all of its U.S. markets in four regional concentrations, the Midwest, Southeast, Southwest and Northeast. The Company believes that by offering a diversity of radio formats within a given market, Cumulus provides customized and efficient marketing solutions to meet advertisers' needs. By assembling market clusters with a regional concentration, the Company believes that it will be able to increase revenues by offering regional coverage of key demographic groups that were previously unavailable to national and regional advertisers. The Company also believes that its cluster approach will allow it to operate its stations with more highly skilled local management teams equipped with greater resources and to eliminate redundant operating and overhead expenses. 8 MAXIMIZE EACH STATION'S POTENTIAL THROUGH POSITIONING AND BRANDING. The Company utilizes extensive market research to refine the programming of each of its stations and to position each as a separate brand within a particular cluster. The objective of this strategy is to optimize each station's potential in terms of audience ratings and revenue share while providing the widest possible range of choice to listeners and advertisers. Such stations can better capitalize on the operating leverage inherent in the radio industry because the costs of operating a radio station are generally fixed and, therefore, increased revenues generally result in disproportionately larger increases in Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data"). FOCUS ON PROGRAMMING. A principal Company operating strategy is to enhance each station's programming appeal, including both the quality and quantity of local programming as a means of enriching the listener experience. The Company believes that adopting this commitment to high quality, locally originated programming will provide its stations with a competitive advantage and increase each station's audience share. Moreover, the Company believes that the efficiencies and scale afforded by the operation of multiple stations in the same market and region working together with information technology make it possible to substantially improve programming and the quality of the listener experience without a comparable increase in cost. EXPAND DEDICATED SALES FORCE AND OPTIMIZE INVENTORY MANAGEMENT. Underpinning the Company's strategy for optimizing the potential of each station within a cluster is the practice of dedicating a sales force for each of its stations. The Company believes that many of the acquired stations have dramatically underperformed in sales, due primarily to undersized sales staffs responsible for selling air time on multiple stations, thus diluting their ability to cover all of the potential advertisers with strong advocates for each station. The Company believes its practice of utilizing a dedicated sales force for each station will attract a larger number of advertisers thereby increasing the demand for each station's commercial spot inventory. Accordingly, the Company has significantly expanded the number of salespeople for each of its stations. Salespeople are typically compensated exclusively on a commission basis. Also, in each of its market clusters, the Company utilizes Internet-based sales reporting systems to monitor its sales activity and to formulate and implement rate structure and inventory management on a continual basis. INCREASE RADIO REVENUE SHARE. The Company believes that its strategy of larger and dedicated station sales staffs, brand development, regional concentration, and market clusters will help increase advertising volume and revenues from existing customers and increase the number and scope of new advertisers. This strategy enables the Company to compete more effectively with other local and regional media such as newspapers and cable and broadcast television stations, because it can now offer a competitively priced alternative to reach the target audience that advertisers desire. The Company's sales management team has substantial experience in the areas of generating new sources of revenues including promotional events, retailer co-op advertising and other sources including business-to-business advertising. IMPLEMENT STRICT COST CONTROLS. The Company's management imposes strict financial reporting requirements and expense budget limitations on each of its stations. In addition, management maintains a centralized accounting system which allows it to monitor the performance and operations of each of its stations. Management believes such centralization allows the Company to achieve expense savings in certain areas, including purchasing and administrative expenses. Management believes that the Company will also achieve expense savings through the elimination of certain duplicate costs within its markets and market clusters. IMPLEMENT INTERNET-BASED MANAGEMENT INFORMATION SYSTEMS. The Company has implemented a proprietary application using Internet software standards to support daily sales and inventory performance reporting by station, by market and by cluster. In addition, the Company employs the same system to network its centralized accounting and cash management. This allows the Company to compare each station's actual performance (including revenue and inventory management) to budget 9 on a regular basis and deploy resources on a timely basis to those stations not achieving budgetary goals. RECRUIT AND RETAIN SKILLED MANAGERS. The Company believes that operating a top-ranked cluster of stations in a market will enable the Company to recruit and retain high caliber radio management personnel who might otherwise be attracted to larger markets. The Company believes that regional management and coordination will enable it to maximize the benefits of operating a growing number of stations in geographically diverse locations, while maintaining controls over local operations. Local management is also central to the Company's strategy and is primarily responsible for building and developing a sales team capable of converting the stations' audience rankings into revenues. The Company's general managers and sales managers are motivated through incentive compensation based primarily upon their station's cash flow performance and secondarily on their ability to convert their station's audience share into market revenue share. REORGANIZATION AND CORPORATE STRUCTURE In March 1998, the Company amended its articles of incorporation to change its name from Cumulus Holdings, Inc. to Cumulus Media Inc. Until immediately prior to the closing of the Offerings, all of the outstanding common stock of the Company will have been held by Cumulus Media, LLC, a Wisconsin limited liability company ("Media LLC"), whose members include State of Wisconsin Investment Board, NationsBanc Capital Corp. ("NationsBanc"), Heller Equity Capital Corporation, The Northwestern Mutual Life Insurance Company ("NML") and certain members of the Company's management or affiliates of management. See "Principal and Selling Stockholders." Immediately prior to the closing of the Offerings, (i) all of the shares of the NML Preferred Stock will be exchanged for shares of Series A Preferred Stock as described below; and (ii) Media LLC will be liquidated and the shares of Class B Common Stock and Class C Common Stock held by Media LLC will be distributed by Media LLC to its members in liquidation (the "Reorganization"). All shares of Class A Cumulative Preferred Stock (the "NML Preferred Stock") which were held by NML immediately prior to the Offerings plus all accrued and unpaid dividends thereon as of the exchange date will be exchanged for shares of Series A Preferred Stock having an equivalent aggregate liquidation value pursuant to the Preferred Stock Offering. As of May 15, 1998, the liquidation value of the NML Preferred Stock was approximately $34.0 million. Subject to certain conditions, the Series A Preferred Stock will be exchangeable on any dividend payment date, at the Company's option, for the % Subordinated Exchange Debentures due 2009 (the "Exchange Debentures"). See "Description of Capital Stock." Upon the consummation of the Reorganization, the capital stock of the Company will consist of the Class A Common Stock, the Class B Common Stock, the Class C Common Stock and the Series A Preferred Stock. The Company's U.S. radio operations are conducted primarily through Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting") and a wholly-owned subsidiary of the Company, which owns the radio stations acquired pursuant to asset purchase agreements. The Company also owns the stock of radio groups or stations acquired pursuant to stock purchase agreements. Cumulus Licensing Corp., a Nevada corporation ("Licensing") and a wholly-owned subsidiary of Broadcasting, holds virtually all the FCC licenses for the Company's stations. Certain other FCC licenses are held by wholly-owned subsidiaries of the Company, and the Company intends in the near future to transfer those licenses to Licensing or to newly created subsidiaries that hold only FCC licenses. Caribbean Communications Company Ltd., a corporation organized under the laws of Montserrat ("CCC") and a wholly-owned subsidiary of the Company, owns radio stations throughout the English-speaking Eastern Caribbean, including among other places, Trinidad, St. Kitts and St. Lucia. CCC is currently constructing an FM station in Barbados and Tortola, BVI. The Company will be the issuer of the Class A Common Stock, the Series A Preferred Stock 10 and the Notes, and is the borrower under the Credit Facility. Broadcasting and Licensing are guarantors of the Company's obligations under the Credit Facility. See "Description of the Credit Facility and Notes." PENDING ACQUISITIONS The Company has entered into definitive purchase agreements to acquire 117 stations in 30 markets for an aggregate purchase price of approximately $250.5 million in transactions which have not yet been consummated (the "Pending Acquisitions"). The Company expects to consummate most of the Pending Acquisitions during the second and third quarters of 1998, although there can be no assurance that the transactions will be consummated within that time frame. The pending acquisition of a Tallahassee FM station presently operated under an LMA is expected to close by the end of 1998. In two of the markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications. In several other markets, FCC staff questions and/or requests for additional information relating to local market concentration or the FCC's cross-interest policy have been raised with respect to pending assignment applications. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. There can be no assurances that other Pending Acquisitions will not be subjected to similar challenges, or that the Pending Acquisitions will be consummated. The Company believes that the proceeds of the Offerings will be sufficient to finance the consummation of the Pending Acquisitions. The Company from time to time enters into letters of intent to purchase radio stations. The letters of intent are non-binding and are subject to certain conditions, and there can be no assurance that the Company will enter into definitive purchase agreements with respect to such stations or will consummate such transactions. Accordingly, the Company does not consider a potential transaction as probable until it has executed an asset purchase agreement. FINANCING PLAN The Company intends to use the proceeds of the Offerings to finance the Pending Acquisitions and to repay certain indebtedness as follows:
(DOLLARS IN THOUSANDS) --------------------- SOURCES OF FUNDS: Common Stock Offered to Public....................................... $ Debt Offering........................................................ Preferred Stock Offered to Public.................................... -------- Total............................................................ $ -------- -------- USES OF FUNDS: Purchase price of the Pending Acquisitions........................... $ Repayment of Credit Facility (1)..................................... Fees and expenses.................................................... -------- Total............................................................ $ -------- --------
- ------------------------------ (1) Affiliates of Lehman Brothers Inc. act as arranger and lender under the Credit Facility. The Company is an Illinois corporation with its principal executive offices located at 330 East Kilbourn Ave., Milwaukee, Wisconsin 53202, telephone number (414) 283-4500. Effective June 5, 1998, the Company's offices will be located at 111 East Kilbourn Ave., Suite 2700, Milwaukee, Wisconsin 53202, telephone number (414) 615-2800. 11 THE STOCK OFFERINGS Class A Common Stock Offered by the Company U.S. Offering.............................. shares International Offering..................... shares Total.................................... shares Class A Common Stock offered by the Selling Stockholder................. shares Common Stock Outstanding after the Stock Offerings: Class A Common Stock(1).................... shares Class B Common Stock....................... shares Class C Common Stock....................... shares Voting Rights................................ Except with respect to voting and conversion, the rights of holders of Class A Common Stock, Class B Common Stock and Class C Common Stock are identical. Except upon the occurrence of certain events, holders of the Class B Common Stock are not entitled to vote, whereas holders of the Class A Common Stock are entitled to one vote per share and subject to certain exceptions holders of the Class C Common Stock are entitled to ten votes per share. Under certain conditions and subject to prior governmental approval, each share of Class B Common Stock is convertible into one share of Class A Common Stock or one share of Class C Common Stock at the option of the holder, and each share of Class C Common Stock is convertible into one share of Class A Common Stock at the option of the holder. See "Description of Capital Stock." Use of Proceeds.............................. Approximately $ million of the net proceeds of the Offerings will be used to finance the Pending Acquisitions. The balance of the net proceeds of the Offerings will be used to repay the principal amount of indebtedness currently outstanding under the Credit Facility for which affiliates of Lehman Brothers Inc. act as arranger and lender. See "Use of Proceeds" and "Description of Credit Facility and Notes." Proposed Nasdaq National Market Symbol..................................... CMLS Concurrent Offerings......................... Concurrently with the Stock Offerings, the Company is offering shares of its % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 (with a liquidation preference of $1,000 per share) and $ million aggregate principal amount of its % Senior Subordinated Notes due 2008. Each Offering is conditioned upon consummation of each of the other Offerings. See "Risk Factors -- Significant Capital Requirements; --Concurrent Offerings" and "Use of Proceeds."
- ------------------------ (1) If the Underwriters' over-allotment options were exercised in full, shares of Class A Common Stock would be outstanding after the Stock Offerings. See "Underwriting" and "Description of Capital Stock." 12 RISK FACTORS An investment in the Class A Common Stock offered hereby involves a high degree of risk. Prospective purchasers of the Class A Common Stock offered hereby should carefully consider the factors set forth in "Risk Factors", as well as the other information set forth in this Prospectus, before making an investment in the Class A Common Stock. 13 SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA The following summary unaudited pro forma financial data are derived from the Unaudited Pro Forma Combined Financial Statements of the Company included elsewhere in this Prospectus. The pro forma combined statement of operations data for the three months ended March 31, 1998 give effect to the Transactions (other than acquisitions completed in 1997) as if they had occurred on January 1, 1998. The pro forma combined statement of operations data for the year ended December 31, 1997 give effect to the Transactions as if they had occurred on January 1, 1997. The pro forma combined balance sheet data give effect to the Transactions as if they had occurred on March 31, 1998 (except for Completed Acquisitions consummated prior to March 31, 1998, in which case the pro forma combined balance sheet data give effect to such transactions as of the date of their consummation). The summary unaudited pro forma financial data is presented for illustrative purposes only and is not indicative of the operating results or financial position that would have occurred if the Transactions had been consummated on the dates indicated, nor is it indicative of future operating results or financial positions if the aforementioned transactions are completed. The Summary Unaudited Pro Forma Financial Data are based on certain assumptions and adjustments described in the Notes to the Unaudited Pro Forma Combined Financial Statements and should be read in conjunction therewith. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors -- Substantial Leverage", and the Consolidated Financial Statements of the Company included elsewhere in the Prospectus.
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1998 DECEMBER 31, 1997 ------------------------- ----------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues.............................................. $ 25,757 $ 110,986 Station operating expenses excluding depreciation and amortization............................................ 22,646 86,498 Depreciation and amortization............................. 5,195 20,685 Corporate general and administrative expenses............. 969 4,760 Non-cash stock compensation expense....................... -- 1,689 Operating income (loss)................................... (3,053) (2,646) Interest expense.......................................... 4,485 17,360 Net income (loss) before extraordinary item............... (7,417) (20,347) Extraordinary loss on early retirement of debt............ 1,837 -- Net income (loss)......................................... (9,254) (20,347) Preferred stock dividends................................. 3,645 15,232 Net income (loss) attributable to common stockholders..... (12,899) (35,579) Basic and diluted earnings (loss) per share............... $ $ OTHER FINANCIAL DATA(1)(2): Broadcast Cash Flow....................................... $ 3,111 $ 24,488 Broadcast Cash Flow margin................................ 12.1% 22.1% EBITDA.................................................... 2,142 19,728 EBITDA margin............................................. 8.3% 17.8%
AS OF MARCH 31, 1998 ----------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Total assets.............................................................................. $ 485,130 Long-term debt, including current portion................................................. 191,965 Preferred stock subject to mandatory redemption........................................... 125,000 Total stockholders' equity................................................................ 144,151
- ------------------------------ (1) After giving effect to certain estimated cost savings which management believes will be realized in connection with the Completed and Pending Acquisitions, pro forma as adjusted Broadcast Cash Flow, pro forma as adjusted Broadcast Cash Flow margin, pro forma as adjusted EBITDA and pro forma as adjusted EBITDA margin for the three months ended March 31, 1998 would have been , , , and , respectively. See "Unaudited Pro Forma Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Certain Effects of the Acquisitions-- Certain Cost Eliminations." Broadcast Cash Flow consists of operating income (loss) before depreciation and amortization, non-cash stock compensation expense and corporate general and administrative expenses. EBITDA consists of 14 operating income (loss) before depreciation and amortization and non-cash stock compensation expense. EBITDA, as defined by the Company, may not be comparable to similarly titled measures used by other companies. Broadcast Cash Flow margin is Broadcast Cash Flow as a percentage of net revenues. EBITDA margin is EBITDA as a percentage of net revenues. Although Broadcast Cash Flow, EBITDA, Broadcast Cash Flow margin and EBITDA margin 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. (2) After giving effect to certain estimated cost savings which management believes will be realized in connection with the Completed and Pending Acquisitions, pro forma as adjusted Broadcast Cash Flow, pro forma as adjusted Broadcast Cash Flow Margin, pro forma as adjusted EBITDA and pro forma as adjusted EBITDA margin for the year ended December 31, 1997 would have been , , , and , respectively. See "Unaudited Pro Forma Combined Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Certain Effects of the Acquisitions--Certain Cost Eliminations." 15 SUMMARY HISTORICAL FINANCIAL DATA The following sets forth summary historical financial data for the Company as of March 31, 1998, for the three months ended March 31, 1998 and for the period from inception on May 22, 1997 to December 31, 1997. The information presented below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company included elsewhere in this Prospectus.
PERIOD FROM INCEPTION THREE MONTHS ON ENDED MARCH 31, MAY 22, 1997(1) 1998 TO DECEMBER 31, 1997 ------------------- ----------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues........................................................ $ 12,500 $ 9,163 Station operating expenses excluding depreciation and amortization...................................................... 10,904 7,147 Depreciation and amortization....................................... 2,748 1,671 Corporate general and administrative expenses....................... 961 1,276 Non-cash stock compensation expense................................. -- 1,689 Operating income (loss)............................................. (2,113) (2,620) Net interest expense................................................ 1,374 837 Net income (loss) before extraordinary item......................... (3,493) (3,578) Extraordinary loss on early retirement of debt...................... 1,837 -- Net income (loss)................................................... (5,330) (3,578) Preferred stock dividends........................................... 842 274 Net income (loss) attributable to common stockholders............... (6,172) (3,852) Basic and diluted earnings (loss) per share......................... $ $ OTHER FINANCIAL DATA: Broadcast Cash Flow(2).............................................. $ 1,596 $ 2,016 EBITDA(2)........................................................... 635 740 Net cash used in operating activities............................... 4,589 1,887 Net cash used in investing activities............................... 79,153 95,100 Net cash provided by financing activities........................... 105,585 98,560 Deficiency of earnings to fixed charges and preferred stock dividend requirements(3)................................................... 3,493 3,578
AS OF MARCH 31, 1998 ------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Total assets................................................................................. $ 220,126 Long-term debt, including current portion.................................................... 120,264 Preferred stock subject to mandatory redemption.............................................. 30,518 Total stockholders' equity................................................................... 58,786
- ------------------------------ (1) The Company was incorporated on May 22, 1997. Between the date of incorporation of Media LLC, which was April 18, 1997, and May 22, 1997, Media LLC undertook certain activities on behalf of the Company pending its incorporation, including the incurrence of expenses and the funding of escrow deposits for acquisitions. Upon the incorporation of the Company, these activities and the related expenses were transferred to the Company. (2) Broadcast Cash Flow consists of operating income (loss) before depreciation and amortization, non-cash stock compensation expense and corporate general and administrative expenses. EBITDA consists of operating income (loss) before depreciation and amortization and non-cash stock compensation expense. EBITDA, as defined by the Company, may not be comparable to similarly titled measures used by other companies. 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. (3) For purposes of computing the ratio of earnings to fixed charges and preferred stock dividend requirements, earnings consists of earnings before income taxes and fixed charges and preferred stock dividend requirements. "Fixed charges and preferred stock dividend requirements" consists of interest on all indebtedness, amortization of debt expense and preferred stock dividends. As a result of the net loss attributable to common stockholders, earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $3,578 and $3,493 for the period from inception on May 22, 1997 to December 31, 1997 and for the three month period ended March 31, 1998, respectively. 16 RISK FACTORS AN INVESTMENT IN THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY. RISKS OF ACQUISITION STRATEGY The Company intends to pursue growth through internal expansion and the acquisition of radio broadcasting companies, radio station groups and individual radio stations in mid-size and smaller markets. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisitions would be. The Company is currently evaluating certain acquisitions; however, other than as described in "Pending Acquisitions", the Company currently has no binding commitments to acquire any specific business or other material assets. Consummation of the Pending Acquisitions and any subsequent acquisitions is subject to various conditions, including FCC and other regulatory approvals including, in some cases, expiration or termination of applicable waiting periods and possible review by the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). There can be no assurance that any of these conditions will be satisfied. Consummation of the Pending Acquisitions and any subsequent acquisitions will also be subject to FCC limits on the number of stations a broadcaster may own in a given local market and other FCC rules or policies such as the cross-interest policy, which may limit the Company's ability to acquire stations in certain markets where one or more of the Company's shareholders has other media interests. In addition, in two markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications, and certain FCC staff questions have been raised with respect to Pending Acquisitions in several other markets. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the Pending Acquisitions can be consummated. The consummation of the Offerings is not conditioned on the consummation of any of the Pending Acquisitions. No assurances can be given that such transactions will be consummated or that, if completed, they will be successful. The Company's acquisition strategy involves numerous risks, including difficulties in identifying targets and negotiating definitive purchase agreements on satisfactory terms, 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 at acquired stations. See "Business -- Integration of Acquired Businesses." 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. In addition, there can be no assurance that the Company will be able to acquire properties at valuations as favorable as previous acquisitions. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise financing in addition to the financing necessary to consummate the Pending Acquisitions. There can be no assurance that the Credit Facility, the Indenture (as defined herein), the Certificate of Designation (as defined herein) or the Exchange Debenture Indenture (as defined herein) or any other agreements to which the Company may become a party will permit such additional financing or that such additional financing will be available to the Company or, if available, that such financing would be on terms acceptable to its management. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." LIMITED OPERATING HISTORY The Company began operations in May 1997 and, consequently, has a limited operating history and limited historical financial information upon which investors may base their evaluation of the Company's performance. 17 MANAGEMENT OF RAPID GROWTH The Company has grown very rapidly, through acquisitions, which will place significant demands on its administrative, operational and financial resources. Although the Company has been successful to date in completing the integration of many new properties, future performance and profitability, if any, will depend in part on the Company's continued ability 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. NET LOSS The Company had a net loss attributable to common stockholders of approximately $6.2 million for the three months ended March 31, 1998 and $3.9 million for the period from inception on May 22, 1997 to December 31, 1997, and additional losses can be expected to continue while the Company pursues its strategy of acquiring and developing radio stations. Pro forma for the Transactions, net loss attributable to common stockholders was approximately $12.9 million for the three months ending March 31, 1998 and $35.6 million for the year ended December 31, 1997. The Company currently anticipates to generate net income on a historical basis for the year ending December 31, 1999. However, there can be no assurance that the Company will be profitable in the future. SIGNIFICANT CAPITAL REQUIREMENTS If consummated, the Pending Acquisitions and other acquisitions for which the Company has entered into letters of intent will require substantial capital. The Company estimates that it will have significant capital requirements for the remainder of 1998, including approximately $250.5 million for the consummation of the Pending Acquisitions. The Company expects that the net proceeds from the Offerings, together with internally generated cash flows and borrowings under the Credit Facility, will provide sufficient funds for the Company to complete the Pending Acquisitions. The amount of the Company's future capital requirements will depend upon many factors, however, including the volume of future acquisitions, as well as regulatory, technological and competitive developments in the radio broadcasting industry, and may differ materially from the Company's current estimates. CONCURRENT OFFERINGS The Company is currently offering Class A Common Stock, Series A Preferred Stock and the Notes pursuant to the Offerings. Consummation of each Offering is contingent upon consummation of each of the other Offerings and there can be no assurance that the Offerings will be consummated and, if so, on what terms. SUBSTANTIAL LEVERAGE After giving effect to the Transactions, the Company will have consolidated indebtedness that is substantial in relation to its cash flow and stockholders' equity. As of March 31, 1998, on a pro forma basis after giving effect to the Transactions, the Company would have had outstanding, on a consolidated basis, long-term indebtedness (including current portion) of approximately $192.0 million, preferred stock subject to mandatory redemption of approximately $125.0 million, and stockholders' equity of approximately $144.2 million. See "Capitalization." The Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture limit the incurrence of additional indebtedness by the Company and its subsidiaries, in each case subject to certain significant exceptions. The level of the Company's indebtedness could have several important consequences to the holders of the Class A Common Stock, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes may be impaired in the future; (iii) certain of the Company's borrowings will be at variable rates of interest (including any borrowings under the Credit Facility), which will expose the Company to the risk of increased interest rates; (iv) the Company's 18 leveraged position and the covenants contained in the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture could limit the Company's ability to compete, expand and make capital improvements; (v) the Company's level of indebtedness could make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions; and (vi) certain restrictive covenants contained in the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture limit the ability of Cumulus to pay dividends and make other distributions to its stockholders. ABILITY TO SERVICE DEBT OBLIGATIONS The Company's ability to satisfy its debt service obligations will depend upon its future financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legislative and regulatory 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 acquisitions, expansion and capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company's operating results, cash flow and capital resources will be sufficient for payment of its debt service and other obligations in the future. In the absence of such operating results and resources, the Company could face substantial liquidity problems and might be required to sell material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom or that such sales could be effected on terms satisfactory to the Company or at all. As a result of the net loss attributable to common stockholders, earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $3,578 and $3,493 for the period from inception on May 22, 1997 to December 31, 1997 and for the three months ended March 31, 1998. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS AND PREFERRED STOCK The Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture contain certain covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, 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. In addition, the Credit Facility, the Indenture and the Exchange Debenture Indenture also restrict the ability of the Company to incur liens or to consummate certain asset sales. The Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. The Company's ability to meet those financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Credit Facility, the Indenture, the Certificate of Designation and/or the Exchange Debenture Indenture. Upon the occurrence of an event of default under the Credit Facility, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If Cumulus were unable to repay those amounts, the lenders under the Credit Facility could proceed against the collateral granted to them to secure that indebtedness. If the Credit Facility indebtedness were to be accelerated, there can be no assurance that the assets of Cumulus would be sufficient to repay in full such indebtedness and the other indebtedness of the Company. The ability of the Company to comply with the restrictions and covenants in the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture will be dependent upon the Company's future performance and various other factors, such as legislative, business and regulatory factors, certain of which are beyond its control. If the Company fails to comply with the restrictions and covenants in the Credit Facility, the Indenture, the Certificate of Designation or the Exchange Debenture Indenture, the Company's obligation to repay the Notes, the Exchange Debentures and its indebtedness under the Credit Facility may be accelerated. 19 BUSINESS RISKS Future operations of the Company are 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; shifts in audience tastes; 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 laws and governmental regulations and policies and actions of federal regulatory bodies, including the DOJ, 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." 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 and may sell advertising. 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." COMPETITION 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 and broadcast television, outdoor advertising and direct mail. In addition, certain of the Company's stations compete, and in the future other of the Company's stations may compete, with groups of two or more stations operated by a single operator. Audience ratings and market shares are subject to change, and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. While the Company already competes with other stations with comparable programming formats in many of its markets, if another radio station in the market were to convert its programming format to a format similar to one of the Company's stations or launch aggressive promotional campaigns, or 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, and consequently would have a lower Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data"). The Telecommunications Act of 1996 (the "Telecom Act") facilitates the consolidation of ownership of other radio broadcasting stations in the markets in which the Company operates or may operate in the future. Some of such competing in-market consolidated owners may be larger and have substantially more financial and other resources than the Company. In addition, increased consolidation in mid-size and smaller markets may result in greater competition for acquisition properties and a corresponding increase in purchase prices for such properties paid by the Company. See "Business -- Competition." GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY The broadcasting industry is subject to extensive and changing federal regulation that, among other things, requires approval by the FCC for the issuance, renewal, modification, transfer of control, or assignment of broadcasting station operating licenses, limits the number of broadcasting properties that the Company may acquire in any market, and regulates certain operating practices of radio stations. Additionally, the Communications Act of 1934, as amended (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. 20 The number of radio stations the Company may acquire or operate pursuant to an LMA in any market, overall and in each service (i.e., AM or FM), is limited by the Telecom Act and FCC rules and may vary depending upon whether the interests in other radio stations or certain other media properties of certain individuals or entities affiliated with the Company are attributable to those individuals or entities under FCC rules. 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 5% or greater voting stockholders are generally attributable to the Company. Certain of the Company's officers and directors, and at least one stockholder of the Company, have attributable broadcast interests outside of their involvement with the Company, which will limit the number of radio stations that the Company may acquire or own in any market in which such officers or directors (or stockholders) hold or acquire such outside attributable broadcast interests. 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 interest in another media outlet in the same market, thereby prohibiting a particular acquisition by the Company. The markets in which the Company may be subject to restrictions on ownership include Atlanta, GA, Nashville, TN and Rochester, MN. 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." REGULATORY APPROVALS 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. Pending Acquisitions in two markets are being challenged before the FCC by competitors. The FCC staff has also stated that it is currently reevaluating its policies and procedures relating to local radio market concentration, even where proposed assignments would comply with the FCC's multiple-ownership rules. The FCC has issued a Notice of Inquiry which, among other things, seeks public comment on these issues. FCC approval of a number of pending radio station acquisitions by various parties has been delayed while this policy review is taking place. The FCC staff has informed the Company that it has delayed action on several of its applications on this basis, including pending applications to acquire stations in Augusta-Waterville, Maine and one additional station in the Toledo, Ohio market. There can be no assurance that the FCC will not prohibit or require the restructuring of future acquisitions by the Company (including the Pending Acquisitions) as a result of this policy review. In addition, the FCC staff has requested additional information relating to whether the Company's Pending Acquisitions in one market would comply with the FCC's cross-interest policy. There can be no assurance that the FCC will approve future acquisitions by the Company (including the Pending Acquisitions). The consummation of 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 and acquisitions that are not required to be reported under the HSR Act may still be investigated by the FTC or the DOJ under the antitrust laws before or after consummation. The DOJ has been active in reviewing radio broadcasting acquisitions and has challenged a number of such transactions, some of which have resulted in consent decrees requiring divestitures of certain stations, terminations of LMAs and other relief. In general, the DOJ has more closely scrutinized radio mergers and acquisitions that result in local market shares in excess of 35% of radio advertising revenues, depending on format, signal strength and other factors, although there is no hard-and-fast numerical rule and certain transactions resulting in more than 35% market shares have not been challenged. The DOJ can be expected to continue to enforce the antitrust laws in this manner, and there can be no assurance that one or more of the Pending Acquisitions will not be the subject of an investigation or enforcement action by the DOJ or the FTC. If the DOJ or the FTC investigates or 21 challenges one or more of the Pending Acquisitions or any subsequent acquisitions, the Company may need to restructure such transactions or divest other existing stations in a particular market. The Company is aware that the DOJ has opened an investigation with respect to the Company's Pending Acquisition in two markets which potentially affect the acquisition of up to an additional nine stations in the aggregate. However, the Company believes that its operating and sales practices and demand-driven pricing policies serve to expand advertising volume and increase competition in a market while providing more choice to advertisers and to listeners. POTENTIAL CONFLICTS OF INTEREST Mr. Weening and Mr. Dickey each have direct interests in entities that have entered into service agreements with the Company. These interests may give rise to certain conflicts of interest with respect to transactions between these entities and the Company. TRANSACTIONS WITH AFFILIATES QUAESTUS, an entity controlled by Mr. Weening, and Stratford Research, an entity controlled by Mr. Dickey, have acted as the Company's financial and strategic advisor and market research and programming advisor, respectively, since the Company's inception. See "Certain Relationships and Related Transactions." EFFECTS OF ECONOMIC RECESSION The Company derives substantially all of its revenue from the sale of advertising time on its radio stations. The Company's broadcasting revenue could be adversely affected by a future national recession, although in the most recent national recession, in 1991, radio revenues in small radio markets ranked below 100 were impacted less severely on average than those in the larger markets. In addition, because a substantial portion of the Company's revenue is derived from local advertisers, the Company's ability to generate advertising revenue in specific markets could be adversely affected by local or regional economic downturns. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Advertising Sales." YEAR 2000 RISK The Company has implemented a Year 2000 program to ensure that the Company's computer systems and applications will function properly beyond 1999. The Company believes that it has allocated adequate resources for this purpose and expects its Year 2000 date conversion program to be successfully completed on a timely basis. There can, however, be no assurance that this will be the case. The Company does not expect to incur significant expenditures to address this issue. The ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside of the Company's control. There can be no assurance that the failure of the Company or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. RELIANCE ON KEY PERSONNEL The Company's business is managed by a small number of key management and operating personnel, the loss of certain of whom could have a material adverse effect on the Company. The Company believes that its future success will depend in large part on its ability to attract and retain highly skilled and qualified personnel and to expand, train and manage its employee base. The Company has entered into employment agreements with Messrs. Weening, Dickey, Bungeroth and Bonick which include provisions restricting the ability of Messrs. Weening, Dickey, Bungeroth and Bonick to compete against the Company in certain circumstances. The Company intends to arrange for "key-man" insurance on the lives of Messrs. Weening, Dickey and Bungeroth. See "Management --Employment Agreements." The Company also employs several on-air personalities with large loyal audiences in their respective markets. The loss of one of these personalities could result in a short-term loss of audience share, but the 22 Company does not believe that any such loss would have a material adverse effect on the Company's financial condition or results of operations, taken as a whole. DILUTION Persons purchasing shares of Class A Common Stock in the Stock Offerings will incur immediate and substantial dilution in the net tangible book value per share of Class A Common Stock of approximately $ per share. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Stock Offerings, the Company will have outstanding shares of Class A Common Stock, shares of Class B Common Stock and shares of Class C Common Stock. In addition, the Company will have outstanding options to purchase shares of Class A Common Stock and shares of Class C Common Stock. Of these shares, the shares of Class A Common Stock offered hereby will be freely transferable without restriction (subject to any FCC consent that might be required) under the Securities Act of 1933, as amended (the "Securities Act") or further registration under the Securities Act, except that shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 promulgated under the Securities Act ("Rule 144"), may generally only be sold subject to certain restrictions as to timing, manner and volume. The Company, its directors, and certain officers of the Company, who will directly or indirectly own shares of Class A Common Stock and shares of Class C Common Stock and options to purchase shares of Class A Common Stock and/or shares of Class C Common Stock upon completion of the Stock Offerings, have, subject to certain exceptions, agreed not to, directly or indirectly, offer for sale, sell or otherwise dispose of, or announce the offering of, any shares of Class A Common Stock or any securities convertible into or exercisable or exchangeable for shares of Class A Common Stock (including the Class C Common Stock) for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. See "Shares Eligible for Future Sale" and "Underwriting." Future sales of substantial amounts of Common Stock, or the perception that such sales could occur, may affect the market price of the Common Stock prevailing from time to time. See "Shares Eligible for Future Sale" and "Underwriting." NO PRIOR PUBLIC MARKET Prior to the Stock Offerings, there has been no public market for the Class A Common Stock and there can be no assurance that an active public market will develop or be sustained after the Offering or that the initial public offering price corresponds to the price at which the Class A Common Stock will trade in the public market subsequent to the Stock Offerings. The initial public offering price for the Class A Common Stock will be determined by negotiations among Cumulus and the representatives of the Underwriters based upon the consideration of certain factors set forth herein under "Underwriting." After completion of the Stock Offerings, the market price of the Class A Common Stock will be subject to fluctuations in response to various factors and events including, among other things, the liquidity of the market for the Class A Common Stock, variations in the Company's operating results, regulatory or other changes, both domestic and international, affecting the radio broadcasting industry generally or the Company specifically, announcements of business developments by the Company or its competitors, changes in operating results and changes in general market conditions. DIVIDEND POLICY The Company does not anticipate paying any dividends except for the payment of scheduled dividends on the Series A Preferred Stock. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. In addition, the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture will restrict the ability of the Company to pay dividends. See "Dividend Policy." 23 USE OF PROCEEDS The net proceeds to the Company from the Stock Offerings are estimated to be $92.1 million ($106.1 million if the Underwriters' over-allotment options are exercised in full) after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The net proceeds to the Company from the Preferred Stock Offering are estimated to be approximately $88.5 million after deducting estimated underwriting discounts and commissions and other offering expenses payable by the Company. The net proceeds to the Company from the Debt Offering are estimated to be approximately $144.9 million, after deducting estimated underwriting discounts and commissions and other offering expenses payable by the Company. The Company intends to use a portion of the net proceeds from the Offerings to finance the Pending Acquisitions. See "Pending Acquisitions." The balance of the net proceeds will be used to repay approximately $ million principal amount of indebtedness currently outstanding under the Credit Facility for which affiliates of Lehman Brothers Inc. act as arranger and lender. At , 1998 the blended interest rate on the outstanding borrowings under the Credit Facility was %. See "Description of Credit Facility and Notes." Consummation of each Offering is contingent upon consummation of each of the other Offerings. Pending the above uses, the net proceeds of the Offerings will be invested in U.S. government securities or other interest bearing short-term investment grade securities. DIVIDEND POLICY The Company does not anticipate paying any dividends except for the payment of scheduled dividends on the Series A Preferred Stock. The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. In addition, the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture will restrict the ability of the Company to pay dividends. 24 CAPITALIZATION The following table sets forth the cash and cash equivalents and capitalization of the Company as of March 31, 1998 on a historical basis and as adjusted to give effect to the Completed Acquisitions consummated subsequent to March 31, 1998 (the "Subsequent Acquisitions", and, together with all other acquisitions completed since January 1, 1998, the "1998 Completed Acquisitions"), the Offerings and the Pending Acquisitions. This table should be read in conjunction with the Pro Forma Unaudited Combined Financial Statements and the Consolidated Financial Statements of the Company included elsewhere in this Prospectus.
MARCH 31, 1998 ----------------------------------------------------------- (DOLLARS IN THOUSANDS) PRO FORMA AS ADJUSTED PRO FORMA FOR THE AS ADJUSTED SUBSEQUENT PRO FORMA FOR THE ACQUISITIONS, AS ADJUSTED SUBSEQUENT THE OFFERINGS FOR THE ACQUISITIONS AND THE COMPANY SUBSEQUENT AND THE PENDING HISTORICAL ACQUISITIONS THE OFFERINGS ACQUISITIONS ------------- ----------- -------------- --------------- Cash and cash equivalents................................. $ 23,416 $ 7,036 $ 211,574 $ 1,500 ------------- ----------- -------------- --------------- ------------- ----------- -------------- --------------- Long-term debt, including current maturities: Old Credit Facility..................................... 12 12 12 12 Credit Facility(1)...................................... 120,252 120,252 -- 41,953 Notes................................................... -- -- 150,000 150,000 ------------- ----------- -------------- --------------- Total long-term debt.................................. 120,264 120,264 150,012 191,965 ------------- ----------- -------------- --------------- Preferred stock subject to mandatory redemption: NML Preferred Stock..................................... 30,518 33,512 -- -- Series A Preferred Stock................................ -- -- 125,000 125,000 ------------- ----------- -------------- --------------- Total preferred stock................................. 30,518 33,512 125,000 125,000 ------------- ----------- -------------- --------------- Stockholders' equity: Class A Common Stock, par value $.01 per share; shares authorized; shares outstanding; shares as adjusted for the Stock Offerings...... -- -- 1 1 Class B Common Stock, par value $.01 per share; shares authorized; shares outstanding; shares as adjusted for the Stock Offerings...... -- -- 1 1 Class C Common Stock, par value $.01 per share; shares authorized; shares outstanding; shares as adjusted for the Stock Offerings................................... -- -- 1 1 Additional paid-in capital................................ 67,692 64,698 153,054 153,054 Accumulated deficit....................................... (8,906) (8,906) (8,906) (8,906) ------------- ----------- -------------- --------------- Total stockholders' equity............................ 58,786 55,792 144,151 144,151 ------------- ----------- -------------- --------------- Total capitalization.................................. $ 209,568 $ 209,568 $ 419,163 $ 461,116 ------------- ----------- -------------- --------------- ------------- ----------- -------------- ---------------
- ------------------------------ (1) Affiliates of Lehman Brothers Inc. act as arranger and lender under the Credit Facility. 25 DILUTION Dilution is the amount by which the initial public offering price paid by the purchasers of the shares of Class A Common Stock will exceed the net tangible book value per share of Class A Common Stock after the Stock Offerings. The net tangible book value per share of Class A Common Stock is determined by subtracting the total liabilities of the Company from the total book value of the tangible assets of the Company and dividing the difference by the number of shares of Class A Common Stock deemed to be outstanding on the date of which such book value is determined. At March 31, 1998, on a pro forma basis after giving effect to the Transactions, the Company had a net tangible book value (deficit) of approximately $ , or $ per share. After giving effect to the sale by the Company of shares of Class A Common Stock offered hereby, and application of the estimated net proceeds therefrom, the pro forma net tangible book value (deficit) of the Company as of March 31, 1998 would have been approximately $ , or $ per share. This represents an immediate increase in such net tangible book value of $ per share to existing stockholders and an immediate dilution to new investors of $ per share. The following table illustrates this per share dilution: Initial public offering price per share................................. $ Pro forma net tangible book value (deficit) before the Stock Offerings........................................................... $ Increase in net tangible book value (deficit) per share attributable to new investors.................................................... --------- Pro forma net tangible book value (deficit) per share after the Stock Offerings............................................................. --------- Dilution per share to new investors..................................... $ --------- ---------
The following table sets forth, as of March 31, 1998, the number of shares of Class A Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid to the Company by existing stockholders and the investors purchasing shares of Class A Common Stock (before deducting underwriting discounts and commissions and offering expenses) in the Stock Offerings:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE ----------------------- ----------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ----------- ---------- ----------- ---------- Existing stockholders(1).................................. % $ % $ New investors............................................. ---------- ----- ---------- ----- Total................................................. 100.0% $ 100.0% ---------- ----- ---------- ----- ---------- ----- ---------- -----
- ------------------------ (1) If the Underwriters' over-allotment options were exercised in full, shares of Class A Common Stock would be outstanding after the Stock Offerings. 26 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements reflect the results of operations for the three months ended March 31, 1998 and the year ended December 31, 1997 and the combined balance sheet as of March 31, 1998 of the Company after giving effect to the Transactions. The information set forth under the heading "The Company Historical" in the pro forma combined statement of operations for the three months ended March 31, 1998 and the year ended December 31, 1997 includes results relating to LMAs. The information set forth under the heading "Pending Acquisitions" in the pro forma combined statement of operations for the three months ended March 31, 1998 and the year ended December 31, 1997 excludes results relating to LMAs. The information set forth under the headings "Pro Forma as Adjusted for the Subsequent Acquisitions" reflects all acquisitions consummated by the Company after March 31, 1998. Upon consummation of the Pending Acquisitions, the Company will be one of the five largest radio broadcasting companies based on number of stations, and among the fifteen largest based on net revenues in the U.S. and will own and operate 176 radio stations (124 FM and 52 AM) clustered in 35 markets. The pro forma combined statement of operations for the three months ended March 31, 1998 gives effect to the Transactions (other than acquisitions completed in 1997) as if they occurred on January 1, 1998. For pro forma purposes, the pro forma combined statement of operations for the year ended December 31, 1997 gives effect to the Transactions as if they had occurred on January 1, 1997. For pro forma purposes, the Company's pro forma combined balance sheet as of March 31, 1998 gives effect to the Transactions (except for Completed Acquisitions consummated prior to March 31, 1998, in which case the pro forma combined balance sheet gives effect to such transactions as of the date of their consummation) as if they had occurred on March 31, 1998. The pro forma combined financial statements are based on the historical consolidated financial statements of the Company and the financial statements of those entities acquired, or from which assets were acquired, in conjunction with the Completed Acquisitions and the Pending Acquisitions. The unaudited combined pro forma financial information reflects the use of the purchase method of accounting for all acquisitions. For purposes of the unaudited pro forma combined financial statements, the purchase prices of the stations acquired and to be acquired in the Completed Acquisitions and Pending Acquisitions have been allocated based primarily on information furnished by management of the acquired stations. The final allocation of the relative purchase prices of the stations acquired and to be acquired in the Completed Acquisitions and Pending Acquisitions are determined a reasonable time after consummation of such transactions and are based on complete evaluations of the assets acquired and liabilities assumed. Accordingly the information presented herein may differ from the final purchase price allocation; however, in the opinion of the Company's management, the final purchase price allocation will not differ significantly from the information presented herein. In the opinion of the Company's management, all adjustments have been made that are necessary to present fairly the pro forma data. Broadcast Cash Flow consists of operating income (loss) before depreciation and amortization, non-cash stock compensation expense and corporate general and administrative expenses. EBITDA consists of operating income (loss) before depreciation and amortization and non-cash stock compensation expense. Broadcast Cash Flow margin is Broadcast Cash Flow as a percentage of net revenues. EBITDA, as defined by the Company, may not be comparable to similarly titled measures used by other companies. EBITDA margin is EBITDA as a percentage of net revenues. Although Broadcast Cash Flow, EBITDA, Broadcast Cash Flow margin and EBITDA margin 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. 27 The unaudited pro forma information is presented for illustrative purposes only and is not indicative of the operating results or financial position that would have occurred if the Transactions had been consummated on the dates indicated, nor is it indicative of future operating results or financial positions if the aforementioned transactions are completed. The failure of the aforementioned transactions to be completed would significantly alter the unaudited pro forma information. All pro forma financial information should be read in conjunction with the Company's Consolidated Financial Statements and the financial statements of certain of the other acquired companies appearing elsewhere in this Prospectus. See also "Risk Factors--Substantial Leverage" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 28 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(D) PRO FORMA ADJUSTMENTS FOR THE (A)+(B)+(C)+ (B) COMPANY (D)=(E) PRO FORMA HISTORICAL PRO FORMA AS (A) ADJUSTMENTS FOR (C) AND THE 1998 ADJUSTED FOR THE COMPANY THE COMPANY 1998 COMPLETED COMPLETED THE 1998 COMPLETED HISTORICAL(1) HISTORICAL(3) ACQUISITIONS ACQUISITIONS ACQUISITIONS ----------- ---------------- -------------- ------------------- --------------------- STATEMENT OF OPERATIONS DATA: Revenues.................... $10,134 $21,414 $17,196 $-- $ 48,744 Less: agency commissions.... (971) (1,756) (1,569) -- (4,296) ----------- ------- ------- -------- -------- Net revenues................ 9,163 19,658 15,627 -- 44,448 Station operating expenses excluding depreciation and amortization............... 7,147 14,217 12,989 -- 34,353 Depreciation and amortization............... 1,671 2,864 1,960 1,803(4) 8,298 Corporate general and administrative expenses.... 1,276 430 526 -- 2,232 Non-cash stock compensation expense.................... 1,689(2) -- -- -- 1,689 ----------- ------- ------- -------- -------- Operating income (loss)..... (2,620) 2,147 152 (1,803) (2,124) ----------- ------- ------- -------- -------- Interest expense............ 837 1,042 1,272 5,834(5) 8,985 Gain (loss) on sale of asset...................... -- 12,261 -- (12,261)(6) -- Other (income) expense...... 54 4 (4) -- 54 ----------- ------- ------- -------- -------- Income (loss) before income taxes...................... (3,511) 13,362 (1,116) (19,898) (11,163) Income tax (expense) benefit.................... (67) (83) (44) (194) ----------- ------- ------- -------- -------- Net income (loss)........... (3,578) 13,279 (1,160) (19,898) (11,357) Preferred stock dividends... 274 -- -- 4,087(7) 4,361 ----------- ------- ------- -------- -------- Net income (loss) attributable to common stockholders............... $(3,852) $13,279 $(1,160) $(23,985) $(15,718) ----------- ------- ------- -------- -------- ----------- ------- ------- -------- -------- Basic and diluted earnings (loss) per share........... $ $ (E)+(F)=(G) PRO FORMA AS ADJUSTED FOR (I) (F) THE 1998 PRO FORMA PRO FORMA COMPLETED ADJUSTMENTS (G)+(H)+(I) ADJUSTMENTS ACQUISITIONS (H) FOR THE =(J) FOR THE AND THE PENDING PENDING PRO FORMA OFFERINGS OFFERINGS ACQUISITIONS ACQUISITIONS COMBINED(1) ----------- ------------ ------------ ----------- ----------- STATEMENT OF OPERATIONS DATA: Revenues.................... $ -- $ 48,744 $73,106 $-- $121,850 Less: agency commissions.... -- (4,296) (6,568) -- (10,864) ----------- ------------ ------------ ----------- ----------- Net revenues................ -- 44,448 66,538 -- 110,986 Station operating expenses excluding depreciation and amortization............... -- 34,353 52,145 -- 86,498 Depreciation and amortization............... -- 8,298 6,098 6,289(4) 20,685 Corporate general and administrative expenses.... -- 2,232 2,528 -- 4,760 -- Non-cash stock compensation expense.................... -- 1,689 278 (278)(10) 1,689 ----------- ------------ ------------ ----------- ----------- Operating income (loss)..... -- (2,124) 5,489 (6,011) (2,646) ----------- ------------ ------------ ----------- ----------- Interest expense............ 5,395(8) 14,380 4,515 (1,535)(11) 17,360 Gain (loss) on sale of asset...................... -- 1,462 (1,462)(12) -- Other (income) expense...... -- 54 215 (122)(13) 147 ----------- ------------ ------------ ----------- ----------- Income (loss) before income taxes...................... (5,395) (16,558) 2,221 (5,816) (20,153) Income tax (expense) benefit.................... -- (194) -- -- (194) ----------- ------------ ------------ ----------- ----------- Net income (loss)........... (5,395) (16,752) 2,221 (5,816) (20,347) Preferred stock dividends... 10,871(9) 15,232 -- -- 15,232 ----------- ------------ ------------ ----------- ----------- Net income (loss) attributable to common stockholders............... $(16,266) $(31,984) $ 2,221 $(5,816) $(35,579) ----------- ------------ ------------ ----------- ----------- ----------- ------------ ------------ ----------- ----------- Basic and diluted earnings (loss) per share........... $ $
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations. 29 PRO FORMA ADJUSTMENTS FOR THE COMPANY HISTORICAL
WILKS BROADCAST VALUE RADIO ACQUISITIONS, CORPORATION INC. ------------- ----------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 3,607 $ 2,625 Less: agency commissions...................................................... (226) (23) ------ ------ Net revenues.................................................................. 3,381 2,602 Station operating expenses excluding depreciation and amortization............ 2,389 1,799 Depreciation and amortization................................................. 624 554 Corporate general and administrative expenses................................. 73 70 Non-cash stock compensation expense........................................... -- -- ------ ------ Operating income (loss)....................................................... 295 179 ------ ------ Interest expense.............................................................. 418 424 Gain (loss) on sale of asset.................................................. -- -- Other (income) expense........................................................ 1 -- ------ ------ Income (loss) before income taxes............................................. (124) (245) Income tax (expense) benefit.................................................. -- -- ------ ------ Net income (loss)............................................................. $ (124) $ (245) ------ ------ ------ ------ CARRIBEAN COMMUNICATIONS COMPANY LIMITED HVS PARTNERS ------------------- ------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 191 $ 5,715 Less: agency commissions...................................................... (13) (384) ------ ------------- Net revenues.................................................................. 178 5,331 Station operating expenses excluding depreciation and amortization............ 524 4,863 Depreciation and amortization................................................. 56 638 Corporate general and administrative expenses................................. -- 85 Non-cash stock compensation expense........................................... -- -- ------ ------------- Operating income (loss)....................................................... (402) (255) ------ ------------- Interest expense.............................................................. 62 68 Gain (loss) on sale of asset.................................................. -- 12,261 Other (income) expense........................................................ (1) -- ------ ------------- Income (loss) before income taxes............................................. (463) 11,938 Income tax (expense) benefit.................................................. -- -- ------ ------------- Net income (loss)............................................................. $ (463) $ 11,938 ------ ------------- ------ ------------- WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM --------------------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 6,376 Less: agency commissions...................................................... (834) ------ Net revenues.................................................................. 5,542 Station operating expenses excluding depreciation and amortization............ 2,737 Depreciation and amortization................................................. 1,004 Corporate general and administrative expenses................................. 76 Non-cash stock compensation expense........................................... -- ------ Operating income (loss)....................................................... 1,725 ------ Interest expense.............................................................. 144 Gain (loss) on sale of asset.................................................. -- Other (income) expense........................................................ -- ------ Income (loss) before income taxes............................................. 1,581 Income tax (expense) benefit.................................................. (74) ------ Net income (loss)............................................................. $ 1,507 ------ ------ THE MIDWESTERN BROADCASTING COMPANY, RADIO STATIONS WWWM- FM AND WLQR-FM OTHER TOTAL ------------------------- ----------- --------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 2,517 $ 383 $ 21,414 Less: agency commissions...................................................... (279) 3 (1,756) ------ ----- --------- Net revenues.................................................................. 2,238 386 19,658 Station operating expenses excluding depreciation and amortization............ 1,565 340 14,217 Depreciation and amortization................................................. 50 (62) 2,864 Corporate general and administrative expenses................................. 126 -- 430 Non-cash stock compensation expense........................................... -- -- -- ------ ----- --------- Operating income (loss)....................................................... 497 108 2,147 ------ ----- --------- Interest expense.............................................................. 4 (78) 1,042 Gain (loss) on sale of asset.................................................. -- -- 12,261 Other (income) expense........................................................ 6 (2) 4 ------ ----- --------- Income (loss) before income taxes............................................. 487 188 13,362 Income tax (expense) benefit.................................................. (10) 1 (83) ------ ----- --------- Net income (loss)............................................................. $ 477 $ 189 $ 13,279 ------ ----- --------- ------ ----- ---------
30 1998 COMPLETED ACQUISITIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SAVANNAH VALLEY BROADCASTING RADIO ARBOR RADIO LP PROPERTIES M&M PARTNERS ----------------- ------------- ----------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 3,723 $ 2,283 $ 3,295 Less: agency commissions...................................................... (289) (258) (354) ------ ------ ------ Net revenues.................................................................. 3,434 2,025 2,941 Station operating expenses excluding depreciation and amortization............ 2,319 2,093 2,215 Depreciation and amortization................................................. 502 352 485 Corporate general and administrative expenses................................. 75 -- 120 Non-cash stock compensation expense........................................... -- -- -- ------ ------ ------ Operating income (loss)....................................................... 538 (420) 121 ------ ------ ------ Interest expense.............................................................. 329 246 114 Gain (loss) on sale of asset.................................................. -- -- -- Other (income) expense........................................................ -- -- (2) ------ ------ ------ Income (loss) before income taxes............................................. 209 (666) 9 Income tax (expense) benefit.................................................. -- -- -- ------ ------ ------ Net income (loss)............................................................. 209 (666) 9 Preferred stock dividends..................................................... -- -- -- ------ ------ ------ Net income (loss) attributable to common stockholders......................... $ 209 $ (666) $ 9 ------ ------ ------ ------ ------ ------ SEACOAST FORJAY RADIO BROADCASTING SUNNY COMPANY CORPORATION BROADCASTERS, INC. LLC ------------- ------------------- ------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 1,667 $ 1,359 $ 820 Less: agency commissions...................................................... (178) (111) (80) ------ ------ ----- Net revenues.................................................................. 1,489 1,248 740 Station operating expenses excluding depreciation and amortization............ 978 850 480 Depreciation and amortization................................................. 29 117 58 Corporate general and administrative expenses................................. 300 -- -- Non-cash stock compensation expense........................................... -- -- -- ------ ------ ----- Operating income (loss)....................................................... 182 281 202 ------ ------ ----- Interest expense.............................................................. 48 99 34 Gain (loss) on sale of asset.................................................. -- -- -- Other (income) expense........................................................ -- -- -- ------ ------ ----- Income (loss) before income taxes............................................. 134 182 168 Income tax (expense) benefit.................................................. (44) -- -- ------ ------ ----- Net income (loss)............................................................. 90 182 168 Preferred stock dividends..................................................... -- -- -- ------ ------ ----- Net income (loss) attributable to common stockholders......................... $ 90 $ 182 $ 168 ------ ------ ----- ------ ------ ----- CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. OTHER TOTAL ----------------------- --------- --------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues...................................................................... $ 268 $ 3,781 $ 17,196 Less: agency commissions...................................................... -- (299) (1,569) ----- --------- --------- Net revenues.................................................................. 268 3,482 15,627 Station operating expenses excluding depreciation and amortization............ 562 3,492 12,989 Depreciation and amortization................................................. 106 311 1,960 Corporate general and administrative expenses................................. 17 14 526 Non-cash stock compensation expense........................................... -- -- -- ----- --------- --------- Operating income (loss)....................................................... (417) (335) 152 ----- --------- --------- Interest expense.............................................................. 167 235 1,272 Gain (loss) on sale of asset.................................................. -- -- -- Other (income) expense........................................................ -- (2) (4) ----- --------- --------- Income (loss) before income taxes............................................. (584) (568) (1,116) Income tax (expense) benefit.................................................. -- -- (44) ----- --------- --------- Net income (loss)............................................................. (584) (568) (1,160) Preferred stock dividends..................................................... -- -- -- ----- --------- --------- Net income (loss) attributable to common stockholders......................... $ (584) $ (568) $ (1,160) ----- --------- --------- ----- --------- ---------
31 PENDING ACQUISITIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CASTLE TRYON-SEACOAST BROADCASTING BEAUMONT K-COUNTRY, COMMUNICATIONS LIMITED NINETY FOUR POINT ONE, SKYWAVE, INC. INC. PARTNERSHIP INC. AND KAYD-FM INC. ----------- ----------------- ------------- ----------------------- --------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues.......................... $ 1,822 $ 1,197 $ 1,778 $ 4,172 $ 703 Less: agency commissions.......... (61) (142) (396) (57) ----------- ------ ------ ------ ----- Net revenues...................... 1,822 1,136 1,636 3,776 646 Station operating expenses excluding depreciation and amortization.................... 1,561 1,073 1,449 3,300 573 Depreciation and amortization..... 160 34 48 185 123 Corporate general and administrative expenses......... -- -- -- -- -- Non-cash stock compensation expense......................... -- -- -- -- -- ----------- ------ ------ ------ ----- Operating income (loss)........... 101 29 139 291 (50) ----------- ------ ------ ------ ----- Interest expense.................. -- 89 150 380 71 Gain (loss) on sale of asset...... -- -- -- -- -- Other (income) expense............ -- (2) -- 22 -- ----------- ------ ------ ------ ----- Income (loss) before income taxes........................... 101 (58) (11) (111) (121) Income tax (expense) benefit...... (25) -- -- -- -- ----------- ------ ------ ------ ----- Net income (loss)................. $ 76 $ (58) $ (11) $ (111) $ (121) ----------- ------ ------ ------ ----- ----------- ------ ------ ------ ----- JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD BROADCASTING, REPUBLIC COMMUNICATIONS INC. AND HOMETOWN PAMPLICO CORPORATION PROPERTIES, INC. WIRELESS, INC. BROADCASTING, L.P. ------------------- ----------------- --------------------- ------------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues.......................... $ 11,691 $ 2,528 $ 10,363 $ 1,046 Less: agency commissions.......... (2,360) (151) (448) (51) ------- ------ ------- ------ Net revenues...................... 9,331 2,377 9,915 995 Station operating expenses excluding depreciation and amortization.................... 6,323 2,290 7,631 1,214 Depreciation and amortization..... 1,206 67 806 68 Corporate general and administrative expenses......... -- -- -- -- Non-cash stock compensation expense......................... -- -- -- -- ------- ------ ------- ------ Operating income (loss)........... 1,802 20 1,478 (287) ------- ------ ------- ------ Interest expense.................. (11) 173 849 271 Gain (loss) on sale of asset...... -- 1,462 -- -- Other (income) expense............ 32 (37) -- 18 ------- ------ ------- ------ Income (loss) before income taxes........................... 1,781 1,346 629 (576) Income tax (expense) benefit...... 3,724 (168) -- -- ------- ------ ------- ------ Net income (loss)................. $ 5,505 $ 1,178 $ 629 $ (576) ------- ------ ------- ------ ------- ------ ------- ------ JAN-DI BROADCASTING, INC. SUBTOTAL --------------- ----------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues.......................... $ 2,087 $ 37,387 Less: agency commissions.......... (116) (3,782) ------ ----------- Net revenues...................... 1,971 33,605 Station operating expenses excluding depreciation and amortization.................... 1,746 27,160 Depreciation and amortization..... 112 2,809 Corporate general and administrative expenses......... -- -- Non-cash stock compensation expense......................... -- -- ------ ----------- Operating income (loss)........... 113 3,636 ------ ----------- Interest expense.................. 50 2,022 Gain (loss) on sale of asset...... -- 1,462 Other (income) expense............ (27) 6 ------ ----------- Income (loss) before income taxes........................... 90 3,070 Income tax (expense) benefit...... -- 3,531 ------ ----------- Net income (loss)................. $ 90 $ 6,601 ------ ----------- ------ -----------
32 PENDING ACQUISITIONS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LOUISIANA MEDIA LESNICK MUSTANG BROADCASTING CRYSTAL RADIO INTERESTS, INC. CLEARLY SUPERIOR COMMUNICATIONS, COMPANY GROUP, INC. AND SUBSIDIARIES RADIO PROPERTIES INC. ----------------------- --------------- ----------------- ----------------- ----------------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues................ $ 1,140 $ 4,580 $ 3,363 $ 2,662 $ 438 Less: agency commissions........... (47) (601) (299) (104) (13) ------ ------ ------ ------ ------ Net revenues............ 1,093 3,979 3,064 2,558 425 Station operating expenses excluding depreciation and amortization.......... 1,078 2,690 2,275 1,728 541 Depreciation and amortization.......... 97 237 394 211 30 Corporate general and administrative expenses.............. -- -- -- -- -- Non-cash stock compensation expense.. -- -- 278 -- -- ------ ------ ------ ------ ------ Operating income (loss)................ (82) 1,052 117 619 (146) ------ ------ ------ ------ ------ Interest expense........ 36 212 544 262 -- Gain (loss) on sale of asset................. -- -- -- -- -- Other income (expense)............. -- -- (122) (75) (5) ------ ------ ------ ------ ------ Income (loss) before income taxes.......... (118) 840 (549) 282 (151) Income tax (expense) benefit............... -- -- -- -- (2) ------ ------ ------ ------ ------ Net income (loss)....... $ (118) $ 840 $ (549) $ 282 $ (153) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NEW FRONTIER SAVANNAH PHOENIX COMMUNICATIONS, COMMUNICATIONS, BROADCAST TALLAHASSEE INC. WJCL-FM L.P. PARTNERS, INC. BROADCASTING, INC. OTHER ----------------- ----------- ----------------- --------------- ------------------- --------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues................ $ 4,642 $ 1,801 $ 1,405 $ 778 $ 794 $ 14,116 Less: agency commissions........... (384) (236) (148) (47) (75) (832) ------ ----------- ------- ----- ----- --------- Net revenues............ 4,258 1,565 1,257 731 719 13,284 Station operating expenses excluding depreciation and amortization.......... 3,305 1,468 1,497 790 945 11,176 Depreciation and amortization.......... 485 13 507 95 170 1,050 Corporate general and administrative expenses.............. -- -- -- -- -- -- Non-cash stock compensation expense.. -- -- -- -- -- -- ------ ----------- ------- ----- ----- --------- Operating income (loss)................ 468 84 (747) (154) (396) 1,058 ------ ----------- ------- ----- ----- --------- Interest expense........ 497 -- 366 131 -- 445 Gain (loss) on sale of asset................. -- -- -- -- -- -- Other income (expense)............. (32) -- 15 8 39 (37) ------ ----------- ------- ----- ----- --------- Income (loss) before income taxes.......... (61) 84 (1,098) (277) (357) 576 Income tax (expense) benefit............... (6) -- -- -- -- (65) ------ ----------- ------- ----- ----- --------- Net income (loss)....... $ (67) $ 84 $ (1,098) $ (277) $ (357) $ 511 ------ ----------- ------- ----- ----- --------- ------ ----------- ------- ----- ----- --------- TOTAL --------- STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997): Revenues................ $ 73,106 Less: agency commissions........... (6,568) --------- Net revenues............ 66,538 Station operating expenses excluding depreciation and amortization.......... 54,673 Depreciation and amortization.......... 6,098 Corporate general and administrative expenses.............. -- Non-cash stock compensation expense.. --------- Operating income (loss)................ 5,489 --------- Interest expense........ 4,515 Gain (loss) on sale of asset................. 1,462 Other income (expense)............. (215) --------- Income (loss) before income taxes.......... 2,221 Income tax (expense) benefit............... 3,458 --------- Net income (loss)....... $ 5,679 --------- ---------
33 NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) (1) On a historical basis, Broadcast Cash Flow, Broadcast Cash Flow margin, EBITDA and EBITDA margin were $2,016, 22.0%, $740 and 8.1%, respectively, for the year ended December 31, 1997. After giving effect to the Transactions, pro forma Broadcast Cash Flow, pro forma Broadcast Cash Flow margin, pro forma EBITDA and pro forma EBITDA margin would have been $24,488, 22.1%, $19,728 and 17.8%, respectively, for the year ended December 31, 1997. The pro forma financial results exclude the effects of estimated cost savings which management believes will result from the Completed Acquisitions and the Pending Acquisitions. On a pro forma basis after giving effect to the Transactions and assuming the realization of such cost savings, pro forma as adjusted Broadcast Cash Flow, pro forma as adjusted Broadcast Cash Flow margin, pro forma as adjusted EBITDA and pro forma as adjusted EBITDA margin would have been $ , %, $ and %, respectively, for the year ended December 31, 1997. The Company expects to realize up to $ of such cost savings ($ of which would increase EBITDA and $ of which would increase Broadcast Cash Flow), comprised of (i) $ from the elimination of certain station management and staff positions, including related benefits; (ii) $ from the consolidation of station facilities and equipment; (iii) $ from the elimination of previous owner compensation benefits; (iv) $ from new rates associated with revised vendor contracts; and (v) $ from the elimination of certain station overhead and general and administrative expenses. Such estimated cost savings represent management's estimates of potential savings available based upon individual radio station due diligence and the successful execution of its operating strategy. There can be no assurances that either the individual or aggregate estimated cost savings identified above will be achieved. (2) Amount represents a non-recurring, non-cash stock compensation expense on common stock issued to certain employees and managers upon formation of the Company. (3) Adjustments reflect historical revenues and expenses of stations acquired by the Company in 1997 for the period from January 1, 1997 through the date the stations were acquired by the Company. (4) Adjustments reflect (i) the change in depreciation and amortization expense resulting from conforming the estimated useful lives of the Completed and Pending Acquisitions' assets to the Company's policies and (ii) the additional depreciation and amortization expense resulting from the allocation of the purchase price to the estimated fair market value of the assets acquired. On a pro forma basis, depreciation expense is $3,934 and amortization expense is $16,751 after giving effect to the Completed and Pending Acquisitions. Depreciation expense has been calculated on a straight line basis using a weighted average life of ten years for property and equipment. Goodwill and other intangible assets amortization has been calculated on a straight line basis over 25 years. (5) Adjustment to reflect increased interest expense resulting from: Sources of funds: Amount financed by the Credit Facility $ 101,289 NML Preferred Stock investment 16,250 Private equity investment in common stock 15,000 --------- Total $ 132,539 --------- --------- Uses of funds: Purchase price of the 1998 Completed Acquisitions $ 86,750 Repayment of the Old Credit Facility 42,789 Credit Facility transaction costs 3,000 --------- Total $ 132,539 --------- ---------
34 Interest on the Credit Facility at 8.50% $ 8,610 Amortization of $3,000 in debt issuance costs over 8 years 375 --------- Total interest expense 8,985 Less: Historical interest recorded by the Company and the Completed Acquisitions (3,151) --------- Net adjustment $ 5,834 --------- ---------
(6) Adjustment recorded to eliminate a non-recurring gain of $12,261 recognized by HVS Partners on the 1997 sales of radio stations in Salisbury, MD and Wilmington, NC to the Company prior to the acquisition by the Company of the remainder of HVS Partners' stations. (7) Reflects (i) the additional accretion of the NML Preferred Stock dividends and (ii) the amortization of the $3,098 discount to liquidation value on the NML Preferred Stock. Accretion of NML Preferred Stock dividends (compounded quarterly at 11.50%).......................................................... $ 4,079 Amortization of discount (over 11 years)........................... 282 --------- 4,361 Less: Historical dividends recorded by the Company................. (274) --------- Net adjustment $ 4,087 --------- ---------
Upon the consummation of the Offerings, the Company will record the accretion of the discount on the NML Preferred Stock of $2,994 when exchanged for the Series A Preferred Stock. (8) Adjustment to reflect increased interest expense resulting from: Interest on the Notes at 9.00% $ 13,500 Amortization of $5,057 debt issuance costs over 10 years 505 Amortization of $3,000 Credit Facility transaction costs over 8 years 375 --------- Total interest expense 14,381 Less: Interest expense recorded pro forma as adjusted for the Completed Acquisitions 8,985 --------- Net adjustment $ 5,396 --------- ---------
(9) To reflect additional accretion related to Series A Preferred Stock dividend: Accretion of Series A Preferred Stock dividend (compounded daily at 11.50%).......................................................... $ 15,232 Less: Pro forma dividends on NML Preferred Stock exchanged into Series A Preferred Stock......................................... (4,361) --------- Net adjustment..................................................... $ 10,871 --------- ---------
(10) Adjustment to eliminate non-cash stock compensation expense of $278 related to the previous owners of one of the stations included in the Pending Acquisitions. 35 (11) Adjustment to reflect increased interest expense resulting from: Sources of funds: Amount financed by the Notes ($150,000 net of fees of $5,057)... $ 144,943 Preferred Stock Offering to the public ($92,260 net of fees of $3,770)....................................................... 88,490 Stock Offerings ($100,000 to the Company net of fees of $7,871)....................................................... 92,129 Amount financed by the Credit Facility.......................... 35,034 NML Preferred Stock investment.................................. 16,250 Private equity investment in common stock....................... 15,000 --------- Total........................................................... $ 391,846 --------- --------- Uses of funds: Purchase price of the Completed Acquisitions and the Pending Acquisitions.................................................. $ 346,057 Repayment of the Old Credit Facility............................ 42,789 Credit Facility transaction costs............................... 3,000 --------- Total........................................................... $ 391,846 --------- --------- Interest on the Notes at 9.00%.................................... $ 13,500 Interest on the Credit Facility at 8.50%.......................... 2,980 Amortization of $5,054 debt issuance costs over 10 years.......... 505 Amortization of $3,000 Credit Facility transaction costs over 8 years........................................................... 375 --------- Total interest expense.......................................... 17,360 Less: Interest expense recorded pro forma as adjusted for the Pending Acquisitions and pro forma as adjusted for the Offerings..................................................... (18,895) --------- Net adjustment.................................................. $ (1,535) --------- ---------
(12) Adjustment recorded to eliminate a non-recurring gain of $1,462 recognized by Communications Properties, Inc., a Pending Acquisition of the Company, on a sale by Communications Properties, Inc. of two radio stations not acquired by the Company. (13) Elimination of interests of minority shareholders in connection with a Pending Acquisition. 36 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(D) PRO FORMA ADJUSTMENTS FOR THE (A)+(B)+(C)+ (B) COMPANY (D)=(E) PRO FORMA HISTORICAL PRO FORMA AS (A) ADJUSTMENTS FOR (C) AND THE 1998 ADJUSTED FOR THE COMPANY THE COMPANY 1998 COMPLETED COMPLETED THE 1998 COMPLETED HISTORICAL(1) HISTORICAL(2) ACQUISITIONS ACQUISITIONS ACQUISITIONS -------------- --------------- ---------------- --------------------- --------------------- STATEMENT OF OPERATIONS DATA: Revenues...................... $ 13,787 $ 991 $ 402 $ -- $ 15,180 Less: agency commissions...... (1,287) (97) (35) -- (1,419) ------- ------ ------- ------ ------- Net revenues.................. 12,500 894 367 -- 13,761 Station operating expenses excluding depreciation and amortization................. 10,904 807 401 12,112 Depreciation and amortization................. 2,748 137 84 (915)(3) 2,055 Corporate general and administrative expenses...... 961 -- -- -- 961 Non-cash stock compensation expense...................... -- -- -- -- -- ------- ------ ------- ------ ------- Operating income (loss)....... (2,113) (51) (118) (915) (1,367) ------- ------ ------- ------ ------- Interest expense.............. 1,374 78 220 976(4) 2,648 Gain (loss) on sale of asset.. -- -- -- -- -- Other (income) expense........ 6 (56) -- -- (50) ------- ------ ------- ------ ------- Income (loss) before income taxes........................ (3,493) (73) (338) (61) (3,965) Income tax (expense) benefit...................... -- -- -- -- -- ------- ------ ------- ------ ------- Net income (loss) before extraordinary item........... (3,493) (73) (338) (61) (3,965) Extraordinary loss on early retirement of debt........... 1,837 -- -- -- 1,837 ------- ------ ------- ------ ------- Net income (loss)............. (5,330) (73) (338) (61) (5,802) Preferred stock dividends..... 842 -- -- -- 842 ------- ------ ------- ------ ------- Net income (loss) attributable to common stockholders....... $ (6,172) $ (73) $ (338) $ (61) $ (6,644) Earnings per share............ $ $ ------- ------ ------- ------ ------- ------- ------ ------- ------ ------- (E)+(F)=(G) PRO FORMA AS ADJUSTED FOR (I) (F) THE 1998 PRO FORMA PRO FORMA COMPLETED ADJUSTMENTS (G)+(H)+(I) ADJUSTMENTS ACQUISITIONS (H) FOR THE =(J) FOR THE AND THE PENDING PENDING PRO FORMA OFFERINGS OFFERINGS ACQUISITIONS ACQUISITIONS COMBINED(1) ------------- -------------- ------------ ------------- ------------- STATEMENT OF OPERATIONS DATA: Revenues...................... $ -- $ 15,180 $ 12,968 $ -- $ 28,148 Less: agency commissions...... -- (1,419) (972) -- (2,391) ------------- -------------- ------------ ------------- ------------- Net revenues.................. -- 13,761 11,996 -- 25,757 Station operating expenses excluding depreciation and amortization................. -- 12,112 10,534 -- 22,646 Depreciation and amortization................. -- 2,055 1,670 1,470(3) 5,195 Corporate general and administrative expenses...... -- 961 8 969 Non-cash stock compensation expense...................... -- -- -- -- ------------- -------------- ------------ ------------- ------------- Operating income (loss)....... -- (1,367) (216) (1,470) (3,053) ------------- -------------- ------------ ------------- ------------- Interest expense.............. 946(5) 3,594 1,335 (444)(7) 4,485 Gain (loss) on sale of asset.. -- -- -- -- Other (income) expense........ -- (50) (71) -- (121) ------------- -------------- ------------ ------------- ------------- Income (loss) before income taxes........................ (946) (4,911) (1,480) (1,026) (7,417) Income tax (expense) benefit...................... -- -- -- -- -- ------------- -------------- ------------ ------------- ------------- Net income (loss) before extraordinary item........... (946) (4,911) (1,480) (1,026) (7,417) Extraordinary loss on early retirement of debt........... -- 1,837 -- -- 1,837 ------------- -------------- ------------ ------------- ------------- Net income (loss)............. (946) (6,748) (1,480) (1,026) (9,254) Preferred stock dividends..... 2,803(6) 3,645 -- -- 3,645 ------------- -------------- ------------ ------------- ------------- Net income (loss) attributable to common stockholders....... $ (3,749) $ (40,393) $ (1,480) $ (1,026) $ (12,899) Earnings per share............ $ $ ------------- -------------- ------------ ------------- ------------- ------------- -------------- ------------ ------------- -------------
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations. 37 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES ----------------- STATEMENT OF OPERATIONS DATA: Revenues............................................................................................. $ 248 Less: agency commissions............................................................................. (26) ----- Net revenues......................................................................................... 222 Station operating expenses excluding depreciation and amortization................................... 291 Depreciation and amortization........................................................................ 74 Corporate general and administrative expenses........................................................ -- Non-cash stock compensation expense.................................................................. -- ----- Operating income (loss).............................................................................. (143) ----- Interest expense..................................................................................... 75 Gain (loss) on sale of asset......................................................................... -- Other income (expense)............................................................................... (157) ----- Income (loss) before income taxes.................................................................... (375) Income tax (expense) benefit......................................................................... -- ----- Net income (loss).................................................................................... $ (375) ----- ----- OTHER TOTAL ----------- --------- STATEMENT OF OPERATIONS DATA: Revenues............................................................................................. $ 154 $ 402 Less: agency commissions............................................................................. (9) (35) ----- --------- Net revenues......................................................................................... 145 367 Station operating expenses excluding depreciation and amortization................................... 110 401 Depreciation and amortization........................................................................ 10 84 Corporate general and administrative expenses........................................................ -- -- Non-cash stock compensation expense.................................................................. -- -- ----- --------- Operating income (loss).............................................................................. 25 (118) ----- --------- Interest expense..................................................................................... 145 220 Gain (loss) on sale of asset......................................................................... -- -- Other income (expense)............................................................................... 157 -- ----- --------- Income (loss) before income taxes.................................................................... 37 (338) Income tax (expense) benefit......................................................................... -- -- ----- --------- Net income (loss).................................................................................... $ 37 $ (338) ----- --------- ----- ---------
38 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS)
CASTLE BROADCASTING TRYON-SEACOAST LIMITED NINETY FOUR K-COUNTRY, INC. COMMUNICATIONS INC. PARTNERSHIP POINT ONE, INC. --------------- ----------------------- ------------- --------------- STATEMENT OF OPERATIONS DATA: Revenues........................................... $ 337 $ 262 $ 392 $ 979 Less: agency commissions........................... (33) (13) (35) (112) ----- ----- ----- ----- Net revenues....................................... 304 249 357 867 Station operating expenses excluding depreciation and amortization.................................. 414 165 364 754 Depreciation and amortization...................... 33 11 19 47 Corporate general and administrative expenses...... -- -- -- -- Non-cash stock compensation expense................ -- -- -- -- ----- ----- ----- ----- Operating income (loss)............................ (143) 73 (26) 66 ----- ----- ----- ----- Interest expense................................... -- 28 45 105 Gain (loss) on sale of asset....................... -- -- -- -- Other income (expense)............................. -- -- -- (12) ----- ----- ----- ----- Income (loss) before income taxes.................. (143) 45 (71) (51) Income tax (expense) benefit....................... 51 -- -- -- ----- ----- ----- ----- Net income (loss).................................. $ (92) $ 45 $ (71) $ (51) ----- ----- ----- ----- ----- ----- ----- ----- BEAUMONT REPUBLIC COMMUNICATIONS SKYWAVE, INC. CORPORATION PROPERTIES, INC. SUBTOTAL ------------- ------------- ----------------- ----------- STATEMENT OF OPERATIONS DATA: Revenues........................................... $ 95 $ 2,007 $ 1,060 $ 5,132 Less: agency commissions........................... (14) (155) (89) (451) ------ ------ ------ ----------- Net revenues....................................... 81 1,852 971 4,681 Station operating expenses excluding depreciation and amortization.................................. 110 1,429 959 4,295 Depreciation and amortization...................... 21 321 180 632 Corporate general and administrative expenses...... -- -- -- -- Non-cash stock compensation expense................ -- -- -- -- ------ ------ ------ ----------- Operating income (loss)............................ (50) 102 (168) (246) ------ ------ ------ ----------- Interest expense................................... 18 (1) 143 338 Gain (loss) on sale of asset....................... -- -- -- -- Other income (expense)............................. 30 (15) 47 50 ------ ------ ------ ----------- Income (loss) before income taxes.................. (38) 88 (264) (534) Income tax (expense) benefit....................... -- (11) -- 62 ------ ------ ------ ----------- Net income (loss).................................. $ (38) $ 77 $ (264) $ (472) ------ ------ ------ ----------- ------ ------ ------ -----------
39 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS)
JKJ BROADCASTING, INC., MISSOURI RIVER BROADCASTING, INC., INGSTAD MANKATO, INC., JAMES INGSTAD BROADCASTING, INC., PAMPLICO JAN-DI HOMETOWN WIRELESS, INC. BROADCASTING, L.P. BROADCASTING, INC. --------------------------- ------------------- ------------------- STATEMENT OF OPERATIONS DATA: Revenues................................................. $ 2,549 $ 113 $ 479 Less: agency commissions................................. (115) -- (27) ------ ----- ----- Net revenues............................................. 2,434 113 452 Station operating expenses excluding depreciation and amortization............................................ 1,938 262 465 Depreciation and amortization............................ 192 -- 25 Corporate general and administrative expenses............ -- -- -- Non-cash stock compensation expense...................... -- -- -- ------ ----- ----- Operating income (loss).................................. 304 (149) (38) ------ ----- ----- Interest expense......................................... 210 52 10 Gain (loss) on sale of asset............................. -- -- -- Other income (expense)................................... -- 8 9 ------ ----- ----- Income (loss) before income taxes........................ 94 (193) (39) Income tax (expense) benefit............................. -- -- -- ------ ----- ----- Net income (loss)........................................ $ 94 $ (193) $ (39) ------ ----- ----- ------ ----- ----- LOUISIANA MEDIA MUSTANG INTERESTS, INC. BROADCASTING AND CLEARLY SUPERIOR COMPANY SUBSIDIARIES RADIO PROPERTIES SUBTOTAL --------------- ----------------- ----------------- --------- STATEMENT OF OPERATIONS DATA: Revenues................................................. $ 210 $ 824 $ 220 $ 4,408 Less: agency commissions................................. (7) (72) -- (221) ----- ------ ------ --------- Net revenues............................................. 203 752 220 4,187 Station operating expenses excluding depreciation and amortization............................................ 237 638 -- 3,845 Depreciation and amortization............................ 25 136 148 334 Corporate general and administrative expenses............ -- -- -- -- Non-cash stock compensation expense...................... -- -- -- -- ----- ------ ------ --------- Operating income (loss).................................. (59) (22) 72 8 ----- ------ ------ --------- Interest expense......................................... 1 174 76 523 Gain (loss) on sale of asset............................. -- -- -- -- Other income (expense)................................... -- (32) 39 (96) ----- ------ ------ --------- Income (loss) before income taxes........................ (60) (228) 35 (611) Income tax (expense) benefit............................. -- -- -- -- ----- ------ ------ --------- Net income (loss)........................................ $ (60) $ (228) $ 35 $ (611) ----- ------ ------ --------- ----- ------ ------ ---------
40 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS)
LESNICK NEW FRONTIER SAVANNAH COMMUNICATIONS, INC. COMMUNICATIONS, INC. WJCL-FM COMMUNICATIONS, L.P. -------------------- -------------------- ----------- -------------------- STATEMENT OF OPERATIONS DATA: Revenues................................... $ 69 $ 133 $ -- $ 105 Less: agency commissions................... (5) -- -- (3) ------- -------- ----------- -------- Net revenues............................... 64 133 -- 102 Station operating expenses excluding depreciation and amortization............. 136 117 31 107 Depreciation and amortization.............. 9 115 2 161 Corporate general and administrative expenses.................................. -- -- -- -- Non-cash stock compensation expense........ -- -- -- -- ------- -------- ----------- -------- Operating income (loss).................... (81) (99) (33) (166) ------- -------- ----------- -------- Interest expense........................... 4 146 -- 83 Gain (loss) on sale of asset............... -- -- -- -- Other income (expense)..................... -- 231 11 (3) ------- -------- ----------- -------- Income (loss) before income taxes.......... (85) (14) (22) (252) Income tax (expense) benefit............... -- 4 -- -- ------- -------- ----------- -------- Net income (loss).......................... $ (85) $ (10) $ (22) $ (252) ------- -------- ----------- -------- ------- -------- ----------- -------- TALLAHASSEE PHOENIX BROADCAST BROADCASTING, MIDLAND PARTNERS, INC. INC. BROADCASTING SUBTOTAL ----------------- ----------------- ------------- --------- STATEMENT OF OPERATIONS DATA: Revenues................................... $ 129 $ -- $ 741 $ 1,177 Less: agency commissions................... (6) -- (67) 601 ------- ------- ------------- --------- Net revenues............................... 123 -- 674 1,778 Station operating expenses excluding depreciation and amortization............. 159 15 529 1,553 Depreciation and amortization.............. 27 39 45 398 Corporate general and administrative expenses.................................. -- -- -- -- Non-cash stock compensation expense........ -- -- -- -- ------- ------- ------------- --------- Operating income (loss).................... (63) (54) 100 (173) ------- ------- ------------- --------- Interest expense........................... 24 -- 19 276 Gain (loss) on sale of asset............... -- -- -- -- Other income (expense)..................... -- 27 -- 42 ------- ------- ------------- --------- Income (loss) before income taxes.......... (87) (27) 81 (407) Income tax (expense) benefit............... -- -- -- 4 ------- ------- ------------- --------- Net income (loss).......................... $ (87) $ (27) $ 81 $ (403) ------- ------- ------------- --------- ------- ------- ------------- ---------
41 CUMULUS MEDIA INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUBTOTAL SUBTOTAL SUBTOTAL PAGE 39 PAGE 40 PAGE 41 OTHER TOTAL --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Revenues....................................... $ 5,132 $ 4,408 $ 1,177 $ 2,251 $ 12,968 Less: agency commissions....................... (451) (221) 601 (901) (972) --------- --------- --------- --------- --------- Net revenues................................... 4,681 4,187 1,778 1,350 11,996 Station operating expenses excluding depreciation and amortization................. 4,295 3,845 1,553 841 10,534 Depreciation and amortization.................. 632 334 398 306 1,670 Corporate general and administrative expenses...................................... -- -- -- 8 8 Non-cash stock compensation expense............ -- -- -- -- -- --------- --------- --------- --------- --------- Operating income (loss)........................ (246) 8 (173) 195 (216) --------- --------- --------- --------- --------- Interest expense............................... 338 523 276 198 1,335 Gain (loss) on sale of asset................... -- -- -- -- -- Other income (expense)......................... 50 (96) 42 75 71 --------- --------- --------- --------- --------- Income (loss) before income taxes.............. (534) (611) (407) 72 (1,480) Income tax (expense) benefit................... 62 -- 4 (66) -- --------- --------- --------- --------- --------- Net income (loss).............................. $ (472) $ (611) $ (403) $ 6 $ (1,480) --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
42 NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS) (1) On a historical basis, Broadcast Cash Flow and EBITDA were $1,596 and $635 respectively, for the three months ended March 31, 1998. After giving effect to the Transactions (other than acquisitions completed prior to January 1, 1998), pro forma Broadcast Cash Flow, pro forma Broadcast Cash Flow margin, pro forma EBITDA and pro forma EBITDA margin would have been $3,111, 12.1%, $2,142 and 8.3%, respectively, for the three months ended March 31, 1998. The pro forma financial results exclude the effects of estimated cost savings which management believes will result from the Completed Acquisitions and the Pending Acquisitions. On a pro forma basis after giving effect to the Transactions and assuming the realization of such cost savings, pro forma as adjusted Broadcast Cash Flow, pro forma as adjusted Broadcast Cash Flow margin, pro forma as adjusted EBITDA and pro forma as adjusted EBITDA margin would have been $ , %, $ and %, respectively, for the three months ended March 31, 1998. The Company expects to realize up to $ of such cost savings ($ of which would increase EBITDA and $ of which would increase Broadcast Cash Flow), comprised of (i) $ from the elimination of certain station management and staff positions, including related benefits; (ii) $ from the consolidation of station facilities and equipment; (iii) $ from the elimination of previous owner compensation benefits; (iv) $ from new rates associated with revised vendor contracts; and (v) $ from the elimination of certain station overhead and general and administrative expenses. Such estimated cost savings represent management's estimates of potential savings available based upon individual radio station due diligence and the successful execution of its operating strategy. There can be no assurances that either the individual or aggregate estimated cost savings identified above will be achieved. (2) Adjustments reflect historical revenues and expenses of stations acquired by the Company in the first quarter of 1998 for the period from January 1, 1998 through the date the stations were acquired by the Company. (3) Adjustments reflect (i) the change in depreciation and amortization expense resulting from conforming the estimated useful lives of the Completed and Pending Acquisitions' assets to the Company's policies and (ii) the additional depreciation and amortization expense resulting from the allocation of the purchase price to the estimated fair market value of the assets acquired. On a pro forma basis, depreciation expense is $1,038 and amortization expense is $4,157 after giving effect to the Completed and Pending Acquisitions. Depreciation expense has been calculated on a straight line basis using a weighted average life of ten years for property and equipment. Goodwill and other intangible assets amortization has been calculated on a straight line basis over 25 years. (4) Adjustment to reflect increased interest expense resulting from: Quarterly interest on the $120,252 of indebtedness under the Credit Facility at 8.50%................................................ $ 2,555 Quarterly amortization of $3,000 in debt issuance costs over 8 years............................................................ 93 --------- Total interest expense........................................... 2,648 Less: Historical interest recorded by the Company and the Completed Acquisitions......................................... (1,672) --------- Net adjustment................................................... $ 976 --------- ---------
43 (5) Adjustment to reflect increased interest expense resulting from: Quarterly interest expense on $150,000 Notes at 9.00%.............. $ 3,375 Quarterly amortization of $5,057 debt issuance cost, over 10 years............................................................ 126 Quarterly amortization of $3,000 credit facility, transaction, over 8 years.......................................................... 93 --------- Total interest expense............................................. 3,594 Less: Historical interest recorded by the Company and the completed Acquisitions..................................................... (2,648) --------- Net adjustment..................................................... $ 946 --------- ---------
(6) To reflect additional accretion related to Series A Preferred Stock dividend: Accretion of Series A Preferred Stock dividend (compounded daily at 11.50%).......................................................... $ 3,645 Less: Pro forma dividends on NML Preferred Stock exchanged into Series A Preferred Stock......................................... (842) --------- Net adjustment..................................................... $ 2,803 --------- ---------
(7) Adjustment to reflect increased interest expense resulting from: Sources of funds: Amount financed by the Notes ($150,000 net of fees of $5,057)... $ 144,943 Preferred Stock Offering to the public ($91,488 net of fees of $3,770)....................................................... 87,718 Stock Offerings ($100,000 to the Company net of fees of $7,871)....................................................... 92,129 Cash applied to purchase price.................................. 21,916 --------- Total........................................................... $ 346,706 --------- --------- Uses of funds: Purchase price of the Completed Acquisitions and the Pending Acquisitions.................................................. $ 268,407 Repayment of credit facility.................................... 78,299 --------- Total........................................................... $ 346,706 --------- --------- Quarterly interest on the Notes at 9.00%.......................... $ 3,375 Quarterly interest on the Credit Facility at 8.50%................ 891 Quarterly amortization of $5,057 debt issuance costs over 10 years........................................................... 126 Quarterly amortization of $3,000 Credit Facility transaction costs over 8 years.................................................... 93 --------- Total interest expense.......................................... 4,485 Less: Interest expense recorded pro forma as adjusted for the Pending Acquisitions and pro forma as adjusted for the Offerings..................................................... (4,929) --------- Net adjustment.................................................. $ (444) --------- ---------
Upon the consummation of the Offerings, the Company will record the accretion of the discount on the NML Preferred Stock of $2,994 when exchanged into Series A Preferred Stock. 44 CUMULUS MEDIA INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998 (DOLLARS IN THOUSANDS)
(A)+(B)=(C) (B) PRO FORMA PRO FORMA ADJUSTMENTS AS ADJUSTED (A) FOR THE FOR THE THE COMPANY SUBSEQUENT SUBSEQUENT HISTORICAL ACQUISITIONS(1) ACQUISITIONS ------------- --------------------- ------------- ASSETS: Current assets: Cash and cash equivalents....................................... $ 23,416 $ (16,380) $ 7,036 Accounts receivable............................................. 10,238 -- 10,238 Prepaid expenses and other current assets....................... 1,587 -- 1,587 ------------- -------- ------------- Total current assets........................................ 35,241 (16,380) 18,861 Property and equipment, net..................................... 14,146 826 14,972 Intangible assets, net.......................................... 150,973 17,102 168,075 Other assets.................................................... 19,766 (1,548) 18,218 ------------- -------- ------------- TOTAL ASSETS................................................ $ 220,126 $ -- $ 220,126 ------------- -------- ------------- ------------- -------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities.......................... $ 8,619 $ -- $ 8,619 Current portion of long-term debt............................... 12 -- 12 ------------- -------- ------------- Total current liabilities................................... 8,631 -- 8,631 Long-term debt: Notes......................................................... -- -- -- Credit Facility............................................... 120,252 120,252 Other long-term liabilities: Deferred tax liability........................................ 856 -- 856 Other long-term liabilities................................... 1,083 -- 1,083 ------------- -------- ------------- Total liabilities........................................... 130,822 -- 130,822 ------------- -------- ------------- Preferred stock subject to mandatory redemption................. 30,518 2,994 33,512 ------------- -------- ------------- Stockholders' equity: Class A Common Stock.......................................... -- -- -- Class B Common Stock.......................................... -- -- Class C Common Stock.......................................... -- -- -- Additional paid in capital.................................... 67,692 (2,994)(2) 64,698 Accumulated other comprehensive income........................ 5 5 Retained earnings (deficit)................................... (8,911) -- (8,911) ------------- -------- ------------- Total stockholders' equity.................................. 58,786 (2,994) 55,792 Total liabilities and stockholders' equity.................. $ 220,126 $ -- $ 220,126 ------------- -------- ------------- ------------- -------- ------------- (C)+(D)=(E) PRO FORMA AS ADJUSTED (D) FOR THE (F) PRO FORMA SUBSEQUENT PRO FORMA ADJUSTMENTS ACQUISITIONS ADJUSTMENTS FOR (E)+(F)=(G) FOR THE AND THE THE PENDING PRO FORMA OFFERINGS OFFERINGS ACQUISITIONS(9) COMBINED --------------- --------------- --------------- ------------- ASSETS: Current assets: Cash and cash equivalents....................................... $ 204,538(3) $ 211,574 $(210,074)(9) $ 1,500 Accounts receivable............................................. -- 10,238 -- 10,238 Prepaid expenses and other current assets....................... -- 1,587 35 1,622 --------------- --------------- --------------- ------------- Total current assets........................................ 204,538 223,399 (210,039) 13,360 Property and equipment, net..................................... -- 14,972 26,517 41,489 Intangible assets, net.......................................... -- 168,075 247,691 415,766 Other assets.................................................... 5,057(4) 23,275 (8,760) 14,515 --------------- --------------- --------------- ------------- TOTAL ASSETS................................................ $ 209,595 $ 429,721 $ 55,409 $ 485,130 --------------- --------------- --------------- ------------- --------------- --------------- --------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities.......................... $ -- $ 8,619 $ -- $ 8,619 Current portion of long-term debt............................... -- 12 -- 12 --------------- --------------- --------------- ------------- Total current liabilities................................... -- 8,631 -- 8,631 Long-term debt: Notes......................................................... 150,000(5) 150,000 150,000 Credit Facility............................................... (120,252)(6) -- 41,953 41,953 Other long-term liabilities: Deferred tax liability........................................ -- 856 13,456 14,312 Other long-term liabilities................................... -- 1,083 1,083 --------------- --------------- --------------- ------------- Total liabilities........................................... 29,748 160,570 55,409 215,979 --------------- --------------- --------------- ------------- Preferred stock subject to mandatory redemption................. 91,488(7) 125,000 -- 125,000 --------------- --------------- --------------- ------------- Stockholders' equity: Class A Common Stock.......................................... 1(8) 1 -- 1 Class B Common Stock.......................................... -- -- -- -- Class C Common Stock.......................................... 1 1 -- 1 Additional paid in capital.................................... 92,128(8) 153,054 -- 153,054 (3,770)(8) Accumulated other comprehensive income........................ 5 5 Retained earnings (deficit)................................... -- (8,911) -- (8,911) --------------- --------------- --------------- ------------- Total stockholders' equity.................................. 88,359 144,151 -- 144,151 Total liabilities and stockholders' equity.................. $ 209,595 $ 429,721 $ 55,409 $ 485,130 --------------- --------------- --------------- ------------- --------------- --------------- --------------- -------------
See accompanying notes to the unaudited combined pro forma balance sheet 45 PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS AS OF MARCH 31, 1998 (DOLLARS IN THOUSANDS)
CASTLE TRYON-SEACOAST BROADCASTING NINETY FOUR K-COUNTRY, COMMUNICATIONS, LIMITED POINT ONE, BEAUMONT INC. INC. PARTNERSHIP INC. SKYWAVE, INC. ----------- ------------ ------------ ------------- ------------- ASSETS: Current assets: Cash and cash equivalents............... $ 161 $ 20 $ 16 $ 192 $ 15 Accounts receivable..................... 196 156 215 491 57 Prepaid expenses and other current assets................................ 2 -- 13 33 69 ----------- ------------ ------------ ------------- ------------- Total current assets................ 359 176 244 716 141 Property and equipment, net............. 630 185 252 756 161 Intangible assets, net.................. 529 116 482 124 797 Other assets............................ -- 28 57 -- -- ----------- ------------ ------------ ------------- ------------- Total assets........................ $ 1,518 $ 505 $ 1,035 $ 1,596 $ 1,099 ----------- ------------ ------------ ------------- ------------- ----------- ------------ ------------ ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities........................... $ 1,225 $ 345 $ 609 $ 206 226 Current portion of long-term debt....... -- 55 2,110 -- 125 ----------- ------------ ------------ ------------- ------------- Total current liabilities........... 1,225 400 2,719 206 351 Long-term debt: Notes................................. -- 656 -- -- 484 Credit Facility....................... -- -- -- -- -- Other long-term liabilities: Deferred tax liability................ -- -- -- -- -- Other long-term liabilities........... -- -- -- -- -- ----------- ------------ ------------ ------------- ------------- Total liabilities................... 1,225 1,056 2,719 206 835 ----------- ------------ ------------ ------------- ------------- Preferred stock subject to mandatory redemption............................ ----------- ------------ ------------ ------------- ------------- Stockholders' equity: Class A Common Stock.................. -- -- -- -- 400 Class B Common Stock.................. -- -- -- -- -- Additional paid in capital............ -- 61 -- 1,390 -- Retained earnings (deficit)........... 293 (612) (1,684) -- (136) ----------- ------------ ------------ ------------- ------------- Total stockholders' equity.......... 293 (551) (1,684) 1,390 264 ----------- ------------ ------------ ------------- ------------- Total liabilities and stockholders' equity (deficit).................. $ 1,518 $ 505 $ 1,035 $ 1,596 $ 1,099 ----------- ------------ ------------ ------------- ------------- ----------- ------------ ------------ ------------- ------------- JKJ BROADCASTING, INC., MISSOURI RIVER BROADCASTING, INC., INGSTAD MANKATO, INC., JAMES INGSTAD BROADCASTING, COMMUNICATIONS INC., REPUBLIC PROPERTIES, HOMETOWN CORPORATION INC. WIRELESS, INC. SUBTOTAL ----------- -------------- -------------- -------------- ASSETS: Current assets: Cash and cash equivalents............... $ 313 $ 26 $ 148 $ 891 Accounts receivable..................... 159 287 1,695 3,256 Prepaid expenses and other current assets................................ 752 35 230 1,134 ----------- -------------- -------------- -------------- Total current assets................ 1,224 348 2,073 5,281 Property and equipment, net............. 2,997 1,695 3,985 10,661 Intangible assets, net.................. 11,912 703 369 15,032 Other assets............................ 621 12 6,994 7,712 ----------- -------------- -------------- -------------- Total assets........................ $ 16,754 $ 2,758 $ 13,421 $ 38,686 ----------- -------------- -------------- -------------- ----------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities........................... $ 707 $ 257 $ 549 $ 4,124 Current portion of long-term debt....... -- 2,703 451 5,444 ----------- -------------- -------------- -------------- Total current liabilities........... 707 2,960 1,000 9,568 Long-term debt: Notes................................. -- 102 301 1,543 Credit Facility....................... -- -- 11,143 11,143 Other long-term liabilities: Deferred tax liability................ 272 177 -- 449 Other long-term liabilities........... -- -- -- -- ----------- -------------- -------------- -------------- Total liabilities................... 979 3,239 12,444 22,703 ----------- -------------- -------------- -------------- Preferred stock subject to mandatory redemption............................ -- -- ----------- -------------- -------------- -------------- Stockholders' equity: Class A Common Stock.................. 1 1 121 523 Class B Common Stock.................. -- -- -- -- Additional paid in capital............ 8,003 230 110 9,794 Retained earnings (deficit)........... 7,771 (712) 746 5,666 ----------- -------------- -------------- -------------- Total stockholders' equity.......... 15,775 (481) 977 15,983 ----------- -------------- -------------- -------------- Total liabilities and stockholders' equity (deficit).................. $ 16,754 $ 2,758 $ 13,421 $ 38,686 ----------- -------------- -------------- -------------- ----------- -------------- -------------- --------------
46 PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS--CONTINUED AS OF MARCH 31, 1998 (DOLLARS IN THOUSANDS)
LOUISIANA MEDIA PAMPLICO JAN-DI MUSTANG INTERESTS, BROADCASTING, BROADCASTING, BROADCASTING, INC. AND L.P. INC. COMPANY SUBSIDIARIES -------------- -------------- -------------- -------------- ASSETS: Current assets: Cash and cash equivalents............... $ 4 $ 303 $ 50 $ 32 Accounts receivable..................... 24 234 124 530 Prepaid expenses and other current assets................................ 1 14 -- 15 -------------- -------------- -------------- -------------- Total current assets................ 29 551 174 577 Property and equipment, net............. 400 440 283 1,137 Intangible assets, net.................. 467 193 350 5,965 Other assets............................ -- -- -- 7 -------------- -------------- -------------- -------------- Total assets........................ $ 896 $ 1,184 $ 807 $ 7,686 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities........................... $ 337 $ 119 $ 475 $ 398 Current portion of long-term debt....... 3,525 24 22 1,363 -------------- -------------- -------------- -------------- Total current liabilities........... 3,862 143 497 1,761 Long-term debt: Notes................................. -- 486 27 6,257 Credit Facility....................... -- -- -- -- Other long-term liabilities: Deferred tax liability................ -- -- -- -- Other long-term liabilities........... -- 0 299 -- -------------- -------------- -------------- -------------- Total liabilities................... 3,862 629 823 8,018 -------------- -------------- -------------- -------------- Preferred stock subject to mandatory redemption............................ -- -- 762 -------------- -------------- -------------- -------------- Stockholders' equity: Class A Common Stock.................. -- 52 1 598 Class B Common Stock.................. -- -- -- -- Additional paid in capital............ (2,773) -- 684 (227) Retained earnings (deficit)........... (193) 503 (701) (1,465) -------------- -------------- -------------- -------------- Total stockholders' equity.......... (2,996) 555 (16) (332) -------------- -------------- -------------- -------------- Total liabilities and stockholders' equity (deficit).................. $ 896 $ 1,184 $ 807 $ 7,686 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- CLEARLY SUPERIOR LESNICK NEW FRONTIER RADIO COMMUNICATIONS, COMMUNICATIONS, PROPERTIES INC. INC. SUBTOTAL -------------- -------------- -------------- -------------- ASSETS: Current assets: Cash and cash equivalents............... $ 95 $ 8 $ 232 $ 724 Accounts receivable..................... 281 57 699 1,949 Prepaid expenses and other current assets................................ 7 2 94 133 -------------- -------------- -------------- -------------- Total current assets................ 383 67 1,025 2,806 Property and equipment, net............. 515 12 1,435 4,222 Intangible assets, net.................. 2,663 177 2,200 12,015 Other assets............................ -- 27 34 -------------- -------------- -------------- -------------- Total assets........................ $ 3,561 $ 256 $ 4,687 $ 19,077 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities........................... $ 33 $ 303 $ 284 $ 1,949 Current portion of long-term debt....... 27 14 338 5,313 -------------- -------------- -------------- -------------- Total current liabilities........... 60 317 622 7,262 Long-term debt: Notes................................. 3,101 14 -- 9,885 Credit Facility....................... -- -- 4,580 4,588 Other long-term liabilities: Deferred tax liability................ -- -- 68 68 Other long-term liabilities........... -- -- -- 299 -------------- -------------- -------------- -------------- Total liabilities................... 3,161 331 5,278 22,102 -------------- -------------- -------------- -------------- Preferred stock subject to mandatory redemption............................ -- 762 -------------- -------------- -------------- -------------- Stockholders' equity: Class A Common Stock.................. -- 75 315 1,041 Class B Common Stock.................. -- -- -- -- Additional paid in capital............ 400 -- -- (1,916) Retained earnings (deficit)........... -- (150) (906) (2,912) -------------- -------------- -------------- -------------- Total stockholders' equity.......... 400 (75) (591) (3,025) -------------- -------------- -------------- -------------- Total liabilities and stockholders' equity (deficit).................. $ 3,561 $ 256 $ 4,687 $ 19,077 -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
47 PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS--CONTINUED AS OF MARCH 31, 1998 (DOLLARS IN THOUSANDS)
SAVANNAH TALLAHASSEE WJCL-FM COMMUNICATIONS, L.P. BROADCASTING, INC. OTHER TOTAL --------- -------------------- ------------------ ---------- ---------- ASSETS: Current assets: Cash and cash equivalents............. $ -- $ 60 $ 7 $ (211,756) (210,074) Accounts receivable................... 42 97 2 (5,346) -- Prepaid expenses and other current assets.............................. 2 18 (1,252) 35 --------- -------- -------- ---------- ---------- Total current assets.............. 42 159 27 (218,354) (210,039) Property and equipment, net........... 18 1,385 542 (9,689) 26,517 Intangible assets, net................ -- 3,352 -- 217,291 247,690 Other assets.......................... -- -- 4 (16,509) (8,759) --------- -------- -------- ---------- ---------- Total assets...................... $ 60 $ 4,896 $ 573 $ (7,883) $ 55,409 --------- -------- -------- ---------- ---------- --------- -------- -------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other liabilities......................... $ -- $ 257 $ 1,921 $ (8,251) $ -- Current portion of long-term debt..... -- 2,800 -- (13,557) -- --------- -------- -------- ---------- ---------- Total current liabilities......... -- 3,057 1,921 (21,808) -- Long-term debt: Notes............................... -- 600 -- (12,028) -- Credit Facility..................... -- -- -- 26,222 41,953 Other long-term liabilities: Deferred tax liability.............. -- -- -- 12,939 13,456 Other long-term liabilities......... -- -- -- (299) -- --------- -------- -------- ---------- ---------- Total liabilities................. -- 3,657 1,921 5,026 55,409 --------- -------- -------- ---------- ---------- Preferred stock subject to mandatory redemption.......................... -- (762) -- --------- -------- -------- ---------- ---------- Stockholders' equity: Class A Common Stock................ -- 1 (1,565) -- Class B Common Stock................ -- -- -- -- -- Additional paid in capital.......... 60 1,239 -- (9,177) -- Retained earnings (deficit)......... -- -- (1,349) (1,405) -- --------- -------- -------- ---------- ---------- Total stockholders' equity........ 60 1,239 (1,348) (12,909) -- --------- -------- -------- ---------- ---------- Total liabilities and stockholders' equity (deficit)... $ 60 $ 4,896 $ 573 $ (7,883) $ 42,887 --------- -------- -------- ---------- ---------- --------- -------- -------- ---------- ----------
48 NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1998 (DOLLARS IN THOUSANDS) (1) To record the allocation of the $17,927 purchase price paid for transactions through the use of cash of $16,380 and escrow payments of $1,547 consummated subsequent to March 31, 1998. (2) An amount of $2,994 has been recorded for the accretion of the discount on the NML Preferred Stock when exchanged into Series A Preferred Stock. (3) To reflect the net cash proceeds, after repayment of the Credit Facility, from the Offerings. These net cash proceeds, plus additional monies available from the Credit Facility will be used to finance the Pending Acquisitions. (4) To reflect the capitalization of $5,057 in costs related to the issuance of the Notes. (5) To reflect the issuance of $150,000 principal amount of Notes pursuant to the Debt Offering. (6) To reflect the repayment of the Credit Facility with the proceeds from the Offerings. (7) To reflect issuance of $91,488 principal amount of Series A Preferred Stock to the public. (8) To reflect net proceeds of the Stock Offerings to the Company of $92,128 less preferred stock issuance costs of $3,770. (9) To record the allocation of the $268,407 purchase price paid for transactions consummated subsequent to December 31, 1997 and the recording of the related deferred income taxes of $13,456. 49 SELECTED HISTORICAL FINANCIAL DATA The following selected financial data are derived from the Consolidated Financial Statements of the Company. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company included elsewhere in this Prospectus.
PERIOD FROM INCEPTION THREE MONTHS ON ENDED MARCH 31, MAY 22, 1997(1) 1998 TO DECEMBER 31, 1997 ------------------- ----------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues........................................................ $ 12,500 $ 9,163 Station operating expenses excluding depreciation and amortization...................................................... 10,904 7,147 Depreciation and amortization....................................... 2,748 1,671 Corporate general and administrative expenses....................... 961 1,276 Non-cash stock compensation expense................................. -- 1,689 Operating income (loss)............................................. (2,113) (2,620) Net interest expense................................................ 1,374 837 Net income (loss) before extraordinary item......................... (3,493) (3,511) Extraordinary loss on early retirement of debt...................... 1,837 -- Net income (loss)................................................... (5,330) (3,578) Preferred stock dividends........................................... 842 274 Net income (loss) attributable to common stockholders............... (6,172) (3,852) Basic and diluted earnings (loss) per share......................... (6,172) (3,852) OTHER FINANCIAL DATA: Broadcast Cash Flow(2).............................................. $ 1,596 $ 2,016 EBITDA(2)........................................................... 635 740 Net cash used in operating activities............................... 4,589 1,887 Net cash used in investing activities............................... 79,153 95,100 Net cash provided by financing activities........................... 105,585 98,560 Deficiency of earnings to fixed charges and preferred stock dividend requirements(3).......................... 3,493 3,578
AS OF MARCH 31, 1998 --------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Total assets............................................................................... $ 220,126 Long-term debt, including current portion.................................................. 120,264 Preferred stock subject to mandatory redemption............................................ 30,518 Total stockholders' equity................................................................. 58,786
- ------------------------------ (1) The Company was incorporated on May 22, 1997. Between the date of incorporation of Media LLC, which was April 18, 1997, and May 22, 1997, Media LLC undertook certain activities on behalf of the Company pending its incorporation, including the incurrence of expenses and the funding of escrow deposits for acquisitions. Upon the incorporation of the Company, these activities and the related expenses were transferred to the Company. (2) Broadcast Cash Flow consists of operating income (loss) before depreciation and amortization, non-cash stock compensation expense and corporate general and administrative expenses. EBITDA consists of operating income (loss) before depreciation and amortization and non-cash stock compensation expense. 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. (3) For purposes of computing the ratio of earnings to fixed charges and preferred stock dividend requirements, earnings consists of earnings before income taxes and fixed charges and preferred stock dividend requirements. "Fixed charges and preferred stock dividend requirements" consists of interest on all indebtedness, amortization of debt expense and preferred stock dividends. As a result of the net loss attributable to common stockholders, earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $3,578 and $3,493 for the period from inception on May 22, 1997 to December 31, 1997 and for the three month period ended March 31, 1998, respectively. 50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Prospectus. The following discussion contains certain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors," "Business" and elsewhere in this Prospectus, including, without limitation, risks and uncertainties relating to leverage, the need for additional funds, consummation of the Pending Acquisitions, integration of the Pending Acquisitions, the ability of the Company to eliminate certain costs, the management of growth, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes. GENERAL The Company commenced operations in May 1997. During 1997, the Company purchased, or entered into LMAs with, a total of 38 stations in 8 U.S. markets and 5 stations plus additional translators and 1 station under construction in the Caribbean market (the "Historical Acquisitions"). The following discussion of the Company's results of operations includes the results of these acquisitions and LMAs. As the Company has had only one accounting period, no period to period comparison can be made. The Company currently owns and operates, or provides sales and marketing services to, 105 stations in 22 markets. Upon consummation of the Pending Acquisitions, the Company will be one of the five largest radio broadcasting companies based on number of stations, and among the fifteen largest based on net revenues, in the U.S. and will own and operate 176 radio stations (124 FM and 52 AM) clustered in 35 markets. The Company believes that the financial results for the historical period from inception at May 22, 1997 to December 31, 1997 are not indicative of the prospective financial performance of the Company due to the subsequent completion of the Completed Transactions and the pending completion of the Pending Transactions, as presented in the Unaudited Pro Forma Combined Financial Statements. Accordingly, the discussion of the Pending Acquisitions has been made on a pro forma basis in order to give a more representative view of the operations of the Company as if they owned the stations for the full year ended December 31, 1997. The unaudited pro forma information is presented for illustrative purposes only and is not indicative of the operating results or financial position that would have occurred if the Transactions had been consummated on the dates indicated, nor is it indicative of future operating results or financial positions if the aforementioned transactions are completed. The failure of the aforementioned transactions to be completed would significantly alter the unaudited pro forma information. ADVERTISING AND BROADCAST CASH FLOW The primary source of the Company's revenues is the sale of advertising time on its radio stations. The Company's sales of advertising time are primarily affected by the demand for advertising time from local and national advertisers and the advertising rates charged by its radio stations. Advertising demand and rates are based in large part on a station's ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron on a periodic basis, generally once, twice, or four times per year. Because audience ratings in local markets are crucial to a station's financial success, the Company endeavors to develop strong listener loyalty. The Company believes that the diversification of formats on its stations helps to insulate it from the effects of changes in the musical tastes of the public with respect to any particular format. 51 The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular station. The Company's stations strive to maximize revenue by constantly managing the number of commercials available for sale and adjusting prices based upon local market conditions. In the broadcasting industry, radio stations sometimes utilize trade (or barter) agreements which exchange advertising time for goods or services (such as travel or lodging), instead of for cash. The Company's use of trade agreements was immaterial during 1997. The Company will seek to continue to minimize its use of trade agreements. The Company's advertising contracts are generally short-term. The Company generates most of its revenue from local advertising, which is sold primarily by a station's sales staff. In fiscal 1997, approximately 89% of the Company's revenues were from local advertising. To generate national advertising sales, the Company engages national representative companies. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company expects its first calendar quarter will produce the lowest revenues for the year, and the fourth calendar quarter will generally produce the highest revenues for the year, with the exception of certain stations such as those of the Company in Salisbury-Ocean City, Maryland, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities. The Company's operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. The Company's most significant station operating expenses are employee salaries and commissions, programming expenses, advertising and promotional expenditures, technical expenses, and general and administrative expenses. The Company strives to control these expenses by working closely with local station management. The performance of a radio station group, such as the Company's, is customarily measured by its ability to generate Broadcast Cash Flow. Broadcast Cash Flow consists of operating income (loss) before depreciation and amortization, non-cash stock compensation expense and corporate general and administrative expenses. EBITDA consists of operating income (loss) before depreciation and amortization and non-cash stock compensation expense. EBITDA, as defined by the Company, may not be comparable to similarly titled measures used by other companies. 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. RESULTS OF OPERATIONS HISTORICAL--MARCH 31, 1998. Net revenue for the three months ending March 31, 1998 was $12,500. Station operating expenses excluding depreciation and amortization for this three month period were $10,904 and depreciation and amortization for this period were $2,748. Corporate general and administrative expenses were $961 and the Company had a net operating loss of $2,113 for this period. Interest expense net of interest income, other expense, and income tax expense were $1,374, $6, and $0, respectively, resulting in a net loss before extraordinary item of $3,493. On March 2, 1998, the Company recorded an extraordinary loss of $1,837 related to the write-off of previously capitalized debt issuance costs of its old credit facility. Net loss attributable to common stockholders and basic and diluted loss per share for the three month period through March 31, 1998 were $6,172. Broadcast Cash Flow and EBITDA for the three month period ending March 31, 1998 were $1,596 and $635, respectively. 52 HISTORICAL--PERIOD FROM INCEPTION TO DECEMBER 31, 1997. Net revenue for the period from inception at May 22, 1997 through December 31, 1997 was $9,163. Station operating expenses excluding depreciation and amortization for this same period were $7,147 and depreciation and amortization for the period was $1,671. Corporate general and administrative expenses were $1,276 and the operating loss was $2,620 for the period. Interest expense net of interest income, other expense, and income tax expense were $837, $54 and $67, respectively, resulting in a net loss of $3,578 for the period. Net loss attributable to common stockholders and basic and diluted loss per share for the period from inception through December 31, 1997 were $3,852. Broadcast Cash Flow and EBITDA for the period from inception through December 31, 1997 were $2,016 and $740, respectively. PRO FORMA--THREE MONTHS ENDED MARCH 31, 1998. On a pro forma basis, after giving effect to the Transactions (other than acquisitions completed prior to January 1, 1998), net revenue for the three months ending March 31, 1998 would have been $25,757. Pro forma station operating expenses excluding depreciation and amortization for this three month period would have been $22,646 and depreciation and amortization for this period would have been $5,195. Pro forma corporate general and administrative expenses would have been $969 and the Company would have had net operating loss of $3,053 for this period. Pro forma interest expense net of interest income, other expense (income), and income tax expense would have been $4,485, $(121), and $0, respectively, resulting in a net loss before extraordinary item of $7,417. On March 2, 1998, the Company recorded an extraordinary loss of $1,837 related to the write-off of previously capitalized debt issuance costs of its old credit facility. Pro forma net loss attributable to common stockholders and basic and diluted loss per share for the three month period through March 31, 1998 would have been $12,899. Broadcast Cash Flow and EBITDA for the three month period ending March 31, 1998 would have been $3,111 and $2,142, respectively. PRO FORMA--PERIOD FROM INCEPTION TO DECEMBER 31, 1997. On a pro forma basis, after giving effect to the Transactions (see "--Certain Effects of the Acquisitions"), net revenue would have been $110,986 for the full year from January 1, 1997 through December 31, 1997. Pro forma station operating expenses excluding depreciation and amortization for the year would have been $86,498 and pro forma depreciation and amortization for the year would have been $20,685. Pro forma corporate general and administrative expenses would have been $4,760 and pro forma operating loss would have been $2,646 for the year. Pro forma interest expense, pro forma other expense, and pro forma income tax expense would have been $17,360, $147 and $194, respectively, resulting in a net loss of $20,347 for the period. Pro forma net loss attributable to common stockholders and pro forma basic and diluted loss per share for the year would have been $35,579. Pro forma Broadcast Cash Flow and pro forma EBITDA for the year would have been $24,488 and $19,728, respectively. CERTAIN EFFECTS OF THE ACQUISITIONS CERTAIN COST ELIMINATIONS. The Company expects that operating a cluster of stations in each of its principal markets will allow the elimination of certain expenses, by eliminating duplicative functions, facilities, contracts, corporate office expenses and professional fees and certain non-recurring expenses. The Company expects that such eliminations will be partially offset by increased corporate overhead charges to be incurred as a result of the increased size of the Company. With respect to the Pending Acquisitions, the Company believes that had such cost eliminations been implemented as of January 1, 1997, such eliminations would have approximated up to $ in the aggregate ($ of which would increase EBITDA and $ of which would increase Broadcast Cash Flow) with respect to the Pending Acquisitions during the year ended December 31, 1997. The Company believes these cost eliminations would have consisted of (i) $ from the elimination of certain station management and staff positions, including related benefits; (ii) $ from the consolidation of station facilities and equipment; (iii) $ from previous owner compensation benefits; (iv) $ from the new rates associated with revised vendor contracts and (v) $ from the elimination of certain station overhead and general and administrative expenses. 53 CERTAIN CHARGES. The Company expects that the Pending Acquisitions will be accounted for using the purchase method of accounting and that the intangible assets created in the purchase transactions will be amortized against future earnings of the combined companies, that such amounts will be substantial and that they will continue to affect the Company's operating results in the future. These expenses, however, do not result in increased cash outflows by the Company and do not affect the Company's Broadcast Cash Flow. LIQUIDITY AND CAPITAL RESOURCES The Company's principal need for funds has been to fund the acquisition of radio stations, and to a lesser extent, interest and debt service payments and capital expenditures. The Company's principal sources of funds for these requirements have been equity financings and borrowings under credit agreements. Following consummation of the Pending Acquisitions, the Company's principal need for funds will be to fund future acquisitions, interest and debt service payments, working capital needs, and capital expenditures. The Company anticipates that its principal sources of funds will be proceeds from the Offerings, borrowings under the Credit Facility, and cash flows from operations. STATEMENT OF CASH FLOWS. Net cash used in operating activities was $4,589 for the three month period from January 1, 1998 through March 31, 1998. Net cash used in investing activities was $79,153, and was related primarily to the Historical and Completed Acquisition. Net cash provided by financing activities was $105,585 for the same period. Net cash used in operating activities was $1,887 for the period from inception at May 22, 1997 through December 31, 1997. Net cash used in investing activities was $95,100, and related primarily to the Historical Acquisitions. Net cash provided by financing activities was $98,560 for the same period. HISTORICAL ACQUISITIONS. During the period from inception at May 22, 1997 through December 31, 1997, the Company consummated the Historical Acquisitions for an aggregate purchase price of $91.9 million. Additional acquisitions have been subsequently completed in 1998 for an aggregate purchase price of $85.1. The sources of funds for these acquisitions were primarily the proceeds of the Company's credit facilities and certain equity financings (see "Sources of Liquidity"). PENDING ACQUISITIONS. The aggregate purchase price of the Pending Acquisitions is expected to be approximately $250.5 million, consisting almost entirely of cash. The Company intends to finance the Pending Acquisitions with the proceeds of the Credit Facility and the Offerings. See "Use of Proceeds." The Pending Acquisitions will be accounted for using the purchase method of accounting, and with respect to asset transactions, the intangible assets created in the purchase transactions will generally be amortized against future earnings over a twenty-five year period. The amount of such amortization will be substantial and will continue to affect the Company's operating results in the future. These expenses, however, do not result in outflows of cash by the Company and do not affect Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data") or EBITDA as defined under "Certain Definitions and Market and Industry Data"). The Company expects to consummate most of the Pending Acquisitions during the second and third quarters of 1998, although there can be no assurance that the transactions will be consummated within that time frame. The pending acquisition of a Tallahassee FM station presently operated under an LMA is expected to close by the end of 1998. In two of the markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications, and certain FCC staff questions have been raised with respect to Pending Acquisitions in several other markets. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. There can be no assurance that the Pending Acquisitions will be consummated. The Company believes that the proceeds of the Offerings will be sufficient to finance the consummation of the Pending Acquisitions. 54 SOURCES OF LIQUIDITY. The Company financed the Completed Acquisitions primarily through equity financings and borrowings under a $57.0 million credit agreement dated as of July 7, 1997 (the "Old Credit Facility"), among the Company, NationsBanc of Texas, N.A. as Administrative Lender and the Lenders (as defined therein). The Old Credit Facility included a $32.0 million senior secured reducing revolver facility and a $25.0 million uncommitted senior secured acquisition facility. The Old Credit Facility allowed the Company to draw on its credit line by means of the issuance of letters of credit as well as cash drawdowns. During 1997, the limit on the committed portion of the Old Credit Facility was raised from $32.0 million to $70.0 million. At December 31, 1997, the Company had borrowed $42.8 million in cash draws under the senior secured reducing revolver and $5.5 million in outstanding letters of credit. In January 1998, the credit limit under the senior secured reducing revolver was increased to $75.0 million. The Company drew down a total of $42.8 million on the Old Credit Facility. The Company received from Media LLC equity contributions totaling $52.2 million for its Common Stock in 1997. These equity contributions consisted of (i) $45.0 million in cash, (ii) stock of CCC valued at $7.1 million, and (iii) other non-cash contributions of $0.1 million. The Company also received cash contributions totalling $15.0 million from Media LLC on January 22, 1998. On November 11, 1997, the Company entered into a Securities Purchase Agreement with NML pursuant to which NML agreed to purchase 3,250 shares of the NML Preferred Stock for an aggregate consideration of $32.5 million. Of this amount, $16.2 million was received on November 17, 1997 and $16.3 million was received on February 5, 1998. In March 1998, the Company entered into a $190.0 million senior credit facility (the "Credit Facility") with Lehman Brothers Inc., as Arranger and Lehman Commercial Paper Inc., as Lender, Syndication Agent and Administrative Agent pursuant to which the Company has available a revolving line of credit of $110.0 million until March 2, 2006, and an eight-year term loan facility of $80.0 million. The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and to repay the Company's outstanding indebtedness under the Old Credit Facility, except for outstanding Letters of Credit in an aggregate amount equal to approximately $10.0 million. Except for certain provisions regarding the payment of such Letters of Credit, the Old Credit Facility has been terminated. In the first quarter of 1998, the Company will record an extraordinary loss related to the early extinguishment of the Old Credit Facility of $1.8 million. The Company's obligations under the Credit Facility are secured by substantially all of its assets in which a security interest may lawfully be granted (including, to the extent permitted by applicable law and the rules of the FCC, any FCC licenses held by the Company's subsidiaries), including, without limitation, intellectual property, real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries and 65% of the capital stock of any foreign subsidiaries and are guaranteed by each of the domestic subsidiaries of the Company. As of March 27, 1998, approximately $120.0 million was outstanding under the Credit Facility. See "Use of Proceeds" and "Description of Credit Facility and Notes." Both revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 0.50% to 1.75%, or the Eurodollar Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 1.50% to 2.75% (in each case dependent upon the leverage ratio of the Company). The revolving credit and term loan borrowings are repayable in equal quarterly installments beginning in 2000. The scheduled annual amortization of the term loans is $10.0 million in each of the years 2000 through 2002, $15.0 million in each of the years 2003 through 2005, and $15.0 million in each of the years 2003 through 2005, and $5.0 million at maturity. The scheduled annual reduction in availability under the revolving credit loans is $10.0 million in each of the years 2000 and 2001, $15.0 million in 2002, $20.0 million in year 2003, $25.0 million in each of the years 2004 and 2005, and $5.0 million at maturity in 2006. Pursuant to the Debt Offering, the Company will issue $100.0 million in aggregate principal amount of % Senior Subordinated Notes which have a maturity date of , 2008. The Notes are senior subordinated obligations of the Company and are subordinated in right of payment to all existing and future Senior Debt of the Company (including obligations under the Credit Facility). The Notes will be 55 general unsecured obligations of the Company and will be subordinated in right of payment to senior debt. Interest on the Notes will be payable semi-annually in arrears. See "Description of Credit Facility and Notes." Pursuant to the Preferred Stock Offering, the Company is offering approximately $133.0 million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009, $ million of which are being offered directly by the Company, and not through the Underwriters, to NML, the sole owner of the NML Preferred Stock, which had an accreted value as of May 15, 1998 of approximately $34.0 million, at a purchase price equal to the price to public. The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to % of the liquidation preference per share of Series A Preferred Stock, payable quarterly, in arrears. On or before , 2003, the Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock. After , 2003, dividends may only be paid in cash. The shares of Series A Preferred Stock are subject to mandatory redemption in , 2009 at a price equal to 100% of the liquidation preference thereof plus any and all accrued and unpaid cumulative dividends thereon. The Series A Preferred Stock may be redeemed by the Company prior to such date under certain circumstances. See "Description of Capital Stock--Series A Preferred Stock and Exchangeable Debentures." The degree to which the Company is leveraged following the Offerings will have material consequences to the Company. The Company's ability to obtain additional financing in the future for acquisitions, working capital, capital expenditures, general corporate or other purposes will be subject to the covenants contained in the Indenture, the Credit Facility, the Certificate of Designation and the Exchange Debenture Indenture. A substantial portion of the Company's cash flow from operations will be required to be used to pay principal and interest on its debt and will not be available for other purposes. The Company is subject to restrictive financial and operating covenants, and the failure by the Company to comply with those covenants would result in an event of default under the applicable instruments, which in turn would permit acceleration of debt under those instruments. Because of these restrictions, the Company is more vulnerable to economic downturns and is more limited in its ability to withstand competitive pressures and to react to changes in broadcast industry or general economic conditions. The Company's ability to make scheduled payments of principal on, to pay interest on, or to refinance its debt depends on its future financial performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and business factors, certain of which are beyond its control, as well as the success of the businesses acquired and to be acquired and the integration of those businesses into the Company. There can be no assurance that the Company's business will generate sufficient cash flow from operations, that anticipated improvements in operating results will be achieved or that future working capital borrowings will be available in an amount sufficient to enable the Company to service its debt, or to make necessary capital or other expenditures. The Company may be required to refinance a portion of the principal amount of the Notes prior to their maturity, or to redeem the Company's outstanding Series A Preferred Stock under certain conditions. There can be no assurance that the Company will be able to raise additional capital through the sale of securities, the disposition of radio stations or otherwise for any such refinancing or redemption. In addition, the Company may require additional financing for future acquisitions beyond the Pending Acquisitions, if any, and there can be no assurance that it would be able to obtain such financing or if available, such financing would be on terms considered 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 any additional acquisitions of radio stations will be financed through funds generated from operations, cash on hand, funds which may be available under the Credit Facility and additional debt and equity financing. The availability of additional acquisition financing cannot be assured, and, depending on the terms of the proposed acquisitions financing, could be restricted by the Credit Facility and/or the debt incurrence tests under the Indenture, the Certificate of Designation and the Exchange Debenture Indenture. In addition, the Credit Facility contains operating and financial covenants, including, without limitation, requirements 56 to maintain minimum ratios of cash flow to debt service and maximum ratios of total debt to cash flow and senior debt to cash flow. Although the Company is currently in compliance with such covenants, the Company's ability to borrow under the Credit Facility or obtain additional financing would be restricted if, after giving effect to such additional borrowings or financings, the Company would not be able to meet such covenants. See "Description of Credit Facility and the Notes -- The Credit Facility -- Covenants." The Company expects that it may consider disposing of certain stations in its markets, although the Company has no current plans or arrangements to dispose of any of its stations. See "Risk Factors." Based upon the Company's current level of operations and anticipated improvements, management believes that cash flow from operations, together with the net proceeds of the Offerings and available borrowings under the Credit Facility, will be adequate to meet the Company's anticipated future requirements for working capital, capital expenditures and scheduled payments on its debt service through and including December 31, 1999. SEASONALITY The Company expects that its operations and revenues will be largely seasonal in nature, with generally lower revenue generated in the first quarter of the year and generally higher revenue generated in the fourth quarter of the year, with the exception of certain stations such as those of the Company in Salisbury-Ocean City, Maryland, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities. The seasonality of the Company's business causes and will likely continue to cause a significant variation in the Company's quarterly operating results. Such variations could have a material adverse effect on the timing of the Company's cash flows and therefore on its ability to service its obligations with respect to its indebtedness, including the Indenture, the Exchange Debenture Indenture and the Credit Facility. YEAR 2000 RISK The Company has implemented a Year 2000 program to ensure that the Company's computer systems and applications will function properly beyond 1999. The Company believes that it has allocated adequate resources for this purpose and expects its Year 2000 date conversion program to be successfully completed on a timely basis. There can, however, be no assurance that this will be the case. The Company does not expect to incur significant expenditures to address this issue. The ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside of the Company's control. There can be no assurance that the failure of the Company or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. NEW ACCOUNTING PRONOUNCEMENT In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the Costs of Start-up Activities." SOP 98-5, effective for 1999, requires organization costs to be expensed as incurred. Management believes that adoption of SOP 98-5 in the first quarter of 1999 will result in a non-cash charge of approximately $200.0. 57 BUSINESS The Company is a radio broadcasting company focused on the acquisition, operation and development of radio stations in mid-size and smaller radio markets in the U.S. The Company currently owns and operates, or provides sales and marketing services under LMA agreements (pending FCC approval of acquisition) to 105 stations in 22 markets. Upon consummation of the Pending Acquisitions, the Company will be one of the five largest radio broadcasting companies based on number of stations, and among the fifteen largest based on net revenues, in the U.S. and will own and operate 176 radio stations (124 FM and 52 AM) clustered in 35 markets. The Company has assembled market-leading clusters with stations comprising the first or second ranked radio group, in terms of revenue share and/or audience share, in all of its 34 U.S. markets. On a pro forma basis after giving effect to the Transactions, the Company would have generated net revenues of approximately $111.0 million and $25.8 million and Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data") of approximately $24.5 million and $3.1 million for the year ended December 31, 1997 and for the three months ended March 31, 1998, respectively. Cumulus operates and develops clusters of stations in demographically attractive and fast growing mid-size and smaller markets. Relative to the 100 largest markets in the U.S., the Company believes that the mid-size and smaller markets (MSA 100-267) represent attractive operating environments and generally are characterized by: (i) a greater reliance on radio advertising as evidenced by the greater percentage of total media revenues captured by radio than the national average; (ii) rising advertising revenues as the larger national and regional retailers expand into these markets; (iii) small independent operators, many of whom lack the capital to produce high quality locally-originated programming and/or to employ more sophisticated research, marketing, management and sales techniques; and (iv) lower overall susceptibility to economic downturns. The Company believes that the attractive operating characteristics of mid-size and smaller markets coupled with the relaxation of FCC ownership limits create significant opportunities to form clusters within markets and regions that will enable the Company to achieve revenue growth and cost efficiencies. As a result, management believes that the Company can grow revenues at rates equal to or better than larger market growth rates and generate Broadcast Cash Flow margins that are comparable to the higher margins that previously were generally achievable only in the top 100 markets. The Company believes that mid-size and smaller radio markets provide an excellent opportunity to acquire attractive properties at favorable purchase prices due to the size and fragmented nature of ownership in these markets and to the historically greater attention given to the larger markets by radio station acquirors. According to BIA, there are approximately 1,600 FM and 1,000 AM stations in the 168 U.S. radio markets ranked MSA 100-267. These 2,600 stations are owned by approximately 1,100 different operators. In addition, there are nearly 4,700 stations in unranked markets owned by approximately 2,700 operators. The Company's principal strategy is to establish its position as a leader in its markets and regions and to expand into additional mid-size and smaller markets and regions where it believes a leadership position can be achieved by assembling clusters. Cumulus seeks to enhance the quality of radio for listeners and the utility of the radio medium for advertisers in order to maximize the advertising revenues and Broadcast Cash Flow of its radio stations. To that end, Cumulus utilizes extensive research to properly position the formats of stations in a given market and also significantly increases the amount of locally-originated programming. Upon consummation of the Pending Acquisitions, the Company's portfolio of stations will be diversified in terms of format, target audience, geographic location and stage of development. Because of the size and diversity of its portfolio and its individual radio station groups or "clusters," the Company believes it is not reliant upon the performance of any single station or any specific format. 58 MANAGEMENT TEAM Members of the Company's senior management team have an aggregate of over 75 years of experience in the media and radio broadcasting industry. To date, management has successfully negotiated 61 separate acquisition transactions on behalf of the Company. The Company's Executive Chairman and Treasurer, Richard W. Weening, has over 20 years of operating experience in media and information companies including significant experience in corporate finance and mergers and acquisitions. Lewis W. Dickey, Jr., Executive Vice Chairman, has over 15 years of experience in the radio and television broadcasting industry and is a successful owner-operator of radio stations in larger and mid-size markets. Mr. Dickey is also a nationally regarded business strategy and marketing consultant to the radio and television broadcasting industry. William M. Bungeroth, the Company's President, has over 20 years of experience in the radio and television broadcasting industry and has developed an expertise in enhancing revenue at stations under his management. Mr. Bungeroth is President and CEO of Cumulus Broadcasting Inc. and manages the broadcasting business along with the General Managers of each market, the Director of Programming and the regional Directors of Sales. The Company's Vice President and Chief Financial Officer, Richard J. Bonick, Jr., has 20 years of experience in the radio broadcasting industry. Mr. Bonick manages the financial reporting and control systems as well as the operational aspects of the Company's broadcasting business. STATION PORTFOLIO The Company has four regions in the U.S. as its primary focus: the Midwest, Southeast, Southwest and Northeast. The following chart sets forth certain information with respect to the Company's stations in these regions, before and after giving effect to the Pending Acquisitions:
PENDING ACQUISITIONS (1) --------------------------------------------------- NUMBER OF NUMBER STATIONS NUMBER OF FOLLOWING OF STATIONS NUMBER OF STATIONS PENDING CURRENTLY STATIONS TO BE NUMBER OF ACQUISITIONS OWNED CURRENTLY PLACED STATIONS TO BE (3) MARKET ------------------------ UNDER UNDER ACQUIRED ----------- MARKET(2) RANK FM AM LMA (2) LMA WITHOUT LMA FM - ------------------------- --------- ----------- ----------- --------------- ------------- ------------------- ----------- MIDWEST REGION Ann Arbor, MI............ 146 2 2 -- -- -- 2 Appleton-Oshkosh/ Green Bay, WI.......... 138/182 3 2 2 -- -- 5 Dubuque, IA.............. 217 -- -- 1 -- 4 4 Marion Carbondale, IL.... 209 -- -- 6 -- -- 4 Bismarck, ND............. 259 -- -- -- -- 4 3 Kalamazoo, MI............ 172 -- -- -- -- 3 2 Faribault-Owatonna- Waseca, MN............. -- -- -- -- -- 8 4 Mankato, MN.............. -- -- -- -- -- 3 2 Mason City, IA........... -- -- -- -- -- 7 5 Monroe, MI............... -- -- -- 1 -- -- 1 New Ulm-Springfield- Marshall, MN........... -- -- -- -- -- 3 2 Rochester, MN............ -- -- -- -- -- 4 2 Toledo, OH............... 76 4 2 -- -- -- 4 SOUTHEAST REGION Albany, GA............... 205 -- -- 4 2 -- 4 Augusta, GA(6)........... 109 4 2 2 -- 1 6(2) Chattanooga, TN.......... 102 -- -- 1 3 -- 3 Columbus, GA............. 166 3 2 -- -- -- 3 Florence, SC............. 198 2 2 5 1 -- 7 Montgomery, AL........... 143 -- -- 4 -- -- 2 ADULTS 12+ REVENUE MARKET(2) AM SHARE(%) RANK (4) - ------------------------- ------------- --------------- --------------- MIDWEST REGION Ann Arbor, MI............ 2 8.7 1 Appleton-Oshkosh/ Green Bay, WI.......... 2 20.2(5) 2 Dubuque, IA.............. 1 34.8 1 Marion Carbondale, IL.... 2 32.4 2 Bismarck, ND............. 1 37.7 1 Kalamazoo, MI............ 1 22.3 1 Faribault-Owatonna- Waseca, MN............. 4 -- 1 Mankato, MN.............. 1 -- 1 Mason City, IA........... 2 -- 1 Monroe, MI............... 0 -- 1 New Ulm-Springfield- Marshall, MN........... 1 -- 1 Rochester, MN............ 2 -- 2 Toledo, OH............... 2 31.2 2 SOUTHEAST REGION Albany, GA............... 2 23.2 2 Augusta, GA(6)........... 3 29.3 1 Chattanooga, TN.......... 1 22.3 1 Columbus, GA............. 2 32.5 1 Florence, SC............. 3 42.2 1 Montgomery, AL........... 2 34.4 1
59
PENDING ACQUISITIONS (1) --------------------------------------------------- NUMBER OF NUMBER STATIONS NUMBER OF FOLLOWING OF STATIONS NUMBER OF STATIONS PENDING CURRENTLY STATIONS TO BE NUMBER OF ACQUISITIONS OWNED CURRENTLY PLACED STATIONS TO BE (3) MARKET ------------------------ UNDER UNDER ACQUIRED ----------- MARKET(2) RANK FM AM LMA (2) LMA WITHOUT LMA FM - ------------------------- --------- ----------- ----------- --------------- ------------- ------------------- ----------- Myrtle Beach, SC......... 175 3 1 2 -- -- 5 Salisbury-Ocean City, MD..................... 153 4 2 2 -- -- 6 Savannah, GA............. 154 -- -- 5 -- 2 5 Tallahassee, FL.......... 165 3 1 1 -- -- 4 Wilmington, NC........... 178 4 1 -- -- -- 4 SOUTHWEST REGION Abilene, TX.............. 224 3 -- 1 -- -- 4 Amarillo, TX............. 188 3 1 2 -- -- 4 Beaumont-Port Arthur, TX..................... 128 -- -- 1 -- 4 3 Grand Junction, CO....... 247 -- -- -- -- 6 4 Lake Charles, LA......... 203 -- -- -- -- 4 3 Odessa-Midland, TX....... 174 -- -- 5 -- -- 4 Topeka, KS............... 180 -- -- -- 2 Wichita Falls, TX........ 236 3 -- 1 -- -- 4 NORTHEAST REGION Augusta-Waterville, ME... 245 -- -- -- -- 6 5 Bangor, ME............... 263 -- -- -- -- 2 2 -- -- -- -- -- --- TOTAL 34 U.S. MARKETS.... 41 18 46 6 65 124 ADULTS 12+ REVENUE MARKET(2) AM SHARE(%) RANK (4) - ------------------------- ------------- --------------- --------------- Myrtle Beach, SC......... 1 20.3 1 Salisbury-Ocean City, MD..................... 2 31.2 1 Savannah, GA............. 2 36.0 2 Tallahassee, FL.......... 1 32.8 1 Wilmington, NC........... 1 17.3 2 SOUTHWEST REGION Abilene, TX.............. 0 26.7 2 Amarillo, TX............. 2 30.6 2 Beaumont-Port Arthur, TX..................... 2 29.4 2 Grand Junction, CO....... 2 42.7 1 Lake Charles, LA......... 1 49.7 1 Odessa-Midland, TX....... 1 39.7 1 Topeka, KS............... 2 24.1 2 Wichita Falls, TX........ 0 28.6 2 NORTHEAST REGION Augusta-Waterville, ME... 1 25.6 1 Bangor, ME............... 0 30.4 1 -- TOTAL 34 U.S. MARKETS.... 52
- ------------------------------ (1) The Company expects to consummate most of the Pending Acquisitions during the second and third quarters of 1998, although there can be no assurance that the transactions will be consummated within that time frame. The pending acquisition of a Tallahassee FM station presently operated under an LMA is expected to close by the end of 1998. In two of the markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications. In addition, the FCC staff has raised questions concerning whether the Company will be permitted to acquire its full complement of proposed stations in some markets, based on local market concentration concerns. There can be no assurance that applications for other Pending Acquisitions will not be subjected to similar challenges or FCC staff inquiries. The FCC staff has also requested additional information regarding attributable media interests of one of the Company's non-attributable investors to determine compliance with the FCC's cross-interest policy in one market. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. (2) The listed markets correspond to station clusters of the Company, but may vary from the "markets" defined for purposes of the FCC's multiple-ownership rules, which are defined by reference to the signal coverages of the stations involved. Thus, in some instances (E.G., Augusta, GA, Florence, SC, and Salisbury-Ocean City, MD), the number of stations following the Pending Acquisitions as listed in the above table exceeds the number of radio stations specified in the FCC's rules that one person or entity may own, operate or control within a single market, but is still consistent with these rules. (3) Includes radio stations to which the Company currently provides programming and on which the Company sells advertising pursuant to an LMA. (4) Market revenue rankings for Faribault-Owatonna-Waseca, MN, Mankato, MN, Mason City, IA, Rochester, MN and New Ulm-Springfield-Marshall, MN are based on Company estimates. (5) Indicates Adult 12+ share of Appleton-Oshkosh market. (6) The FCC staff recently dismissed the assignment application for one of the six FM stations in Augusta, GA based on the unacceptability of the Company's supplemental engineering analysis in demonstrating compliance with the FCC's multiple-ownership rules. The Company will not be permitted to acquire more than five FM and three AM stations in this market unless it succeeds in obtaining FCC approval to modify the facilities of one or more of its currently owned stations or successfully appeals the FCC staff dismissal of its assignment application for the sixth FM station. The Company also owns and operates five radio stations and one leased frequency in various locations throughout the English-speaking Eastern Caribbean, including among other places, Trinidad, St. Kitts and St. Lucia. ACQUISITION STRATEGY Cumulus has focused its acquisition strategy on acquiring radio broadcasting stations in demographically attractive and fast growing mid-size to smaller markets that it believes offer substantial growth 60 opportunities for the Company. In executing this strategy, the Company adheres to certain key acquisition criteria. Primary among these criteria are targeting markets with: (i) growing economies that are not dependent upon any single industry or employer; (ii) a regional fit with the Company's overall portfolio concentration in the Midwest, Southeast, Southwest and Northeast regions of the U.S.; (iii) close proximity to larger markets that may lead to increased economic expansion into the Company's markets; (iv) previously unconsolidated markets with fragmented individual ownership of stations; (v) the opportunity to assemble a cluster of stations diversified in format to provide a range of target demographic options for advertisers; and (vi) the opportunity to increase sales performance through greater coverage of potential advertisers with more sales people per station. In targeting specific stations, the Company seeks stations with a position of leadership in their market in terms of ratings and format, with the opportunity to significantly increase revenues and Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data"). Additionally, Cumulus seeks high quality technical and operating facilities, capable local management and an FCC license which enables coverage of the entire market. The Company believes that its acquisition strategy will have a number of benefits, including: (i) growth and diversification of revenue and Broadcast Cash Flow across a greater number of stations and markets; (ii) improved Broadcast Cash Flow margins through the consolidation of facilities and the elimination of redundant expenses; (iii) enhanced utilization of certain corporate overhead functions including its senior management team; (iv) improved leverage in various key vendor negotiations; (v) greater ability to recruit top industry management talent; and (vi) increased overall scale, which should facilitate the Company's future capital raising activities. INTEGRATION OF ACQUIRED BUSINESSES The Company has developed, through its 61 Completed and Pending Acquisitions, an efficient process for the integration of newly acquired properties into the Cumulus portfolio and respective geographic cluster, as well as into the overall Cumulus culture and operating philosophy. The Company's station integration plan consists of six key elements: (i) employ sophisticated market research to refine station formats, enrich the listener experience and increase audience and revenue share relative to other stations in the market; (ii) expand the size and the effectiveness of the sales organization through active recruitment and in-depth training to enhance demand for the station's spot inventory to increase both revenue and margin; (iii) add the station to the Cumulus in-market local area network and install the Company's proprietary system for real-time monitoring by management of station sales and inventory performance; (iv) install Cumulus's centralized networked accounting system for financial reporting, budget control, payables management and cash management; (v) establish revenue and expense budgets consistent with the programming and sales strategy and make necessary cost adjustments; and (vi) implement necessary improvements in transmission facilities, audio processing and studio facilities. From time to time, in compliance with applicable law, the Company will enter into an LMA or consulting arrangement with a target property prior to FCC final approval and the consummation of the acquisition in order to gain a "head start" on the integration process. OPERATING STRATEGY The Company's operating strategy has the following principal components: ASSEMBLE AND MANAGE MARKET CLUSTERS WITH REGIONAL CONCENTRATIONS. The Company has assembled the first or second ranked cluster of stations based on revenue share and/or audience share in all of its U.S. markets in four regional concentrations, the Midwest, Southeast, Southwest and Northeast. The Company believes that by offering a diversity of radio formats within a given market, Cumulus provides customized and efficient marketing solutions to meet advertisers' needs. By assembling market clusters with a regional concentration, the Company believes that it will be able to increase revenues by offering regional coverage of key demographic groups that were previously unavailable to 61 national and regional advertisers. The Company also believes that its cluster approach will allow it to operate its stations with more highly skilled local management teams equipped with greater resources and to eliminate redundant operating and overhead expenses. MAXIMIZE EACH STATION'S POTENTIAL THROUGH POSITIONING AND BRANDING. The Company utilizes extensive market research to refine the programming of each of its stations and to position each as a separate brand within a particular cluster. The objective of this strategy is to optimize each station's potential in terms of audience ratings and revenue share while providing the widest possible range of choice to listeners and advertisers. Such stations can better capitalize on the operating leverage inherent in the radio industry because the costs of operating a radio station are generally fixed and, therefore, increased revenues generally result in disproportionately larger increases in Broadcast Cash Flow (as defined under "Certain Definitions and Market Industry Data"). FOCUS ON PROGRAMMING. A principal Company operating strategy is to enhance each station's programming appeal, including both the quality and quantity of local programming as a means of enriching the listener experience. The Company believes that adopting this commitment to high quality, locally originated programming will provide its stations with a competitive advantage and increase each station's audience share. Moreover, the Company believes that the efficiencies and scale afforded by the operation of multiple stations in the same market and region working together with information technology make it possible to substantially improve programming and the quality of the listener experience without a comparable increase in cost. EXPAND DEDICATED SALES FORCE AND OPTIMIZE INVENTORY MANAGEMENT. Underpinning the Company's strategy for optimizing the potential of each station within a cluster is the practice of dedicating a sales force for each of its stations. The Company believes that many of the acquired stations have dramatically underperformed in sales, due primarily to undersized sales staffs responsible for selling air time on multiple stations, thus diluting their ability to cover all of the potential advertisers with strong advocates for each station. The Company believes its pratice of utilizing a dedicated sales force for each station will attract a larger number of advertisers thereby increasing the demand for each station's commercial spot inventory. Accordingly, the Company has significantly expanded the number of salespeople for each of its stations. Salespeople are typically compensated exclusively on a commission basis. Also, in each of its market clusters, the Company utilizes Internet-based sales reporting systems to monitor its sales activity and to formulate and implement rate structure and inventory management on a continual basis. INCREASE RADIO REVENUE SHARE. The Company believes that its strategy of larger and dedicated station sales staffs, brand development, regional concentration, and market clusters will help increase advertising volume and revenues from existing customers and increase the number and scope of new advertisers. This strategy enables the Company to compete more effectively with other local and regional media such as newspapers and cable and broadcast television stations, because it can now offer a competitively priced alternative to reach the target audience that advertisers desire. The Company's sales management team has substantial experience in the areas of generating new sources of revenues including promotional events, retailer co-op advertising and other sources including business-to-business advertising. IMPLEMENT STRICT COST CONTROLS. The Company's management imposes strict financial reporting requirements and expense budget limitations on each of its stations. In addition, management maintains a centralized accounting system which allows it to monitor the performance and operations of each of its stations. Management believes such centralization allows the Company to achieve expense savings in certain areas, including purchasing and administrative expenses. Management believes that the Company will also achieve expense savings through the elimination of certain duplicate costs within its markets and market clusters. 62 IMPLEMENT INTERNET-BASED MANAGEMENT INFORMATION SYSTEMS. The Company has implemented a proprietary application using Internet software standards to support daily sales and inventory performance reporting by station, by market and by cluster. In addition, the Company employs the same system to network its centralized accounting and cash management. This allows the Company to compare each station's actual performance (including revenue and inventory management) to budget on a regular basis and deploy resources on a timely basis to those stations not achieving budgetary goals. RECRUIT AND RETAIN SKILLED MANAGERS. The Company believes that operating a top-ranked cluster of stations in a market will enable the Company to recruit and retain high caliber radio management personnel who might otherwise be attracted to larger markets. The Company believes that regional management and coordination will enable it to maximize the benefits of operating a growing number of stations in geographically diverse locations, while maintaining controls over local operations. Local management is also central to the Company's strategy and is primarily responsible for building and developing a sales team capable of converting the stations' audience rankings into revenues. The Company's general managers and sales managers are motivated through incentive compensation based primarily upon their station's cash flow performance and secondarily on their ability to convert their station's audience share into market revenue share. INDUSTRY OVERVIEW The primary source of revenues for radio stations is generated from the sale of advertising time to local and national spot advertisers and national network advertisers. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 72% to 87%. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product ("GNP"). With the exception of 1991, when total radio advertising revenue fell by approximately 3.1% compared to the prior year, advertising revenue has risen in each of the past 15 years more rapidly than both inflation and the GNP. According to the RAB's Radio Marketing Guide and Fact Book for Advertisers 1997, each week, radio reaches approximately 96% of all Americans over the age of 12. More than one-half of all radio listening is done outside the home which reaches three out of four adults 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 80% of people over 12 years of age, and as a result, radio advertising sold during this period achieves premium advertising rates. Radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enables it to target certain demographics. By capturing a specific share of a market's radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations utilize data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations. The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular station and the local competitive environment. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a 63 station usually will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising obtained. ADVERTISING SALES Virtually all of the Company's revenue is generated from the sale of local, regional and national advertising for broadcast on its radio stations. In 1997, approximately 89% of the Company's net broadcasting revenue was generated from the sale of local and regional advertising. Additional broadcasting revenue is generated from the sale of national advertising. The major categories of the Company's advertisers include: Automotive, Retail, Healthcare, Telecommunications, Fast Food, Beverage, Movies, Entertainment and Services. Each station's local sales staff solicits advertising either directly from the local advertiser or indirectly through an advertising agency. The Company employs a tiered commission structure to focus its individual sales staffs on new business development. The Company has also, consistent with its operating strategy of dedicated sales forces for each of its stations, significantly increased the number of sales persons per station. The Company believes that it can outperform the traditional growth rates of its markets by expanding its base of advertisers and providing a higher level of service to its existing base. This requires larger sales staffs than most of the stations currently employ at the time they are acquired by the Company. The Company supports its strategy of building local direct accounts by employing personnel in each of its markets to produce custom commercials that respond to the needs of, and in turn help sell product for, its advertisers. In addition, in-house production provides advertisers greater flexibility in changing their commercial messages with minimal lead time. National sales are made by two firms specializing in radio advertising sales on the national level in exchange for a commission from the Company that is based on the Company's net revenue from the advertising obtained. Regional sales, which the Company defines as sales in regions surrounding the Company's markets to buyers that advertise in the Company's markets, are generally made by the Company's local sales staff. The Company believes that both national and regional sales represent an attractive growth opportunity for the Company. Whereas the Company seeks to grow its local sales through larger and more customer-focused sales staffs, it seeks to grow its national and regional sales by offering clusters within specific markets and regions which will make the Company's stations more attractive to key national and regional advertisers. Many of these large accounts have previously been reluctant to advertise in these markets because of the logistics involved in buying advertising from individual stations. Certain of the Company's stations had no national representation before being acquired by the Company. Depending on the programming format of a particular station, the Company estimates the optimum number of advertisements available for sale. The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular station. The Company's stations strive to maximize revenue by managing their on-air inventory of advertising time and adjusting prices up or down based on supply and demand. The Company seeks to broaden its base of advertisers in each of its markets by providing a wide array of audience demographic segments across its cluster of stations, thereby providing each of its potential advertisers with an effective means of reaching a targeted demographic group. Each of the Company's stations has a general target level of on-air inventory that it makes available for advertising. This target level of inventory for sale may be different at different times of the day but tends to remain stable over time. The Company's selling and pricing activity is based on demand for its radio stations' on-air inventory and, in general, the Company responds to this demand by varying prices rather than by varying its target inventory level for a particular station. Therefore, most changes in revenue are explained by demand-driven pricing changes rather than by changes in the available inventory. Advertising rates charged by radio stations are based primarily on (i) a station's share of audiences in the demographic groups targeted by advertisers (as measured by ratings surveys), (ii) the supply of and demand for radio advertising time generally and for time targeted at 64 particular demographic groups and (iii) certain qualitative factors. Rates are generally highest during morning and afternoon commuting hours. A station's listenership is reflected in ratings surveys that estimate the number of listeners tuned to the station and the time they spend listening. Each station's ratings are used by its advertisers and advertising representatives to consider advertising with the station and are used by the Company to chart audience growth, set advertising rates and adjust programming. The radio broadcast industry's principal ratings service is Arbitron, which publishes periodic ratings surveys for significant domestic radio markets. These surveys are the Company's primary source of ratings data. COMPETITION 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 audience ratings and advertising revenue are subject to change, and any adverse change in a particular market affecting advertising expenditures or an adverse change in the relative market positions of the stations located in a particular market could have a material adverse effect on the revenue of the Company's radio stations located in that market. There can be no assurance that any one or all of the Company's radio stations will be able to maintain or increase current audience ratings or advertising revenue market share. 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 specific demographic groups in each of its markets, the Company is able to attract advertisers seeking to reach those listeners. Companies that operate radio stations must be alert to the possibility of another station changing its format to compete directly for listeners and advertisers. Another station's decision to convert to a format similar to that of one of the Company's radio stations in the same geographic area or launch an aggressive promotional campaign may result in lower ratings and advertising revenue, increased promotion and other expenses and, consequently, lower Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data") for the Company. 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 in each market by extensively researching its stations' programming, by implementing advertising campaigns aimed at the demographic groups for which its stations program and by managing its sales efforts to attract a larger share of advertising dollars for each station individually. However, the Company competes with some organizations that have substantially greater financial or other resources than the Company. Recent changes in the Communications Act and the FCC's rules and policies 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 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 multiple stations in each of its markets and intends to pursue the creation of additional multiple station groups, the Company's competitors in certain markets include operators of multiple stations or operators who already have entered into LMAs. The Company also competes with other radio station groups to purchase additional stations. Some of these groups are owned or operated by companies that have substantially greater financial and other resources than the Company. Although the radio broadcasting industry is highly competitive, and competition is enhanced to some extent by changes in existing radio station formats and upgrades of power, among other actions, certain regulatory limitations on entry exist. The operation of a radio broadcast station requires a license from the FCC, and the number of radio stations that an entity can operate in a given market is limited by the 65 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 regulating the number of stations that may be owned and controlled by a single entity. The FCC's multiple ownership rules have changed significantly as a result of the Telecom Act. For a discussion of FCC regulation and the provisions of the Telecom Act, see " -- Federal Regulation of Radio Broadcasting." The Company's stations also compete for advertising revenue with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor 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 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 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 recently authorized spectrum for the use of a new technology, satellite digital audio radio services ("DARS"), to deliver audio programming. The FCC has also authorized two companies to provide DARS service. DARS may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and national audiences. It is not known at this time whether this digital technology also may be used in the future by existing radio broadcast stations either on existing or alternate broadcasting frequencies. 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. See "-- Federal Regulation of Radio Broadcasting." FEDERAL REGULATION OF RADIO BROADCASTING INTRODUCTION. The ownership, operation and sale of broadcast stations, including those licensed to the Company, are subject to the jurisdiction of the FCC, which acts under authority derived from the Communications Act. The Communications Act was amended in 1996 by the Telecom Act to make changes in several broadcast laws. Among other things, the FCC grants permits and licenses to construct and operate radio stations; assigns frequency bands for broadcasting; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations and the operating power and other technical parameters of stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; regulates the content of some forms of radio broadcasting programming; and has the power to impose penalties for violations of its rules under the Communications Act. The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. 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 maximum term) license renewal or, for particularly egregious violations, the denial of a license renewal application, the revocation of a license or the denial of FCC consent to acquire additional broadcast properties. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations. LICENSE GRANT AND RENEWAL. Radio broadcast licenses are granted and renewed for maximum terms of eight years. Licenses may be renewed through an application to the FCC. The Communications Act 66 requires that the FCC grant the renewal of a station's license if the FCC finds that, during the preceding term of the license, the station has served the public interest, convenience and necessity, that there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC, and that there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC that, when taken together, would constitute a pattern of abuse. Petitions to deny license renewal applications can be filed by interested parties, including members of the public. Such petitions may raise various issues before the FCC. The FCC is required to hold hearings on renewal applications if the FCC is unable to determine that renewal of a license would serve the public interest, convenience and necessity, or if a petition to deny raises a "substantial and material question of fact" as to whether the grant of the renewal application would be prima facie inconsistent with the public interest, convenience and necessity. Also, during certain periods when a renewal application is pending, the transferability of the applicant's license is restricted. The Company is not currently aware of any facts that would prevent the timely renewal of its licenses to operate its radio stations, although there can be no assurance that the Company's licenses will be renewed. The FCC classifies each AM and FM station. An AM station operates on a clear channel, a regional channel or a local channel. A clear channel is one on which certain dominant AM stations are assigned to serve wide areas. Clear channel AM stations are classified as one of the following: 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 area served by AM stations is determined by a combination of frequency, transmitter power and antenna orientation. Directional antenna arrays are often employed to avoid or reduce interference to stations in certain locations. AM stations are often required to reduce power or change directional pattern at night in order to avoid interference to other licensees. To determine the effective service area of an AM station, its power, its operating frequency, its antenna patterns and its day/night operating modes are required. The area served by FM stations is determined by a combination of transmitter power and antenna height, with stations divided into classes according to their anticipated service area. Antenna systems are typically non-directional and power is the same, day and night. Class C FM stations operate at 100 kilowatts of power with up to 1,968 feet of antenna elevation above average terrain ("HAAT"). They are the most powerful FM stations, providing service to a large area, typically a substantial portion of a state. Class B FM stations operate at up to 50 kilowatts of power with up to 500 feet of antenna elevation. These stations typically serve large metropolitan areas as well as their associated suburbs. Class A FM stations operate at 6 kilowatts with up to 328 feet of antenna elevation, and serve smaller cities and towns or suburbs of larger cities. 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. 67 The following table sets forth the market, call letters, FCC license classification, antenna height above average terrain ("HAAT") (for FM stations only), power and frequency of each of the stations owned or operated by the Company, assuming the consummation of the Pending Acquisitions, and the date on which each station's FCC license expires. License renewal applications have been filed for the listed stations showing a license expiration date of August 1, 1997 and April 1, 1998, and the expiration of the licenses is stayed during the pendency of such applications.
HEIGHT ABOVE FREQUENCY AVERAGE (FM-MHZ) EXPIRATION FCC TERRAIN MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET) - -------------------- --------- -------------------- ------------- ----------------- ----- ----------- MIDWEST REGION Ann Arbor, MI WIQB FM Ann Arbor, MI 102.9 October 1, 2004 B 499 WQKL FM Ann Arbor, MI 107.1 October 1, 2004 A 289 WTKA AM Ann Arbor, MI 1050 October 1, 2004 II N.A. WDEO AM Saline, MI 1290 October 1, 2004 III N.A. Appleton Oshkosh/ Green Bay, WI WUSW FM Oshkosh, WI 96.7 December 1, 2004 A 328 WVBO FM Oshkosh, WI 103.9 December 1, 2004 C3 318 WOGB FM Kaukauna, WI 103.1 December 1, 2004 C3 879 WNAM AM Neenah-Menasha, WI 1280 December 1, 2004 III N.A. WOSH AM Oshkosh, WI 1490 December 1, 2004 IV N.A. WJLW FM Allouez, WI 106.7 December 1, 2004 C3 509 WEZR FM Brillion, WI 107.5 December 1, 2004 A 328 Dubuque, IA KLYV FM Dubuque, IA 105.3 February 1, 2005 C2 331 KXGE FM Dubuque, IA 102.3 February 1, 2005 A 410 WJOD FM Galena, IL 107.5 February 1, 2005 A 328 WDBQ AM Dubuque, IA 1490 February 1, 2005 IV N.A. KIKR FM Asbury, IA 103.3 February 1, 2005 C3 643 Bismarck, ND KBYZ FM Bismarck, ND 96.5 April 1, 2005 C 1001 KACL FM Bismarck, ND 98.7 April 1, 2005 C 1093 KKCT FM Bismarck, ND 97.5 April 1, 2005 C1 830 KLXX AM Bismarck, ND 1270 April 1, 2005 III N.A. Kalamazoo, MI WKFR FM Battle Creek, MI 103.3 October 1, 2004 B 482 WRKR FM Portage, MI 107.7 October 1, 2004 B 489 WKMI AM Kalamazoo, MI 1360 October 1, 2004 III N.A. Owatonna-Waseca, MN KDHL AM Faribault, MN 920 April 1, 2005 III N.A. KQCL FM Faribault, MN 95.9 April 1, 2005 A 328 KQPR FM Albert Lea, MN 96.1 April 1, 2005 A 328 KNFX AM Austin, MN 970 April 1, 2005 III N.A. KRFO FM Owatonna, MN 1390 April 1, 2005 III N.A. KRFO FM Owatonna, MN 104.9 April 1, 2005 A 174 KOWO AM Waseca, MN 1170 April 1, 2005 II N.A. KRUE FM Waseca, MN 92.1 April 1, 2005 C3 285 Mankato, MN KXLP FM New Ulm, MN 93.1 April 1, 2005 C1 489 KYSM AM Mankato, MN 1230 April 1, 2005 IV N.A. KYSM FM Mankato, MN 103.5 April 1, 2005 C1 541 Marion- Carbondale, IL WDDD FM Marion, IL 107.3 December 1, 2004 B 492 WDDD AM Johnston City, IL 810 December 1, 2004 II N.A. WFRX AM West Frankfort, IL 1300 December 1, 2004 III N.A. WTAO FM Murphysboro, IL 105.1 December 1, 2004 B1 308 WVZA FM Herrin, IL 92.7 December 1, 2004 B1 328 WQUL FM West Frankfort, IL 97.7 December 1, 2004 A 433 Mason City, IA KCHA FM Charles City, IA 95.9 February 1, 2005 A 299 KGLO AM Mason City, IA 1300 February 1, 2005 III N.A. KIAI FM Mason City, IA 93.9 February 1, 2005 C1 791 KLKK FM Clear Lake, IA 103.1 February 1, 2005 A 308 POWER (IN KILOWATTS) -------------------- MARKET DAY NIGHT - -------------------- --------- --------- MIDWEST REGION Ann Arbor, MI 49.0 49.0 3.0 3.0 10.0 0.5 0.5 0.0 Appleton Oshkosh/ Green Bay, WI 6.0 6.0 25.0 25.0 25.0 25.0 20.0 5.0 1.0 1.0 25.0 25.0 6.0 6.0 Dubuque, IA 50.0 50.0 1.7 1.7 3.0 3.0 1.0 1.0 6.6 6.6 Bismarck, ND 100.0 100.0 100.0 100.0 100.0 100.0 1.0 0.3 Kalamazoo, MI 50.0 50.0 50.0 50.0 5.0 1.0 Owatonna-Waseca, MN 5.0 5.0 3.0 3.0 6.0 6.0 5.0 5.0 0.5 0.1 4.7 4.7 1.0 0.0 25.0 25.0 Mankato, MN 100.0 100.0 1.0 1.0 100.0 100.0 Marion- Carbondale, IL 50.0 50.0 0.3 0.3 1.0 0.1 25.0 25.0 25.0 25.0 3.5 3.5 Mason City, IA 3.0 3.0 5.0 5.0 100.0 100.0 6.0 6.0
68
HEIGHT ABOVE FREQUENCY AVERAGE (FM-MHZ) EXPIRATION FCC TERRAIN MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET) - -------------------- --------- -------------------- ------------- ----------------- ----- ----------- KCHA AM Charles City, IA 1580 February 1, 2005 II N.A. KCZE FM New Hampton, IA 95.1 February 1, 2005 A 338 KCZX FM Osage, IA 103.7 February 1, 2005 A 154 New Ulm-Springfield- Marshall, MN KNUJ AM New Ulm, MN 860 April 1, 2005 II N.A. KNUJ FM Sleepy Eye, MN 107.3 April 1, 2005 A 400 KNSG FM Springfield, MN 94.7 April 1, 2005 C2 472 Rochester, MN KRCH FM Rochester, MN 101.7 April 1, 2005 C2 554 KWEB AM Rochester, MN 1270 April 1, 2005 III N.A. KMFX FM Lake City, MN 102.5 April 1, 2005 C3 528 KMFX AM Wabasha, MN 1190 April 1, 2005 II N.A. Toledo, OH WKKO FM Toledo, OH 99.9 October 1, 2003 B 499 WRQN FM Bowling Green, OH 93.5 October 1, 2003 A 397 WTOD AM Toledo, OH 1560 October 1, 2003 III N.A. WWWM FM Sylvania, OH 105.5 October 1, 2003 A 390 WLQR AM Toledo, OH 1470 October 1, 2003 III N.A. WXKR FM Port Clinton, OH 94.5 October 1, 2003 B 630 WTWR FM Monroe, MI 98.3 October 1, 2004 A 466 SOUTHEAST REGION Albany, GA WKAK FM Albany, GA 101.7 April 1, 2004 A 299 WEGC FM Sasser, GA 107.7 April 1, 2004 C3 328 WALG AM Albany, GA 1590 April 1, 2004 III N.A. WJAD FM Leesburg, GA 103.5 April 1, 2004 C3 463 WGPC FM Albany, GA 104.5 April 1, 2004 C1 981 WGPC AM Albany, GA 1450 April 1, 2004 IV N/A Augusta, GA WEKL FM Augusta, GA 102.3 April 1, 2004 A 666 WRXR FM Aiken, SC 96.3 April 1, 2004 C2 889 WUUS FM Martinez, GA 107.7 April 1, 2004 C2 577 WGUS AM N. Augusta, SC 1380 April 1, 2004 III N.A. WBBQ FM Augusta, GA 104.3 April 1, 2004 C 1001 WBBQ AM Augusta, GA 1340 April 1, 2004 IV N.A. WLOV FM Washington, GA 100.1 April 1, 2004 A 322 WLOV AM Washington, GA 1370 April 1, 2004 III N.A. WZNY FM Augusta, GA 105.7 April 1, 2004 C 1168 Chattanooga, TN WUSY FM Cleveland, TN 100.7 April 1, 2005 C 1191 WLMX FM Rossville, GA 105.5 April 1, 2004 A 646 WLMX AM Rossville, GA 980 April 1, 2004 III N/A WZST FM Signal Mountain, TN 98.1 April 1, 2005 A 794 Columbus, GA WVRK FM Columbus, GA 102.9 April 1, 2004 C 1519 WGSY FM Phenix City, GA 100.1 April 1, 2004 A 328 WMLF AM Columbus, GA 1270 April 1, 2004 III N.A. WPNX AM Phenix City, GA 1460 April 1, 2004 III N.A. WAGH FM Ft. Mitchell, GA 98.3 April 1, 2004 A 328 Florence, SC WYNN FM Florence, SC 106.3 December 1, 2003 A 325 WYNN AM Florence, SC 540 December 1, 2003 II N.A. WHLZ FM Manning, SC 92.5 December 1, 2003 C 1171 WYMB AM Manning, SC 920 December 1, 2003 III N.A. WCMG FM Latta, SC 94.3 December 1, 2003 C3 502 WHSC AM Hartsville, SC 1450 December 1, 2003 IV N.A. WHSC FM Hartsville, SC 98.5 December 1, 2003 A 328 WBZF FM Marion, SC 100.5 December 1, 2003 C3 354 WMXT FM Pamplico, SC 102.1 December 1, 2003 C2 479 WWFN FM Lake City, SC 100.1 December 1, 2003 A 433 Montgomery, AL WMSP AM Montgomery, AL 740 April 1, 2004 II N.A. WNZZ AM Montgomery, AL 950 April 1, 2004 III N.A. WMXS FM Montgomery, AL 103.3 April 1, 2004 C 1096 WLWI FM Montgomery, AL 92.3 April 1, 2004 C 1096 POWER (IN KILOWATTS) -------------------- MARKET DAY NIGHT - -------------------- --------- --------- 0.5 0.0 5.5 5.5 6.0 6.0 New Ulm-Springfield- Marshall, MN 1.0 0.1 1.9 1.9 50.0 50.0 Rochester, MN 39.0 39.0 5.0 1.0 9.4 9.4 1.0 0.0 Toledo, OH 50.0 50.0 4.1 4.1 5.0 0.0 4.3 4.3 1.0 1.0 30.0 30.0 1.4 1.4 SOUTHEAST REGION Albany, GA 3.0 3.0 25.0 25.0 5.0 1.0 12.5 12.5 98.0 98.0 1.0 1.0 Augusta, GA 1.5 1.5 15.0 15.0 24.5 24.5 4.0 0.1 100.0 100.0 1.0 1.0 2.4 2.4 1.0 0.0 100.0 100.0 Chattanooga, TN 100.0 100.0 1.6 1.6 0.5 0.1 1.0 1.0 Columbus, GA 100.0 100.0 6.0 6.0 5.0 0.2 4.0 0.1 6.0 6.0 Florence, SC 6.0 6.0 0.3 0.2 98.0 98.0 2.3 1.0 10.5 10.5 1.0 1.0 3.0 3.0 21.5 21.5 50.0 50.0 3.3 3.3 Montgomery, AL 10.0 0.0 1.0 0.4 100.0 100.0 100.0 100.0
69
HEIGHT ABOVE FREQUENCY AVERAGE (FM-MHZ) EXPIRATION FCC TERRAIN MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET) - -------------------- --------- -------------------- ------------- ----------------- ----- ----------- Myrtle Beach, SC WSYN FM Georgetown, SC 106.5 December 1, 2003 C2 492 WDAI FM Pawley's Island, SC 98.5 December 1, 2003 A 328 WJXY FM Conway, SC 93.9 December 1, 2003 A 420 WXJY FM Georgetown, SC 93.7 December 1, 2003 A 328 WJXY AM Conway, SC 1050 December 1, 2003 II N.A. WSEA FM Atlantic Beach, SC 100.3 December 1, 2003 A 476 Salisbury--Ocean City, MD WLVW FM Salisbury, MD 105.5 October 1, 2003 A 384 WLBW FM Fenwick Island, DE 92.1 August 1, 1998 A 308 WQHQ FM Salisbury, MD 104.7 October 1, 2003 B 610 WTGM AM Salisbury, MD 960 October 1, 2003 III N.A. WOSC FM Bethany Beach, DE 95.9 October 1, 2003 B1 377 WWFG FM Ocean City, MD 99.9 October 1, 2003 B 315 WSBY FM Salisbury, MD 98.9 October 1, 2003 A 325 WJDY AM Salisbury, MD 1470 October 1, 2003 III N.A. Savannah, GA WJCL FM Savannah, GA 96.5 April 1, 2004 C 1161 WIXV FM Savannah, GA 95.5 April 1, 2004 C1 856 WSGF FM Springfield, GA 103.9 April 1, 2004 A 328 WBMQ AM Savannah, GA 630 April 1, 2004 III N.A. WEAS FM Savannah, GA 93.1 April 1, 2004 C1 981 WEAS AM Savannah, GA 900 April 1, 2004 II N.A. WZAT FM Savannah, GA 102.1 April 1, 2004 C 1306 Tallahassee, FL WHBX FM Tallahassee, FL 96.1 February 1, 2004 C2 479 WBZE FM Tallahassee, FL 98.9 February 1, 2004 C1 604 WHBT AM Tallahassee, FL 1410 February 1, 2004 III N.A. WWLD FM Tallahassee, FL 106.1 February 1, 2004 A 328 WGLF FM Tallahassee, FL 104.1 February 1, 2004 C 1394 Wilmington, NC WWQQ FM Wilmington, NC 101.3 December 1, 2003 C2 545 WQSL FM Jacksonville, NC 92.3 December 1, 2003 C2 725 WXQR FM Jacksonville, NC 105.5 December 1, 2003 C2 794 WAAV FM Leland, NC 94.1 December 1, 2003 A 148 WAAV AM Leland, NC 980 December 1, 2003 III N.A. SOUTHWEST REGION Abilene, TX KCDD FM Hamlin, TX 103.7 August 1, 2005 C1 745 KBCY FM Tye, TX 99.7 August 1, 2005 C 984 KHXS FM Abilene, TX 106.3 August 1, 2005 C2 492 KFQX FM Merkel, TX 102.7 August 1, 2005 C1 1148 Amarillo, TX KZRK FM Canyon, TX 107.9 August 1, 2005 C1 476 KZRK AM Canyon, TX 1550 August 1, 2005 II N.A. KARX FM Claude, TX 95.7 August 1, 2005 C1 390 KPUR AM Amarillo, TX 1440 August 1, 1997 III N.A. KPUR FM Canyon, TX 107.1 August 1, 1997 A 315 KQIZ FM Amarillo, TX 93.1 August 1, 2005 C1 699 Beaumont--Port Arthur, TX KAYD FM Beaumont, TX 97.5 August 1, 2005 C 1200 KQXY FM Beaumont, TX 94.1 August 1, 2005 C 1099 KQHN AM Nederland, TX 1510 August 1, 2005 II N.A. KAYD AM Beaumont, TX 1450 August 1, 2005 IV N.A. KTCX FM Beaumont, TX 102.5 August 1, 1997 C2 492 Grand Junction, CO KBKL FM Grand Junction, CO 107.9 April 1, 2005 C 1460 KEKB FM Fruita, CO 99.9 April 1, 2005 C 1542 KMXY FM Grand Junction, CO 104.3 April 1, 2005 C 1460 KKNN FM Delta, CO 95.1 April 1, 2005 C 1424 KEXO AM Grand Junction, CO 1230 April 1, 2005 IV N.A. KQIL AM Grand Junction, CO 1340 April 1, 2005 IV N.A. Lake Charles, LA KKGB FM Sulphur, LA 101.3 June 1, 2004 C3 289 POWER (IN KILOWATTS) -------------------- MARKET DAY NIGHT - -------------------- --------- --------- Myrtle Beach, SC 50.0 50.0 6.0 6.0 3.7 3.7 6.0 6.0 5.0 0.5 2.75 2.75 Salisbury--Ocean City, MD 2.1 2.1 6.0 6.0 33.0 33.0 5.0 5.0 18.8 18.8 50.0 50.0 6.0 6.0 5.0 0.0 Savannah, GA 100.0 100.0 100.0 100.0 6.0 6.0 5.0 5.0 97.0 97.0 4.4 0.2 100.0 100.0 Tallahassee, FL 37.0 37.0 100.0 100.0 5.0 0.0 6.0 6.0 90.0 90.0 Wilmington, NC 40.0 40.0 22.7 22.7 19.0 19.0 5.0 5.0 5.0 5.0 SOUTHWEST REGION Abilene, TX 100.0 100.0 98.0 98.0 50.0 50.0 66.0 66.0 Amarillo, TX 100.0 100.0 1.0 0.2 100.0 100.0 5.0 1.0 6.0 6.0 100.0 100.0 Beaumont--Port Arthur, TX 100.0 100.0 100.0 100.0 5.0 0.0 1.0 1.0 50.0 50.0 Grand Junction, CO 100.0 1.0 79.0 79.0 100.0 100.0 100.0 100.0 1.0 1.0 1.0 1.0 Lake Charles, LA 25.0 25.0
70
HEIGHT ABOVE FREQUENCY AVERAGE (FM-MHZ) EXPIRATION FCC TERRAIN MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET) - -------------------- --------- -------------------- ------------- ----------------- ----- ----------- KBIU FM Lake Charles, LA 103.7 June 1, 2004 C1 469 KYKZ FM Lake Charles, LA 96.1 June 1, 2004 C 1204 KXZZ AM Lake Charles, LA 1580 June 1, 2004 II N.A. Odessa--Midland, TX KBAT FM Midland, TX 93.3 August 1, 2005 C1 440 KODM FM Odessa, TX 97.9 August 1, 2005 C1 1000 KNFM FM Midland, TX 92.3 August 1, 2005 C 984 KGEE FM Monahans, TX 99.9 August 1, 2005 C1 574 KMND AM Midland, TX 1510 August 1, 2005 II N.A. Topeka, KS KDVV FM Topeka, KS 100.3 June 1, 2005 C 984 KMAJ FM Topeka, KS 107.7 June 1, 2005 C 988 KMAJ AM Topeka, KS 1440 June 1, 2005 III N/A KTOP AM Topeka, KS 1490 June 1, 2005 IV N/A Wichita Falls, TX KLUR FM Wichita Falls, TX 99.9 August 1, 2005 C1 830 KQXC FM Wichita Falls, TX 102.5 August 1, 2005 A 312 KYYI FM Burkburnett, TX 104.7 August 1, 2005 C 1017 KOLI FM Electra, TX 94.9 (1) C2 492 NORTHEAST REGION Augusta-Waterville, ME WABK FM Gardiner, ME 104.3 April 1, 1998 B 371 WKCG FM Augusta, ME 101.3 April 1, 1998 B 322 WIGY FM Madison, ME 97.5 April 1, 1998 A 328 WCME FM Boothbay Harbor, ME 96.7 April 1, 1998 B1 417 WFAU AM Gardiner, ME 1280 April 1, 2006 III N.A. WTOS FM Skowhegan, ME 105.1 April 1, 1998 C 2431 Bangor, ME WQCB FM Brewer, ME 106.5 April 1, 1998 C 1079 WBZN FM Old Town, ME 107.3 April 1, 1998 C2 436 POWER (IN KILOWATTS) -------------------- MARKET DAY NIGHT - -------------------- --------- --------- 100.0 100.0 97.0 97.0 1.0 1.0 Odessa--Midland, TX 100.0 100.0 100.0 0.0 100.0 100.0 98.0 98.0 2.4 2.4 Topeka, KS 100.0 100.0 100.0 100.0 5.0 1.0 1.0 1.0 Wichita Falls, TX 100.0 100.0 4.5 4.5 100.0 100.0 50.0 50.0 NORTHEAST REGION Augusta-Waterville, ME 50.0 50.0 50.0 50.0 6.0 6.0 15.5 15.5 5.0 5.0 50.0 50.0 Bangor, ME 98.0 98.0 50.0 50.0
- ------------------------ (1) Station has been granted a construction permit and is currently operating under program test authority. An application for a license is pending before the FCC. REGULATORY APPROVALS. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast license without the prior approval of the FCC. In determining whether to assign, transfer, grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with various rules limiting common ownership of media properties, financial qualifications of the licensee, the "character" of the licensee and those persons holding "attributable" interests therein, and compliance with the Communications Act's limitation on alien ownership, as well as compliance with other FCC rules and policies, including programming and filing requirements and equal employment opportunity requirements. Once a station purchase agreement has been signed, an application for FCC consent to assignment of license or transfer of control (depending upon whether the underlying transaction is an asset purchase or stock acquisition) is filed with the FCC. Approximately 10 to 15 days after this filing, the FCC publishes a notice assigning a file number to the application and advising the public that the application has been "accepted for filing." This notice begins a 30-day statutory waiting period, which provides the opportunity for third parties to file formal petitions to deny the transaction; informal objections may be filed any time prior to grant of an application. The FCC staff will normally review the application in this period and if the staff has questions, seek further information and amendments to the application. Once the 30-day public notice period ends, the staff will complete its processing, assuming that no petitions or informal objections were received and that the application is otherwise consistent with FCC 71 rules and acceptable to the staff. The staff often grants the application by delegated authority approximately 10 to 15 days after the public notice period ends. At this point, the parties are legally authorized to close the purchase, although the FCC action is not legally a "final order," as explained below. Public notice of the FCC staff grant is usually issued about a week after the grant is made, stating that the grant was effective when the staff made the grant. On the date of this latter notice, another 30-day period begins, within which interested parties can file petitions seeking either staff reconsideration or full FCC review of the staff action. During this time the grant can still be modified, set aside or stayed, and is not a "final order." In the absence of a stay, however, the seller and buyer are not prevented from closing despite the absence of a final order. Also, for a period of 40 days after the public notice of the grant, the full FCC can review and reconsider the staff's grant on its own motion. Thus, during the additional 10 days beyond the 30-day period available to third parties, the grant is still not "final." In the event that review by the full FCC is requested and the FCC subsequently affirms the staff's grant of the application, interested parties may thereafter seek judicial review in the U.S. Court of Appeals for the District of Columbia Circuit within 30 days of public notice of the full FCC's action. In the event the Court affirms the FCC's action, further judicial review may be sought by seeking rehearing en banc from the Court of Appeals or by certiorari from the U.S. Supreme Court. In the absence of the submission of a timely request for reconsideration, administrative review or judicial review, the FCC staff's grant of an application becomes final by operation of law and generally is no longer subject to administrative or judicial review, although such action can nevertheless be set aside in rare circumstances. The pendency of a license renewal application will alter the aforementioned timetables, because the FCC will not issue an unconditional assignment grant if the station's license renewal is pending. OWNERSHIP MATTERS. Under the Communications Act, a broadcast license may not be granted to or held by a corporation that has more than one-fifth of its capital stock owned or voted by aliens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations. Under the Communications Act, a broadcast license also may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by aliens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations. These restrictions apply in modified form to other forms of business organizations, including partnerships. The Company therefore will be restricted to having no more than one-fourth of its stock owned or voted by aliens, foreign governments or non-U.S. corporations. The Company will be required to take appropriate steps to monitor the citizenship of its shareholders, such as through representative samplings on a periodic basis, to provide a reasonable basis for certifying compliance with the foreign ownership restrictions of the Communications Act. The Communications Act and FCC rules also generally restrict the common ownership, operation or control of radio broadcast stations serving the same local market, of a radio broadcast station and a television broadcast station serving the same local market, and of a radio broadcast station and a daily newspaper serving the same local market. Under these "cross-ownership" rules, absent waivers, the Company would not be permitted to acquire any daily newspaper or television broadcast station (other than low power television) in a local market where it then owned any radio broadcast station. The FCC's rules provide for the liberal grant of a waiver of the rule prohibiting common ownership of radio and television stations in the same geographic market in the top 25 television markets if certain conditions are satisfied. The Telecom Act directed the FCC to extend this waiver policy to stations in the top 50 television markets, although the FCC has not yet implemented this change. For purposes of these rules, a "market" is defined by reference to the signal coverage(s) of the station(s) involved. The Telecom Act and the FCC's broadcast multiple ownership rules restrict the number of radio stations one person or entity may own, operate or control on a local level. These limits are: 72 (i) in a market with 45 or more commercial radio signals, an entity may own up to eight commercial radio stations, not more than five of which are in the same service (FM or AM); (ii) in a market with between 30 and 44 (inclusive) commercial radio signals, an entity may own up to seven commercial radio stations, not more than four of which are in the same service; (iii) in a market with between 15 and 29 (inclusive) commercial radio signals, an entity may own up to six commercial radio stations, not more than four of which are in the same service; and (iv) in a market with 14 or fewer commercial radio signals, an entity may own up to five commercial radio stations, not more than three of which are in the same service, except that an entity may not own more than 50% of the stations in such market. None of these multiple ownership rules requires any change in the Company's current ownership of radio broadcast stations or precludes consummation of the Pending Acquisitions, except that the Company's assignment application for one station in the Augusta, GA market has been dismissed by the FCC staff on multiple ownership grounds and petitions to deny or informal objections have been filed against the acquisition of four stations in the Dubuque, IA market and three stations in the Grand Junction, CO market alleging that such acquisitions would result in undue market concentration. The FCC staff has also raised market concentration questions with respect to Pending Acquisitions in several other markets. However, these FCC rules and policies will limit the number of additional stations which the Company may acquire in the future in certain of its markets. Because of these multiple and cross-ownership rules, a purchaser of voting stock of the Company which acquires an "attributable" interest in the Company may violate the FCC's rules if it also has an attributable or a non-attributable interest in other television or radio stations, or in daily newspapers, depending on the number and location of those radio or television stations or daily newspapers. Such a purchaser also may be restricted in the companies in which it may invest, to the extent that these investments give rise to an attributable interest. If an attributable shareholder of the Company violates any of these ownership rules, the Company may be unable to obtain from the FCC one or more authorizations needed to conduct its radio station business and may be unable to obtain FCC consents for certain future acquisitions. The FCC generally applies its television/radio/newspaper cross-ownership rules and its broadcast multiple ownership rules by considering the "attributable," or cognizable interests held by a person or entity. A person or entity can have an interest in a radio station, television station or daily newspaper by being an officer, director, partner or shareholder of a company that owns that station or newspaper. Whether that interest is cognizable under the FCC's ownership rules is determined by the FCC's attribution rules. If an interest is attributable, the FCC treats the person or entity who holds that interest as the "owner" of the radio station, television station or daily newspaper in question, and therefore subject to the FCC's ownership rules. With respect to a corporation, officers, directors and persons or entities that directly or indirectly can vote 5% or more of the corporation's stock (10% or more of such stock in the case of insurance companies, investment companies, bank trust departments and certain other "passive investors" that hold such stock for investment purposes only) generally are attributed with ownership of the radio stations, television stations and daily newspapers the corporation owns. With respect to a partnership, the interest of a general partner is attributable, as is the interest of any limited partner who is "materially involved" in the media-related activities of the partnership. Debt instruments, nonvoting stock, options and warrants for voting stock that have not yet been exercised, limited partnership interests where the limited partner is not "materially involved" in the media-related activities of the partnership and where the limited partnership agreement expressly "insulates" the limited partner from such material involvement, and minority (under 5%) voting stock, generally do not subject 73 their holders to attribution. However, the FCC is currently reviewing its rules on attribution of broadcast interests, and it may adopt stricter criteria. See "--Proposed Changes" below. In addition, the FCC has a "cross-interest" policy that under certain circumstances could prohibit a person or entity with an attributable interest in a broadcast station or daily newspaper from having a "meaningful" nonattributable interest in another broadcast station or daily newspaper in the same local market. Among other things, "meaningful" interests could include significant equity interests (including non-voting stock, and otherwise "insulated" limited partnership interests) and significant employment positions. This policy may limit the permissible investments a purchaser of the Company's voting stock may make or hold. It also may limit the Company's ability to acquire stations in the same local market in which any of the Company's non-attributable investors has an attributable media interest. The FCC staff has requested additional information concerning whether certain such overlapping media interests in one market comply with the FCC's cross-interest policy, which compliance is necessary to obtain the FCC's approval of the Company's assignment applications in that market. PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the "public interest." Since 1981, the FCC gradually has relaxed or eliminated many of the more formalized procedures it developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. However, licensees continue to be required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming will be considered by the FCC when it evaluates the licensee's renewal application, but such complaints may be filed and considered at any time. Stations also must pay regulatory and application fees to the FCC and follow various FCC rules that regulate, among other things, political advertising, the broadcast of obscene or indecent programming, sponsorship identification and technical operations (including limits on radio frequency radiation). In addition, licensees must develop and implement programs designed to promote equal employment opportunities and must submit reports to the FCC on these matters annually and in connection with a renewal application. The broadcast of contests and lotteries is regulated by FCC rules. 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 maximum term) renewal or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. In 1985, the FCC adopted rules regarding human exposures to levels of radio frequency ("RF") radiation. These rules require applicants for new broadcast stations, renewals of broadcast licenses or modifications of existing licenses to inform the FCC at the time of filing such applications whether a new or existing broadcast facility would expose people to RF radiation in excess of certain guidelines. In August 1996, the FCC adopted more restrictive radiation limits. These limits became effective on September 1, 1997 and govern applications filed after that date. The Company anticipates that such regulations will not have a material effect on its business. LOCAL MARKETING AGREEMENTS. Over the past six years, a number of radio stations, including certain of the Company's stations, have entered into what commonly are referred to as "local marketing agreements" or "time brokerage agreements." In a typical LMA, the licensee of a station makes available, for a fee, airtime on its station to a party which supplies programming to be broadcast during that airtime, and collects revenues from advertising aired during such programming. LMAs are subject to compliance with the antitrust laws and the FCC's rules and policies, including the requirement that the licensee of each station maintain independent control over the programming and other operations of its own station. The FCC has held that such agreements do not violate the Communications Act as long as the licensee of the station that is being substantially programmed by another entity maintains complete responsibility for, and control over, operations of its broadcast stations and otherwise ensures compliance with applicable FCC rules and policies. 74 A station that brokers substantial time on another station in its market or engages in an LMA with a station in the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC's ownership rules, discussed above. As a result, a broadcast station may not enter into an LMA that allows it to program more than 15% of the broadcast time, on a weekly basis, of another local station that it could not own under the FCC's local multiple ownership rules. FCC rules also prohibit a station from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) where the two stations serve substantially the same geographic area, whether the licensee owns the stations or owns one and programs the other through an LMA arrangement. PROPOSED CHANGES. In December 1994, the FCC initiated a proceeding to solicit comment on whether it should revise its radio and television ownership "attribution" rules by, among other proposals: (i) raising the basic benchmark for attributing ownership in a corporate licensee from 5% to 10% of the licensee's voting stock, (ii) increasing from 10% to 20% of the licensee's voting stock the attribution benchmark for "passive investors" in corporate licensees, (iii) restricting the availability of the attribution exemption when a single party controls more than 50% of the voting stock of a corporate license; and (iv) considering joint sales agreements ("JSA"), debt and non-voting stock interests to be attributable under certain circumstances. The FCC has made no decision in these matters. At this time, no determination can be made as to what effect, if any, this proposed rulemaking will have on the Company. From time to time Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect 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 finance such acquisitions. Such matters include: proposals to impose spectrum use or other fees on FCC licensees; the FCC's equal employment opportunity rules and regulations 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 cross-ownership policies; changes to broadcast technical requirements; proposals to allow telephone or cable television companies to deliver audio and video programming to the home through existing phone lines; proposals to limit the tax deductibility of advertising expenses by certain types of advertisers; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder, instead of granting FCC licenses and subsequent license renewals without such bidding. The FCC, on April 2, 1997, awarded two licenses for the provision of DARS. Under rules adopted for this service, licensees must begin construction of their space stations within one year, begin operating within four years, and be operating their entire system within six years. The Company cannot predict whether the service will be subscription-based or advertiser-supported. 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 on March 17, 1997, adopted an allotment plan for the expanded band which identified the 88 AM radio stations selected to move into the band. At the end of a five-year 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 whether any of the foregoing proposed changes will be adopted or what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. The foregoing is a brief summary of certain provisions of the Communications Act, the Telecom Act and of specific FCC rules and policies. This description does not purport to be comprehensive and 75 reference should be made to the Communications Act, the FCC's rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of radio broadcast stations. ANTITRUST AND MARKET CONCENTRATION CONSIDERATIONS. The Company is aware that the DOJ, which evaluates transactions to determine whether those transactions should be challenged under the federal antitrust laws, has been active recently in its review of radio station acquisitions, particularly where an operator proposes to acquire additional stations in its existing markets or multiple stations in new markets. The Company is aware that the DOJ has opened an investigation with respect to the Company's Pending Acquisition in two markets which potentially affect the acquisition of up to an additional nine stations in the aggregate. In addition, the FCC staff has stated publicly that it is currently reevaluating its policies and procedures relating to local radio market concentration, even where proposed acquisitions would comply with the station ownership limits in the Telecom Act and the FCC's multiple-ownership rules, and FCC approval of a number of pending radio station acquisitions by various parties (including acquisitions by the Company in several markets) has been delayed while this policy review is taking place. The FCC has issued a Notice of Inquiry which, among other things, seeks public comment on these issues. There can be no assurance that the DOJ, the FTC or the FCC will not prohibit or require the restructuring of future acquisitions (including one or more of the Pending Acquisitions). Competitors have also filed petitions or informal objections before the FCC on market concentration grounds in two markets (Dubuque, IA and Grand Junction, CO), and all such petitions or objections must be resolved before FCC approval can be obtained and the acquisitions consummated. 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 transaction. If the agencies determine that the transaction does not raise significant antitrust issues, then they will either terminate the waiting period or allow it to expire after the initial 30 days. On the other hand, if either of the agencies determine 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"). During the initial 30 day period after the filing, the agencies decide which of them will investigate the acquisition, which in the case of radio broadcasting has generally been the DOJ. 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 DOJ or the FTC 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 also may be investigated by the DOJ or the FTC 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. As part of its increased scrutiny of radio station acquisitions, the DOJ has stated publicly that it believes that commencement of operations under LMAs, JSAs and other similar agreements customarily entered into in connection with radio station ownership transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. In connection with acquisitions subject to the 76 waiting period under the HSR Act, the Company will not commence operation of any affected station to be acquired under an LMA or similar agreement until the waiting period has expired or been terminated. SEASONALITY The Company expects that its operations and revenues will be largely seasonal in nature, with generally lower revenue generated in the first quarter of the year and generally higher revenue generated in the fourth quarter of the year, with the exception of certain stations such as those of the Company in Salisbury-Ocean City, Maryland, where the stations generally earn higher revenues in the second and third quarters of the year because of the higher seasonal population in those communities. The seasonality of the Company's business causes and will likely continue to cause a significant variation in the Company's quarterly operating results. Such variations could have a material adverse effect on the timing of the Company's cash flows and therefore on its ability to service its obligations with respect to its indebtedness, including the Indenture, the Exchange Debenture Indenture and the Credit Facility. EMPLOYEES At December 31, 1997, the Company employed approximately 660 persons. None of such employees are covered by collective bargaining agreements, and the Company considers its relations with its employees to be satisfactory. The Company also employs several on-air personalities with large loyal audiences in their respective markets. On occasion, the Company enters into employment agreements with these personalities to protect their interests in those relationships that it believes to be valuable. The loss of one 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's financial condition or results of operations, taken as a whole. PROPERTIES AND FACILITIES The types of properties required to support each of the Company's radio stations include offices, studios, transmitter sites and antenna sites. A station's studios are generally housed with its offices in business districts of the station's community of license or largest nearby community. The transmitter sites and antenna sites are generally located so as to provide maximum market coverage. On December 31, 1997, the Company owned its studio facilities in four markets and it owned transmitter and antenna sites in six markets. The Company leases its remaining studio and office facilities and transmitter and antenna sites. The Company does not anticipate any difficulties in renewing any facility leases or in leasing alternative or 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. No one property is material to the Company's operations. The Company believes that its properties are generally in good condition and suitable for its operations; however, the Company continually looks for opportunities to upgrade its properties and intends to upgrade studios, office space and transmission facilities in certain markets. LEGAL PROCEEDINGS The Company currently and from time to time is involved in litigation incidental to the conduct of its business, but the Company is not a party to any lawsuit or proceeding which, in the opinion of the Company, is likely to have a material adverse effect on the Company. 77 REORGANIZATION AND CORPORATE STRUCTURE In March 1998, the Company amended its articles of incorporation to change its name from Cumulus Holdings, Inc. to Cumulus Media Inc. Until immediately prior to the closing of the Offerings, all of the outstanding common stock of the Company will have been held by Media LLC, whose members include State of Wisconsin Investment Board, NationsBanc Capital Corp., Heller Equity Capital Corporation, NML, and certain members of the Company's management or affiliates of management. See "Principal and Selling Stockholders." Immediately prior to the closing of the Offerings, (i) all of the shares of NML Preferred Stock will be exchanged for shares of Series A Preferred Stock as described below; and (ii) Media LLC will be liquidated and the shares of Class A Common Stock, Class B Common Stock and Class C Common Stock held by Media LLC will be distributed by Media LLC to its members in liquidation. All shares of Class A Cumulative Preferred Stock which were held by NML immediately prior to the Offerings plus all accrued and unpaid dividends thereon as of the exchange date will be exchanged for shares of Series A Preferred Stock having an equivalent aggregate liquidation value pursuant to the Preferred Stock Offering. As of May 15, 1998, the liquidation value of the NML Preferred Stock was approximately $34.0 million. Subject to certain conditions, the Series A Preferred Stock will be exchangeable on any dividend payment date, at the Company's option, for the Exchange Debentures. See "Description of Capital Stock." The Company's U.S. radio operations are conducted primarily through Broadcasting, which owns the radio stations acquired pursuant to asset purchase agreements. The Company also owns the stock of radio groups or stations acquired pursuant to stock purchase or merger agreements. Licensing holds virtually all the FCC licenses for the Company's stations. Certain other FCC licenses are held by wholly-owned subsidiaries of the Company, and the Company intends in the near future to transfer those licenses to Licensing or to newly created subsidiaries that hold only FCC licenses. CCC owns radio stations throughout the English-speaking Eastern Caribbean, including among other places, Trinidad, St. Kitts and St. Lucia. CCC is currently constructing an FM station in Barbados and Tortola, BVI. The Company will be the issuer of the Class A Common Stock, the Series A Preferred Stock and the Notes, and is the borrower under the Credit Facility. Broadcasting and Licensing are guarantors of the Company's obligations under the Credit Facility. See "Description of the Credit Facility and Notes." Upon the consummation of the Reorganization, the capital stock of the Company will consist of the Class A Common Stock, the Class B Common Stock, the Class C Common Stock and the Series A Preferred Stock. 78 PENDING ACQUISITIONS The Company has entered into definitive purchase agreements to acquire 117 stations in 30 markets for an aggregate purchase price of approximately $250.5 million in Pending Acquisitions. The Company expects to consummate most of the Pending Acquisitions during the second and third quarters of 1998, although there can be no assurance that the transactions will be consummated within that time frame. The pending acquisition of a Tallahassee FM station presently operated under an LMA is expected to close by the end of 1998. In two of the markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications In several other markets, FCC staff questions and/or requests for additional information relating to local market concentration or the FCC's cross-interest policy have been raised with respect to pending assignment applications. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the acquisitions consummated. There can be no assurance that other Pending Acquisitions will not be subjected to similar challenges, or that the Pending Acquisitions will be consummated. The Company believes that the proceeds of the Offerings will be sufficient to finance the consummation of the Pending Acquisitions. The Company from time to time enters into letters of intent to purchase radio stations. The letters of intent are non-binding and are subject to certain conditions, and there can be no assurance that the Company will enter into definitive purchase agreements with respect to such stations or will consummate such transactions. Accordingly, the Company does not consider a potential transaction as probable until it has executed an asset purchase agreement. 79 MANAGEMENT The following table sets forth certain information with respect to the directors and executive officers and managers of the Company:
NAME AGE POSITION(S) - ------------------------------------ --- --------------------------------------------------------------------- Richard W. Weening(1) 52 Executive Chairman, Treasurer and Director Lewis W. Dickey, Jr.(1) 36 Executive Vice Chairman and Director William M. Bungeroth(1) 52 President and Director Richard J. Bonick, Jr. 47 Vice President and Chief Financial Officer Terrence Baun 50 Director of Engineering John Dickey 31 Director of Programming Terrence Leahy 43 Secretary and General Counsel Daniel O'Donnell 38 Director of Corporate Finance Mini Srivathsa 29 Director of Technology Robert H. Sheridan, III(2)(3) 35 Director Ralph B. Everett(2)(3) 46 Director
- ------------------------ (1) Member of the Executive Committee. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. RICHARD W. WEENING has served as Executive Chairman, Treasurer and Director of the Company since March 1998. Mr. Weening served as Chairman of Cumulus from its inception on May 22, 1997 until March 1998. Mr. Weening was a founder and an initial investor in Media LLC through his ownership interest in CML Holdings LLC ("CML"), an investment fund managed by QUAESTUS Management Corporation ("QUAESTUS"), a private equity investment and advisory firm specializing in information services and media and new media companies. QUAESTUS is also a Managing Member of Media LLC. Mr. Weening served as Chairman and Chief Executive Officer of Media LLC from its inception in April 1997 until the Reorganization. Mr. Weening founded QUAESTUS in 1989 and served as Chairman and Chief Executive Officer until March 1998. Mr. Weening has over 20 years experience as a chief executive officer and investor in the information and media industry including text and reference book publishing and business magazine publishing, radio broadcasting, interactive information services and electronic commerce software and services. In 1985, Mr. Weening founded Caribbean Communications Company Ltd., a radio broadcasting company acquired by the Company in May 1997. He currently serves as a director of QUAESTUS and ARI Network Services, Inc. He holds a Bachelor of Arts degree from St. Johns University. LEWIS W. DICKEY, JR. has served as Executive Vice Chairman and Director of the Company since March 1998. Mr. Dickey was a founder and an initial investor in Media LLC through his interest in CML and owns 75% of the outstanding capital stock of DBBC of Georgia, LLC ("DBBC"), a Managing Member in Media LLC. He served as Executive Vice Chairman and a Director of Media LLC from its inception in April 1997 until the Reorganization. Mr. Dickey is the founder and was President of Stratford Research from September 1985 to March 1998 and owns 25% of the outstanding capital stock of Stratford Research. Stratford Research is a strategy consulting and market research firm advising radio and television broadcasters as well as other media related industries. Mr. Dickey is a nationally regarded consultant on radio strategy and the author of THE FRANCHISE--BUILDING RADIO BRANDS, published by the 80 National Association of Broadcasters ("NAB"), one of the industry's leading texts on competition and strategy. From January 1988 until March 1998, Mr. Dickey served as President and Chief Operating Officer of Midwestern Broadcasting, which operated two stations in Toledo, Ohio that were acquired by the Company in November 1997. He also has an ownership interest (along with members of his family and Mr. Weening) in three stations in Nashville: WQQK-FM, WNPL-FM and WVOL-AM. He holds Bachelor of Arts and Master of Arts degrees in English Literature from Stanford University and a Master of Business Administration degree from Harvard University. Mr. Dickey is the brother of John Dickey. WILLIAM M. BUNGEROTH has served as President and Director of Cumulus and President and Chief Executive Officer of Cumulus Broadcasting Inc. since the companies began operations in May 1997. Mr. Bungeroth joined Cumulus from WPNT Radio in Chicago where he was Vice President and General Manager of this flagship property of Century Broadcasting Corp. Prior to joining Century in 1992, he was President of Consulting Partners, which specialized in improving the operations of radio stations in mid-size and smaller markets. From August 1989 to July 1990, Mr. Bungeroth was Vice President of Major Market Affiliations at Unistar Radio Networks. From August 1987 to August 1989, he was President and Chief Operating Officer of Sunbelt Communications. From 1982 to 1987, he was Vice President of Sales and Operations at Century Broadcasting. He holds a Bachelor of Arts degree from Lafayette College. RICHARD J. BONICK, JR. has served as Vice President and Chief Financial Officer of Cumulus since May 1997. Prior to joining Cumulus, Mr. Bonick had a successful 20 year career with Century Broadcasting where he held various financial and operating positions, most recently as Executive Vice President and Chief Financial Officer. He began his career with Price Waterhouse. Mr. Bonick is a Certified Public Accountant and holds a Bachelor of Arts degree from the University of Dayton and a Master of Management degree in finance from the Kellogg School at Northwestern University. TERRENCE M. BAUN has served as Director of Engineering of the Company and Vice President of Cumulus Broadcasting Inc. since January 1998. Prior to joining Cumulus, Mr. Baun was President of Criterion Broadcast Services, a broadcast engineering technical support company serving clients in Wisconsin and Illinois, from 1988 to January 1998. He was previously Technical Director of Multimedia Broadcasting's Radio Division, and a Chief Engineer at several Milwaukee stations. Mr. Baun is certified by the Society of Broadcast Engineers ("SBE") as a Professional Broadcast Engineer and recently concluded two years of service as SBE President. He is a twenty year member of the Audio Engineering Society, and holds a Bachelor of Sciences degree from Marquette University. JOHN DICKEY has served as Director of Programming of the Company and Vice President of Cumulus Broadcasting Inc. since March 1998. Mr. Dickey was Executive Vice President of Stratford Research from June 1988 until the Reorganization. He has served as Director of Programming for Midwestern Broadcasting from January 1990 until March 1998 and is a partner in both Stratford Research as well as the Nashville stations. Mr. Dickey also owns 25% of the outstanding capital stock of Stratford Research and 25% of the outstanding capital stock of DBBC. Mr. Dickey holds a Bachelors of Arts degree in American History from Stanford University. Mr. Dickey is the brother of Lewis W. Dickey, Jr. TERRENCE J. LEAHY has served as Secretary and General Counsel of the Company and Vice President of Cumulus Broadcasting, Inc. since March 1998. Prior to the Reorganization Mr. Leahy was serving Cumulus in the same capacity as a Managing Director of QUAESTUS and Vice President of the Company. Mr. Leahy began his career practicing media, telecommunications and corporate law and litigation in Washington, D.C. with the law firms of Wilmer, Cutler & Pickering and Mintz, Levin, Cohn, Ferris, Glovsky & Popeo. He joined QUAESTUS in April 1992 and played a key role in the founding of Media LLC. He is an honors graduate of Princeton University, Harvard Law School, and the Executive MBA program at The Wharton School at the University of Pennsylvania. DANIEL O'DONNELL has served as Director of Corporate Finance of the Company and Vice President of Cumulus Broadcasting Inc. since March 1998. Prior to joining Cumulus in March, 1998, Mr. O'Donnell was a Senior Vice President in the Corporate Finance Group of Heller Financial, Inc. Prior to joining 81 Heller's Corporate Finance Group in 1992, Mr. O'Donnell held a number of offices within Heller Financial, Inc., including Vice President, Portfolio Manager for the Corporate Finance Group's media portfolio, Vice President of Heller's Corporate Asset Quality Group, and Vice President, Finance for Heller International Corporation. Prior to joining Heller Financial, Inc., Mr. O'Donnell was a manager and audit supervisor for Arthur Young & Company in the Chicago office, which he joined in 1982. Mr. O'Donnell has a Bachelor of Arts degree in Accounting from Loyola University in Chicago, and is a Certified Public Accountant. MINI SRIVATHSA has served as Director of Technology of the Company and Vice President of Cumulus Broadcasting, Inc. since March 1998. Prior to joining Cumulus in January 1998, Ms. Srivathsa was a Senior Consultant for Keane, Inc. from February 1997 to January 1998. From December 1993 to February 1997, she served as a Systems Architect for ARI Network Services where she served as the lead architect for an object-oriented, distributed nation-wide ordering system and WWW-based search engine. From December 1992 to December 1993, Ms. Srivathsa was a consultant in the Consultant Services Division at the University of Wisconsin. Ms. Srivathsa has extensive experience in Internet-based applications, object-oriented technologies and electronic commerce. She was Vice President of the Wisconsin Java User Group and is a voting committee member of the Internet Developers Association. She has also published several articles on Internet technology. She holds a Bachelor of Science degree in Computer Science from Bangalore University and a Masters of Science degree in Computer Science from the University of Wisconsin. ROBERT H. SHERIDAN, III will be elected to serve as a Director of the Company upon the consummation of the Offerings. Mr. Sheridan served as a member of the Investment Committee of Media LLC from April 1997 until the Reorganization. Mr. Sheridan is a Managing Director of NationsBank Capital Investors, the principal investment group within NationsBank Corporation, and a Senior Vice President of NationsBanc Capital Corp., NationsBanc Investment Corporation and NationsBank, N.A. NationsBanc Capital Corp. is a stockholder of the Company. Prior to joining NationsBank Capital Investors in January 1994, Mr. Sheridan worked in the corporate bank division of NationsBank Corporation and its predecessor from June 1989 to January 1994. Prior to joining NationsBank Corporation, Mr. Sheridan worked in investment bank and capital markets positions at PaineWebber, Inc. from 1986 to 1988. Mr. Sheridan holds a Bachelor of Arts degree from Vanderbilt University and a Master of Business Administration from Columbia University. See "Principal and Selling Stockholders." RALPH B. EVERETT will be elected to serve as a Director of the Company upon the consummation of the Offerings. Since 1989, Mr. Everett has been a partner with the Washington, D.C. office of the law firm of Paul, Hastings, Janofsky & Walker LLP, where he heads the Firm's Federal Legislative Practice Group. Prior to 1989, he was the Chief Counsel and Staff Director of the United States Senate Committee on Commerce, Science and Transportation. He is a Director and a member of the Investment Committee of Shenandoah Life Insurance Company. He is also a member of the Board of Visitors of Duke University Law School and the Norfolk Southern Corporation Advisory Board. Mr. Everett graduated with a Bachelor of Arts degree from Morehouse College and received a Juris Doctor degree from Duke University. 82 EXECUTIVE COMPENSATION AND OTHER INFORMATION COMPENSATION OF NAMED EXECUTIVE OFFICERS. The following table provides certain summary information for the nine months ended December 31, 1997 concerning compensation paid or accrued by the Company to or on behalf of the persons functioning effectively as executive officers of the Company whose combined salary and bonus on an annualized basis exceeded $100,000 during such period (the "Named Executive Officers"):
ANNUAL COMPENSATION ------------------------------------ OTHER ALL OTHER ANNUAL COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2) - ---------------------------------------------------- --------- ---------- --------- ------------- ------------- Richard W. Weening(1)............................... 1997 -- -- -- -- Lewis W. Dickey, Jr.(1)............................. 1997 -- -- -- -- William M. Bungeroth................................ 1997 $ 169,000 $ 50,000 $ 8,000 $ 205,000 Richard J. Bonick, Jr............................... 1997 $ 169,000 $ 25,000 $ 8,000 $ 205,000
For the period from inception on May 22, 1997 to December 31, 1997, the Company did not grant any options to any party. - ------------------------ (1) During 1997, Messrs. Weening and Dickey dedicated approximately 85% and 80% of their time, respectively, to matters directly related to the Company and its business, since the Company's inception. Messrs. Weening and Dickey did not receive any compensation directly from the Company. However, during 1997 the Company paid $297,000 to QUAESTUS, an entity controlled by Mr. Weening, for acquisition and corporate finance serves performed on behalf of the Company. In addition, the Company paid $184,000 to Stratford, an entity controlled by Mr. Dickey, for programming research and broadcast strategy consulting services. At December 31, 1997, the Company owed an additional $240,000 to Stratford for services rendered. The Company also paid to Media LLC (i) a non-recurring organizational fee of $300,000 (with QUAESTUS receiving $180,000 of such fee and DBBC of Georgia, LLC, an entity controlled by Mr. Dickey receiving $120,000 of such fee), and (ii) a management fee of $206,000 (with QUAESTUS receiving $124,000 of such fee and DBBC of Georgia, LLC receiving $82,000 of such fee). See "Certain Relationships and Related Transactions." (2) During the period from inception on May 22, 1997 to December 31, 1997 Cumulus Media, LLC issued common stock to the following affiliates and employees of the Company: QUAESTUS Management Corporation, DBBC of Georgia, LLC, William M. Bungeroth and Richard J. Bonick, Jr. Shares issued to Mr. Bungeroth and Mr. Bonick were issued in connection with a one-time grant of shares issued to them upon formation of the Company. The Company has recognized a non-recurring, non-cash stock compensation expense related to the issuance of such common stock. 1998 STOCK INCENTIVE PLAN The Company's Board of Directors intends to adopt the 1998 Stock Incentive Plan (the "1998 Plan") to provide officers, other key employees and non-employee directors (other than participants in the Executive Plan (as defined herein)) of the Company, as well as consultants to the Company, with additional incentives by increasing their proprietary interest in the Company. An aggregate of shares of Class A Common Stock will be subject to the 1998 Plan, of which a maximum of shares of Class A Common Stock will be subject to incentive stock options and a maximum of shares of Class A Common Stock are available to be awarded as restricted stock. In addition, subject to certain equitable adjustments, no one person will be eligible to receive options for more 83 than shares in any one calendar year and the maximum amount of restricted stock which will be awarded to any one person during any calendar year is $ . The 1998 Plan will permit the Company to grant awards in the form of stock options (including both incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options) and restricted shares of the Class A Common Stock (individually, an "Award" and collectively, "Awards"). All stock options awarded under the 1998 Plan will be granted at an exercise price of no less than fair market value of the Class A Common Stock on the date of grant. No Award will be granted under the 1998 Plan after , 2008. The 1998 Plan will be administered by the Compensation Committee of the Board, which will have exclusive authority to grant Awards under the 1998 Plan and to make all interpretations and determinations affecting the 1998 Plan. The Compensation Committee will have discretion to determine the individuals to whom Awards are granted, the amount of such Award, any applicable vesting schedule, whether Awards vest upon the occurrence of a Change in Control (as defined in the Plan) and other terms of any Award. The Committee may delegate to certain senior officers of Cumulus Media Inc. its duties under the plan subject to such conditions or limitations the Committee may establish. Any Award made to a non-employee director must be approved by the Company's Board of Directors. In the event of any changes in the capital structure of the Company, the Compensation Committee will make equitable adjustments to outstanding Awards so that the net value of the Award is not changed. Prior to completion of the Offering, the Company will have outstanding options to purchase a total of shares of Class C Common Stock exercisable at the initial public offering price. EXECUTIVE STOCK INCENTIVE PLAN The Company's Board of Directors also intends to adopt the Executive Stock Incentive Plan (the "Executive Plan") to provide certain key executives of the Company with additional incentives by increasing their proprietary interest in the Company. An aggregate of shares of Class C Common Stock will be subject to the Executive Plan. In addition, no one person will be eligible to receive options for more than shares in any one calendar year and the maximum amount of restricted stock which will be awarded to any one person during any calendar year is $ . It is currently anticipated that Messrs. Weening and Dickey will be the sole participants in the Executive Plan. The Executive Plan permits the Company to grant awards in the form of stock options (including both incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options) and restricted shares of the Class C Common Stock (individually, an "Executive Award" and collectively, "Executive Awards"). Stock options under the Executive Plan will be granted upon the consummation of the Offerings and will be divided into three tranches. Tranche 1 will consist of options (the "Time Vested Options") with an exercise price equal to the initial public offering price (the "IPO Price") and will vest quarterly in equal installments over a four-year period (subject to accelerated vesting in certain circumstances as described under Employment Agreements), provided the plan participant is employed by the Company on each of such dates. Tranche 2 and Tranche 3 will consist of performance based options (the "Performance Options") which will vest in four equal annual installments on each of the first four anniversaries of the closing of the Stock Offerings (subject to accelerated vesting in certain circumstances as described under "Employment Agreements"). The first installment of both the Tranche 2 options and Tranche 3 options will be exercisable at the IPO Price upon the first anniversary of the closing of the Offerings and the succeeding installments will be exercisable at a price 15% (or 20% in the case of Tranche 3 options) greater than the prior year's exercise price for each of the next three years. Vesting of Tranche 2 and Tranche 3 options is conditioned on the employment of the plan participant by the Company on the vesting date. 84 The Executive Plan will be administered by the Compensation Committee of the Board, which will have exclusive authority to grant Executive Awards under the Executive Plan and to make all interpretations and determinations affecting the Executive Plan. In the event of any changes in the capital structure of the Company, the Compensation Committee will make equitable adjustments to outstanding Executive Awards so that the net value of the Executive Award is not changed. EMPLOYEE STOCK PURCHASE PLAN A total of shares of the Company's Class A Common Stock will be reserved for issuance under the Company's proposed 1998 Employee Stock Purchase Plan (the "Purchase Plan"). None of such shares have been issued. The Purchase Plan will permit an eligible employee of the Company to purchase common stock at a discount through payroll deductions not to exceed 10% of the compensation received by such employee during such pay period ("Employee Purchases"). Employee Purchases will not exceed $25,000 in any plan year. The price at which the Class A Common Stock is purchased under the Purchase Plan will be set by the Board of Directors but will not be less than 95% of the fair market value of the Class A Common Stock on the date of purchase. DEFINED CONTRIBUTION PLAN The Company has established a profit sharing plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for all eligible employees. Under the 401(k) Plan, all eligible employees are permitted to defer compensation up to a maximum of the lesser of (a) $10,000 and (b) 15% of their income. The 401(k) Plan provides for a matching contribution by the Company equal to 25% of the amount contributed by the employee, up to 6% of the employee's total compensation. The employee's contribution is immediately vested and 20% of the Company's matching contribution vests every year after the first year of the employee's participation in the plan. Accordingly, the matching contribution is fully vested five years after such contribution. EMPLOYMENT AGREEMENTS As discussed more particulary below, the Company intends to enter into employment agreements with certain of the Named Executive Officers. Subject to certain exceptions, such employment agreements prohibit each of the Named Executive Officers from competing with the Company for a specified period after termination of employment (18 months for Messrs. Weening and Dickey and 12 months for Messrs. Bungeroth and Bonick). Upon the consummation of the Offerings, Mr. Weening will enter into an employment agreement with the Company pursuant to which he will serve as Executive Chairman and Treasurer of the Company. Under the terms of Mr. Weening's employment agreement, he will be entitled to receive an annual base salary of $300,000. Such base salary will increase by 5.0% during each year of the term of the employment agreement, subject to merit increases as the Compensation Committee deems appropriate. The agreement will provide that Mr. Weening may receive a bonus of up to 50% of the base salary, with bonus targets to be based on Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data") or stock appreciation goals as determined by the Compensation Committee. Mr. Weening's employment agreement will have a three-year term with an automatic renewal provision of one year, subject to non- renewal. The terms of the agreement will also provide that upon the death or disability of Mr. Weening, the Company shall continue to pay Mr. Weening's base salary for the twelve-month period immediately following such event and all unvested Time Vested Options will vest and be retained. In addition, in the event (i) the death or disability occurs after the mid-point of a particular vesting year and (ii) the fair market value of the Class A Common Stock as of the date of such death or disability equals or exceeds the exercise price per share of the Performance Options Scheduled to vest at the end of such vesting year, such Performance Options will vest and be retained. The agreement will also provide that in the event Mr. Weening is terminated by the Company without cause or terminates his employment for good reason, 85 the Company will pay to Mr. Weening an amount equal to the greater of (i) the base salary owed to Mr. Weening for the remainder of the term of the agreement and (ii) one times annual base salary in effect as of the date of termination plus the last bonus received by Mr. Weening and all unvested Time Vested Options will vest and be retained. In addition, in the event the fair market value of the Class A Common Stock as of the date of such termination equals or exceeds the exercise price per share of the unvested Performance Options, such Performance Options will vest and be retained. Such Performance Options that become vested shall remain exercisable until 90 days following the date that such Performance Options would otherwise have become vested and exercisable. If, within the one-year period following a change of control, the Company terminates Mr. Weening's employment for any reason other than death or disability or for cause or Mr. Weening terminates his employment for good reason, Mr. Weening will be paid the same amount as if he were terminated without cause if no change of control had occurred except all unvested Time Vested Options and Performance Options will vest and be retained. Upon the consummation of the Offerings, Mr. Dickey will enter into an employment agreement with the Company pursuant to which he will serve as Executive Vice Chairman of the Company. Under the terms of Mr. Dickey's employment agreement he will be entitled to receive an annual base salary of $300,000. Such base salary will increase by 5.0% during each year of the term of the employment agreement, subject to merit increases as the Compensation Committee deems appropriate. The agreement provides that Mr. Dickey may receive a bonus of up to 50% of the base salary, with bonus targets to be based on Broadcast Cash Flow or stock appreciation goals as determined by the Compensation Committee. Mr. Dickey's employment agreement and will have a three-year term with an automatic renewal provision of one year, subject to non-renewal. The terms of the agreement will also provide that upon the death or disability of Mr. Dickey, the Company shall continue to pay Mr. Dickey's base salary for the twelve-month period immediately following such event and all unvested Time Vested Options will vest and be retained. In addition, in the event (i) the death or disability occurs after the mid-point of a particular vesting year and (ii) the fair market value of the Class A Common Stock as of the date of such death or disability equals or exceeds the exercise price per share of the Performance Options scheduled to vest at the end of such vesting year, such Performance Options will vest and be retained. The agreement also provides that in the event Mr. Dickey is terminated by the Company without cause or terminates his employment for good reason, the Company will pay to Mr. Dickey an amount equal to the greater of (i) the base salary owed to Mr. Dickey for the remainder of the term of the agreement and (ii) one times annual base salary in effect as of the date of termination plus the last bonus received by Mr. Dickey and all unvested Time Vested Options will vest and be retained. In addition, in the event the fair market value of the Class A Common Stock as of the date or such termination equals or exceeds the exercise price per share of the unvested Performance Options, such Performance Options will vest and be retained. Such Performance Options that become vested shall remain exercisable until 90 days following the date that such Performance Options would otherwise have become vested and exercisable. If, within the one-year period following a change of control, the Company terminates Mr. Dickey's employment for any reason other than death or disability or for cause or Mr. Dickey terminates his employment for good reason, Mr. Dickey will be paid the same amount as if he were terminated without cause if no change of control had occurred except all unvested Time Vested Options and Performance Options will vest. Mr. Bungeroth is a party to an employment agreement with Media LLC pursuant to which he serves as President and Chief Executive Officer of the Company and President and Chief Executive Officer of Broadcasting. Under the terms of Mr. Bungeroth's employment agreement, he is entitled to receive an annual base salary of $250,000 and is eligible to receive a bonus of up to 50% of his annual base salary based on goals agreed upon by Mr. Bungeroth and QUAESTUS. Mr. Bungeroth's employment agreement is terminable by either party. Upon the consummation of the Offerings, Mr. Bungeroth will enter into an employment agreement with the Company with terms comparable to his existing employment agreement. Mr. Bonick is a party to an employment agreement with Media LLC pursuant to which he serves as Vice President and Chief Financial Officer of the Company and Broadcasting. Under the terms of Mr. 86 Bonick's employment agreement, he is entitled to receive an annual base salary of $250,000 and is eligible to receive a bonus of up to 50% of his annual base salary based on goals agreed upon by Mr. Bonick and QUAESTUS. Mr. Bonick's employment agreement is terminable by either party. Upon consummation of the Offerings, Mr. Bonick will enter into an employment agreement with the Company with terms comparable to his existing employment agreement. BOARD OF DIRECTORS COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Sheridan and Everett will comprise the Company's Compensation Committee. Prior to the Stock Offerings, the Company did not have a Compensation Committee and compensation decisions were made primarily by the Board and the Investment Committee including representatives of NationsBanc Capital Corp., Heller Equity Capital Corporation and State of Wisconsin Investment Board. AUDIT COMMITTEE Messrs. Sheridan and Everett will serve as the Company's Audit Committee. NON-EMPLOYEE DIRECTOR COMPENSATION Each member of the Board of Directors who is not an officer or an owner, or the representative of an owner, of more than 5% of the outstanding Class A Common Stock of the Company receives compensation of $ per meeting for serving on the Board of Directors. The Company also reimburses Directors for any expenses incurred in attending meetings of the Board of Directors and the committees thereof. Upon their election to the Board of Directors or the closing of the Offering (whichever is later), each non-employee Board member will be granted options to purchase shares of the Company's Class A Common Stock. Such options will be exercisable at the fair market value of the common stock at the date of grant. These options will become vested and exercisable for up to 33% of the total optioned shares upon the first anniversary of the grant of the options and for an additional 33% of the total optioned shares upon each succeeding anniversary until the option is fully exercisable at the end of the third year. 87 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In November 1997, the Company acquired two radio stations (one AM and one FM station) in Toledo, Ohio from Midwestern Broadcasting, Inc. ("Midwestern"), an entity controlled by Lewis Dickey, Sr., the father of the Company's Executive Vice Chairman, Lewis W. Dickey, Jr., and Vice President and Director of Programming, John Dickey. Lewis W. Dickey, Jr., was Midwestern's President and Chief Operating Officer. John Dickey served as Director of Programming of Midwestern from January 1990 until March 1998. The total purchase price of the stations purchased from Midwestern was $10.0 million. Richard W. Weening, Lewis W. Dickey, Jr., John Dickey and other members of the Dickey family have ownership interests in three radio stations (two FM stations and one AM station) in Nashville, Tennessee which are not affiliates of the Company. Lewis W. Dickey, Jr. and John Dickey each have a 25% ownership interest in Stratford Research, an entity that provides programming and marketing consulting and market research services to the Company. Historically, Stratford Research has received a one-time $25,000 per market fee to evaluate programming at target radio stations prior to acquisition. Annual strategic studies of each market have been provided at a cost of $25,000 per year, per market. Program consulting services for acquired stations have been provided on an as needed basis. Total fees earned by Stratford Research during 1997 totaled $424,000. Under the new agreement with Stratford Research which takes effect immediately prior to the consummation of the Offerings, Stratford Research will continue to receive $25,000 to evaluate programming at target radio stations. The strategic studies will cost the Company a minimum of $25,000, negotiable depending on competitive market conditions. Additionally, Stratford Research will provide program consulting services for $900 per month, per FM station, increasing to $1,100 per month per FM station over the three years of the agreement. QUAESTUS, an entity controlled by Mr Weening, provides industry research, market support and due diligence support services, and transaction management for the Company's acquisitions and provides certain corporate finance and related services in support of the Company's treasury function. Prior to March 1998, QUAESTUS received $25,000 for each FM station acquired, from which was paid additional out-of-pocket expenses for legal, due diligence, and engineering expenses in connection with each acquisition. During 1997, the Company paid QUAESTUS $297,000 for acquisition and corporate finance services. Under the new agreement with QUAESTUS which takes effect immediately prior to the consummation of the Offerings, QUAESTUS will receive a specified rate per transaction between $15,000 and $60,000, depending on the number of FM stations acquired in the transaction, and conditioned on consummation of those transactions. In addition, the Company is obligated to reimburse QUAESTUS for all of its expenses incurred in connection with the performance of services under such agreement. The Company also paid to Media LLC fees in 1997 consisting of (i) a non-recurring organizational fee of $300,000 (with QUAESTUS receiving $180,000 of such fee and DBBC, receiving $120,000 of such fee) and (ii) a management fee of $206,000 (with QUAESTUS receiving $123,600 of such fee from Media LLC and DBBC receiving $82,400 of such fee from Media LLC). Upon the consummation of the Offerings, the fee paid to Media LLC shall terminate. Lewis W. Dickey, Jr. and John Dickey have a 75% and 25% ownership interest in DBBC, respectively. CCC has a liability to Robin Woodard Weening, the former president of CCC and the wife of Richard Weening, representing deferred compensation in the amount of approximately $184,000, which is accruing interest. Ms. Weening is an employee of QUAESTUS and is currently a member of the board of directors of CCC. 88 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth as of , 1998 and as adjusted to give effect to the sale of Class A Common Stock offered hereby, certain information regarding beneficial ownership of the Company's Common Stock by (i) State of Wisconsin Investment Board ("the Selling Stockholder"), (ii) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of common stock, (iii) each director, (iv) each of the Named Executive Officers and (v) all directors and executive officers as a group. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated.
CLASS B COMMON STOCK(1) CLASS A COMMON STOCK ----------- ----------------------------------------------------------------------- PRIOR TO PRIOR TO STOCK AFTER STOCK OFFERINGS STOCK OFFERINGS OFFERINGS -------------------------- SHARES BEING -------------------------- ----------- NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE NUMBER - ---------------------------------------- ----------- ------------- --------------- ----------- ------------- ----------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett CLASS C COMMON STOCK(2) --------------------------------------- AFTER STOCK OFFERINGS PRIOR TO STOCK AFTER STOCK OFFERINGS OFFERINGS -------------------------- -------------------------- ----------- NAME PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER - ---------------------------------------- ------------- ----------- ------------- ----------- ------------- ----------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett NAME PERCENTAGE - ---------------------------------------- ------------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett
- ------------------------------ (1) Except upon the occurrence of certain events, holders of Class B Common Stock are not entitled to vote, whereas each share of Class A Common Stock entitles its holders to one vote and subject to certain exceptions, each share of Class C Common Stock entitles its holders to ten votes. Under certain conditions and subject to prior governmental approval, shares of Class B Common Stock are convertible into shares of Class A Common Stock and/or Class C Common Stock. (2) Subject to certain exceptions, each share of Class C Common Stock entitles its holders to ten votes. Under certain conditions and subject to prior governmental approval, shares of Class C Common Stock are convertible into shares of Class A Common Stock. (3) Less than 1%. 89 DESCRIPTION OF CAPITAL STOCK The following summary description of the capital stock of the Company is qualified by reference to the Company's Amended and Restated Articles of Incorporation and Bylaws, which are filed as exhibits to the Registration Statement of which this Prospectus is a part and are incorporated herein by reference. The Company's authorized capital stock consists of: (i) shares of Class A Common Stock, $.01 par value per share; (ii) shares of Class B Common stock, $.01 par value per share and (iii) shares of preferred stock. COMMON STOCK GENERAL. Except with respect to voting and conversion, shares of Class A Common Stock , Class B Common Stock and Class C Common Stock are identical in all respects. Holders of shares of Class A Common Stock are entitled to one vote per share; except as provided below, holders of Class B Common Stock are not entitled to vote; and, subject to the immediately succeeding sentence, holders of shares of Class C Common Stock are entitled to ten votes per share. During the period of time commencing with the date of conversion of Class B Common Stock to Class C Common Stock by NationsBanc or SWIB and ending with the date on which NationsBanc and SWIB (together with their respective affiliates) each ceases to beneficially own at least 5% of the aggregate shares of Common Stock held by such holders immediately prior to the consummation of the Offerings, holders of Class C Common Stock shall be entitled to only one vote per share. VOTING. All actions submitted to a vote of the Company's stockholders are voted on by holders of Class A Common Stock and Class C Common Stock, voting together as a single class. Holders of Class B Common Stock are not entitled to vote, except with respect to the following corporate actions ("Fundamental Actions"): (i) any proposed amendment to the Company's articles of incorporation or by-laws; (ii) any proposed merger, consolidation or other business combination, or sale, transfer or other disposition of all or substantially all of the assets of the Company; (iii) any proposed voluntary liquidation, dissolution or termination of the Company; and (iv) any proposed transaction resulting in a Change of Control and except as set forth below. The affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class C Common Stock, voting together as a single class, and the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, voting separately as a class, are required to approve any Fundamental Action; PROVIDED that such voting rights will cease with respect to such holder of Class B Common Stock and the shares of Class B Common Stock held by such holder shall not be included in determining the aggregate number of shares outstanding for voting purposes, upon the failure of any such holder (together with its affiliates) to beneficially own at least 50% of the shares held by such holder immediately prior to the consummation of the Offerings. In addition to the above voting rights, upon a final order by the FCC that the granting of the right to NationsBanc to designate a director to the Board of Directors of the Company pursuant to a stockholders agreement will not result in NationsBanc's interest being "attributable" under applicable FCC rules and so long as NationsBanc (together with its affiliates) continues to own not less than 50% of the shares of the Company's common stock held by NationsBanc immediately prior to the consummation of the Offerings, NationsBanc will, pursuant to a stockholders agreement, be entitled to designate one director to the Board of Directors of the Company. The Articles of Incorporation of the Company will provide that, so long as NationsBanc (together with its affiliates) continues to own not less than 50% of the shares of the Company's common stock held by NationsBanc immediately prior to the consummation of the Offerings and upon a final order by the FCC that the granting of the right to NationsBanc to designate a director to the Board of Directors of the Company pursuant to a stockholders agreement will not result in such holders' interest being "attributable" under applicable FCC rules, (a) the holders of the Class C Common Stock will be entitled to elect a director, which director shall be the NationsBanc designee (the "Class C Director") to the Board of Directors of the Company and (b) the Company may not take any of the following actions without the unanimous vote of the Board of Directors (including the Class C Director): 90 (i) enter into any transaction with any affiliate of the Company or amend or otherwise modify any existing agreement with any affiliate of the Company other than transactions with affiliates which are on terms no less favorable to the Company than the Company would obtain in a comparable arm's-length transaction with a Person not an affiliate of the Company and which are approved, after the disclosure of the terms thereof, by vote of the majority of the Board of Directors (PROVIDED, that any director which is an interested party or an affiliate of an interested party will not be entitled to vote and will not be included in determining whether a majority of the Board of Directors has approved the transaction); (ii) issue any shares of Class B Common Stock or Class C Common Stock of the Company; (iii) acquire (by purchase or otherwise) or sell, transfer or otherwise dispose of assets having a fair market value in excess of 10% of the Company's stockholders' equity as of the last day of the preceding fiscal quarter for which financial statements are available; or (iv) amend, terminate or otherwise modify any of the foregoing clauses (i) through (iii) or this clause (iv) or any provision governing the voting or conversion rights of the Class B Common Stock or the Class C Common Stock. Concurrently with the consummation of the Offerings, the holders of the Class C Common Stock will enter into a stockholders agreement with NationsBanc providing that such holders of Class C Common Stock will elect the person designated by NationsBanc as the Class C Director. The Articles of Incorporation of the Company will provide that, so long as NationsBanc (together with its affiliates) continues to own not less than 50% of the shares of the Company's common stock held by NationsBanc immediately prior to the consummation of the Offerings, the Company may not, so long as the NationsBanc designee is not a director, take any action with respect to the actions described above without the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, voting separately as a class. The Articles of Incorporation will further provide that the Board of Directors will be required to consider in good faith any bona fide offer from any third party to acquire any stock or assets of the Company and to pursue diligently any transaction determined by the Board of Directors in good faith to be in the best interests of the Company's stockholders. DIVIDENDS AND OTHER DISTRIBUTIONS (INCLUDING DISTRIBUTIONS UPON LIQUIDATION OR SALE OF THE COMPANY). Each share of Class A Common Stock and Class B Common Stock is equal in respect of dividends and other distributions in cash, stock or property (including distributions upon liquidation of the Company and consideration to be received upon a sale or conveyance of all or substantially all of the Company's assets); except that in the case of dividends or other distributions payable on the Class A Common Stock or Class B Common Stock in shares of such stock, including distributions pursuant to stock splits or dividends, only Class A Common Stock will be distributed with respect to Class A Common Stock and only Class B Common Stock will be distributed with respect to Class B Common Stock. In no event will any of the Class A Common Stock or Class B Common Stock be split, divided or combined unless each other class is proportionately split, divided or combined. CONVERTIBILITY OF CLASS B COMMON STOCK INTO CLASS A COMMON STOCK OR CLASS C COMMON STOCK AND CONVERTIBILITY OF CLASS C COMMON STOCK INTO CLASS A COMMON STOCK. The Class B Common Stock is convertible at any time, or from time to time, at the option of the holder of such Class B Common Stock (provided that the prior consent of any governmental authority required to make such conversion lawful shall have been obtained) without cost to such holder (except any transfer taxes that may be payable if certificates are to be issued in a name other than that in which the certificate surrendered is registered), into Class A Common Stock or Class C Common Stock on a share-for-share basis; PROVIDED such holder is not at the time of such conversion a Disqualified Person (as defined below). The Class C Common Stock is convertible at any time, or from time to time, at the option of the holder of such Class C Common Stock (provided that the prior consent of any governmental authority required to make such conversion lawful shall have been obtained) without cost to such holder (except any transfer taxes that may be payable if certificates are to be issued in a name other than that in which the 91 certificate surrendered is registered), into Class A Common Stock on a share-for-share basis; PROVIDED such holder is not at the time of such conversion a Disqualified Person. A record or beneficial owner of shares of Class B Common Stock or Class C Common Stock which was converted from Class B Common Stock may transfer such shares of Class B Common Stock or Class C Common Stock (whether by sale, assignment, gift, bequest, appointment or otherwise) to any transferee, PROVIDED that the prior consent of any governmental authority required to make such transfer lawful shall have been obtained, and PROVIDED, FURTHER, that the transferee is not a Disqualified Person. Concurrently with any such transfer, all shares of such transferred Class B Common Stock or Class C Common Stock shall convert into shares of Class A Common Stock, and the holders of such converted Common Stock shall exchange its share certificates for Class A Common Stock. As a condition to any proposed transfer or conversion, the person who intends to hold the transferred or converted shares will provide the Company with any information reasonably requested by the Company to enable the Company to determine whether such a person is a Disqualified Person A person shall be deemed to be a "Disqualified Person" if, (and with respect to any proposed conversion or transfer, after giving effect to such proposed conversion or transfer), the Board of Directors of the Company in good faith determines a person is (or would be after giving effect to such conversion or transfer), or a person becomes aware that he or she is (or would be after giving effect to such conversion or transfer), or the FCC determines by a final order that such person is (or would be after giving effect to such conversion or transfer), a person which, directly or indirectly, as a result of ownership of Common Stock or other capital stock of the Company or otherwise (i) causes (or would cause) the Company or any of its subsidiaries to violate the multiple, cross-ownership, cross-interest or other rules, regulations, policies or orders of the FCC, or (ii) would result in disqualification of the Company or any of its subsidiaries as a licensee of the FCC or (iii) would cause the Company to violate the provisions with respect to foreign ownership or voting of the Company or any of its subsidiaries as set forth in Section 310(b)(3) or (4) of the Communications Act, as applicable. Notwithstanding the foregoing, if a person objects in good faith, within 10 days of notice by the Company that the Board of Directors has determined that such person is a Disqualified Person to such determination, the Company and/or such person shall, when appropriate, apply for a determination by the FCC with respect thereto within 10 days of notice of such objection. If no determination is made by the FCC within 90 days from the date of such application or if the Company and such holder determine that it is inappropriate to make any application to the FCC, the Company and such holder agree that such determination shall be made by an arbitrator, mutually agreed upon by the Company and such holder. Notwithstanding the foregoing, until a determination is made by the FCC (and such determination is a final under) or by the arbitrator, such person will not be deemed a Disqualified Person. In the event the FCC determines by a final order, a person obtains knowledge that it is, or, subject to the above, the Board of Directors, in good faith determines that, a person is a Disqualified Person, such person shall promptly take any and all actions necessary or required by the FCC to cause such person to cease being a Disqualified Person, including, without limitation, divesting all or a portion of its interest in the Company, making an application to or requesting a ruling from and/or cooperating with the Company in any application to or a ruling the FCC seeking a waiver for or an approval of such ownership, divesting itself of any ownership interest in any entity which together with such person's interest in the Company makes such person a Disqualified Person, entering into a voting trust whereby its interest in the Company will not make such person a Disqualified Person or exchanging its shares of Common Stock for Class B Common Stock. The Articles of Incorporation will provide that all shares of Common Stock will bear a legend regarding restrictions on transfer and ownership. REGISTRATION RIGHTS OF CERTAIN HOLDERS. Pursuant to an agreement among the Company, and NationsBanc, SWIB and certain other holders collectively, (the "Holders of Registrable Stock") of approximately shares of Class B Common Stock and shares of Class A Common Stock and shares of Class C Common Stock issuable upon the exercise of conversion rights with respect to the 92 Class B Common Stock, the Holders of Registrable Stock are entitled to certain demand and piggyback registration rights (or, in come cases, piggyback registration rights only) with respect to shares of Class A Common Stock (the "Registrable Stock"). Pursuant to such agreement, at any time after the 180th day following the date of this Prospectus, (i) in the case of a first notice, persons holding more than 25% of the Registrable Stock, (ii) in the case of a second notice, persons holding more than 25% of the Registrable Stock, excluding Registrable Stock held by the person(s) initiating the first notice and (iii) in the case of a third notice, persons holding more than 20% of the Registrable Stock, excluding Registrable Stock held by person(s) initiating the first or second notice or may request may request that the Company file a registration statement under the Securities Act and, upon such request and subject to certain conditions, the Company generally will be required to use its commercially reasonable efforts to effect any such registration. The Company is not required to effect more than three such demand registrations (subject to (i) one additional demand Registration if all Registrable Stock to be included in prior demand registrations are not so included and (ii) one additional demand to NationsBanc in the event NationsBanc is not permitted, pursuant to a no-action letter from the Commission, to "tack" the holding period of Media LLC to its own holding period with respect to the shares of the Common Stock distributed to NationsBanc upon dissolution of Media LLC. In addition, if the Company proposes to register any of its securities, either for its own account or for the account of other stockholders (including, without limitation, for the account of any Holder of Registrable Stock), the Company is required, with certain exceptions, to notify all Holders of Registrable Stock and, subject to certain limitations, to include in such registration all of the shares of Common Stock requested to be included by the Holders of Registrable Stock. The Company is generally obligated to bear the expenses, other than underwriting discounts and sales commissions, of all of these registrations. The piggyback registration rights expire at such time as a Holder of Registrable Stock would be able to dispose of all of its registrable securities in any six-month period under Rule 144 of the Securities Act. PREEMPTIVE RIGHTS. Neither the Class A Common Stock nor the Class B Common Stock carry any preemptive rights enabling a holder to subscribe for or receive shares of stock of the Company of any class or any other securities convertible into shares of stock of the Company. The Cumulus Board possesses the power to issue shares of authorized but unissued Class A Common Stock without further stockholder action. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation, dissolution or winding up of Cumulus, whether voluntarily or involuntarily, after payment or provision for payment of the debts and other liabilities of Cumulus and the preferential amounts to which the holders of any stock ranking prior to the Class A Common Stock and the Class B Common Stock in the distribution of assets shall be entitled upon liquidation, the holders of the Class A Common Stock and the Class B Common Stock shall be entitled to share pro rata in the remaining assets of Cumulus according to their respective interests. PREFERRED STOCK Preferred stock may be issued from time to time by the Company's Board of Directors, without stockholder approval, in one or more classes or series. Subject to the provisions of the Amended and Restated Articles of Incorporation and the limitations prescribed by law, the Board of Directors is expressly authorized to adopt resolutions to issue the shares of preferred stock, to fix the number of shares and to change the number of shares constituting any series, and to provide for or change the voting powers, designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, including dividend rights (including whether dividends are cumulative), dividend rates, terms or redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any class or series of preferred stock, in each case without any further action or vote by the stockholders. One of the effects of undesignated preferred stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, 93 proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. The issuance of shares of the preferred stock pursuant to the Board of Directors' authority described above may adversely affect the rights of the holders of Common Stock. For example, preferred stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the Common Stock at a premium or may otherwise adversely affect the market price of the Common Stock. CERTAIN STATUTORY AND OTHER PROVISIONS Illinois law and the Company's Articles of Incorporation and Bylaws contain several provisions that may make the acquisition of control of the Company by means of tender offer, open market purchases, proxy contest or otherwise more difficult. Set forth below is a description of those provisions. ILLINOIS LAW. Following the Offering, the Company will be subject to Section 7.85 of the Business Corporation Act of Illinois ("Section 7.85"). Section 7.85 prohibits a publicly held Illinois corporation from engaging in a "business combination" with an "interested shareholder," unless the proposed "business combination" (i) receives the affirmative vote of the holders of at least 80% of the combined voting power of the then outstanding shares of all classes and series of the corporation entitled to vote generally in the election of directors (the "Voting Shares") voting together as a single class, and the affirmative vote of a majority of the combined voting power of the then outstanding Voting Shares held by disinterested shareholders voting together as a single class, (ii) is approved by at least two-thirds of the "disinterested directors," or (iii) provides for consideration offered to shareholders that meets certain fair price standards and satisfied certain procedural requirements. Such fair price standards require that the fair market value per share of such consideration be equal to or greater than the higher of (A) the highest price paid by the "interested shareholder" during the two-year period immediately prior to the first public announcement of the proposed "business combination" or in the transaction by which the "interested shareholder" became such, and (B) the fair market value per common share on the first trading date after the date the first public announcement of the proposed "business combination" has become such. For purposes of Section 7.85, "disinterested director" means any member of the board of directors of the corporation who (a) is neither the "interested shareholder" nor an affiliate or associate thereof, (b) was a member of the board of directors prior to the time that the "interested shareholder" became such, or was recommended to succeed a "disinterested director" by a majority of the "disinterested directors" then in office, and (c) was not nominated for election as a director by the "interested shareholder" of any affiliate or associate thereof. For purposes of Section 7.85 and Section 11.75 described below, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested shareholder, and an "interested shareholder" is a person who, together with affiliates and associates, owns (or within the prior two years, did own) 10% or more of the combined voting power of the outstanding Voting Shares. The Company is also subject to Section 11.75 of the Business Corporation Act of Illinois ("Section 11.75") which prohibits "business combinations" with "interested shareholders" for a period of 3 years following the date that such shareholder became an "interested shareholder," unless (i) prior to such date, the Board of Directors approve the transaction that resulted in the shareholder becoming an "interested shareholder," or (ii) upon consummation of such transaction, the "interested shareholder" owned at least 85% of the Voting Shares outstanding at the time such transaction commenced (excluding shares owned by directors who are also officers, and shares owned by employee stock plans in which employee participants do not have the right to determine confidentiality whether shares held subject to the plan will be tendered in a tender or exchange offer), or (iii) on or after such date, the "business combination" is approved by the Board of Directors and authorized at a meeting of the shareholders by two-thirds of the outstanding Voting Shares not owned by the "interested shareholder." For purposes of Section 11.75, an "interested shareholder" is a person who, together with affiliates and associates, owns (or within the prior three years, did own) 15% or more of the combined voting power of the Voting Shares. 94 Illinois law requires the affirmative votes of at least two-thirds of the votes of the shares of the Company entitled to approved or authorize any (a) merger or consolidation of the Company with or into another corporation, (b) sale, lease or other disposition of all or substantially all of the assets of the Company, (c) dissolution of the Company or (d) amendment of the Company's Articles of Incorporation. The two-thirds voting requirement may have the effect of delaying, deterring or preventing a change of control of the Company not favored by a shareholder or group of shareholders holding more than one-third of the outstanding voting stock. ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. The Company's Articles of Incorporation eliminate the liability of the Company's directors to the Company or its shareholders for monetary damages resulting from breaches of their fiduciary duties as directors. Directors remain liable for breaches of their duty of loyalty to the Company or its shareholders, as well as for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law and transactions from which a director derives improper personal benefit. The Company's Articles of Incorporation also do not absolve directors of liability under Section 8.65 of the Business Corporation Act of Illinois, which makes directors personally liable for (i) unlawful dividends or unlawful stock repurchases or redemptions if the director did not act in good faith, (ii) the barring of known claims against the corporation after dissolution, and (iii) debts incurred by a dissolved corporation in carrying on its business. The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach of their fiduciary duty of care, including any such actions involving gross negligence. The Company believes that this provision does not eliminate the liability of directors of the Company to the Company or its stockholders for monetary damages under the Federal securities laws. The Articles of Incorporation and Bylaws also provide indemnification for the benefit of directors and officers of the Company to the fullest extent permitted by Illinois law as it may be amended from time to time, including most circumstances under which indemnification otherwise would be discretionary. SERIES A PREFERRED STOCK AND EXCHANGEABLE DEBENTURES GENERAL. Concurrently with the Stock Offerings, the Company is offering in accordance with its Statement of Resolutions Fixing Terms (the "Certificate of Designation") shares of % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, with a liquidation preference of $1,000 per share. DIVIDENDS. The holders of the Series A Preferred Stock are entitled to receive cumulative dividends at an annual rate equal to % of the liquidation preference per share of the Series A Preferred Stock, payable quarterly, in arrears. On or before , 2003, the Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock having a liquidation preference equal to the amount of such dividends. It is not expected that the Company will pay any dividends in cash prior to , 2003. After , 2003, dividends may be paid only in cash. The terms of the Credit Facility and the Indenture restrict, and future indebtedness of the Company may restrict, the payment of cash dividends by the Company. REDEMPTION. The shares of Series A Preferred Stock are subject to mandatory redemption in , 2009, at a price equal to 100% of the liquidation preference thereof plus any and all accrued and unpaid cumulative dividends thereon. Except as provided herein, the Company may not redeem the Series A Preferred Stock prior to , 2003. On or after such date, the Company may redeem the Series A Preferred Stock at the redemption prices set forth under the terms of the Certificate of Designation pursuant to which the Series A Preferred Stock will be issued together with accumulated and unpaid dividends, if any, to the date of redemption. Prior to , 2001, the Company may redeem up to 35% of the original aggregate liquidation preference of the Series A Preferred Stock with the proceeds of one or more Equity Offerings (as defined in the Certificate of Designation) at a redemption price equal to % of the liquidation preference thereof plus accumulated and unpaid dividends thereon. In the event of a change of control, the Company must offer to redeem the outstanding 95 shares of the Series A Preferred Stock for cash at a purchase price of 101% of the liquidation preference thereof, together with all accumulated and unpaid dividends. VOTING. The holders of the shares of the Series A Preferred Stock will have no voting rights with respect to general corporate matters except that the holders of a majority of the then outstanding Series A Preferred Stock, voting as a class, may elect two directors to the Board of Directors of the Company in the event of (i) a failure to pay dividends on the Series A Preferred Stock for four consecutive quarters, (ii) a failure to discharge a redemption obligation with respect to the Series A Preferred Stock, (iii) a failure to offer to purchase the outstanding shares of Series A Preferred Stock following a change of control, (iv) a violation of certain covenants after the expiration of applicable grace periods, all as set forth in the Certificate of Designation or (v) a default in the payment of principal, premium or interest in indebtedness of the Company or certain of its subsidiaries or any other default which results in the acceleration of such indebtedness prior to its maturity, in each case if the aggregate principal amount of all such indebtedness exceeds $5.0 million. The approval of holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, will be required for (i) any merger, consolidation or sale of all or substantially all of the assets of the Company not specifically permitted by the Certificate of Designation and (ii) any modification to the Certificate of Designation or the form of the Exchange Debenture Indenture. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock are entitled to be paid for each share thereof out of the assets of the Company before any distribution is made to any shares of junior stock. EXCHANGE The Company may at its option exchange all, but not less than all, of the then outstanding shares of Series A Preferred Stock into the Exchange Debentures on any dividend payment date, subject to certain restrictions contained in the Certificate of Designation. EXCHANGE DEBENTURES The Exchange Debentures, if issued, will be issued under an indenture between the Company and , as trustee (the "Exchange Debenture Indenture"). The Exchange Debentures will be issued in fully registered form only in denominations of $1,000 and integral multiples thereof. Interest on the Exchange Debentures will be payable semi-annually in arrears in cash (or on or prior to 2003, in additional Exchange Debentures, at the option of the Company). The Exchange Debentures will be unsecured and will be subordinated in right of payment to all Exchange Debenture Senior Debt (as defined in the Exchange Debenture Indenture), including debt in respect of the Credit Facility and the Notes and will contain covenants and events of default and remedies with respect thereto which are substantially similar to the covenants contained in the Notes. See "Description of Credit Facility and Notes--The Notes." The Exchange Debentures are subject to mandatory redemption in 2009, at a price equal to 100% of the principal amount thereof together with accrued and unpaid interest, if any, to the date of redemption. Except as provided herein, the Company may not redeem the Exchange Debentures prior to 2003. On or after such date, the Company may redeem the Exchange Debentures at the redemption prices set forth in the indenture governing the Exchange Debentures (the "Exchange Debenture Indenture") together with accrued and unpaid interest, if any, to the date of redemption. Prior to 2001, the Company may redeem up to 35% of the original aggregate principal amount of the Exchange Debentures with the proceeds of one or more Equity Offerings (as defined in the Exchange Debenture Indenture) at a redemption price equal to % of the principal amount thereof plus accrued and unpaid interest thereon. In the event of a change of control, the Company must offer to redeem the outstanding shares of the Exchange Debentures for cash at a purchase price of 101% of the principal amount thereof, together with all accrued and unpaid interest. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Class A Common Stock is Firstar Trust Company. 96 DESCRIPTION OF CREDIT FACILITY AND NOTES THE CREDIT FACILITY GENERAL. In March 1998, the Company entered into a $190.0 million senior credit facility with Lehman Brothers Inc., as Arranger and Lehman Commercial Paper Inc., as Lender, Syndication Agent and Administrative Agent pursuant to which the Company has available a revolving credit line of $110.0 million until March 2, 2006, and an eight-year term loan facility of $80.0 million. The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and repay the Company's outstanding indebtedness under the Old Credit Facility, and to secure outstanding Letters of Credit issued under the Old Credit Facility in an aggregate amount equal to approximately $10.0 million. As of March 31, 1998, approximately $120.3 million was outstanding under the Credit Facility. See "Use of Proceeds." SECURITY; GUARANTEES. The Company's obligations under the Credit Facility are secured by substantially all of its assets in which a security interest may lawfully be granted (including FCC licenses held by the Company's subsidiaries) including, without limitation, intellectual property, real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries and 65% of the capital stock of any foreign subsidiaries. The obligations under the Credit Facility are also guaranteed by each of the domestic subsidiaries of the Company and is required to be guaranteed by any additional subsidiaries acquired by the Company. INTEREST RATES; FEES; REPAYMENTS. Both revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 0.50% to 1.75%, or the Eurodollar Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 1.50% to 2.75% (in each case dependent upon the leverage ratio of the Company). A commitment fee calculated at a rate ranging from 0.375% to 0.50% per annum (depending upon the Company's leverage ratio) of the average daily amount available under the revolving line of credit and the amount available under the term loan facility is payable quarterly in arrears and fees in respect of letters of credit issued under the Credit Facility equal to the lesser of (i) the interest rate margin then applicable to Eurodollar Rate loans and (ii) 2.50% is also payable quarterly in arrears. In addition, a fronting fee to be agreed to by the Company and the issuing bank of such letter of credit calculated at a rate not to exceed 0.0125% per annum on the maximum amount of each letter of credit is payable quarterly to the issuing bank. The revolving credit and term loan borrowings are repayable in equal quarterly installments beginning in 2000. The scheduled annual amortization of the term loans is $10.0 million in each of the years 2000 through 2002, $15.0 million in each of the years 2003 through 2005, and $5.0 million at maturity. The scheduled annual reduction in availability under the revolving credit loans is $10.0 million in each of the years 2000 and 2001, $15.0 million in 2002, $20.0 million in year 2003, $25.0 million in each of the years 2004 and 2005, and $5.0 million at maturity in 2006. Certain mandatory prepayments of the term loan facility and the revolving credit line and reductions in the availability of the revolving credit line is required to be made including: (i) subject to certain exceptions (including the issuance of capital stock or the incurrence of senior subordinated indebtedness prior to September 2, 1998) 100% of the net proceeds from any issuance of capital stock in connection with an initial public offering or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on the leverage ratio of the Company) of the excess cash flow of the Company. COVENANTS. The terms of the Credit Facility contain operating and financial covenants, including, without limitation, requirements to maintain minimum ratios of cash flow to debt service and maximum ratios of total debt to cash flow and senior debt to cash flow. In addition, the terms of the Credit Facility restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, 97 transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Sources of Liquidity." EVENTS OF DEFAULT. The terms of the Credit Facility contain events of default after expiration of applicable grace periods, including failure to make payments on the Credit Facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the Credit Facility and related documents, cross default under other agreements or conditions relating to indebtedness of the Company or its subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the Credit Facility, the majority of the banks may declare all amounts under the Credit Facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under the term loan facility and the majority of the banks under the revolving credit line may terminate the term loan facility and the revolving credit line, respectively. THE NOTES GENERAL. Concurrently with the Common Stock Offerings, the Company is offering $ of % Senior Subordinated Notes due 2008. INTEREST. The Notes bear interest at the rate of % per annum, payable semi-annually in arrears. REDEMPTION. The Notes mature on , 2008, at a price equal to 100% of the principal amount thereof together with accrued and unpaid interest, if any, to the date of redemption. Except as provided herein, the Company may not redeem the Notes prior to , 2003. On or after such date, the Company may redeem the Notes at the redemption prices set forth in the indenture pursuant to which the Notes will be issued (the "Indenture") together with accrued and unpaid interest, if any, to the date of redemption. Prior to , 2001, the Company may redeem up to 35% of the original aggregate principal amount of the Notes with the proceeds of one or more Equity Offerings (as defined in the Indenture) at a redemption price equal to % of the principal amount thereof plus accrued and unpaid interest thereon; provided, however, that at least 65% of the original aggregate principal amount of the Notes remain outstanding following each such redemption. In the event of a change of control, the Company must offer to redeem the outstanding shares of the Notes for cash at a purchase price of 101% of the principal amount thereof, together with all accrued and unpaid interest. RANKING. The Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt (as defined in the Indenture), including all obligations of the Company under the Credit Facility. On a pro forma basis, after giving effect to the Transactions as if they had occurred on March 31, 1997, the Company would have had outstanding $29.4 million of Senior Debt. CERTAIN COVENANTS. The Indenture will contain certain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined in the Indenture) to incur additional debt, pay dividends or make other distributions, repurchase any capital stock or subordinated debt, make certain investments, create certain liens, enter into certain transactions with affiliates, sell assets or enter into certain mergers and consolidations. In addition, the Indenture will contain a covenant limiting the lines of business of certain Unrestricted Subsidiaries (as defined in the Indenture). EVENTS OF DEFAULT. The terms of the Indenture contain events of defaults, including failure to make payments on the Notes, breach of covenants, breach of representations and warranties, cross default under other agreements or conditions relating to indebtedness of the Company or its restricted subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events and certain litigation or other proceedings. 98 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Stock Offerings, the Company will have outstanding shares of Class A Common Stock, shares of Class B Common Stock and shares of Class C Common Stock. In addition, the Company will have outstanding options to purchase shares of Class A Common Stock and shares of Class C Common Stock. Of these shares, the shares of Class A Common Stock offered hereby will be freely transferable without restriction (subject to any FCC consent that might be required) or further registration under the Securities Act, except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144, may generally only be sold subject to certain restrictions as to timing, manner and volume. The Company, its directors, and certain officers of the Company, who will directly or indirectly own shares of Class A Common Stock and/or Class C Common Stock and options to purchase shares of Class A Common Stock and/or Class C Common Stock upon completion of the Stock Offerings, have, subject to certain exceptions, agreed not to, directly or indirectly, offer for sale, sell or otherwise dispose of, or announce the offering of, any shares of Class A Common Stock or any securities convertible into or exercisable or exchangeable for shares of Class A Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. In general, under Rule 144 as currently in effect, a shareholder, including an Affiliate, who has beneficially owned his or her restricted securities (as that term is defined in Rule 144) for at least one year from the later of the date such securities were acquired from the Company or (if applicable) the date they were acquired from an Affiliate is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of 1% of the then outstanding shares of Class A Common Stock or the average weekly trading volume in the Class A Common Stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144, provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted securities were acquired from the Company or (if applicable) the date they were acquired from an Affiliate of the Company, a stockholder who is not an Affiliate of the Company at the time of sale and has not been an Affiliate of the Company for at least three months prior to the sale is entitled to sell the shares immediately without compliance with the foregoing requirements under Rule 144. The Company intends to file registration statements on Form S-8 under the Securities Act immediately following the consummation of the Offering to register all shares of Class A Common Stock issuable under the Cumulus employee benefit plans. The registration statements are expected to be filed on or shortly after the closing date of the Offering and will be effective upon filing. Shares issued upon the exercise of stock options after the effective date of the Form S-8 registration statements will be eligible for resale in the public market without restriction (subject to any FCC consent that might be required), and subject to Rule 144 limitations applicable to Affiliates and the lock-up agreements noted above. Prior to the Offering, there has been no public market for the Class A Common Stock. No prediction can be made as to the effect, if any, that market sales of shares of Class A Common Stock or the availability of shares for sale will have on the market price of the Class A Common Stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of Class A Common Stock in the public market could adversely affect the market price of the Class A Common Stock and could impair the Company's ability to raise capital through an offering of its equity securities. See "Underwriting." 99 UNDERWRITING Under the terms of and subject to the conditions contained in the underwriting agreement relating to the offering of shares of Class A Common Stock in the U.S. and Canada (the "U.S. Underwriting Agreement"), the form of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, between the Company and each of the underwriters named below (the "U.S. Underwriters"), for whom Lehman Brothers Inc., Bear, Stearns & Co. Inc. and BT Alex. Brown Incorporated are acting as representatives (the "Representatives"), the U.S. Underwriters have severally agreed to purchase from the Company, and the Company has agreed to sell to each U.S. Underwriter, the aggregate number of shares of the Class A Common Stock set forth opposite the name of such U.S. Underwriter below:
NUMBER OF U.S. UNDERWRITERS SHARES --------------------------------------------------------------------------- ----------- Lehman Brothers Inc................................................................... Bear, Stearns & Co. Inc............................................................... BT Alex. Brown Incorporated........................................................... ----------- Total...................................................................... ----------- -----------
Under the terms of and subject to the conditions contained in the underwriting agreement relating to the offering of shares of Class A Common Stock outside of the U.S. and Canada (the "International Underwriting Agreement" and together with the U.S. Underwriting Agreement, the "Underwriting Agreements"), the form of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, between the Company and each of the international managers named below (the "International Managers" and together with the U.S. Underwriters, the "Underwriters"), for whom Lehman Brothers International (Europe), Bear, Stearns International Limited, BT Alex. Brown International, division of Bankers Trust International PLC and Credit Lyonnais Securities are acting as lead managers (the "Lead Managers"), the International Managers have severally agreed to purchase from the Company, and the Company has agreed to sell to each International Manager, the aggregate number of shares of Class A Common Stock set forth opposite the name of such International Manager below:
NUMBER OF INTERNATIONAL MANAGERS SHARES --------------------------------------------------------------------------- ----------- Lehman Brothers International (Europe)................................................ Bear, Stearns International Limited................................................... BT Alex. Brown International.......................................................... Credit Lyonnais....................................................................... ----------- Total...................................................................... ----------- -----------
The Company has been advised by the Representatives and the Lead Managers that the U.S. Underwriters and the International Managers propose to offer part of the shares to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price (the "selling concession"). The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per 100 share to certain other Underwriters, or to certain other brokers or dealers. After the initial offering to the public, the offering price and other selling terms may be changed by the Representatives and the Lead Managers. The Underwriting Agreements provide that the obligations of the several U.S. Underwriters and the International Managers, respectively, to pay for and accept delivery of the shares of Class A Common Stock offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions and that, if any of the shares of Class A Common Stock are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting Agreement or by the International Managers pursuant to the International Underwriting Agreement, all the shares of Class A Common Stock agreed to be purchased by either the U.S. Underwriters or the International Managers, as the case may be, pursuant to their respective Underwriting Agreements, must be so purchased. The initial public offering price and underwriting discounts and commissions for each of the U.S. Offering and the International Offering are identical. The closing of each Offering is conditioned upon the closing of each of the other Offerings. The Company has agreed in the Underwriting Agreements to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the U.S. Underwriters and the International Managers may be required to make in respect thereof. The Company has granted to the U.S. Underwriters and the International Managers options to purchase up to an additional shares and shares of Class A Common Stock, respectively, exercisable solely to cover over-allotments, at the initial offering price to the public, less the underwriting discounts and commissions, shown on the cover page of this Prospectus. Any or all of such options may be exercised at any time until 30 days after the date of the U.S. Underwriting Agreement and the International Underwriting Agreement, as the case may be. To the extent that an option is exercised, each U.S. Underwriter or International Manager, as the case may be, will be committed, subject to certain conditions, to purchase a number of the additional shares of Class A Common Stock proportionate to such Underwriter's initial commitment as indicated in the preceding tables. The U.S. Underwriters and the International Managers have entered into an Agreement Between U.S. Underwriters and International Managers (the "Agreement Between") pursuant to which each U.S. Underwriter has agreed that, as part of the distribution of the shares of Class A Common Stock offered in the U.S. and Canada (plus any of the shares of Class A Common Stock to cover over-allotments), (a) it is not purchasing any of such shares for the account of anyone other than a U.S. or Canadian Person (as defined below) and (b) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to such shares to anyone other than a U.S. or Canadian Person. In addition, pursuant to the Agreement Between, each International Manager has agreed that, as part of the distribution of the shares of Class A Common Stock offered outside the U.S. and Canada (plus any of the shares of Class A Common Stock to cover over-allotments), (a) it is not purchasing any of such shares for the account of any U.S. or Canadian Person and (b) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to such shares to any U.S. or Canadian Person. Each International Manager also has agreed that it will offer to sell shares of Class A Common Stock only in compliance with all relevant requirements of any applicable laws. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Underwriting Agreements and the Agreement Between, including (i) certain purchases and sales between the U.S. Underwriters and the International Managers; (ii) certain offers, sales, resales, deliveries or distributions to or through investment advisors or other persons exercising investment discretion; (iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an International Manager for the account of a Person other than a U.S. or Canadian Person and by an International Manager who is also acting as a U.S. Underwriter for the account of a U.S. or Canadian Person; and (iv) other transactions specifically approved by the U.S. Underwriters and International Managers. As used 101 herein, (a) the term "U.S." means the United States of America (including the District of Columbia) and its territories, its possessions and other areas subject to its jurisdiction, (b) the term "Canada" means Canada, its provinces, territories and possessions and other areas subject to its jurisdiction and (c) the term "U.S. or Canadian Person" means any resident or citizen of the U.S. or Canada, any corporation, partnership or other entity created or organized in or under the laws of the U.S. or Canada or any political subdivision thereof or any estate or trust, the income of which is subject to U.S. federal income taxation or Canadian income taxation regardless of the source (other than the foreign branch of any U.S. or Canadian Person), and includes any U.S. or Canadian branch of a person other than a U.S. or Canadian Person. Pursuant to the Agreement Between, sales may be made between the U.S. Underwriters and the International Managers of such number of shares of Class A Common Stock as may be mutually agreed. Unless otherwise agreed, the price of any shares so sold shall be the public offering price as then in effect for Class A Common Stock being sold by the U.S. Underwriters and International Managers, less the selling concession allocable to such shares of Class A Common Stock. To the extent that there are sales pursuant to the Agreement Between, the number of shares of Class A Common Stock initially available for sale by the U.S. Underwriters or by the International Managers may be more or less than the amount appearing on the cover page of this Prospectus. This Prospectus is not, and under no circumstances is to be construed as, an advertisement or a public offering of the Class A Common Stock in Canada or any province or territory thereof. Any offer or sale of the shares of Class A Common Stock in Canada may only be made pursuant to an exemption from the prospectus and registration statement requirements in the province or territory of Canada in which such offer or sale is made. Each International Manager has represented and agreed that (i) it has not offered or sold and prior to the date six months after the latest closing date will not offer or sell any shares of Class A Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 (the "1986 Act") with respect to anything done by it in relation to the shares of Class A Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on, and will only issue and pass on to any person in the United Kingdom, any investment advertisement (within the meaning of the 1986 Act) relating to the shares of Class A Common Stock if that person falls within Article II(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. No action has been taken or will be taken in any jurisdiction by the Company or the Underwriters that would permit a public offering of the shares of Class A Common Stock in any jurisdiction where action for that purpose is required, other than the U.S. Persons into whose possession this Prospectus comes are required by the Company and the Underwriters to inform themselves about, and to observe any restrictions as to, the offering of the shares of Class A Common Stock and the distribution of this Prospectus. Purchasers of the shares of Class A Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. The Representatives and the Lead Managers have informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company and the directors, officers and stockholders of the Company have generally agreed not to offer, sell, contract to sell or otherwise issue any Class A Common stock or other capital stock prior to the expiration of 180 days from the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives and the Lead Managers. 102 Until the distribution of the Class A Common Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase shares of Class A Common stock. As an exception to these rules, the Representatives and the Lead Managers are permitted to engage in certain transactions that stabilize the price of the Class A Common Stock. Such transactions may consist of bids or purchases for the purpose pegging, fixing or maintaining the price of the Class A Common Stock. If the Underwriters create a short position in the Class A Common Stock in connection with the Stock Offerings (i.e., if they sell more shares of Class A Common Stock than are set forth on the cover page of this Prospectus), the Representatives and the Lead Managers may reduce that short position by purchasing Class A Common Stock in the open market. The Representatives and the Lead Managers also may elect to reduce any short position by exercising all or part of the over-allotment options described herein. In general, purchases of a security for the purpose of stabilization or to reduce a syndicate short position could also cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in this Offering. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Class A Common stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives or Lead Managers will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Application has been made for the inclusion of the Class A Common Stock on the Nasdaq National Market. In order to meet one of the requirements for listing of the Class A Common Stock on the Nasdaq National market, the Underwriters have agreed to sell lots of 100 or more shares to a minimum of beneficial holders. Lehman Brothers Inc. and Lehman Brothers Commercial Paper Inc., an affiliate of Lehman Brothers Inc., act as Arranger, and Syndication Agent and Administrative Agent, respectively, in connection with the Credit Facility and will receive any repayment by the Company of amounts outstanding under the Credit Facility from the proceeds of the Offerings. Lehman Brothers Inc. and Bear, Stearns & Co. Inc. will act as representatives of the underwriters in the concurrent Debt Offering and the concurrent Preferred Stock Offering. Each of the Representatives has engaged from time to time and may in the future engage in general financing and banking transactions with the Company or affiliates thereof. The Stock Offerings are being made pursuant to the provisions of Section 2710(c)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc. Bear, Stearns & Co. Inc. ("Bear Stearns") has agreed to act as Qualified Independent Underwriter for the Stock Offerings, and as such has assumed responsibilities of conducting due diligence and has reviewed and participated in the preparation of the Registration Statement. The public offering price of the Class A Common Stock will not be higher than the price recommended by Bear Stearns. DETERMINATION OF THE OFFERING PRICE Prior to the Stock Offerings, there has been no public market for the Class A Common Stock. The initial public offering price for the Class A Common Stock was determined by negotiations between the Company and the Representatives. Among the factors considered in such negotiations were prevailing market conditions, the market values of publicly traded companies that the Underwriters believed to be somewhat comparable to the Company, the demand for the Class A Common Stock and for similar securities of companies comparable to the Company, the current state of the Company's development and other factors deemed relevant. There can, however, be no assurance that the prices at which the Class A Common Stock will sell in the public market after the Stock Offerings will not be lower than the price at which it will be sold in the Stock Offerings. 103 CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS OF CLASS A COMMON STOCK The following is a general discussion of certain U.S. federal income and estate and gift tax consequences of the ownership and sale or other disposition of Class A Common Stock by a holder that, for U.S. federal income tax purposes, is not a "U.S. person" (a "Non-U.S. Holder"). For purposes of this discussion, a "U.S. person" means a citizen or resident (as determined for U.S. federal income tax purposes) of the U.S.; a corporation created or organized in the U.S. or under the laws of the U.S. or of any political subdivision thereof; an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust if both (i) a U.S. court is able to exercise primary supervision over the administration of the trust and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust. Resident alien individuals will be subject to U.S. federal income tax with respect to the Class A Common Stock as if they were U.S. citizens. The Company does not intend to treat the Class A Common Stock, the Notes and the Series A Preferred Stock, all of which are being offered concurrently, as an investment unit for United States federal income tax purposes. THIS DISCUSSION IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND THE ADMINISTRATIVE INTERPRETATIONS AS OF THE DATE HEREOF, ALL OF WHICH MAY BE CHANGED EITHER RETROACTIVELY OR PROSPECTIVELY. THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSIDER ANY SPECIFIC FACTS OR CIRCUMSTANCES THAT MAY APPLY TO A PARTICULAR NON-UNITED STATES HOLDER AND DOES NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF CLASS A COMMON STOCK (INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES PERSON OR NON-UNITED STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION. DIVIDENDS Dividends paid to a Non-U.S. Holder will generally be subject to withholding tax at the rate of 30%, unless the dividend is effectively connected with the conduct of a trade or business (or, if an income tax treaty applies, is attributable to a "permanent establishment", as defined therein) within the U.S. of the Non-U.S. Holder, in which case the dividend will be subject to the rules described in the next paragraph. Non-U.S. Holders should consult any applicable income tax treaties, which may provide for a reduced withholding rate or other rules different from those described above. For purposes of determining whether tax is to be withheld at a 30% rate or a reduced rate as specified by an income tax treaty, current law permits the Company to presume that dividends paid to an address in a foreign country are paid to a resident of such country absent definite knowledge that such presumption is not warranted. However, under recently finalized U.S. Treasury regulations, in the case of dividends paid after December 31, 1999, a Non-U.S. Holder generally would be subject to U.S. backup withholding tax at a 31% rate under the backup withholding rules described below, rather than at a 30% rate or a reduced rate under an income tax treaty, unless certain certification procedures (or, in the case of payments made outside the U.S. with respect to an offshore account, certain documentary evidence procedures) are satisfied, directly or through an intermediary. Further, in order to claim the benefit of an applicable tax treaty rate for dividends paid after December 31, 1999, a Non-U.S. Holder must comply with IRS certification requirements. Certain IRS certification and disclosure requirements must be complied with in order to be exempt from withholding under the effectively connected income exemption. The new regulations also provide special rules for dividend payments made to foreign intermediaries, U.S. or foreign wholly owned entities that are disregarded for U.S. federal income tax purposes and entities that are treated as fiscally transparent in the 104 U.S., the applicable income tax treaty jurisdiction, or both. Prospective investors should consult with their own tax advisers concerning the effect, if any, of the adoption of these new Treasury regulations on an investment in the Class A Common Stock. A Non-U.S. Holder who is eligible for a reduced withholding rate may obtain a refund of any excess amounts withheld by filing a tax return with the Internal Revenue Service (the "IRS"). U.S. withholding tax will not apply to dividends paid to a Non-U.S. Holder if the company receives the appropriate IRS form (currently Form 4224) from that Non-U.S. Holder, establishing that such income is effectively connected with the conduct of a trade or business (or, if an income tax treaty applies, is attributable to a "permanent establishment", as defined therein) of the Non-U.S. Holder within the U.S., unless the Company has knowledge to the contrary. Dividends paid to a Non-U.S. Holder that are effectively connected with the conduct of a trade or business (or, if an income tax treaty applies, are attributable to a "permanent establishment", as defined therein) of the Non-U.S. Holder within the U.S. are generally taxed on a net income basis (that is, after allowance for applicable deductions) at the graduated rates that are applicable to U.S. persons. In the case of a Non-U.S. Holder that is a corporation, such income may also be subject to a branch profits tax (which is generally imposed on a foreign corporation upon the deemed repatriation from the U.S. of effectively connected earnings and profits) at a 30% rate, unless the rate is reduced or eliminated by an applicable income tax treaty and the Non-U.S. Holder is a qualified resident of the treaty country. GAIN ON SALE OR OTHER DISPOSITION Subject to special rules applicable to individuals as described below, a Non-U.S. Holder will generally not be subject to regular U.S. federal income or withholding tax on gain recognized on a sale or other disposition of Class A Common Stock, unless (i) the gain is effectively connected with the conduct of a trade or business (or, if an income tax treaty applies, is attributable to a "permanent establishment", as defined therein) of the Non-U.S. Holder within the U.S. or of a partnership, trust or estate in which the Non-U.S. Holder is a partner or beneficiary within the U.S., or (ii) the Company has been, is or becomes a "U.S. real property holding corporation" within the meaning of Section 897(c) (2) of the Code at any time within the shorter of the five-year period preceding such sale or other disposition or such Non-U.S. Holder's holding period for the Class A Common Stock. A corporation is generally considered to be a U.S. real property holding corporation if the fair market value of its "U.S. real property interests" within the meaning of Section 897(c)(1) of the Code equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus the fair market value of any other of its assets used or held for use in a trade or business. The Company believes that it has not been, is not currently and is not likely to become a U.S. real property holding corporation. Further, even if the Company were to become a U.S. real property holding corporation, any gain recognized by a Non-U.S. Holder still would not be subject to U.S. federal income tax if the Class A Common Stock were considered to be "regularly traded" (within the meaning of applicable U.S. Treasury regulations) on an established securities market (e.g., the New York Stock Exchange, on which the Class A Common Stock will be listed), and the Non-U.S. Holder did not own, directly or indirectly, at any time during the five-year period ending on the date of the sale or other disposition, more than 5% of the Class A Common Stock. Gains realized by a Non-U.S. Holder of Class A Common Stock that are effectively connected with the conduct of a trade or business (or, if an income tax treaty applies, are attributable to a "permanent establishment", as defined therein) within the U.S. of the Non-U.S. Holder are generally taxed on a net income basis (that is, after allowance for applicable deductions) at the graduated rates that are applicable to U.S. persons. In the case of a Non-U.S. Holder that is a corporation, such income may also be subject to a branch profits tax (which is generally imposed on a foreign corporation upon the deemed repatriation from the U.S. of effectively connected earnings and profits) at a 30% rate, unless the rate is reduced or 105 eliminated by an applicable income tax treaty and the Non-U.S. Holder is a qualified resident of the treaty country. In addition to being subject to the rules described above, an individual Non-U.S. Holder who holds Class A Common Stock as a capital asset will generally be subject to tax at a 30% rate on any gain recognized on the sale or other disposition of such stock if (i) such gain is not effectively connected with the conduct of a trade or business (or, if an income tax treaty applies, is not attributable to a "permanent establishment", as defined therein) of the Non-U.S. Holder within the U.S., and (ii) such individual is present in the U.S. for 183 days or more in the taxable year of the sale or other disposition and either (A) has a "tax home" in the U.S. (as specially defined for purposes of the U.S. federal income tax), or (B) maintains an office or other fixed place of business in the U.S. and the income from the sale of the stock is attributable to such office or other fixed place of business. Individual Non-U.S. Holders may also be subject to tax pursuant to provisions of U.S. federal income tax law applicable to certain U.S. expatriates. FEDERAL ESTATE AND GIFT TAXES Class A Common Stock owned or treated as owned by an individual (regardless of whether such an individual is a citizen or a resident of the U.S.) on the date of death will be included in such individual's estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. A Non-U.S. Holder will not be subject to U.S. federal gift tax on a transfer of Class A Common Stock, unless such person is a domiciliary of the U.S., or such person is an individual subject to provisions of U.S. federal gift tax law applicable to certain U.S. expatriates. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, such Non-U.S. Holder, regardless of whether tax was actually withheld and whether withholding was reduced or eliminated by an applicable income tax treaty. Pursuant to certain income tax treaties and other agreements, that information may also be made available to the tax authorities of the country in which the Non-U.S. Holder resides. U.S. federal backup withholding (which generally is withholding imposed at the rate of 31% on certain payments to persons not otherwise exempt who fail to furnish certain identifying information) will generally not apply to (i) dividends paid to a Non-U.S. Holder that is subject to withholding at the 30% rate (or that is subject to withholding at a reduced rate under an applicable income tax treaty), or (ii) before January 1, 2000, dividends paid to a Non-U.S. Holder at an address outside of the U.S. (unless the payor has knowledge that the payee is a U.S. person). However, under recently finalized U.S. Treasury regulations, in the case of dividends paid after December 31, 1999, a Non-U.S. Holder generally would be subject to U.S. withholding tax at a 31% rate, unless certain certification procedures (or, in the case of payments made outside the U.S. with respect to an offshore account, certain documentary evidence procedures) are satisfied, directly or through an intermediary. Backup withholding and information reporting generally will apply to dividends paid to addresses inside the U.S. on shares of Class A Common Stock to beneficial owners that are not "exempt recipients" and that fail to provide in the manner required certain identifying information. The backup withholding and information reporting requirements also apply to the gross proceeds paid to a Non-U.S. Holder upon the sale or other disposition of Class A Common Stock by or through a U.S. office of a U.S. or foreign broker, unless the Non-U.S. Holder certifies to the broker under penalties of perjury as to, among other things, its name, address and status as a Non-U.S. Holder by filing the Service's Form W-8 with the broker, or unless the Non-U.S. Holder otherwise establishes an exemption. In general, backup withholding and information reporting will not apply to a payment of the proceeds of a sale or other disposition of Class A Common Stock effected at a foreign office of a broker. Before January 1, 1999, however, information reporting requirements (but not backup withholding) will apply to a payment 106 of the proceeds of a sale or other disposition of Class A Common Stock effected at a foreign office of (i) a U.S. broker; (ii) a foreign broker 50% or more of whose gross income for certain periods is effectively connected with the conduct of a trade or business within the U.S.; or (iii) a foreign broker that is a "controlled foreign corporation" for U.S. federal income tax purposes, unless the broker has documentary evidence in its records that the Non-U.S. Holder is a Non-U.S. Holder (and the broker has no knowledge to the contrary) and certain other conditions are met, or unless the Non-U.S. Holder otherwise establishes an exemption. Further, after December 31, 1999, under the newly issued Treasury regulations referred to above, information reporting and backup withholding may apply to payments of the gross proceeds from the sale or redemption of Class A Common Stock effected through foreign offices of brokers having any of a broader class of connections with the U.S. unless certain IRS certification requirements are complied with. Prospective investors should consult with their own tax advisers regarding these Treasury regulations, and in particular with respect to whether the use of a particular broker would subject the investor to these rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-U.S. Holder's U.S. federal income tax liability, provided that the Non-U.S. Holder files a tax return with the IRS. 107 LEGAL MATTERS Certain legal matters with respect to the shares of Class A Common Stock offered hereby will be passed upon for the Company by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Ralph B. Everett, who will be elected to serve as a Director of the Company upon the consummation of the Offerings, is a partner in the Washington, D.C. office of Paul, Hastings, Janofsky & Walker, LLP. Simpson Thacher & Bartlett, New York, New York, has acted as counsel to the Underwriters in connection with the Offerings. EXPERTS The financial statements included in this Prospectus for the following companies, except for the financial statements as they relate to the unaudited three-month periods ended March 31, 1998 and 1997, have been audited by Price Waterhouse LLP, independent accountants. Cumulus Media Inc. Arbor Radio LP Beaumont Skywave, Inc. Caribbean Communications Company Limited Carolina Broadcasting, Inc. and Georgetown Radio, Inc. Castle Broadcasting Limited Partnership Clearly Superior Radio Properties Communications Properties, Inc. Crystal Radio Group, Inc. Forjay Broadcasting Corporation HVS Partners Jan-Di Broadcasting, Inc. K-Country, Inc. Lesnick Communications, Inc. Louisiana Media Interests, Inc. and Subsidiaries M&M Partners The Midwestern Broadcasting Company, Radio Stations WWWM-FM and WLQR-AM Midland Broadcasters, Inc. Mustang Broadcasting Company Ninety Four Point One, Inc. and KAYD AM/FM Pamplico Broadcasting, L.P. Phoenix Broadcast Partners, Inc. Savannah Valley Broadcasting Radio Properties Seacoast Radio Company, LLC Sunny Broadcasters, Inc. Tallahassee Broadcasting, Inc. Tryon-Seacoast Communications, Inc. Value Radio Corporation Wicks Broadcasting Wilks Broadcast Acquisitions, Inc. WJCL-FM WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM WWFG-FM AND WOSC-FM Such financial statements have been so included in reliance on the reports of Price Waterhouse LLP given on the authority of said firm as experts in auditing and accounting. 108 The financial statements of Fritz Broadcasting, Inc. Toledo Division as of December 29, 1996 and December 31, 1995 and for each of the years ended December 29, 1996 and December 31, 1995 included in this Prospectus have been so included in reliance on the report of Plante & Moran LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc., and Hometown Wireless, Inc. as of December 31, 1997 and 1996 and for each of the three years ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of McGladrey & Pullen, LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of New Frontier Communications, Inc. as of December 31, 1997 and 1996 and for each of the three years ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of Johnson, Miller & Co., independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Republic Corporation as of December 31, 1997 and 1996 and for each of the three years ended December 31, 1997 included in this Prospectus have been so included 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 financial statements of Savannah Communications, L.P. as of December 31, 1997 and 1996 and for each of the years ended December 31, 1997 and 1996 included in this Prospectus have been so included 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. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement (which terms shall include any amendment thereto) on Form S-1 under the Securities Act with respect to the Class A Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto on file with the Commission pursuant to the Securities Act and the rules and regulations of the Commission thereunder. The Registration Statement, including exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549 and copies may be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office in Washington, D.C., and may be electronically accessed at the Commission's site on the World Wide Web at http://www.sec.gov. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. 109 INDEX TO FINANCIAL STATEMENTS CUMULUS MEDIA INC. Report of Independent Accountants................................................... F-8 Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.............. F-9 Consolidated Statements of Operations for the three month period ended March 31, 1998 and for the period from inception on May 22, 1997 to December 31, 1997....... F-10 Consolidated Statement of Stockholder's Equity for the period from inception on May 22, 1997 to December 31, 1997..................................................... F-11 Consolidated Statements of Cash Flows for the three month period ended March 31, 1998 and for the period from inception on May 22, 1997 to December 31, 1997....... F-12 Notes to Consolidated Financial Statements.......................................... F-13 ARBOR RADIO LP Report of Independent Accountants................................................... F-27 Balance Sheets as of December 31, 1997 and 1996..................................... F-28 Statements of Operations and Partners' Capital for the years ended December 31, 1997, 1996 and 1995............................................................... F-29 Statements of Cash Flows for the years ended December 31 1997, 1996 and 1995........ F-30 Notes to Financial Statements....................................................... F-31 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) Report of Independent Accountants................................................... F-36 Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-37 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-38 Statement of Changes in Stockholder's Equity for the year ended December 31, 1997.............................................................................. F-39 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-40 Notes to Financial Statements....................................................... F-41 CARIBBEAN COMMUNICATIONS COMPANY LIMITED Report of Independent Accountants................................................... F-45 Consolidated Balance Sheet as of April 30, 1997..................................... F-46 Consolidated Statement of Operations for the four month period ended April 30, 1997.............................................................................. F-47 Consolidated Statement of Changes in Stockholder's Equity (Deficit) for the four month period ended April 30, 1997................................................. F-48 Consolidated Statement of Cash Flows for the four month period ended April 30, 1997.............................................................................. F-49 Notes to Consolidated Financial Statements.......................................... F-50 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. Report of Independent Accountants................................................... F-54 Combined Balance Sheet as of December 31, 1997...................................... F-55 Combined Statement of Operations for the year ended December 31, 1997............... F-56 Combined Statement of Changes in Stockholders' Deficit for the year ended December 31, 1997.......................................................................... F-57 Combined Statement of Cash Flows for the year ended December 31, 1997............... F-58 Notes to Combined Financial Statements.............................................. F-59 CASTLE BROADCASTING LIMITED PARTNERSHIP Report of Independent Accountants................................................... F-63 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-64 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-65
F-1 Statements of Changes in Partners' Deficit for the years ended December 31, 1997 and 1996.............................................................................. F-66 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-67 Notes to Financial Statements....................................................... F-68 CLEARLY SUPERIOR RADIO PROPERTIES Report of Independent Accountants................................................... F-72 Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-73 Combined Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996....................... F-74 Combined Statement of Changes in Owner's Equity in Stations for the years ended December 31, 1997 and 1996........................................................ F-75 Combined Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996....................... F-76 Notes to Combined Financial Statements.............................................. F-77 COMMUNICATIONS PROPERTIES, INC. Report of Independent Accountants................................................... F-82 Balance Sheets as of March 31, 1998 and August 31, 1997 and 1996.................... F-83 Statements of Operations for the seven month periods ended March 31, 1998 and 1997 and for the years ended August 31, 1997 and 1996.................................. F-84 Statements of Changes in Stockholders' Equity (Deficit) for the seven month periods ended March 31, 1998 and 1997 and for the years ended August 31, 1997 and 1996.... F-85 Statements of Cash Flows for the seven month periods ended March 31, 1998 and 1997 and for the years ended August 31, 1997 and 1996.................................. F-86 Notes to Financial Statements....................................................... F-87 CRYSTAL RADIO GROUP, INC. Report of Independent Accountants................................................... F-94 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-95 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996, and 1995......................... F-96 Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1996 and 1995........................................................... F-97 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996, and 1995......................... F-98 Notes to Financial Statements....................................................... F-99 FORJAY BROADCASTING CORPORATION Report of Independent Accountants................................................... F-102 Balance Sheet as of December 31, 1997............................................... F-103 Statement of Operations for the year ended December 31, 1997........................ F-104 Statement of Changes in Shareholder's Equity for the year ended December 31, 1997... F-105 Statement of Cash Flows for the year ended December 31, 1997........................ F-106 Notes to Financial Statements....................................................... F-107 FRITZ BROADCASTING, INC. TOLEDO DIVISION Independent Auditor's Report........................................................ F-110 Divisional Balance Sheet as of December 29, 1996 and December 31, 1995.............. F-111 Statements of Divisional Income for the years ended December 29, 1996 and December 31, 1995.......................................................................... F-112 Statements of Changes in Divisional Equity for the years ended December 29, 1996 and December 31, 1995................................................................. F-113 Statements of Divisional Cash Flows for the years ended December 29, 1996 and December 31, 1995................................................................. F-114 Notes to Financial Statements....................................................... F-115
F-2 HVS PARTNERS Report of Independent Accountants................................................... F-119 Balance Sheets as of December 31, 1997 and 1996..................................... F-120 Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... F-121 Statements of Changes in Partners' Equity for the years ended December 31, 1997, 1996 and 1995..................................................................... F-122 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....... F-123 Notes to Financial Statements....................................................... F-124 JKJ BROADCASTING, INC., MISSOURI RIVER BROADCASTING, INC., INGSTAD MANKATO, INC., JAMES INGSTAD BROADCASTING, INC., AND HOMETOWN WIRELESS, INC. Independent Auditor's Report........................................................ F-129 Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-130 Combined Statements of Income for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995..................... F-132 Combined Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995..................................................................... F-133 Combined Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-134 Notes to Combined Financial Statements.............................................. F-135 JAN-DI BROADCASTING, INC. Report of Independent Accountants................................................... F-143 Balance Sheets as of March 31, 1998 and June 30, 1997 and 1996...................... F-144 Statements of Operations for the nine months ended March 31, 1998 and 1997 and for the years ended June 30, 1997 and 1996............................................ F-145 Statements of Changes in Shareholders' Equity for the nine months ended March 31, 1998 and 1997 and for the years ended June 30, 1997 and 1996...................... F-146 Statements of Cash Flows for the nine months ended March 31, 1998 and 1997 and for the years ended June 30, 1997 and 1996............................................ F-147 Notes to Financial Statements....................................................... F-148 K--COUNTRY, INC. Report of Independent Accountants................................................... F-152 Combined Balance Sheets as of March 31, 1998, December 31, 1997 and June 30, 1997... F-153 Combined Statements of Income and Retained Earnings for the three month periods ended March 31, 1998 and 1997, for the six months ended December 31, 1997 and for the year ended June 30, 1997...................................................... F-154 Combined Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997, for the six months ended December 31, 1997 and for the year ended June 30, 1997.......................................................................... F-155 Notes to Combined Financial Statements.............................................. F-156 LESNICK COMMUNICATIONS, INC. Report of Independent Accountants................................................... F-160 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-161 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-162 Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1997 and 1996................................................................. F-163 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-164 Notes to Financial Statements....................................................... F-165 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES Report of Independent Accountants................................................... F-168
F-3 Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996..... F-169 Consolidated Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995............ F-170 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1996 and 1995.................................................. F-171 Consolidated Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995............ F-172 Notes to Consolidated Financial Statements.......................................... F-173 M&M PARTNERS Report of Independent Accountants................................................... F-179 Balance Sheets as of November 30, 1997 and December 31, 1996........................ F-180 Statements of Operations for the eleven months ended November 30, 1997 and the years ended December 31, 1996 and 1995.................................................. F-181 Statements of Changes in Partners' Capital for the eleven months ended November 30, 1997 and the years ended December 31, 1996 and 1995............................... F-182 Statements of Cash Flows for the eleven months ended November 30, 1997 and the years ended December 31, 1996 and 1995.................................................. F-183 Notes to Financial Statements....................................................... F-184 MIDLAND BROADCASTERS, INC. Report of Independent Accountants................................................... F-189 Balance Sheets as of March 31, 1998, December 31, 1997 and 1996..................... F-190 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995.............................. F-191 Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995..................................................................... F-192 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995.............................. F-193 Notes to Financial Statements....................................................... F-194 THE MIDWESTERN BROADCASTING COMPANY, RADIO STATIONS WWWM-FM AND WLQR-AM Report of Independent Accountants................................................... F-199 Combined Balance Sheets as of October 31, 1997 and December 31, 1996................ F-200 Combined Statements of Income and Retained Earnings for the period January 1, 1997 to October 31, 1997 and the years ended December 31, 1996 and 1995................ F-202 Combined Statements of Cash Flows for the period January 1, to October 31, 1997 and the years ended December 31, 1996 and 1995........................................ F-203 Notes to Combined Financial Statements.............................................. F-204 MUSTANG BROADCASTING COMPANY Report of Independent Accountants................................................... F-207 Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-208 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-209 Statement of Changes in Stockholder's Equity for the year ended December 31, 1997... F-210 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-211 Notes to Financial Statements....................................................... F-212
NEW FRONTIER COMMUNICATIONS, INC. Report of Independent Certified Public Accountants.................................. F-215 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-216 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.......................... F-217
F-4 Statements of Stockholders' Deficit for the years ended December 31, 1997, 1996 and 1995.............................................................................. F-218 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.......................... F-219 Notes to Financial Statements....................................................... F-220 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.) Report of Independent Accountants................................................... F-229 Combined Balance Sheet as of March 31, 1998 and December 31, 1997 and 1996.......... F-230 Combined Statement of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-231 Combined Statement of Changes in Net Investment of Parent for the years ended December 31, 1997, 1996 and 1995.................................................. F-232 Combined Statement of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-233 Notes to Financial Statements....................................................... F-234 PAMPLICO BROADCASTING, L.P. Report of Independent Accountants................................................... F-238 Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-239 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-240 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-241 Notes to Financial Statements....................................................... F-242 PHOENIX BROADCAST PARTNERS, INC. Report of Independent Accountants................................................... F-245 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-246 Statements of Operations and Accumulated Deficit for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996........ F-247 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-248 Notes to Financial Statements....................................................... F-249 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) Report of Independent Accountants................................................... F-256 Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996..... F-257 Consolidated Statements of Income for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-258 Consolidated Statements of Changes in Stockholder's Equity for the years ended December 31, 1997, 1996 and 1995.................................................. F-259 Consolidated Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995............ F-260 Notes to Consolidated Financial Statements.......................................... F-261 SAVANNAH COMMUNICATIONS, L.P. Report of Independent Accountants................................................... F-268 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-269 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-270 Statements of Partners' Capital for the years ended December 31, 1997 and 1996...... F-271 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-272 Notes to Financial Statements....................................................... F-273 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
F-5 Report of Independent Accountants................................................... F-277 Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-278 Combined Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-279 Combined Statements of Changes in Owner's Equity (Deficit) in Stations for the years ended December 31, 1997, 1996 and 1995............................................ F-280 Combined Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-281 Notes to Combined Financial Statements.............................................. F-282 SEACOAST RADIO COMPANY, LLC Report of Independent Accountants................................................... F-286 Balance Sheets as of December 31, 1997 and 1996..................................... F-287 Statements of Operations for the years ended December 31, 1997 and 1996............. F-288 Statements of Changes in Members' Equity for the years ended December 31, 1997 and 1996.............................................................................. F-289 Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-290 Notes to Financial Statements....................................................... F-291 SUNNY BROADCASTERS, INC. Report of Independent Accountants................................................... F-295 Balance Sheets as of December 31, 1997 and 1996..................................... F-296 Statements of Operations for the years ended December 31, 1997 and 1996............. F-297 Statements of Changes in Stockholders' Equity for the years ended December 31, 1997 and 1996.......................................................................... F-298 Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-299 Notes to Financial Statements....................................................... F-300 TALLAHASSEE BROADCASTING, INC. Report of Independent Accountants................................................... F-305 Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-306 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-307 Statement of Changes in Stockholders' Equity (Deficit) for the year ended December 31, 1997.......................................................................... F-308 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the year ended December 31, 1997.......................................... F-309 Notes to Financial Statements....................................................... F-310 TRYON-SEACOAST COMMUNICATIONS, INC. Report of Independent Accountants................................................... F-314 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-315 Statements of Operations for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-316 Statements of Changes in Stockholders' Deficit for the years ended December 31, 1997 and 1996.......................................................................... F-317 Statements of Cash Flow for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-318 Notes to Financial Statements....................................................... F-319 VALUE RADIO CORPORATION Report of Independent Accountants................................................... F-324 Balance Sheets as of August 30, 1997 and August 31, 1996............................ F-325 Statements of Operations for the years ended August 30, 1997 and August 31, 1996 and 1995.............................................................................. F-326 Statements of Changes in Stockholders' Equity for the years ended August 30, 1997, and August 31, 1996 and 1995...................................................... F-327 Statements of Cash Flows for the years ended August 30, 1997, and August 31, 1996 and 1995.......................................................................... F-328 Notes to Financial Statements....................................................... F-329
F-6 WILKS BROADCAST ACQUISITIONS, INC. Report of Independent Accountants................................................... F-334 Balance Sheets as of August 31, 1997 and December 31, 1996.......................... F-335 Statements of Operations for the eight months ended August 31, 1997 and for the years ended December 31, 1996 and 1995............................................ F-336 Statements of Changes in Stockholders' Equity (Deficit) for the eight months ended August 31, 1997 and for the years ended December 31, 1996 and 1995................ F-337 Statements of Cash Flows for the eight months ended August 31, 1997 and for the years ended December 31, 1996 and 1995............................................ F-338 Notes to Financial Statements....................................................... F-339 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) Report of Independent Accountants................................................... F-343 Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-344 Statements of Income for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996.................................... F-345 Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996................................ F-346 Statements of Changes in Owners' Net Investment for the years ended December 31, 1997 and 1996..................................................................... F-347 Notes to Financial Statements....................................................... F-348 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) Report of Independent Accountants................................................... F-351 Combined Balance Sheet as of November 9, 1997....................................... F-353 Combined Statements of Income for the period June 30, 1997 to November 9, 1997 and for the period January 1, 1997 to June 29, 1997................................... F-354 Combined Statements of Changes in Owner's Equity for the period June 30, 1997 to November 9, 1997 and for the period January 1, 1997 to June 29, 1997.............. F-355 Combined Statements of Cash Flows for the period June 30, 1997 to November 9, 1997 and for the period January 1, 1997 to June 29, 1997............................... F-356 Notes to Combined Financial Statements.............................................. F-357 WWFG-FM AND WOSC-FM Report of Independent Accountants................................................... F-361 Combined Balance Sheet as of December 31, 1997...................................... F-362 Combined Statement of Operations for the five month period from August 1, 1997 to December 31, 1997................................................................. F-363 Combined Statement of Changes in Owner's Equity for the five month period from August 1, 1997 to December 31, 1997............................................... F-364 Combined Statement of Cash Flows for the five month period from August 1, 1997 to December 31, 1997................................................................. F-365 Notes to the Combined Financial Statements.......................................... F-366
F-7 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholder's equity and of cash flows present fairly, in all material respects, the financial position of Cumulus Media Inc. (formerly, Cumulus Holdings, Inc.) at December 31, 1997, and the results of their operations and their cash flows for the period from inception on May 22, 1997 to December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 18, 1998 F-8 CUMULUS MEDIA INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................................... $ 23,416 $ 1,573 Accounts receivable, less allowance for doubtful accounts of $241 and $125, respectively...................................................................... 10,238 5,241 Prepaid expenses and other current assets........................................... 1,587 288 ----------- ------------ Total current assets.............................................................. 35,241 7,102 Property and equipment, net........................................................... 14,146 8,120 Intangible assets, net................................................................ 150,973 90,217 Other assets.......................................................................... 19,766 5,002 ----------- ------------ Total assets...................................................................... $ 220,126 $ 110,441 ----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses............................................... $ 8,619 $ 3,643 Current portion of long-term debt................................................... 12 12 Other current liabilities........................................................... -- 195 ----------- ------------ Total current liabilities......................................................... 8,631 3,850 Long-term debt, excluding current portion............................................. 120,252 42,789 Other liabilities..................................................................... 853 400 Deferred income taxes................................................................. 1,083 -- ----------- ------------ Total liabilities................................................................. 130,819 47,039 ----------- ------------ Preferred stock subject to mandatory redemption, stated value $10,000 per share; authorized: 12,000 shares; outstanding: 3,250 shares and 1,625 shares respectively........................................................................ 30,518 13,426 ----------- ------------ Commitments and contingencies (Note 10) Stockholder's equity: Common stock, $.01 par value; authorized 10,000 shares; issued 1,000 shares -- -- Additional paid-in-capital.......................................................... 67,692 53,549 Accumulated other comprehensive income.............................................. 5 5 Accumulated deficit................................................................. (8,908) (3,578) ----------- ------------ Total stockholder's equity........................................................ 58,789 49,976 ----------- ------------ Total liabilities and stockholder's equity........................................ $ 220,126 $ 110,441 ----------- ------------ ----------- ------------
See Notes to Consolidated Financial Statements F-9 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
FOR THE PERIOD FROM INCEPTION ON THREE MONTHS ENDED MAY 22, 1997 TO MARCH 31, 1998 DECEMBER 31, 1997 ------------------- ----------------- (UNAUDITED) Revenues.................................................................. $ 13,787 $ 10,134 Less: agency commissions.................................................. (1,287) (971) ------- ------- Net revenues......................................................... 12,500 9,163 Operating expenses: Station operating expenses, excluding depreciation and amortization..... 10,904 7,147 Depreciation and amortization........................................... 2,748 1,671 Corporate general and administrative.................................... 961 1,276 Non-cash stock compensation............................................. -- 1,689 ------- ------- Operating expenses..................................................... 14,613 11,783 ------- ------- Operating loss....................................................... (2,113) (2,620) ------- ------- Nonoperating income (expense): Interest expense........................................................ (1,516) (992) Interest income......................................................... 142 155 Other income (expense), net............................................. (6) (54) ------- ------- Nonoperating expenses, net............................................ (1,380) (891) ------- ------- Loss before income taxes.............................................. (3,493) (3,511) Income tax expense........................................................ -- 67 ------- ------- Loss before extraordinary item............................................ (3,493) (3,578) Extraordinary loss on early extinguishment of debt........................ (1,837) -- ------- ------- Net loss.................................................................. (5,330) -- Preferred stock dividend.................................................. 842 274 ------- ------- Net loss attributable to common stockholders.......................... $ (6,172) $ (3,852) ------- ------- ------- ------- Basic and diluted loss per share.......................................... $ (6,172) $ (3,852) ------- ------- ------- ------- Average shares outstanding................................................ 1,000 1,000 ------- ------- ------- -------
See Notes to Consolidated Financial Statements. F-10 CUMULUS MEDIA INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE SHARES STOCK CAPITAL INCOME DEFICIT LOSS ----------- --------- ----------- -------------- ------------ -------------- Issuance of common stock........... 1,000 $ 52,748 Comprehensive income (cumulative translation $ 5 $ 5 adjustment)...................... Preferred and common stock offering (614) costs............................ Preferred stock dividend and (274) accretion of discount............ Non-cash stock compensation........ 1,689 Net loss........................... $ (3,578) (3,578) ----- --------- ----------- ------- ------------ ------- Balance at December 31, 1997....... 1,000 53,549 5 (3,578) (3,573) Capital contribution............... 1,000 14,985 Preferred stock dividend and (842) accretion of discount............ Net loss........................... (5,330) (5,330) ----- --------- ----------- ------- ------------ ------- Balance at March 31, 1998 $ $ 67,692 $ 5 $ (8,908) $ (8,903) (unaudited)...................... ----- --------- ----------- ------- ------------ ------- ----- --------- ----------- ------- ------------ -------
See Notes to Consolidated Financial Statements. F-11 CUMULUS MEDIA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION ON THREE MONTHS ENDED MAY 22, 1997 TO MARCH 31, 1998 DECEMBER 31, 1997 ------------------- ----------------- (UNAUDITED) Cash flows from operating activities: Net loss................................................................ $ (5,330) $ (3,578) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss on early extinguishment of debt.................... 1,837 Depreciation.......................................................... 472 391 Amortization of goodwill, intangible assets and other assets.......... 1,652 1,064 Non-cash stock compensation........................................... -- 1,689 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable................................................... (4,997) (4,546) Prepaid expenses and other current assets............................. (1,299) (235) Accounts payable and accrued expenses................................. 4,654 3,401 Other assets.......................................................... (1,211) (166) Other liabilities..................................................... (367) 93 ------- ------- Net cash used in operating activities..................................... (4,589) (1,887) ------- ------- Cash flows from investing activities: Acquisitions............................................................ (67,224) (91,289) Escrow deposits on pending acquisitions................................. (10,523) (1,999) Capital expenditures.................................................... (1,114) (869) Other................................................................... (292) (943) ------- ------- Net cash used by investing activities..................................... (79,153) (95,100) ------- ------- Cash flows from financing activities: Net proceeds from revolving line of credit.............................. 143,000 74,525 Payments on revolving line of credit.................................... (65,535) (31,990) Payments on promissory notes............................................ (2) (4) Proceeds from issuance of common stock.................................. 14,985 45,245 Proceeds from issuance of preferred stock............................... 16,250 13,152 Payments for debt issuance costs........................................ (3,113) (1,754) Payments for preferred and common stock offering costs.................. -- (614) ------- ------- Net cash provided by financing activities................................. 105,585 98,560 ------- ------- Increase in cash and cash equivalents..................................... 21,843 1,573 Cash and cash equivalents at beginning of period.......................... 1,573 -- ------- ------- Cash and cash equivalents at end of period................................ $ 23,416 $ 1,573 ------- ------- ------- ------- Supplemental disclosures of cash information: Interest paid........................................................... $ 928 $ 25 ------- ------- ------- ------- Non-cash operating and financing activities: Trade revenue........................................................... $ 912 $ 757 ------- ------- ------- ------- Trade expense........................................................... $ 912 $ 712 ------- ------- ------- ------- Assets acquired through notes payable................................... $ 936 $ 520 ------- ------- ------- ------- Capital contribution from Cumulus Media, LLC............................ $ -- $ 7,503 ------- ------- ------- -------
See Notes to Consolidated Financial Statements. F-12 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Cumulus Media Inc., formerly known as Cumulus Holdings, Inc., ("Cumulus" or the "Company") is a radio broadcasting corporation incorporated in the state of Illinois on May 22, 1997 to own and operate commercial radio stations in mid-size and smaller radio markets in the United States and the Eastern Caribbean. The Company has four regions as its primary focus in the United States: the Midwest, Southeast, Southwest and Northeast. Cumulus is controlled by Cumulus Media, LLC (a Wisconsin limited liability company) through the ownership of all of its outstanding common stock. Between the date of incorporation of Cumulus Media, LLC, which was April 18, 1997, and May 22, 1997, Cumulus Media, LLC undertook certain activities upon behalf of the Company pending its incorporation, including the incurrence of expenses and the funding of escrow deposits for acquisitions. Upon the incorporation of the Company, these activities and their related account balances and expenses, were transferred to the Company. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Cumulus and its wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Repair and maintenance costs are charged to expense when incurred. ORGANIZATION COSTS Costs related to organizing the Company including incorporation and recording fees and legal fees are capitalized and amortized to expense over a three year period. During the period ended December 31, 1997, the Company recognized amortization expense of organization costs of approximately $22. INTANGIBLE ASSETS Intangible assets consist primarily of broadcast licenses, goodwill and other identifiable intangible assets. The Company amortizes such intangible assets using the straight-line method over their estimated useful lives. The Company evaluates the carrying value of broadcast licenses, goodwill and other intangible assets in relation to the projected future undiscounted net cash flows, in order to determine if an impairment has occurred. VALUATION OF LONG-LIVED ASSETS The Company evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the F-13 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) amount by which the carrying value exceeds the fair market value of the long-lived asset. Long-lived assets to be disposed are reported at the lower of carrying amount or fair value less cost to sell. DEBT ISSUANCE COSTS The costs related to the issuance of debt are capitalized and amortized to interest expense over the life of the related debt. During the period ended December 31, 1997, the Company recognized amortization expense of debt issuance costs of approximately $65. TRADE AGREEMENTS The Company trades commercial air time for goods and services used principally for promotional, sales and other business activities. An asset and liability is recorded at the fair market value of the goods or services received. Trade revenue is recorded and the liability relieved when commercials are broadcast and trade expense is recorded and the asset relieved when goods or services are received or used. 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 based on enacted tax laws and statutory tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. LOCAL MARKETING AGREEMENTS In certain circumstances, the Company enters into a local marketing agreement ("LMA") or time brokerage agreement with a Federal Communications Commission licensee of a radio station. In a typical LMA, the licensee of the station makes available, for a fee, airtime on its station to a party which supplies programming to be broadcast on that airtime, and collects revenues from advertising aired during such programming. Fees paid pursuant to a LMA are amortized to expense over the term of the agreement using the straight-line method. LMA fees of $281 are included in amortization expense in the statement of operations. CASH AND CASH EQUIVALENTS The Company considers all cash balances and highly liquid investments with original maturities of three months or less to be cash equivalents. 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 F-14 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISKS In the opinion of management, credit risk with respect to accounts receivable is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for any uncollectible accounts receivable are maintained. The change in the allowance for doubtful accounts for the period ended December 31, 1997 consists of the following: Balance at inception.............................................. $ -- Provision for doubtful accounts................................... 95 Acquired stations................................................. 30 Write-offs........................................................ -- --------- Balance at December 31, 1997...................................... $ 106 --------- ---------
STOCK-BASED COMPENSATION The Company applies Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for stock issued to employees as defined by APB No. 25. In addition, the Company applies Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based Compensation", for stock issued to individuals or groups other than employees. EARNINGS PER SHARE Basic and diluted earnings per share has been calculated by dividing net loss adjusted for preferred stock dividends and accretion of discount by average shares outstanding. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. F-15 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2. ACQUISITIONS AND DISPOSITION: The Company completed the following acquisitions of radio stations for cash during 1997:
ASSET PURCHASE MARKETS AND STATIONS ACQUISITION DATE PRICE(1) - ------------------------------------------------------------------ ---------------------- ---------------------- WEST INDIES/EASTERN CARIBBEAN BASIN Caribbean Communications Company Limited (GEM Radio Network)............................................. April 24, 1997 $ 7,203 WILMINGTON, NC HVS Partners (WWQQ-FM, WQSL-FM and WXQR-FM).................................. August 28, 1997 $ 6,186 Hara Broadcasting (WAAV-FM and WAAV-AM)........................................... September 2, 1997 $ 1,590 AUGUSTA, GEORGIA Wilks Broadcast Acquisitions, Inc. (WEKL-FM, WRXR-FM, WUUS-FM and WGUS-AM)......................... August 31, 1997 $ 15,525 APPLETON/OSHKOSH/GREEN BAY, WISCONSIN Value Radio Corporation (WOSH-AM, WVBO-FM and WOGB-FM).................................. August 31, 1997 $ 7,347 Value Radio Corporation (WUSW-FM and WNAM-AM)........................................... August 31, 1997 $ 5,515 TOLEDO, OHIO WKKO-FM, WRQN-FM, WTOD-AM, and WIMX-FM (WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM)...................................................... November 10, 1997 $ 30,113 (WWWM-FM and WLQR-AM) The Midwestern Broadcasting Company, Radio Stations WWWM-FM and WLQR-AM....................................................... November 12, 1997 $ 10,000 WICHITA FALLS, TEXAS KLUR-FM, KQXC-FM and KYYI-FM (a wholly owned entity of Sam F. and Pamela S. Beard, Sole Proprietors) (KLUR-FM, KQXC-FM and KYYI-FM).................................. December 1, 1997 $ 6,341 SALISBURY-OCEAN CITY, MARYLAND HVS Partners (WLVW-FM, WQHQ-FM, WTGM-AM, and WLBW-FM)...................................................... December 18, 1997 $ 9,283 ------- $ 99,103 ------- -------
- ------------------------ (1) Includes acquisition related costs F-16 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2. ACQUISITIONS AND DISPOSITION: (CONTINUED) As a part of the above transactions, the Company sold WIMX-FM for a note receivable in the amount of $1,500 in early 1998. The aforementioned acquisitions were accounted for by the purchase method of accounting. As such, the accompanying consolidated balance sheet includes the acquired assets and liabilities and the statement of operations includes the results of operations of the acquired entities from their respective dates of acquisition. An allocation of the purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below. Current assets, other than cash.................................... $ 757 Property and equipment............................................. 7,708 Intangible assets.................................................. 91,121 Other liabilities.................................................. (483) --------- $ 99,103 --------- ---------
The unaudited consolidated condensed pro forma results of operations data as if the acquisitions had occurred on May 22, 1997 follows:
(UNAUDITED) ----------- Net revenues..................................................... $ 16,051 ----------- ----------- Operating loss................................................... $ (4,454) ----------- ----------- Net loss......................................................... $ (6,922) ----------- ----------- Net loss attributable to common stockholders..................... $ (7,196) ----------- ----------- Basic loss per common share...................................... $ (7,196) ----------- -----------
Escrow funds of approximately $2,000 paid in 1997 by the Company in connection with transactions completed subsequent to year end and for transactions which the Company has signed an agreement for the purchase of an entity have been classified as other assets at December 31, 1997 in the accompanying consolidated balance sheet. F-17 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2. ACQUISITIONS AND DISPOSITION: (CONTINUED) During 1997, the Company operated the following stations under a LMA:
MARKETS AND STATIONS ACQUISITION DATE - ------------------------------------------------------------------- ------------------------- TALLAHASSEE, FL HVS Partners (WHBX-FM, WBZE-FM, and WHBT-AM).................................. August 18, 1997 Tally Radio, L.C. (WWLD-FM)........................................................ August 18, 1997 Tallahassee Broadcasting, Inc. (WGLF-FM)........................................................ November 3, 1997 SALISBURY-OCEAN CITY, MD HVS Partners (WLVW-FM, WQHQ-FM, WTGM-AM, and WLBW-FM)......................... August 25, 1997 AUGUSTA, GA Savannah Valley Broadcasting Radio Properties (WZNY-FM, WBBQ-FM, and WBBQ-AM).................................. September 3, 1997 WICHITA FALLS, TX KLUR-FM, KQXC-FM and KYYI-FM (a wholly owned entity of Sam F. and Pamela S. Beard, Sole Proprietors) (KLUR-FM, KQXC-FM and KYYI-FM)................................... October 1, 1997 ALBILENE, TX Big Country Broadcasting (KBCY-FM and KCDD-FM)............................................ November 1, 997 IQ Radio, Inc. (KHXS-FM)........................................................ November 1, 1997
The consolidated statement of operations includes the revenue and broadcast operating expenses of these entities from the date of the LMA and any related fees associated with the LMA. F-18 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2. ACQUISITIONS AND DISPOSITION: (CONTINUED) The Company completed the following acquisitions of radio stations for cash during the three months ended March 31, 1998 (unaudited):
ASSET PURCHASE MARKETS AND STATIONS ACQUISITION DATE PRICE(1) - ------------------------------------------------------------------------- -------------------- ---------------- COLUMBUS, GA M & M Partners (WVRK-FM, WGSY-FM, WPNX-AM and WMLF-AM)................................ January 6, 1998 $ 12,842 Minority Radio Associates (WAGH-FM).............................................................. March 17, 1998 $ 2,054 TALLAHASSEE, FLORIDA Tally Radio, L.C. (WWLD-FM).............................................................. January 16, 1998 $ 1,200 HVS Partners (WBZE-FM, WHBT-AM and WHBX-FM)......................................... January 16, 1998 $ 15,596 TOLEDO, OHIO Venice Broadcasting Corp. (WXKR-FM).............................................................. January 27, 1998 $ 5,009 SALISBURY, MARYLAND Connor Broadcasting Corporation (WSBY-FM and WJDY-AM).................................................. February 11, 1998 $ 1,361 ANN ARBOR, MICHIGAN Arbor Radio LP (WIQB-FM, WQKL-FM, WTKA-AM and WDEO-AM)................................ March 2, 1998 $ 15,170 MYRTLE BEACH, SOUTH CAROLINA Carolina Broadcasting, Inc. (WJXY-AM and WJXY-FM).................................................. March 16, 1998 $ 2,307 Seacoast Radio Company, LLC WDAI-FM Sunny Broadcasters, Inc. (WSNY-FM).............................................................. March 25, 1998 $ 8,229 FLORENCE, SOUTH CAROLINA Forjay Broadcasting Corporation (WYNN-FM and WYNN-AM).................................................. March 23, 1998 $ 4,393 ------- $ 68,161 ------- -------
(1) Includes acquisition related costs. The aforementioned acquisitions were accounted for by the purchase method of accounting. As such, the accompanying consolidated March 31, 1998 balance sheet (unaudited) includes the acquired assets and F-19 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2. ACQUISITIONS AND DISPOSITION: (CONTINUED) liabilities and the statement of operations for the three months ended March 31, 1998 (unaudited) includes the results of operations of the acquired entities from their respective dates of acquisition. An allocation of the purchase prices to the estimated fair values of the assets acquired and liabilities assumed is presented below. Current assets, other than cash.................................... $ 1 Property and equipment............................................. 5,468 Intangible assets.................................................. 63,793 Other liabilities.................................................. (1,101) --------- $ 68,161 --------- ---------
The unaudited consolidated condensed pro forma results of operations data for the three months ended March 31, 1998 as if the acquisitions had occurred on January 1, 1998 follows:
(UNAUDITED) ----------- Net revenues..................................................... $ 13,394 ----------- ----------- Operating loss................................................... $ (2,163) ----------- ----------- Net loss......................................................... $ (5,402) ----------- ----------- Net loss attributable to common stockholders..................... $ (6,244) ----------- ----------- Basic loss per common share (in dollars)......................... $ (6,244) ----------- -----------
Escrow funds of approximately $12,522 paid by the Company in connection with transactions completed subsequent to March 31, 1998 and for transactions which the Company has signed an agreement for the purchase of an entity have been classified as other assets at March 31, 1998 in the accompanying consolidated balance sheet. As of March 31, 1998, the Company operated 46 radio stations under a LMA. The unaudited March 31, 1998 consolidated statement of operations includes the revenue & broadcast operating expenses of these radio stations and any related fees associated with the LMA. F-20 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following at December 31, 1997:
ESTIMATED USEFUL LIFE -------------------- Broadcasting and other equipment............................. 3-7 years $ 4,377 Furniture and fixtures....................................... 5 years 2,679 Buildings and improvements................................... 20 years 879 Construction in process...................................... 169 --------- 8,104 Less accumulated depreciation................................ (391) Land......................................................... 407 --------- $ 8,120 --------- ---------
4. INTANGIBLE ASSETS Intangible assets consist of the following at December 31, 1997:
ESTIMATED USEFUL LIFE -------------------- Broadcasting licenses and goodwill........................... 25 years $ 89,472 Other intangibles............................................ 3-5 years 1,649 --------- 91,121 Less accumulated amortization................................ (904) --------- $ 90,217 --------- ---------
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following at December 31, 1997: Accounts payable.................................................... $ 2,124 Accrued expenses.................................................... 551 Accrued interest.................................................... 901 Accrued state income taxes.......................................... 67 --------- $ 3,643 --------- ---------
F-21 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 6. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997: Revolving line of credit of $70,000 at 9%........................ $ 42,535 Promissory note--interest and principal payable monthly at an interest rate of 11%........................................... 266 --------- 42,801 Less: Current portion of long-term debt.......................... (12) --------- $ 42,789 --------- ---------
The revolving line of credit provides for commitments of $70,000 under a senior secured reducing revolver and $25,000 under an uncommitted senior secured acquisition facility (the "Old Credit Facility"). At December 31, 1997, the Company had borrowed $42,535 under the revolver and the acquisition facility had not been activated. At December 31, 1997, the Company has issued letters of credit related to pending acquisitions in the amount of $5,574, which is also included under the $70,000 revolver limit. Annual facility fees on unused commitments were .50% for the revolver and, once activated, for the acquisition facilities. Borrowing rates were based upon (i) LIBOR plus a margin ranging from 1.5% to 2.75% or, (ii) a base rate plus a margin ranging from 0.5% to 1.75%. The commitments of the lenders for the revolver were scheduled to mandatorily reduce in June 1999. The revolving line of credit has a maturity date of December 31, 2004. The Company's obligations under the facility were secured by substantially all of its assets. The facilities contained general covenants related to the operation of the Company, information covenants to provide periodic reporting of information and various financial covenants consisting of financial ratios. A summary of the future maturities of long-term debt follows: 1998............................................................... $ 12 1999............................................................... 12 2000............................................................... 12 2001............................................................... 12 2002............................................................... 12 Thereafter......................................................... 42,741 --------- $ 42,801 --------- ---------
On March 2, 1998, the Company entered into a $190 million senior credit facility pursuant to which the Company has available a revolving line of credit of $110 million and a term loan commitment of $80 million (the "Credit Facility"). Commitments reduce beginning in March 2000. The Credit Facility contains certain covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, 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. In addition, the Credit Facility restricts the ability of the Company to incur liens or to consummate certain asset sales. The Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. F-22 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 6. LONG-TERM DEBT (CONTINUED) The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and to repay the Company's indebtedness under the Old Credit Facility. In connection with the extinguishment of the Old Credit Facility, the Company recognized an extraordinary loss of $1,837 related to the write-off of previously capitalized debt issuance costs. Both revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 0.50% to 1.75%, or the Eurodollar Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 1.50% to 2.75% (in each case dependent upon the leverage ratio of the Company). The revolving credit and term loan borrowings are repayable in equal quarterly installments beginning in 2000. The scheduled annual amortization of the term loan is $10.0 million in each of the years 2000 through 2002, $15.0 million in each of the years 2003 through 2005, and $5.0 million at maturity. The scheduled annual reduction in availability under the revolving credit loans is $10.0 million in each of the years 2000 and 2001, $15.0 million in 2002, $20.0 million in year 2003, $25.0 million in each of the years 2004 and 2005, and $5.0 million at maturity in 2006. 7. COMMON STOCK AND MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK The Company is authorized to issue 10,000 shares of common stock. In 1997, the Company issued 1,000 shares of common stock to Cumulus Media, LLC in exchange for $45,245 and contributed net assets of $7,503 valued on a historical cost basis. In January 1998, the Company received an additional $15,000 as an equity contribution from Cumulus Media, LLC. The holder of common stock is entitled to one vote per share. Dividends are payable subject to the rights and preferences of preferred stock. During 1997, the Company was authorized to issue 12,000 shares of Mandatorily Redeemable 12% Class A Cumulative Preferred Stock ("Preferred Stock"), $.01 par value, stated value $10,000. In November 1997, the Company issued 1,625 shares for proceeds of $13,152. In February 1998, the Company issued an additional 1,625 shares of the Preferred Stock in exchange for $16,250. Dividends on the outstanding Preferred Stock accrue at an annual rate of 12% of the stated value per share compounded quarterly, and accrue and are payable quarterly, subject to the Company's right to pay dividends by issuing Payment in Kind (PIK) shares, which are shares of Preferred Stock. At December 31, 1997, the Company had accrued the value of preferred stock dividends and accretion of discount in the amount of $274. The Company declared a PIK dividend of 52.36 shares in February 1998. On the mandatory redemption date, November 14, 2007, the Company will redeem any outstanding Preferred Stock at the stated value plus any accrued and unpaid cumulative dividends. Under the agreement with the holder of Preferred Stock, the Company is subject to various covenants related to various financial ratios and measures and has restrictions related to the payment of dividends, asset sales and debt issuances. F-23 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 8. INCOME TAXES Income tax expense for 1997 consisted of the following components: Current tax expense: Federal............................................................. $ -- State............................................................... 67 --- Total current expense........................................... 67 --- Deferred tax expense (benefit): Federal............................................................. (356) State............................................................... 21 --- (335) --- Less: Change in valuation allowance................................... 335 --- Total deferred expense............................................ -- --- Total income tax expense.............................................. $ 67 --- ---
Total income tax expense differed from the amount computed by applying the federal standard tax rate of 34% for the period ended December 31, 1997 due to the following: Pretax loss at federal statutory rate.............................. $ (1,194) State income tax expense, net of federal benefit................... 58 Nondeductible stock compensation................................... 574 Other.............................................................. 294 Change in valuation allowance...................................... 335 --------- Net income tax expense............................................. $ 67 --------- ---------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1997 are presented below: Deferred tax assets: Net operating loss carryforwards................................... $ 468 Accounts receivable................................................ 41 Property, plant and equipment...................................... 4 --------- Total deferred tax assets........................................ 513 Less: Valuation allowance.......................................... (335) --------- Net deferred tax assets............................................ 178 --------- Deferred tax liabilities: Intangible assets.................................................. 178 --------- Total deferred tax liabilities................................... 178 --------- Net deferred tax liability....................................... $ -- --------- ---------
Deferred tax assets and liabilities are computed by applying the U.S. federal income tax rate in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforwards. The Company has established a valuation allowance against its net deferred tax asset following an assessment of the likelihood of realizing such amounts. In arriving at the determination as to the amount of the valuation allowance required, the Company considered its operating history as well as F-24 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 8. INCOME TAXES (CONTINUED) significant acquisitions made in 1997 and pending acquisitions, statutory restrictions on the use of operating losses, tax planning strategies and its expectation of the level and timing of future taxable income. The foreign operations of the Company have incurred operating losses, the benefit of which remains unlikely. Accordingly, the Company has not recognized a tax benefit for these loss carryforwards since it is not assured it could utilize the loss carryforward in the future. At December 31, 1997, the Company has a federal net operating loss carryforward available to offset future income of approximately $1,303 which will expire after 2012. 9. LEASES The Company has noncancelable operating leases, primarily for office space and various capital leases primarily for equipment and vehicles. The operating leases generally contain renewal options for periods ranging from one to ten years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (excluding those with lease terms of one month or less that were not renewed) was approximately $201 for the period ended December 31, 1997. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 1997 are as follows:
YEAR ENDING DECEMBER 31: - ------------------------------------------------------------------------------------- 1998................................................................................. $ 469 1999................................................................................. 407 2000................................................................................. 332 2001................................................................................. 258 2002................................................................................. 186 Thereafter........................................................................... 232 --------- $ 1,884 --------- ---------
10. COMMITMENTS AND CONTINGENCIES The Company is a defendant from time to time in various lawsuits which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of receivables, payables, and accrued expenses approximate fair value due to the short maturity of these instruments. The estimated fair value of long term debt and preferred stock subject to mandatory redemption are estimated based on current market rates and approximate the carrying value. 12. RELATED PARTY TRANSACTIONS On November 12, 1997, the Company purchased substantially all of the assets of The Midwestern Broadcasting Company, including WWWM-FM and WLQR-AM, for approximately $10,000. The President of Midwestern Broadcasting Company is the Vice Chairman and a Director of the Company. Substantially all of the Company's broadcast strategy consulting services and programming research are contracted with Stratford Research the co-owner of which is the Vice Chairman and a Director of the F-25 CUMULUS MEDIA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 12. RELATED PARTY TRANSACTIONS (CONTINUED) Company. Total fees paid to Stratford Research during fiscal 1997 were approximately $184 and fees owed at December 31, 1997 were approximately $240. During 1997, the Company remitted $206 to Cumulus Media, LLC representing fees for management services. These fees are included in corporate general and administrative expenses. The Company has also paid Cumulus Media, LLC $300 for organizational costs, which have been included in other assets. During 1997, the Company paid $297 to Quaestus Management Corporation for services rendered in connection with the acquisition of stations and corporate finance services. The Chairman and Chief Executive of Quaestus Management Corporation is also the Chairman and a Director of the Company. 13. NON-CASH STOCK COMPENSATION Cumulus Media, LLC issued 1,630 shares of common stock to two key employees of the Company. In addition, Cumulus Media, LLC issued 1,564 shares and 2,346 shares of common stock to DBBC of Georgia, LLC, the co-owner of which is the Vice Chairman and a Director of the Company, and Quaestus Management Corporation (consulting service organizations), respectively. During the period ended December 31, 1997, the Company has recognized compensation expense of $1,689 related to these shares. The value of the Cumulus Media, LLC stock was estimated through the use of a discounted cash flow analysis. The valuation included various assumptions regarding Cumulus Media, LLC's future performance which the Company believed to be reasonable at the date of grant (the measurement date). The valuation also considered the priority return of other equity instruments issued by Cumulus Media, LLC. 14. DEFINED CONTRIBUTION PLAN Effective January 1, 1998, the Company adopted a qualified profit sharing plan under Section 401(k) of the Internal Revenue Code. All employees meeting eligibility requirements are qualified for participation in the plan. Participants in the plan may contribute 1% to 15% of their annual compensation through payroll deductions. Under the plan, the Company will provide a matching contribution of 25% of the first 6% of each participant's contribution. Matching contributions are to be remitted to the plan by the Company quarterly. 15. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT Subsequent to December 31, 1997, the Company completed acquisitions of 33 radio stations in 10 separate markets for an aggregate purchase price of approximately $85,100. These transactions will be accounted for by the purchase method of accounting. The Company has also entered into various agreements to acquire 117 stations in 30 markets for an aggregate purchase price of approximately $250,500. The Company plans to complete a reorganization whereby (i) all of the shares of Preferred Stock will be exchanged for shares of a new Series A Preferred Stock and (ii) Cumulus Media, LLC will be liquidated and shares of common stock of the Company will be distributed by Cumulus Media, LLC to its members in liquidation. F-26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations and partners' capital and of cash flows present fairly, in all material respects, the financial position of Arbor Radio LP at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 19, 1998 F-27 ARBOR RADIO LP BALANCE SHEETS
DECEMBER 31, ---------------------------- 1997 1996 ------------- ------------- ASSETS Current assets: Cash and cash equivalents......................................................... $ 117,000 $ 137,000 Accounts receivable, less allowance for doubtful accounts of $22,000 and $14,000, respectively.................................................................... 640,000 520,000 Prepaid expenses and other current assets......................................... 10,000 18,000 ------------- ------------- Total current assets.......................................................... 767,000 675,000 Property and equipment, net......................................................... 997,000 1,259,000 Intangible assets, net.............................................................. 2,140,000 2,334,000 ------------- ------------- Total assets.................................................................. $ 3,904,000 $ 4,268,000 ------------- ------------- ------------- ------------- LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Notes payable, current portion.................................................... $ 517,000 $ 450,000 Accounts payable.................................................................. 45,000 84,000 Accrued payroll and commissions................................................... 112,000 82,000 Accrued and other current liabilities............................................. 32,000 11,000 ------------- ------------- Total current liabilities..................................................... 706,000 627,000 ------------- ------------- Long-term liabilities: Notes payable, less current portion............................................... 2,533,000 3,050,000 Related party notes payable....................................................... -- 135,000 ------------- ------------- Total long-term liabilities................................................... 2,533,000 3,185,000 ------------- ------------- Commitments and contingencies Partners' capital: Partners' capital................................................................. 1,800,000 1,800,000 Accumulated deficit............................................................... (1,135,000) (1,344,000) ------------- ------------- Total partners' capital....................................................... 665,000 456,000 ------------- ------------- Total liabilities and partners' capital....................................... $ 3,904,000 $ 4,268,000 ------------- ------------- ------------- -------------
See Notes to Financial Statements. F-28 ARBOR RADIO LP STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Revenues:............................................................... $ 3,723,000 $ 3,304,000 $ 2,993,000 Less: agency commissions.............................................. (289,000) (286,000) (287,000) ------------ ------------ ------------ Net revenues...................................................... 3,434,000 3,018,000 2,706,000 Operating expenses: Programming........................................................... 623,000 575,000 596,000 Sales and promotions.................................................. 737,000 591,000 621,000 Advertising........................................................... 165,000 231,000 106,000 Technical............................................................. 152,000 164,000 193,000 General and administrative............................................ 717,000 739,000 737,000 Depreciation and amortization......................................... 502,000 666,000 926,000 ------------ ------------ ------------ Total operating expenses.......................................... 2,896,000 2,966,000 3,179,000 ------------ ------------ ------------ Income (loss) from operations........................................... 538,000 52,000 (473,000) Other income (expense): Interest expense, net................................................. (329,000) (358,000) (383,000) Other................................................................. -- (14,000) 3,000 ------------ ------------ ------------ Net income (loss)....................................................... 209,000 (320,000) (853,000) Partners' capital at the beginning of the year.......................... 456,000 776,000 1,629,000 ------------ ------------ ------------ Partners' capital at the end of the year................................ $ 665,000 $ 456,000 $ 776,000 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-29 ARBOR RADIO LP STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ----------- ----------- Cash flows from operating activities: Net income (loss)........................................................ $ 209,000 ($ 320,000) ($ 853,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on sale of fixed asset............................................ 3,000 14,000 -- Depreciation and amortization.......................................... 502,000 666,000 926,000 Provision for doubtful accounts........................................ 8,000 8,000 9,000 Decrease (increase) in accounts receivable............................. (128,000) 36,000 (242,000) Decrease (increase) in prepaid expenses and other current assets....... 8,000 1,000 (1,000) (Decrease) increase in accounts payable................................ (39,000) (14,000) (45,000) Increase (decrease) in accrued and other liabilities................... 51,000 (221,000) 238,000 ---------- ----------- ----------- Net cash provided by operating activities.............................. 614,000 170,000 32,000 ---------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment...................................... (49,000) (35,000) (121,000) Proceeds from sale of assets............................................. -- 3,000 -- Acquisition cost......................................................... -- -- (109,000) ---------- ----------- ----------- Net cash used for investing activities................................... (49,000) (32,000) (230,000) ---------- ----------- ----------- Cash flows from financing activities: Payments on bank borrowings.............................................. (585,000) (300,000) -- Proceeds from borrowings of notes payable................................ -- 135,000 -- ---------- ----------- ----------- Net cash used in financing activities.................................... (585,000) (165,000) -- ---------- ----------- ----------- Net decrease in cash....................................................... (20,000) (27,000) (198,000) Cash at beginning of year.................................................. 137,000 164,000 362,000 ---------- ----------- ----------- Cash at end of year........................................................ $ 117,000 $ 137,000 $ 164,000 ---------- ----------- ----------- ---------- ----------- ----------- Supplemental disclosure of cash flow information: Cash paid during the year for interest................................... $ 341,000 $ 446,000 $ 298,000 ---------- ----------- ----------- ---------- ----------- -----------
See Notes to Financial Statements. F-30 ARBOR RADIO LP NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Arbor Radio LP, a limited partnership, (the "Partnership") was incorporated in the State of Delaware on October 6, 1994 and started operations on December 20, 1994. The general partner is American Media Management, Inc. The Partnership owns and operates radio stations WQKL-FM, WTKA-AM, WIQB-FM and WDEO-AM, Ann Arbor and Saline, Michigan. In October 1997, the Partnership entered into an agreement with Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus") to sell the assets of the Partnership, subject to approval of the Federal Communications Commission ("FCC"), to Cumulus. The significant accounting principles followed by the Partnership and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Partnership enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Trade revenue and trade expense are recognized in equal amounts at the fair market value of products or services received as advertising air time is broadcast or as services are received. Trade revenues and trade expenses for the years ended December 31, 1997, 1996 and 1995 was $245,000, $262,000 and $251,000, respectively. The difference between this method of accounting and the recognition of trade sales as advertising air time as broadcast, and the recognition of trade expense as services are received is not material. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Partnership to concentrations of credit risk consist principally of cash and accounts receivable. The Partnership holds deposits in money market accounts. The Partnership performs ongoing credit evaluations of its customers and generally does not require collateral F-31 ARBOR RADIO LP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) for its accounts receivable. The Partnership maintains reserves for potential credit losses based upon the expected collectibility of all accounts receivable. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using accelerated methods over the estimated useful lives of the respective assets, generally five to fifteen years for broadcasting towers and equipment and furniture and fixtures and thirty-nine years for buildings. Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include FCC licenses and acquisition and organizational costs. Intangible assets are recorded at cost and amortized over their respective estimated useful lives. Amortization is calculated using the straight-line method over a 15-year life for FCC licenses and call letters and a five-year life for acquisition and organizational costs. The Partnership evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. FEDERAL INCOME TAXES The Partnership is not a taxpaying entity for Federal income tax purposes, and thus no income tax expense has been recorded in the financial statements. Income from the Partnership is taxed to the partners in their individual returns. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Partnership's financial instruments, including cash, accounts receivable, accounts payable and long-term debt, approximate fair value. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Broadcasting towers and equipment................................ $1,932,000 $1,903,000 Buildings........................................................ 194,000 194,000 Office furniture and equipment................................... 226,000 224,000 Leasehold improvements........................................... 95,000 95,000 ------------ ------------ 2,447,000 2,416,000 Accumulated depreciation......................................... (1,580,000) (1,287,000) ------------ ------------ 867,000 1,129,000 Land............................................................. 130,000 130,000 ------------ ------------ Property and equipment, net...................................... $ 997,000 $1,259,000 ------------ ------------ ------------ ------------
F-32 ARBOR RADIO LP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. PROPERTY AND EQUIPMENT: (CONTINUED) Depreciation expense for 1997, 1996 and 1995 was $308,000 and $478,000 and $726,000, respectively. 3. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ FCC licenses and call letters.................................... $2,555,000 $2,555,000 Acquisition and organizational costs............................. 168,000 168,000 ------------ ------------ 2,723,000 2,723,000 Accumulated amortization......................................... (583,000) (389,000) ------------ ------------ Intangible assets, net........................................... $2,140,000 $2,334,000 ------------ ------------ ------------ ------------
Amortization expense for 1997, 1996 and 1995 was $194,000, $188,000, and $200,000, respectively. 4. NOTES PAYABLE: At December 31, 1997, the Partnership owes $2,250,000 to Michigan National Bank which is secured by accounts receivable; call letters; property, fixtures, and equipment; and other assets. Interest payments are due quarterly beginning January 1, 1995 with the principal portion due in equal quarterly payments beginning March 31, 1996. The entire amount of unpaid principal and interest is due December 31, 2002. Interest is calculated at Michigan National Prime Interest Rate plus 1.25% (9.75% at December 31, 1997). Maturities of debt are as follows:
YEAR ENDING DECEMBER 31 AMOUNT - -------------------------------------------------------------------------------- ------------ 1998............................................................................ $ 450,000 1999............................................................................ 450,000 2000............................................................................ 450,000 2001............................................................................ 450,000 2002............................................................................ 450,000 ------------ 2,250,000 Less current portion (450,000) ------------ $ 1,800,000 ------------ ------------
The loan agreement relating to the note payable to the bank contains various covenants pertaining to the maintenance of debt service and acquisition of property, plant and equipment. At December 31, 1997, the debt service coverage ratio, senior debt to broadcast cash flow ratio, and all other covenants were in compliance. Under a Promissory Note with the prior station owners, MW Blue Partnership, the Partnership owes $800,000. Interest payments are due on the first business day after each quarter end beginning April 3, 1995. The repayment of the principal portion begins September 30, 1998 as presented below. Interest is calculated at Michigan National Prime Interest Rate plus 1.5%. The interest rate was 10% at December 31, 1997. F-33 ARBOR RADIO LP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. NOTES PAYABLE: (CONTINUED) Maturities of debt are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ---------------------------------------------------------------------------------- ---------- 1998.............................................................................. $ 67,000 1999.............................................................................. 133,000 2000.............................................................................. 133,000 2001.............................................................................. 133,000 2002.............................................................................. 133,000 Thereafter........................................................................ 201,000 ---------- 800,000 Less current portion (67,000) ---------- $ 733,000 ---------- ----------
Total interest expense related to notes payable for 1997, 1996 and 1995 was $322,000, $351,000, and $384,000, respectively. 5. RELATED PARTY NOTES PAYABLE: During the year ended December 31, 1996, three notes payable from the partners were established. Each unsecured note bears interest at Michigan National Prime Interest rate plus 1%. These notes were paid in full in November 1997. Interest expense for 1997 and 1996 was $12,000 and $6,000, respectively. 6. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Partnership leases its station studios, and certain equipment under various operating leases. Rent expense under operating leases for 1997, 1996 and 1995 was $107,000, $106,000 and $99,000, respectively. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997, are as follows:
PAYMENT ---------- 1998.............................................................................. $ 102,000 1999.............................................................................. 97,000 2000.............................................................................. 97,000 2001.............................................................................. 100,000 2002.............................................................................. 83,000 Thereafter........................................................................ 198,000 ---------- $ 677,000 ---------- ----------
F-34 ARBOR RADIO LP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. MANAGEMENT FEE: The Partnership is under agreement with the general partner to pay an annual management fee over the life of the Partnership. Payments are to commence with the year 1998 as follows:
YEAR AMOUNT - -------------------------------------------------------------------------------------- ---------- 1998.................................................................................. $ 25,000 1999.................................................................................. 50,000 2000.................................................................................. 50,000 2001.................................................................................. 50,000 2002.................................................................................. 50,000 2003.................................................................................. 200,000 2004.................................................................................. 200,000 2005.................................................................................. 250,000 2006.................................................................................. 250,000 Thereafter............................................................................ 100,000
The agreement will be discontinued upon completion of the sale to Cumulus. F-35 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in stockholder's equity and of cash flows present fairly, in all material respects, the financial position of Beaumont Skywave, Inc., (the "Company") at December 31, 1997, and the results of its operations for the year then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 10, 1998 F-36 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash............................................................................... $ 14,980 $ 14,699 Accounts receivable, net of allowance for doubtful accounts of $26,143 and $11,143, respectively..................................................................... 57,363 120,734 Employee receivables............................................................... 5,274 2,891 Other current assets............................................................... 10,369 3,604 Intercompany receivable............................................................ 52,678 ------------ ------------ Total current assets........................................................... 140,664 141,928 Property and equipment, net.......................................................... 160,993 168,311 Intangible assets, net............................................................... 797,289 811,051 ------------ ------------ Total assets................................................................... $ 1,098,946 $1,121,290 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current maturities of long-term debt............................................... $ 41,208 $ 41,208 Accrued interest payable........................................................... 18,344 14,896 Accrued compensation............................................................... 1,457 20,088 Accrued expenses................................................................... 26,147 29,884 Advanced payments received from Cumulus............................................ 45,000 -- Advances payable to Parent......................................................... 94,132 107,869 Note payable to related party...................................................... 125,000 125,000 ------------ ------------ Total current liabilities...................................................... 351,288 338,945 Long-term debt....................................................................... 483,782 480,358 ------------ ------------ Total liabilities.............................................................. 835,070 819,303 ------------ ------------ Commitments and contingencies Stockholder's equity: Common stock, no par value, 400 shares authorized, 1 share issued and outstanding....................................... 400,000 400,000 Accumulated deficit................................................................ (136,124) (98,013) ------------ ------------ Total stockholder's equity..................................................... 263,876 301,987 ------------ ------------ Total liabilities and stockholder's equity..................................... $ 1,098,946 $1,121,290 ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-37 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ---------------------- DECEMBER 31, 1998 1997 1997 ---------- ---------- ------------------ (UNAUDITED) Revenues............................................................... $ 94,945 $ 95,598 $ 703,524 Less: agency commissions............................................. 13,855 7,138 (57,320) ---------- ---------- ---------- Net revenues.................................................... 81,090 88,460 646,204 Operating expenses: Programming.......................................................... 16,844 25,375 109,475 Sales and promotions................................................. 40,015 35,250 222,753 General and administrative........................................... 53,386 38,681 240,709 Depreciation and amortization........................................ 21,080 25,068 122,826 ---------- ---------- ---------- Total operating expenses......................................... 131,325 124,374 695,763 ---------- ---------- ---------- Loss from operations................................................... (50,235) (35,914) (49,559) Interest expense....................................................... 17,876 17,876 71,500 LMA fee income......................................................... 30,000 -- -- ---------- ---------- ---------- Net loss............................................................... $ (38,111) $ (53,790) $ (121,059) ---------- ---------- ---------- ---------- ---------- ----------
See Notes to Financial Statements. F-38 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
ACCUMULATED COMMON SURPLUS STOCK (DEFICIT) TOTAL ---------- ------------ ----------- Balance at January 1, 1997................................................. $ 400,000 $ 25,546 $ 425,546 Net loss................................................................... (121,059) (121,059) Distribution to stockholder................................................ (2,500) (2,500) ---------- ------------ ----------- Balance at December 31, 1997............................................... $ 400,000 $ (98,013) $ 301,987 ---------- ------------ ----------- ---------- ------------ -----------
See Notes to Financial Statements. F-39 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31 FOR THE YEAR ENDED ---------------------- DECEMBER 31, 1998 1997 1997 ---------- ---------- ------------------ (UNAUDITED) Cash flows from operating activities: Net loss............................................................. $ (38,111) $ (53,790) $ (121,059) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization...................................... 21,080 25,068 122,826 Provision for doubtful accounts.................................... -- -- 9,068 Decrease (increase) in accounts receivable......................... 63,371 (24,185) (103,539) Decrease (increase) in employee receivables........................ (2,383) 1,338 (870) Increase in other current assets................................... (6,765) (50) (2,134) Increase in intangibles............................................ -- -- (15,823) Increase in accrued interest payable............................... 3,448 3,438 13,750 (Decrease) in accrued compensation................................. (18,631) (12,717) 5,848 (Decrease) increase in accrued expenses............................ (3,737) -- 26,147 (Decrease) increase in other accrued liabilities................... -- (3,405) 332 Increase in inter-company receivable............................... (52,678) -- -- Increase in advance payments received from Cumulus................. 45,000 -- -- ---------- ---------- ---------- Net cash used in operating activities............................ 10,594 (64,303) (65,454) ---------- ---------- ---------- Cash flows used in investing activities: Purchases of property and equipment.................................. (11,290) ---------- ---------- ---------- Cash used in investing activities................................ (11,290) ---------- ---------- ---------- Cash flows provided by financing activities: Advances from (payments to) Parent, net.............................. (13,737) 82,502 88,170 Distribution to shareholder.......................................... (2,500) Payment (increase in) long-term debt................................. 3,424 (10) (3,434) ---------- ---------- ---------- Cash provided by financing activities............................ (10,313) 82,492 82,236 ---------- ---------- ---------- Increase in cash....................................................... 281 18,189 5,492 Cash at beginning of period............................................ 14,699 9,207 9,207 ---------- ---------- ---------- Cash at end of period.................................................. 14,980 27,396 $ 14,699 ---------- ---------- ---------- ---------- ---------- ---------- Non-cash operating activities: Trade revenue........................................................ $ 8,500 $ 8,600 $ 52,085 ---------- ---------- ---------- ---------- ---------- ---------- Trade expense........................................................ $ 8,500 $ 8,600 $ 49,711 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental disclosure of cash flow information: Cash paid during the year for interest............................... $ 14,438 $ 14,967 $ 57,750 ---------- ---------- ---------- ---------- ---------- ----------
See Notes to Financial Statements. F-40 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Beaumont Skywave, Inc. (the "Company") is a wholly-owned subsidiary of Pacific Broadcasting of Beaumont, Inc. (the "Parent"). The Company owns and operates the radio station KTCX-FM (the "Station") located in Beaumont, Texas. The Company is dependent on the Parent to fund certain of its activities, primarily the Company's debt service requirements. 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. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated using an accelerated method over estimated useful lives of 5 and 7 years. INTANGIBLE ASSETS Intangible assets include goodwill (see Note 2), Federal Communications Commission ("FCC") license and other acquisition costs. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life or contract term for periods not exceeding 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. INCOME TAXES Effective January 1, 1997, the Company has elected to be treated as a qualified subchapter S subsidiary of the Parent for federal and state income tax purposes, in accordance with Section 1361b3 of F-41 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) the Internal Revenue Code. Accordingly, no provision for federal or state income taxes has been recorded in the financial statements as the earnings of the Company are included in the personal income tax returns of the Parent's shareholders. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable and accounts payable approximates fair value because of the short maturity of these instruments. The carrying value of outstanding notes payable approximates fair value based on current market rates. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITIONS: In June 1996, the Parent acquired 33% of the issued and outstanding common and preferred stock of the Company from Alice Ramsey and Skywave Communications Corporation (collectively referred to as the "Sellers") for $400,000. In July 1996, the Parent entered into a stock purchase option agreement with the Sellers whereby the Parent was granted an option to purchase the remaining 67% of the issued and outstanding common and preferred stock of the Company. In November 1996, the Parent exercised its option and acquired the remaining 67% of the Company's outstanding stock for $650,000, which was financed through the execution of a $525,000 note payable to the Seller and a $125,000 note payable to a shareholder of the Parent. The above transactions were accounted for as a step acquisition using the purchase method of accounting, and, accordingly, the purchase price of each acquisition was allocated to the net assets acquired based on the estimated fair value as of the acquisition date. As a result, the Company recorded goodwill aggregating $755,000, which represents the excess of the purchase price over the fair value of the net tangible assets acquired. F-42 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 consists of the following: Broadcasting towers and equipment................................. $ 186,190 Studio equipment.................................................. 35,173 Furniture, fixtures and leasehold improvements.................... 17,486 --------- 238,849 Accumulated depreciation.......................................... (70,538) --------- Property and equipment, net....................................... $ 168,311 --------- ---------
Depreciation expense for the year ended December 31, 1997 was $62,506. 4. INTANGIBLE ASSETS: Intangible assets at December 31, 1997 consist of the following: Broadcast license................................................. $ 100,000 Organization costs................................................ 32,423 Goodwill.......................................................... 755,000 --------- 887,423 Accumulated amortization.......................................... (76,372) --------- Intangible assets, net............................................ $ 811,051 --------- ---------
Amortization expense for the year ended December 31, 1997 was $60,320. 5. LONG-TERM DEBT: In connection with the acquisition of the Company's stock in November 1996, the Parent issued a $525,000 promissory note payable to the Sellers. This promissory note has been recorded in the Company's financial statements. The promissory note accrues interest at 11% and required interest only payments of $4,813 per month during the first twelve months. Beginning December 1997, the promissory note requires monthly principal and interest payments of $8,247 through October 2002, and the outstanding balance is due in its entirety at November 30, 2002. During 1997, the Company recorded interest expense of $57,750 and made principal payments totaling $3,434. Following represents a summary of the future maturities of the Company's long-term debt as of December 31, 1997: 1998.............................................................. $ 41,208 1999.............................................................. 41,208 2000.............................................................. 41,208 2001.............................................................. 41,208 2002.............................................................. 356,734 --------- $ 521,566 --------- ---------
F-43 BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. LONG-TERM DEBT: (CONTINUED) The note payable to Sellers is secured by a pledge of $525,000 of the Company's stock, as well as by personal guarantees of the Parent's shareholders. 6. RELATED PARTY TRANSACTIONS: In connection with the acquisition of the Company's stock in November 1996, the Parent also executed a $125,000 promissory note payable to a shareholder of the Parent. This promissory note has been recorded in the Company's financial statements. Such note is due on demand and accrues interest at 11%. During 1997, the Company recorded interest expense of $13,750 and made no principal payments. At December 31, 1997, the Company had net advances due to the Parent totaling $107,869. Such advances relate to various operating activities of the Station, as well as interest payments made by the Parent on behalf of the Company. The advances are due on demand and do not accrue interest. At December 31, 1997, the Company had outstanding loan receivable balances due from the Station's General Manager and a certain employee totaling $2,691 and $200, respectively. Such loans are due on demand and do not accrue interest. 7. OPERATING LEASE COMMITMENTS: The Company has entered into lease agreements for building and property used in the operations of the Station. Rent expense under such leases totalled $30,600 in 1997. Future minimum rentals under these leases at December 31, 1997 are as follows: 1998............................................................... $ 20,100 1999............................................................... 5,400 2000............................................................... 5,400 2001............................................................... 6,000 2002............................................................... 6,600 Thereafter......................................................... 23,100 --------- $ 66,600 --------- ---------
8. SUBSEQUENT EVENT: On January 30, 1998, the Parent and the Company entered into an asset purchase agreement with Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus") to sell substantially all of the assets and liabilities of the Station to Cumulus. The closing of the sale is subject to certain events that must occur which include, among other things, obtaining the approval of the FCC. In conjunction with the sale, the Parent and the Company entered into a local marketing agreement ("LMA") with Cumulus effective February 15, 1998. Under the LMA, Cumulus agreed to pay the Company a monthly LMA fee of $50,000 per month, of which $30,000 per month (or a pro-rated amount for a period less than one month) will be applied against the purchase price to be paid by Cumulus. In addition, Cumulus agreed to reimburse the Company for station operating expenses of $15,000 per month. F-44 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholder's equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Caribbean Communications Company Limited and its subsidiaries, a wholly-owned subsidiary of Cumulus Media, LLC, at April 30, 1997, and the results of their operations and their cash flows for the four month period ended April 30, 1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 9, 1998 F-45 CARIBBEAN COMMUNICATIONS COMPANY LIMITED CONSOLIDATED BALANCE SHEET
APRIL 30, 1997 ------------- ASSETS Current assets: Cash and cash equivalents........................................................................ $ 86,674 Accounts receivable, less allowance for doubtful accounts of $30,688............................. 128,115 Prepaid expenses and other receivables........................................................... 24,242 ------------- Total current assets......................................................................... 239,031 Property and equipment, net........................................................................ 1,105,787 Intangible assets, net............................................................................. 217,437 ------------- Total assets................................................................................. $ 1,562,255 ------------- ------------- LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable................................................................................. $ 138,498 Accrued interest................................................................................. 44,578 Capital lease obligation......................................................................... 16,029 Accrued professional fees........................................................................ 40,137 Due to related parties........................................................................... 2,496,950 Other accrued expenses........................................................................... 7,642 ------------- Total current liabilities.................................................................... 2,743,834 ------------- Non-current liabilities: Deferred compensation............................................................................ 145,000 ------------- Commitments and contingencies Stockholder's equity (deficit): Common stock ($0.37 par value, 50,000 shares authorized, 46,057 shares issued, 46,057 outstanding)................................................................................... 17,058 Capital in excess of par value................................................................... 2,267,699 Accumulated deficit.............................................................................. (3,606,486) ------------- (1,321,729) Less treasury stock, at cost (50 shares)......................................................... (4,850) ------------- Total stockholder's equity (deficit)......................................................... (1,326,579) ------------- Total liabilities and stockholder's equity (deficit)............................................... $ 1,562,255 ------------- -------------
See Notes to Consolidated Financial Statements. F-46 CARIBBEAN COMMUNICATIONS COMPANY LIMITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOUR MONTH PERIOD ENDED APRIL 30, 1997 ------------ Revenues............................................................................................ $ 191,112 Less: agency commissions............................................................................ (13,554) ------------ Net revenues................................................................................. 177,558 ------------ Operating expenses: Sales and promotions.............................................................................. 120,733 Technical......................................................................................... 126,319 Programming....................................................................................... 75,985 General and administrative........................................................................ 200,538 Depreciation and amortization..................................................................... 55,628 ------------ Total operating expenses...................................................................... 579,203 ------------ Loss from operations................................................................................ (401,645) Other income (expense): Interest income................................................................................... 210 Interest expense.................................................................................. (62,248) Other income...................................................................................... 1,227 ------------ Net loss............................................................................................ ($ 462,456) ------------ ------------
See Notes to Consolidated Financial Statements. F-47 CARIBBEAN COMMUNICATIONS COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
CAPITAL IN COMMON TREASURY EXCESS OF ACCUMULATED STOCK STOCK PAR VALUE DEFICIT TOTAL --------- --------- ------------ ------------- ------------- Balance at January 1, 1997...................... $ 17,058 $ -- $ 2,267,699 $ (3,144,030) $ (859,273) Purchase of treasury stock...................... (4,850) (4,850) Net loss........................................ -- -- -- (462,456) (462,456) --------- --------- ------------ ------------- ------------- Balance at April 30, 1997....................... $ 17,058 $ (4,850) $ 2,267,699 $ (3,606,486) $ (1,326,579) --------- --------- ------------ ------------- ------------- --------- --------- ------------ ------------- -------------
See Notes to Consolidated Financial Statements. F-48 CARIBBEAN COMMUNICATIONS COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FOUR MONTH PERIOD ENDED APRIL 30, 1997 ------------ Cash flows from operating activities: Net loss.......................................................................................... $ (462,456) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................................................................. 55,628 Decrease in receivables....................................................................... 15,917 Increase in prepaid expenses and other assets................................................. (3,657) Increase in accounts payable.................................................................. 40,346 Decrease in accrued expenses and other current liabilities.................................... (49,760) ------------ Net cash used in operating activities............................................................... (403,982) ------------ Cash flows from investing activities: Purchases of property and equipment............................................................... (20,345) ------------ Net cash used in investing activities............................................................... (20,345) ------------ Cash flows from financing activities: Proceeds from borrowings.......................................................................... 983,725 Repayments of borrowings.......................................................................... (396,235) Payments of capital lease obligation.............................................................. (2,381) Payments of deferred compensation................................................................. (80,000) Purchase of treasury stock........................................................................ (4,850) ------------ Net cash provided by financing activities........................................................... 500,259 ------------ Increase in cash and cash equivalents............................................................... 75,932 Cash and cash equivalents at beginning of period.................................................... 10,742 ------------ Cash and cash equivalents at end of period.......................................................... $ 86,674 ------------ ------------ Supplemental disclosure of cash flow information: Cash paid for interest............................................................................ $ 91,773 ------------ ------------ Non-cash operating activities: Trade revenue..................................................................................... $ 63,808 ------------ ------------ Trade expense..................................................................................... $ 45,919 ------------ ------------
See Notes to Consolidated Financial Statements. F-49 CARIBBEAN COMMUNICATIONS COMPANY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Caribbean Communications Company Limited (the "Company"), a wholly-owned subsidiary of Cumulus Media, LLC, is a corporation incorporated in the Crown Colony of Montserrat, which operates the GEM Radio Network, a multi-market FM radio broadcasting network serving the area extending from the British Virgin Islands south to Trinidad in the Eastern Caribbean. Before April 24, 1997, the Company was wholly-owned by CML Holdings, LLC. On April 24, 1997, CML Holdings, LLC transferred the capital stock and assets of the Company to Cumulus Media, LLC in exchange for shares of preferred stock of Cumulus Media, LLC. As such, for accounting presentation purposes the financial statements have been prepared on a basis to include the results of operations of the Company for the period from April 24, 1997 through April 30, 1997. The Company does not consider the inclusion of the results of operations for this period to be significant. The financial statements also do not reflect the impact resulting from the application of purchase accounting when Cumulus acquired Caribbean Communications on April 24, 1997. For accounting reporting purposes, the Company used April 30, 1997 as the date of acquisition. The Company is dependent on the continued financial support of Cumulus Media, LLC to meet its obligations as they come due. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, GEM Radio Five Limited. All intercompany transactions and balances have been eliminated in consolidation. 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 period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and other accrued expenses approximates fair value due to their short term nature. CASH FLOWS For purposes of the consolidated statement of cash flows, cash consists of bank deposits and money market funds. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to advertisers. Revenue is recognized as commercials are broadcast. F-50 CARIBBEAN COMMUNICATIONS COMPANY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated over their estimated useful lives, or in the case of leasehold improvements, over the terms of the leases, if shorter. The estimated useful lives used in determining depreciation range from 3 to 20 years. For financial reporting purposes, depreciation is computed using the straight-line method. Depreciation expense includes the amortization of capital lease assets. INTANGIBLE ASSETS Intangible assets include goodwill and broadcast licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life not exceeding 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company accounts for income tax expense and liabilities under the liability method. As the Company has not realized taxable profits, no income tax liability has been recorded as of April 30, 1997. FOREIGN CURRENCY Assets, liabilities and all profit and loss items of the Company are stated in U.S. dollars for reporting purposes. The Company used a weighted average exchange rate to translate revenues and expenses. The weighted average conversion rate is one U.S. dollar to 2.7 Eastern Caribbean dollars, and one U.S. dollar to 6.0 Trinidad and Tobago dollars. For reporting purposes, the Company also used the same weighted average exchange rate to convert assets and liabilities at April 30, 1997. The difference between the actual exchange rate and the weighted average exchange rate is not considered significant. Translation gains and losses have not been recorded and are not considered significant. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
APRIL 30, 1997 ------------ Broadcast equipment............................................................. $ 1,003,527 Towers, masts and transmitter buildings......................................... 228,458 Leasehold improvements and site preparation..................................... 67,314 Furniture and fixtures.......................................................... 352,107 Vehicles........................................................................ 63,095
F-51 CARIBBEAN COMMUNICATIONS COMPANY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. PROPERTY AND EQUIPMENT (CONTINUED)
APRIL 30, 1997 ------------ Network infrastructure.......................................................... 218,673 ------------ 1,933,174 Accumulated depreciation........................................................ (836,290) Land............................................................................ 8,903 ------------ Property and equipment, net..................................................... $ 1,105,787 ------------ ------------
Depreciation expense for the four months ended April 30, 1997 was $49,792. 3. INTANGIBLE ASSETS Intangible assets consist of the following:
APRIL 30, 1997 ---------- Broadcast licenses................................................................ $ 262,674 Accumulated amortization.......................................................... (45,237) ---------- Intangible assets, net............................................................ $ 217,437 ---------- ----------
Amortization expense for the four months ended April 30, 1997 was $5,836. 4. DUE TO RELATED PARTIES: Amounts due to related parties consist of the following:
APRIL 30, 1997 ------------ Advances--CML Holdings, LLC..................................................... $ 2,286,189 Advances--Cumulus Media, LLC.................................................... 210,761 ------------ $ 2,496,950 ------------ ------------
ADVANCES--CML HOLDINGS, LLC The Company has advances from CML Holdings, LLC, a related party, in the amount of $2,286,189, bearing interest at prime plus 2% (10.5% at April 30, 1997) and payable on demand. ADVANCES--CUMULUS MEDIA, LLC The Company has an advance from Cumulus Media, LLC, a related party, in the amount of $210,761, which does not bear interest and is payable on demand. 5. LEASES Certain of the Company's buildings and equipment are leased under noncancelable operating leases. Total rent expense for the four month period ended April 30, 1997 was approximately $22,300. F-52 CARIBBEAN COMMUNICATIONS COMPANY LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. LEASES (CONTINUED) Future minimum lease payments required under operating leases in effect at April 30, 1997 for the twelve month periods ended April 30 are as follows: 1998.............................................................. $ 33,884 1999.............................................................. 32,384 2000.............................................................. 21,628 2001.............................................................. 20,000 2002.............................................................. 20,000 Thereafter........................................................ 1,667 --------- $ 129,563 --------- ---------
6. COMMITMENTS AND CONTINGENCIES The Company has entered into several agreements whereby the Company has been granted licenses to broadcast under preassigned frequencies in Trinidad and Tobago, Montserrat, Saint Lucia and the British Virgin Islands. The Company also has an affiliation agreement with a broadcast licensee in St. Maarten. Under the terms of the agreements, the Company pays royalties to the government of Trinidad of 2% of gross annual revenue, and pays fixed annual royalties for all other licenses. Royalty expense under these agreements was approximately $5,400 for the four month period ended April 30, 1997. Pursuant to the various licensing agreements, the future minimum guaranteed royalty payments are $17,000 in 1998, and $12,000 per year from 1999 through 2005. The Company has entered into a broadcast service agreement with a telecommunications company for unlimited usage of its satellite equipment for the purpose of uplinking GEM Radio Network broadcasts to its satellite equipment and downlinking the transmission of these broadcasts to various receiver sites. The agreement expires January 15, 2001 and requires 84 monthly payments of $2,820, subject to escalation. The Company also has a vehicle under a capital lease with a cost of $44,700 and accumulated depreciation of $16,729 as of April 30, 1997. 7. RELATED PARTY TRANSACTIONS During 1997, the Company reimbursed Quaestus Management Corporation (Quaestus), a related party, for general and administrative expenses paid by Quaestus on behalf of the Company. At April 30, 1997, the Company had a payable to Quaestus of $20,296. During 1997, the Company paid $80,000 in settlement of notes payable to shareholders of the Company. At April 30, 1997, the balance of the notes payable was $0. 8. SUBSEQUENT EVENT Effective May 22, 1997, the capital stock and assets of the Company were contributed to Cumulus Media Inc. F-53 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the combined financial position of Carolina Broadcasting, Inc. and Georgetown Radio, Inc. at December 31, 1997, and the combined results of their operations and their cash flows for the year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Companies' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 4, 1998 F-54 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. COMBINED BALANCE SHEET
DECEMBER 31, 1997 ------------ ASSETS Current assets: Cash.............................................................................................. $ 1,325 Accounts receivable, less allowance for doubtful accounts of $10,000.............................. 33,291 ------------ Total current assets.......................................................................... 34,616 Property and equipment, net......................................................................... 397,170 Intangible assets, net of accumulated amortization of $78,897....................................... 1,104,537 ------------ Total assets.................................................................................. $1,536,323 ------------ ------------ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.................................................................................. $ 59,839 Note payable...................................................................................... 50,800 Accrued interest.................................................................................. 131,573 ------------ Total current liabilities..................................................................... 242,212 Notes payable from stockholders..................................................................... 1,154,000 Seller note payable................................................................................. 500,000 Commitments and contingencies Stockholders' deficit: Common stock...................................................................................... 4,448 Additional paid-in-capital........................................................................ 255,552 Accumulated deficit............................................................................... (619,889) ------------ Total stockholders' deficit................................................................... (359,889) ------------ Total liabilities and stockholders' deficit................................................... $1,536,323 ------------ ------------
See Notes to Financial Statements. F-55 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------ Revenues...................................................................................... $ 267,770 ---------- Operating expenses: Sales and promotions........................................................................ 103,586 Technical and programming................................................................... 223,236 General and administrative.................................................................. 252,234 Depreciation and amortization............................................................... 105,910 ---------- Total operating expenses.................................................................. 684,966 ---------- Loss from operations.......................................................................... (417,196) Other income (expense): Interest income............................................................................. 853 Interest expense............................................................................ (168,240) ---------- Net loss...................................................................................... $ (584,583) ---------- ----------
See Notes to Financial Statements. F-56 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
ADDITIONAL COMMON PAID-IN- ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ----------- ---------- ------------ ----------- Balance at January 1, 1997...................................... $ 7 $ 154,993 $ (35,306) $ 119,694 Net loss........................................................ -- -- (584,583) (584,583) Issuance of common stock........................................ 4,441 100,559 -- 105,000 ----------- ---------- ------------ ----------- Balance at December 31, 1997.................................... $ 4,448 $ 255,552 $ (619,889) $ (359,889) ----------- ---------- ------------ ----------- ----------- ---------- ------------ -----------
See Notes to Financial Statements. F-57 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------ Cash flows from operating activities: Net loss.................................................................................... $ (584,583) Adjustments to reconcile net loss to cash used in operating activities: Depreciation............................................................................ 27,013 Amortization............................................................................ 78,897 Changes in assets and liabilities: Accounts receivable, net................................................................ 28,984 Other current assets.................................................................... 25,000 Accounts payable........................................................................ 59,839 Accrued interest........................................................................ 131,573 ------------------ Net cash used in operating activities................................................. (233,277) ------------------ Cash flows from investing activities: Capital expenditures........................................................................ (46,777) Payments for businesses acquired............................................................ (1,060,000) ------------------ Net cash used for investing activities................................................ (1,106,777) ------------------ Cash flows from financing activities: Issuance of common stock.................................................................... 105,000 Net proceeds from shareholders' loans....................................................... 484,000 Proceeds from borrowings.................................................................... 50,800 ------------------ Net cash provided by financing activities............................................. 639,800 ------------------ Net decrease in cash and cash equivalents..................................................... (700,254) Cash and cash equivalents, beginning of period................................................ 701,579 ------------------ Cash and cash equivalents, end of period...................................................... $ 1,325 ------------------ ------------------ Supplemental disclosure: Interest paid............................................................................... $ 36,667 ------------------ ------------------ Non-cash operating, investing and financing activities: Trade revenue............................................................................... $ 40,942 ------------------ ------------------ Trade expense............................................................................... $ 40,942 ------------------ ------------------ Acquisition of assets in exchange for note payable.......................................... $ 500,000 ------------------ ------------------
See Notes to Financial Statements. F-58 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS On January 6, 1997, Carolina Broadcasting, Inc. (Carolina) acquired two radio stations located in Conway, South Carolina (WJXY-FM and WJXY-AM) for $800,000 in cash plus a $500,000 promissory note payable to the seller, Downs Satellite Broadcasting of South Carolina, Inc. Pursuant to a time brokerage agreement, Carolina has operated these stations since October 1, 1996. On February 6, 1997, Georgetown Radio, Inc. (Georgetown) acquired a radio station located in Georgetown, South Carolina (WXJY-FM) for $260,000. The acquisitions were accounted for as purchases. Accordingly, the accompanying combined financial statements include the results of operations of the acquired entities from the dates of acquisition. The significant accounting principles followed by Carolina and Georgetown and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. BASIS OF PRESENTATION Carolina and Georgetown (collectively, the Companies) share common owners and common management. Thus, the Companies' financial position and results of operations have been combined in the attached financial statements. All significant intercompany accounts and transactions have been eliminated. 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. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Companies enter into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Companies use exchanged products or services before advertising air time is provided, a trade liability is recognized. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Companies to concentrations of credit risk consist principally of cash and accounts receivable. The Companies perform ongoing credit evaluations of their customers and generally do not require collateral for their accounts receivable. F-59 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) The Companies reserve for potential credit losses based upon the expected collectibility of all accounts receivable. CASH AND CASH EQUIVALENTS The Companies consider all highly liquid investments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Buildings......................................................... 15 years Broadcasting equipment............................................ 15 years Office furniture and equipment.................................... 5-7 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets primarily represent the excess of cost over the fair market value of tangible net assets acquired. Intangible assets are stated at cost and are being amortized using the straight-line method over fifteen years. The Companies evaluate the carrying value of intangibles periodically in relation to the projected future undiscounted cash flows of the related businesses. FEDERAL INCOME TAXES The Companies have elected to be treated as Subchapter S corporations for federal and state income tax purposes. As a result, the Companies' shareholders include a pro-rata share of the Companies' taxable income in their respective personal income tax returns. Accordingly, no federal and state income tax expense or benefit has been included in the accompanying financial statements. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Companies financial instruments, including cash and cash equivalents, accounts receivable and payable and long-term debt approximate fair value. F-60 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 consists of the following: Buildings......................................................... $ 46,473 Equipment......................................................... 212,529 Furniture and fixtures............................................ 17,041 --------- 276,043 Accumulated depreciation.......................................... (27,073) --------- 248,970 Land.............................................................. 148,200 --------- Property and equipment, net....................................... $ 397,170 --------- ---------
3. DEBT: Debt at December 31, 1997 consists of the following: Seller note payable at 8%, payable in 24 monthly installments beginning January 2000 and $450,000 due January 2002.......... $ 500,000 Bank note payable at 9.5%, due April 1998....................... 50,800 Stockholder notes payable at 12%, due January 2007.............. 1,040,000 Stockholder notes payable at 12%, due June 1999................. 114,000 --------- $1,704,800 --------- ---------
In connection with the acquisition of radio stations in January 1997, Carolina entered into a $500,000 promissory note payable to the seller. In October 1997, Carolina borrowed $50,800 from a bank to fund operations. In addition, throughout 1997 certain shareholders made advances to Carolina to fund operations. Such advances were evidenced by promissory notes payable. The maturities of long-term debt outstanding at December 31, 1997 are as follows: 1998............................................................. $ 50,800 1999............................................................. 114,000 2000............................................................. 25,000 2001............................................................. 25,000 2002............................................................. 450,000 Thereafter....................................................... 1,040,000
4. COMMON STOCK: Carolina has authorized 5,000 shares of common stock, $1 par value, of which 2,226 shares were outstanding at December 31, 1997. Georgetown has authorized 5,000 shares of common stock, $1 par value, of which 2,222 shares were outstanding at December 31, 1997. F-61 CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $47,726 for the year ended December 31, 1997 under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997 are as follows: 1998............................................................... $ 41,572 1999............................................................... 37,176 2000............................................................... 37,176 2001............................................................... 600 Thereafter......................................................... --
6. SALE OF ASSETS: In October 1997, the Companies entered into an asset purchase agreement to sell the Companies' assets to Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc., for approximately $2.3 million. F-62 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in partners' deficit, and of cash flows present fairly, in all material respects, the financial position of Castle Broadcasting Limited Partnership at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. 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 audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 18, 1998 F-63 CASTLE BROADCASTING LIMITED PARTNERSHIP BALANCE SHEETS
MARCH 31, DECEMBER 31, ------------- ---------------------------- 1998 1997 1996 ------------- ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash............................................................... $ 15,506 $ 22,925 $ 106,242 Accounts receivable, less allowance for doubtful accounts of $10,500, at all dates....................... 215,170 209,118 184,482 Prepaid expenses and other current assets.......................... 13,055 16,539 19,219 ------------- ------------- ------------- Total current assets........................................... 243,731 248,582 309,943 Other assets......................................................... 56,921 45,593 -- Property and equipment, net.......................................... 251,926 242,680 104,051 Intangible assets, net............................................... 481,881 495,731 47,762 ------------- ------------- ------------- Total assets................................................... $ 1,034,459 $ 1,032,586 $ 461,756 ------------- ------------- ------------- ------------- ------------- ------------- LIABILITIES AND PARTNERS' DEFICIT Current liabilities: Note payable to bank............................................... $ 120,000 $ 70,000 $ -- Accounts payable................................................... 21,128 55,318 22,161 Accrued and other current liabilities.............................. 105,302 91,223 81,188 Note payable on demand to a limited partner........................ 1,990,190 1,990,190 1,445,190 Accrued interest to a limited partner.............................. 482,878 439,367 515,919 ------------- ------------- ------------- Total current liabilities...................................... 2,719,498 2,646,098 2,064,458 ------------- ------------- ------------- Commitments and contingencies Partners' deficit.................................................... (1,685,039) (1,613,512) (1,602,702) ------------- ------------- ------------- Total liabilities and partners' deficit........................ $ 1,034,459 $ 1,032,586 $ 461,756 ------------- ------------- ------------- ------------- ------------- -------------
See Notes to Financial Statements. F-64 CASTLE BROADCASTING LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS
THREE MONTHS FOR THE YEAR ENDED ENDED MARCH 31, DECEMBER 31, ---------------------------- ---------------------------- 1998 1997 1997 1996 ------------- ------------- ------------- ------------- (UNAUDITED) Revenues:............................................. $ 391,899 $ 321,312 $ 1,778,115 $ 1,689,508 Less: agency commissions........................... (35,207) (24,692) (142,134) (122,773) ------------- ------------- ------------- ------------- Net revenues.................................. 356,692 296,620 1,635,981 1,566,735 ------------- ------------- ------------- ------------- Operating expenses: Programming and technical........................... 100,506 70,894 370,702 257,933 Sales............................................... 112,620 84,982 485,093 441,120 Engineering......................................... 4,770 3,012 9,778 9,907 News................................................ 25,786 27,343 109,446 103,087 General and administrative.......................... 95,559 67,462 367,949 364,325 Promotions.......................................... 24,943 19,974 106,055 128,307 Depreciation and amortization....................... 18,575 7,710 47,908 31,275 ------------- ------------- ------------- ------------- Total operating expenses........................ 382,759 281,377 1,496,931 1,335,954 ------------- ------------- ------------- ------------- Income from operations................................ (26,067) 15,243 139,050 230,781 ------------- ------------- ------------- ------------- Other income (expense): Gain on sale of equipment........................... -- -- -- 75 Interest income..................................... 9 518 1,340 1,100 Interest expense.................................... (45,469) (34,030) (151,200) (133,680) ------------- ------------- ------------- ------------- Other income (expense) net...................... (45,460) (33,512) (149,860) (132,505) ------------- ------------- ------------- ------------- Net income (loss)..................................... $ (71,527) $ (18,269) $ (10,810) $ 98,276 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
See Notes to Financial Statements. F-65 CASTLE BROADCASTING LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT Balance at January 1, 1996...................................................... $(1,700,978) Net income...................................................................... 98,276 ---------- Balance at December 31, 1996.................................................... (1,602,702) Net loss........................................................................ (10,810) ---------- Balance at December 31, 1997.................................................... $(1,613,512) ---------- ----------
See Notes to Financial Statements. F-66 CASTLE BROADCASTING LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
THREE MONTHS FOR THE YEAR ENDED ENDED MARCH 31, DECEMBER 31, ------------------------ ------------------------ 1998 1997 1997 1996 ----------- ----------- ----------- ----------- UNAUDITED Cash flows from operating activities: Net income (loss).......................................... $ (71,527) $ (18,269) $ (10,810) $ 98,276 Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depreciation and amortization.......................... 18,575 7,710 47,908 31,275 Loss on sale of equipment.............................. -- -- -- (75) (Increase) decrease in accounts receivable............. (6,052) 24,603 (24,636) (5,249) (Increase) decrease in prepaid expenses and other current assets....................................... 3,484 (8,643) 2,680 11,238 Increase (decrease) in accounts payable................ (34,190) (846) 33,157 (132) Increase (decrease) in accrued and other current liabilities.......................................... 14,079 (7,310) 10,035 (784) Increase (decrease) in accrued interest to a limited partner.............................................. 43,511 (1,664) (76,552) (125,320) ----------- ----------- ----------- ----------- Net cash (used in) provided by operating activities.......... (32,120) (4,419) (18,218) 10,797 ----------- ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of equipment............................ -- -- -- 75 Purchases of property and equipment........................ (13,971) (2,051) (66,991) (13,056) Acquisition of WBZN--FM.................................... -- -- (567,515) -- Deferred costs incurred with sale of the Partnership....... (11,328) -- (45,593) -- ----------- ----------- ----------- ----------- Net cash used for investing activities....................... (25,299) (2,051) (680,099) (12,981) ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of debt............................. 50,000 -- 615,000 -- ----------- ----------- ----------- ----------- Net cash provided by financing activities.................... 50,000 -- 615,000 -- ----------- ----------- ----------- ----------- Net decrease in cash......................................... (7,419) (6,470) (83,317) (2,184) Cash at beginning of period.................................. 22,925 106,242 106,242 108,426 ----------- ----------- ----------- ----------- Cash at end of period........................................ $ 15,506 $ 99,772 $ 22,925 $ 106,242 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Supplemental cash flow information: Cash payments for interest................................. $ -- $ 36,000 $ 238,257 $ 259,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Non-cash operating activities: Trade revenue.............................................. $ 6,308 $ 8,888 $ 28,200 $ 23,938 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Trade expense.............................................. $ 3,230 $ 3,738 $ 28,365 $ 26,510 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements. F-67 CASTLE BROADCASTING LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Castle Broadcasting Limited Partnership (the "Partnership") owns and operates radio stations WQCB-FM and WBZN-FM (the "Stations") located in Brewer, Maine. The general partner of the Partnership is 200 Danforth Street, a company controlled by a limited partner of the Partnership. During 1997, this limited partner acquired the ownership interests of the three other limited partners of the Partnership. The significant accounting principles followed by the Partnership and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated using accelerated methods over their estimated useful lives as follows: Transmitter....................................................... 25 years Broadcasting towers and equipment................................. 15 years Office furniture and equipment.................................... 5 years Leasehold improvement............................................. 5 years Vehicles.......................................................... 5 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets represent the excess of cost over the fair market value of tangible net assets acquired and consist primarily of Federal Communications Commission ("FCC") licenses and goodwill. Intangible assets are stated at cost and are being amortized using the straight-line method over 15 years. The Partnership evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Partnership operates as a Limited Partnership under the provisions of the Internal Revenue Code. Accordingly, no provision for income taxes has been made since income or losses of the Partnership are allocated to the partners. F-68 CASTLE BROADCASTING LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Partnership enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Partnership uses exchanged products or services before advertising air time is provided, a trade liability is recognized. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITIONS On October 1, 1997, the Partnership acquired WBZN-FM in Brewer, Maine for $500,000 in cash plus various other direct acquisition costs totaling $67,515. The purchase price was allocated to property and equipment ($99,810) and intangibles ($467,705). Results of operations of WBZN-FM for the 1997 period prior to acquisition are not available. The net loss of WBZN-FM for the 1996 year, based on unaudited financial information, approximated $110,000. The acquisition was accounted for as a purchase. Accordingly, the accompanying financial statements include the results of operations of the acquired entity from the date of acquisition. 3. OTHER ASSETS Other assets represents deferred costs incurred in connection with the sale of the Partnership. F-69 CASTLE BROADCASTING LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- Transmitter........................................................... $ 115,883 $ 108,583 Broadcasting towers and equipment..................................... 723,141 593,169 Office furniture and equipment........................................ 108,510 89,038 Leasehold improvements................................................ 23,816 16,518 Vehicles.............................................................. 11,630 8,870 ---------- ---------- Total property and equipment.......................................... 982,980 816,178 Accumulated depreciation.............................................. (757,220) (729,047) ---------- ---------- 225,760 87,131 Land.................................................................. 16,920 16,920 ---------- ---------- Property and equipment, net........................................... $ 242,680 $ 104,051 ---------- ---------- ---------- ----------
Depreciation expense for the years ended December 31, 1997 and 1996 was $28,173 and $19,335 respectively. 5. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- Goodwill, FCC license and other....................................... $ 646,810 $ 179,105 Accumulated amortization.............................................. (151,079) (131,343) ---------- ---------- Intangible assets, net................................................ $ 495,731 $ 47,762 ---------- ---------- ---------- ----------
Amortization expense for the years ended December 31, 1997 and 1996 was $19,735 and $11,940, respectively. 6. DEBT: The Partnership has significant transactions with a limited partner and is dependent upon the limited partner for continued support. The Partnership has debt of $1,990,190 and $1,445,190 at December 31, 1997 and 1996, respectively, payable to the limited partner on demand. The note is collaterialized by a mortgage on real property in Garland, Maine and a security agreement on all equipment, accounts receivable and contract rights of the Partnership. Interest is due quarterly at 1% above Bank of Boston Base Rate. At December 31, 1997 and 1996, the Partnership owed accrued interest of $439,367 and $515,919, respectively, to the limited partner. The Partnership obtained a $100,000 secured demand line of credit during 1997. At December 31, 1997, $70,000 is outstanding. The borrowing rate is based on the Bank of Boston's prime rate of interest. The Partnership's obligations under the facility are secured by various marketable securities held by the limited partner. F-70 CASTLE BROADCASTING LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES: The Partnership incurred expenses of approximately $52,632 and $46,498 for the period ended December 31, 1997 and 1996, respectively, under operating leases for radio broadcasting facilities. Future minimum annual payments at December 31, 1997 are: 1998................................................................... $ 9,525 1999................................................................... 6,000 2000................................................................... 6,000 2001................................................................... 6,000 2002................................................................... 6,000
Also, at December 31, 1997, the Partnership has vehicles under capital lease with a cost of $11,630 ($8,870 at December 31, 1996) with accumulated depreciation of $9,008 ($8,870 at December 31, 1996). 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, and accounts payable approximates fair value because of the short maturity of these instruments. 9. SUBSEQUENT EVENT: In February 1998, the Partnership entered into an agreement to sell, subject to approval of the FCC, certain assets of the Partnership to Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc., for $6,400,000. F-71 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of owner's equity in stations and of cash flows present fairly, in all material respects, the financial position of Clearly Superior Radio Properties (the "Company") at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These combined financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 24, 1998 F-72 CLEARLY SUPERIOR RADIO PROPERTIES COMBINED BALANCE SHEETS
MARCH 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................ $ 94,715 $ 10,604 $ 637,035 Accounts receivable, less allowance for doubtful accounts of $27,741 $44,427 and $25,039, respectively.................................. $ 280,529 438,020 253,204 Prepaid and other current assets..................................... 7,230 23,654 -- ------------ ------------ ------------ Total current assets............................................... 382,474 472,278 890,239 Property and equipment, net............................................ 514,778 556,394 115,849 Intangible assets, net................................................. 2,663,025 2,759,096 220,816 ------------ ------------ ------------ Total assets....................................................... 3,560,277 $3,787,768 $1,226,904 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND OWNER'S EQUITY IN STATIONS Current liabilities: Accounts payable and accrued liabilities............................. $ 32,700 $ 6,231 $ 12,593 Current portion of long-term debt.................................... 27,072 27,072 47,038 ------------ ------------ ------------ Total current liabilities.......................................... 59,772 33,303 59,631 Long term debt......................................................... 3,101,330 3,170,307 73,962 ------------ ------------ ------------ Total liabilities.................................................. 3,161,102 3,203,610 133,593 ------------ ------------ ------------ Commitment and contingencies Owner's equity in stations............................................. 399,175 584,158 1,093,311 ------------ ------------ ------------ Total liabilities and owner's equity in stations................... $ 3,560,277 $3,787,768 $1,226,904 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Combined Financial Statements. F-73 CLEARLY SUPERIOR RADIO PROPERTIES COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, -------------------------- -------------------------- 1998 1997 1997 1996 ------------ ------------ ------------ ------------ (UNAUDITED) Revenues................................................. $ 219,718 $ 489,780 $ 2,661,954 $ 1,568,752 Less: agency commissions............................... -- 16,845 (104,140) (56,402) ------------ ------------ ------------ ------------ Net revenues......................................... 219,718 472,935 2,557,814 1,512,350 Operating expenses: Programming............................................ 12,965 104,384 530,285 301,997 Sales and promotions................................... 11,299 115,999 636,030 360,239 Technical.............................................. 4,767 9,603 90,536 33,221 General and administrative............................. 90,969 93,371 470,661 333,076 Depreciation and amortization.......................... 147,928 35,985 211,192 81,105 ------------ ------------ ------------ ------------ Total operating expenses............................. 267,928 359,342 1,938,704 1,109,638 ------------ ------------ ------------ ------------ Income (loss) from operations............................ (48,210) 113,593 619,110 402,712 Other income (expense), net.............................. (61,000) (7,110) (75,235) 36,965 Interest income (expense), net........................... (75,773) (26,573) (261,602) 15,707 ------------ ------------ ------------ ------------ Net income............................................... $ (184,983) $ 79,910 $ 282,273 $ 455,384 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Combined Financial Statements. F-74 CLEARLY SUPERIOR RADIO PROPERTIES COMBINED STATEMENT OF OWNER'S EQUITY IN STATIONS Balance at January 1, 1996...................................................... $ 972,927 Owner contributions............................................................. 50,000 Owner distributions............................................................. (385,000) Net income...................................................................... 455,384 --------- Balance at December 31, 1996.................................................... 1,093,311 Owner distributions............................................................. (791,426) Net income...................................................................... 282,273 --------- Balance at December 31, 1997.................................................... $ 584,158 --------- ---------
See Notes to Combined Financial Statements. F-75 CLEARLY SUPERIOR RADIO PROPERTIES COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ---------------------------- -------------------------- 1998 1997 1997 1996 ------------- ------------- ------------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)..................................... $ (184,983) $ 79,910 $ 282,273 $ 455,384 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................... 147,928 35,985 211,192 81,105 Provision for doubtful accounts..................... (16,686) 8,549 19,388 10,192 Gain on sale of equipment........................... -- -- -- 1,000 (Increase) decrease in accounts receivable.......... 174,177 (95,000) (204,204) (54,649) (Increase) decrease in prepaid and other current assets............................................ 16,424 -- (23,654) (14,835) (Decrease) increase in accounts payable & accrued liabilities....................................... 26,469 (5,180) (6,362) 4,639 ------------- ------------- ------------- ----------- Net cash provided by operating activities........... 163,329 24,264 278,633 482,836 ------------- ------------- ------------- ----------- Cash flows from investing activities: Purchases of property and equipment................... (10,241) -- (32,171) (110,696) Purchase of radio station assets...................... -- -- (3,157,844) -- ------------- ------------- ------------- ----------- Cash used for investing activities.................... (10,241) -- (3,190,015) (110,696) ------------- ------------- ------------- ----------- Cash flows from financing activities: Repayment of debt..................................... (68,977) -- (1,221,000) -- Distributions to owner................................ -- (4,130,000) (791,426) (385,000) Contributions from owner.............................. -- -- -- 50,000 Proceeds from debt.................................... -- 4,130,000 4,297,377 -- ------------- ------------- ------------- ----------- Cash provided by (used in) financing activities....... (68,977) -- 2,284,951 (335,000) ------------- ------------- ------------- ----------- (Decrease) increase in cash and cash equivalents........ 84,111 24,264 (626,431) 37,140 Cash and cash equivalents at beginning of period........ 10,604 637,035 637,035 599,895 ------------- ------------- ------------- ----------- Cash and cash equivalents at end of period.............. 94,715 661,299 $ 10,604 $ 637,035 ------------- ------------- ------------- ----------- ------------- ------------- ------------- ----------- Supplemental disclosures of cash flow information: Cash paid for interest................................ 75,773 26,573 $ 270,907 $ -- ------------- ------------- ------------- ----------- ------------- ------------- ------------- ----------- Non-cash operating activities: Trade revenue......................................... -- 48,950 $ 195,801 $ 43,665 ------------- ------------- ------------- ----------- ------------- ------------- ------------- ----------- Trade expense......................................... $ -- $ 48,739 $ 194,954 $ 34,537 ------------- ------------- ------------- ----------- ------------- ------------- ------------- -----------
See Notes to Combined Financial Statements. F-76 CLEARLY SUPERIOR RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Clearly Superior Radio Properties ("the Company") represents six radio stations under the common control of the sole owner. The stations are held in pass-through entities which are controlled by the owner. The Company has stations licensed in Marion, Illinois (WDDD-FM), Johnston City, Illinois (WDDD- AM), Herrin, Illinois (WVZA-FM), West Frankfort, Illinois (WQUL-FM) & (WFRX-AM), and Carbondale, IL (WTAO-FM). The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. INCOME TAXES The stations are held in pass-through entities which are controlled by the owner. Income or loss of the Company is included in the tax return of the sole owner. Accordingly, federal income taxes are not recognized by the Company. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repair and maintenance, that significantly add to productivity or extend the economic lives of the assets are capitalized at cost and depreciated on an accelerated method as follows. Building.................................................... 15 years Broadcasting towers and equipment........................... 6 years Office furniture and equipment.............................. 6 years Leasehold improvements...................................... Term of lease Automobiles................................................. 6 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets represent FCC licenses and organizational costs. Fee licenses and organizational costs are stated at cost and are being amortized using the straight-line method over the estimated useful F-77 CLEARLY SUPERIOR RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) life of 15 and 5 years, respectively. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses recharged products or services before advertising air time is provided, a trade liability is recognized. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short maturity of these instruments. The fair value of notes payable are estimated based on current market rates and approximates the carrying value. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITION In March 1997, the Company acquired WTAO-FM in Carbondale, IL for approximately $3 million. The acquisition was accounted for as a purchase. Accordingly, the accompanying combined financial statements include the results of operations of the acquired entity from the date of acquisition. The following pro forma financial information represents the unaudited pro forma results of operations as if the aforementioned acquisition had been completed on January 1, 1996, after giving effect to certain adjustments including increased depreciation and amortization of property and equipment and intangible assets. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have been achieved had this F-78 CLEARLY SUPERIOR RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. ACQUISITION (CONTINUED) acquisition been completed as of January 1, 1996, nor are the results indicative of future results of operations.
PRO FORMA FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ (UNAUDITED) Revenues.......................................................... $ 2,690,889 $ 2,541,006 ------------ ------------ ------------ ------------ Income from operations............................................ $ 657,271 $ 670,135 ------------ ------------ ------------ ------------ Net income........................................................ $ 317,619 $ 733,136 ------------ ------------ ------------ ------------
3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Building......................................................... $ 303,542 $ -- Broadcasting towers and equipment................................ 368,118 208,270 Office furniture and equipment................................... 71,485 62,674 Leasehold improvements........................................... 12,750 12,750 Automobile....................................................... 43,390 35,477 ------------ ------------ 799,285 319,171 Accumulated depreciation......................................... (313,882) (203,322) Land............................................................. 70,991 -- ------------ ------------ Property and equipment, net...................................... $ 556,394 $ 115,849 ------------ ------------ ------------ ------------
Depreciation expense for the years ended December 31, 1997 and 1996 was $110,560 and $50,829, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ FCC license...................................................... $3,147,990 $ 518,330 Organizational costs............................................. 55,214 45,962 ------------ ------------ 3,203,204 564,292 Accumulated amortization......................................... (444,108) (343,476) ------------ ------------ Intangible assets, net........................................... $2,759,096 $ 220,816 ------------ ------------ ------------ ------------
Amortization expense for the years ended December 31, 1997 and 1996 was $100,632 and $30,276, respectively. F-79 CLEARLY SUPERIOR RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS: The Company rents property from its owner for use in the broadcasting operations. Payments of $4,000 per month are made on a building lease with an initial term of ten years, with two five-year extensions available at the option of the lessee. Payments of $1,100 per month are made on a tower lease with an initial term of fifteen years, with two five-year extensions available at the option of the lessee. Additional payments of $500 per month were made during 1996 on an additional tower lease which expired December 31, 1996. The total rental payments included in the Company's expense for 1996 under these leases total $67,200. During 1997, payments of $4,000 per month continued to be made on the building lease. Payment of $2,380 per month are made to the sole stockholder on various tower leases. In September 1997, the Company sold the WTAO transmitter tower to the sole stockholder which then leased to the Company for $500 per month. Total rental payments included in the Company's expense for 1997 under these leases total $78,560. All lease agreements are subject to annual escalations based on inflation. Future minimum annual payments in current year dollars, under these non-cancelable operating leases & agreement as of December 31, 1997, are as follows: 1998............................................................ $ 82,560 1999............................................................ 82,560 2000............................................................ 82,560 2001............................................................ 82,560 2002............................................................ 82,560 Thereafter...................................................... 825,000 --------- $1,237,800 --------- ---------
6. LONG-TERM DEBT: Following is a summary of long-term debt at December 31, 1997 and 1996:
DECEMBER 31, ------------------------ 1997 1996 ------------ ---------- Note payable to financial institution, due May 31, 1998, including interest at 12%, interest payable monthly.............................................................. $ -- $ 47,000 Note payable to financial institution, due in annual installments payable May 31, 1997 and 1998, including interest at 12%, interest payable monthly............ -- 74,000 Note payable to bank, variable interest rate (8.75% on December 31, 1997), interest payable monthly....................................................................... 3,030,000 -- Note payable to bank payable in monthly installments of $2,256, including interest at 7.75%, interest payable monthly....................................................... 167,379 -- ------------ ---------- 3,197,379 121,000 Less: Current maturities of long-term debt.............................................. (27,072) (47,038) ------------ ---------- $ 3,170,307 $ 73,962 ------------ ---------- ------------ ----------
F-80 CLEARLY SUPERIOR RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. LONG-TERM DEBT: (CONTINUED) Payment obligation as of December 31, 1997 by year are as follows:
AMOUNT ------------ 1998............................................................................ $ 27,072 1999............................................................................ 27,072 2000............................................................................ 27,072 2001............................................................................ 27,072 2002............................................................................ 27,072 Thereafter...................................................................... 3,062,019 ------------ $ 3,197,379 ------------ ------------
7. OTHER TRANSACTIONS: As of December 18, 1997, the Company entered into an asset purchase agreement to sell all of the assets of the Company to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary Cumulus Media Inc.) for $12.5 million. F-81 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Communications Properties, Inc. at March 31, 1998, August 31, 1997 and August 31, 1996, and the results of its operations and its cash flows for the seven months ended March 31, 1998, and the years ended August 31, 1997 and 1996 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Chicago, Illinois April 22, 1998 F-82 COMMUNICATIONS PROPERTIES, INC. BALANCE SHEETS
AUGUST 31, --------------------------- MARCH 31, 1998 1997 1996 ------------ ------------ ------------- ASSETS Current assets: Cash and cash equivalents............................................ $ 25,720 $ 47,812 $ 16,994 Accounts receivable, less allowance for doubtful accounts of $14,060, $9,060 and $16,340, respectively................................... 286,691 314,164 282,551 Prepaid expenses and other current assets............................ 1,863 12,910 18,326 Deferred income taxes................................................ 33,000 24,000 -- ------------ ------------ ------------- Total current assets............................................... 347,274 398,886 317,871 Property and equipment, net.......................................... 1,695,420 1,873,040 174,966 Cash surrender value of life insurance............................... -- 120,560 108,339 Long-term receivables from affiliates................................ 12,367 15,352 33,112 Intangible assets, net............................................... 703,484 731,000 198,314 ------------ ------------ ------------- Total assets....................................................... $ 2,758,545 $ 3,138,838 $ 832,602 ------------ ------------ ------------- ------------ ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt................................. $ 38,362 $ 36,373 $ -- Notes payable........................................................ 2,664,996 2,718,202 1,577,084 Accounts payable..................................................... 60,733 88,189 47,055 Accrued and other current liabilities................................ 196,754 219,669 153,157 ------------ ------------ ------------- Total current liabilities.......................................... 2,960,845 3,062,433 1,777,296 Long-term debt, less current maturities................................ 102,394 126,280 -- Deferred income taxes.................................................. 177,000 190,000 -- Stockholders' equity (deficit): Common stock, $0.01 par value: Class A Voting, authorized 1,250,000 shares; issued 62,150, 62,150 and 70,988 shares................................................ 622 622 710 Class B Nonvoting, authorized 1,250,000 shares; issued 37,850, 37,850 and 46,688 shares.......................... 379 379 467 Additional paid-in capital........................................... 837,944 837,944 1,137,591 Accumulated deficit.................................................. (711,441) (469,622) (1,542,102) Less--Cost of treasury shares: Class A--41,017.5 shares........................................... (508,605) (508,605) (508,605) Class B--18,738.5, 18,738.5 and 17,738.5 shares.................... (100,593) (100,593) (32,755) ------------ ------------ ------------- Total stockholders' equity (deficit)............................... (481,694) (239,875) (944,694) ------------ ------------ ------------- Total liabilities and stockholders equity (deficit)................ $ 2,758,545 $ 3,138,838 $ 832,602 ------------ ------------ ------------- ------------ ------------ -------------
See Notes to Financial Statements. F-83 COMMUNICATIONS PROPERTIES, INC. STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTH PERIOD FOR THE YEAR ENDED MARCH 31, ENDED AUGUST 31, -------------------------- -------------------------- 1998 1997 1997 1996 ------------ ------------ ------------ ------------ (UNAUDITED) Revenues:................................................ $ 1,060,259 $ 1,372,597 $ 2,527,771 $ 1,849,712 Less: agency commissions............................... (89,284) (122,199) (150,876) (104,880) ------------ ------------ ------------ ------------ Net revenues......................................... 970,975 1,250,398 2,376,895 1,744,832 Operating expenses: Programming............................................ 331,035 409,813 767,710 595,159 Sales and promotions................................... 208,738 290,294 516,833 434,666 Technical.............................................. 48,628 53,636 104,923 96,649 General and administrative............................. 370,771 414,434 900,768 577,270 Depreciation and amortization.......................... 179,906 31,230 67,190 55,271 ------------ ------------ ------------ ------------ Total operating expenses............................. 1,139,078 1,199,407 2,357,424 1,759,015 ------------ ------------ ------------ ------------ Income (loss) from operations............................ (168,103) 50,991 19,471 (14,183) Other income (expense): Gain on sale of stations............................... -- -- 1,462,261 -- Interest expense....................................... (143,421) (77,136) (172,802) (139,260) Other.................................................. 47,705 32,703 37,200 30,898 ------------ ------------ ------------ ------------ (95,716) (44,433) 1,326,659 (108,362) ------------ ------------ ------------ ------------ Income (loss) before income taxes........................ (263,819) 6,558 1,346,130 (122,545) Provision (benefit) for income taxes..................... (22,000) -- 167,598 -- ------------ ------------ ------------ ------------ Net income (loss)........................................ ($ 241,819) $ 6,558 $ 1,178,532 ($ 122,545) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-84 COMMUNICATIONS PROPERTIES, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ADDITIONAL TREASURY STOCK ------------------------ PAID-IN ACCUMULATED ------------------------ CLASS A CLASS B CAPITAL DEFICIT CLASS A CLASS B TOTAL ----------- ----------- ------------ ------------- ----------- ----------- ------------- Balance at August 31, 1995........ $ 710 $ 467 $ 1,137,591 ($ 1,419,557) ($ 508,605) ($ 32,755) ($ 822,149) Net loss.......................... (122,545) (122,545) ----- ----- ------------ ------------- ----------- ----------- ------------- Balance at August 31, 1996........ 710 467 1,137,591 (1,542,102) (508,605) (32,755) (944,694) Redemption of 8,838 Class A shares and 8,838 Class B shares........ (88) (88) (299,647) (106,052) (405,875) Purchase of 1,000 Class B shares for the treasury................ (67,838) (67,838) Net income........................ 1,178,532 1,178,532 ----- ----- ------------ ------------- ----------- ----------- ------------- Balance at August 31, 1997........ 622 379 837,944 (469,622) (508,605) (100,593) (239,875) Net loss.......................... (241,819) (241,819) ----- ----- ------------ ------------- ----------- ----------- ------------- Balance at March 31, 1998......... $ 622 $ 379 $ 837,944 ($ 711,441) ($ 508,605) ($ 100,593) ($ 481,694) ----- ----- ------------ ------------- ----------- ----------- ------------- ----- ----- ------------ ------------- ----------- ----------- ------------- Balance at August 31, 1996 (as above).......................... $ 710 $ 467 $ 1,137,591 ($ 1,542,102) ($ 508,605) ($ 32,755) ($ 944,694) Net income (unaudited)............ 6,558 6,558 Redemption of 8,838 Class A shares and 8,838 Class B shares........ (88) (88) (299,647) (106,052) (405,875) ----- ----- ------------ ------------- ----------- ----------- ------------- Balance at March 31, 1997 (unaudited)..................... $ 622 $ 379 $ 837,944 ($ 1,641,596) ($ 508,605) ($ 32,755) ($ 1,344,011) ----- ----- ------------ ------------- ----------- ----------- ------------- ----- ----- ------------ ------------- ----------- ----------- -------------
See Notes to Financial Statements. F-85 COMMUNICATIONS PROPERTIES, INC. STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTH PERIOD FOR THE YEAR ENDED MARCH 31, ENDED AUGUST 31, ------------------------ -------------------------- 1998 1997 1997 1996 ----------- ----------- ------------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)........................................ ($ 241,819) $ 6,558 $ 1,178,532 ($ 122,545) Adjustments to reconcile net income (loss) to net cash used in operating activities: (Gain) loss on sale of stations/equipment.............. (11,793) -- (1,462,261) 37 Provision (benefit) for deferred income taxes.......... (22,000) -- 166,000 -- Depreciation and amortization.......................... 179,906 31,230 67,190 55,271 Provision for doubtful accounts........................ 5,000 -- (7,280) -- (Increase) decrease in accounts receivable............. 22,473 (86,141) (167,442) (10,616) Decrease (increase) in prepaid expenses and other current assets....................................... 14,032 (74,483) 5,416 (164) Increase (decrease) in accounts payable................ (27,456) 50,004 41,134 22,910 Increase (decrease) in accrued and other liabilities... (22,915) (54,939) 66,512 25,612 ----------- ----------- ------------- ----------- Net cash used in operating activities................ (104,572) (127,771) (112,199) (29,495) ----------- ----------- ------------- ----------- Cash flows from investing activities: Purchases of property and equipment...................... (47,152) (12,529) (18,189) (21,580) Purchase of stations..................................... -- -- (2,290,855) -- Proceeds from sale of assets............................. 84,175 -- 1,825,609 -- Other.................................................... -- -- 5,539 (6,974) ----------- ----------- ------------- ----------- Net cash provided by (used for) investing activities......................................... 37,023 (12,529) (477,896) (28,554) ----------- ----------- ------------- ----------- Cash flows from financing activities: Proceeds from long-term borrowings....................... -- -- -- 53,350 Repayment of long-term borrowings........................ (21,897) -- -- -- Increase (decrease) in notes payable..................... 67,354 549,658 1,026,788 (80,720) Redemption of common stock............................... (405,875) (405,875) -- ----------- ----------- ------------- ----------- Net cash provided by (used in) financing activities......................................... 45,457 143,783 620,913 (27,370) ----------- ----------- ------------- ----------- Increase (decrease) in cash and cash equivalents........... (22,092) 3,483 30,818 (85,419) Cash and cash equivalents at beginning of period........... 47,812 16,994 16,994 102,413 ----------- ----------- ------------- ----------- Cash and cash equivalents at end of period................. $ 25,720 $ 20,477 $ 47,812 $ 16,994 ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Cash paid for interest..................................... $ 92,086 $ 66,780 $ 122,639 $ 119,836 ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Non-cash activities: Trades-Revenue........................................... $ 86,648 $ 88,131 $ 180,617 $ 90,028 ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Expense.............................................. $ 19,402 $ 46,350 $ 174,639 $ 90,028 ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Acquisition of treasury shares by issuance of a note payable................................................ $ -- $ -- $ 67,838 $ -- ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Assumption of bank borrowings in connection with purchase of stations............................................ $ -- $ -- $ 209,145 $ -- ----------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- Reduction of note payable, stockholder, through transfer of insurance policy to the stockholder................. $ 120,560 $ -- $ -- $ -- ----------- ----------- ------------- ----------- ----------- ----------- ------------- -----------
See Notes to Financial Statements. F-86 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS The Company owns and operates radio stations WDBQ-AM, KXGE-FM and KLYV-FM located in Dubuque, Iowa and WJOD-FM located in Galena, Illinois (the "Stations"). In October 1997, the Company entered into an agreement with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media, Inc.) ("Cumulus") to sell the outstanding capital stock of the Company, subject to approval of the Federal Communications Commission, for $4,881,263. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from these estimates and assumptions. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Building and building improvements.............................. 15-25 years Broadcasting equipment.......................................... 5-20 years Office and other equipment...................................... 10 years Vehicles........................................................ 3-5 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets represent the excess of cost over the fair market value of tangible net assets acquired. Intangible assets are stated at cost and are being amortized using the straight-line method over estimated useful lives of 15 to 40 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. Fees paid pursuant to a local marketing agreement ("LMA") are amortized to expense, over the term of the agreement using the straight-line method. F-87 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. MARCH 31, 1997 FINANCIAL STATEMENTS (UNAUDITED) The interim financial data for the seven months ended March 31, 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. 2. ACQUISITIONS AND DISPOSITIONS On August 1, 1997, the Company acquired WJOD-FM (Galena, Illinois) and KGGY-FM (now KXGE-FM) (Dubuque, Iowa) for $2,500,000. The acquisition also included a wireless paging business operated in Galena. The purchase price comprised cash of $2,290,855 and assumption of liabilities for bank borrowings aggregating $209,145. The stations that were acquired were operated under a LMA from February 1, 1997 through date of acquisition. The acquisition discussed above was accounted for as a purchase. Accordingly, the accompanying financial statements include the results of operations of the acquired entities from the date of acquisition. The purchase price was allocated $1,860,000 to property and equipment and $640,000 to intangible assets. On July 31, 1997, the Company sold KATE-AM and KCPI-FM located in Albert Lea, Minnesota, for $1,825,609. Because of the comparability of the stations purchased and sold, no pro forma results of operations have been presented. F-88 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
MARCH 31, AUGUST 31, ----------- ------------------------ 1998 1997 1996 ----------- ----------- ----------- Building and improvements.............................. $ 74,892 $ 74,892 $ 153,324 Broadcasting equipment................................. 2,547,611 2,623,574 1,805,348 Office and other equipment............................. 248,650 245,535 335,339 Vehicles............................................... 20,060 20,060 23,971 ----------- ----------- ----------- 2,891,213 2,964,061 2,317,982 Accumulated depreciation............................... (1,230,793) (1,126,021) (2,180,396) ----------- ----------- ----------- 1,660,420 1,838,040 137,586 Land................................................... 35,000 35,000 37,380 ----------- ----------- ----------- Property and equipment, net............................ $ 1,695,420 $ 1,873,040 $ 174,966 ----------- ----------- ----------- ----------- ----------- -----------
Depreciation expense for the seven months ended March 31, 1998 and 1997 was $152,390 and (unaudited) $25,994, respectively, and for the years ended August 31, 1997 and 1996 was $54,646 and $46,283, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
MARCH 31, AUGUST 31, ---------- ---------------------- 1998 1997 1996 ---------- ---------- ---------- Goodwill................................................... $ 821,163 $ 821,163 $ 359,523 Accumulated amortization................................... (117,679) (90,163) (161,209) ---------- ---------- ---------- Intangible assets, net..................................... $ 703,484 $ 731,000 $ 198,314 ---------- ---------- ---------- ---------- ---------- ----------
Amortization expense for the seven months ended March 31, 1998 and 1997 was $27,516 and (unaudited) $5,236, respectively, and for the years ended August 31, 1997 and 1996 was $12,544 and $8,988, respectively. F-89 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. NOTES PAYABLE: Notes payable consist of the following:
MARCH 31, AUGUST 31, ------------ -------------------------- 1998 1997 1996 ------------ ------------ ------------ Note payable, bank, due in monthly installments of $17,652, including interest at a variable rate of .5% above The First National Bank of Chicago Prime Rate (8.75% at August 31, 1997), due January 1, 1997. The note was collateralized by substantially all Company assets and the assets of a related party. The note was also guaranteed by the cash surrender value of an officer-stockholder life insurance policy and by personal guarantees of an officer-stockholder.................. $ -- $ -- $ 1,319,070 Note payable, under a line of credit agreement with a bank which allows the Company to borrow up to $100,000. The line of credit bears interest at 1% over The First National Bank of Chicago Prime Rate (9 1/2% at March 31, 1998). Unpaid principal and interest are due June 4, 1998............................................................... 100,000 43,647 -- Note payable, bank, interest only payments, due at a variable rate of 1.5% over The First National Bank of Chicago Prime Rate (10% at March 31, 1998). Unpaid principal and interest, as extended, is due July 1, 1998. The note is collateralized by substantially all assets of the Company............................................................... 1,249,939 1,249,939 -- Notes payable, stockholder. These notes bear interest at 7% and, in accordance with the loan agreement, are subordinate to existing bank debt. The notes are due on demand..................................... 1,061,467 1,171,026 258,014 Note payable, individual, bearing interest at 7%, due on demand......... 253,590 253,590 -- ------------ ------------ ------------ $ 2,664,996 $ 2,718,202 $ 1,577,084 ------------ ------------ ------------ ------------ ------------ ------------
6. LONG-TERM DEBT Long-term debt consists of the following:
MARCH 31, AUGUST 31, ---------- --------------------- 1998 1997 1996 ---------- ---------- --------- Note payable, bank, due in monthly installments of $4,189, including interest at 9.5%. The note matures June 4, 2001, and is collateralized by a Security Agreement dated June 4, 1996, and a real estate mortgage..................... $ 140,756 $ 162,653 -- Less: current maturities (38,362) (36,373) -- ---------- ---------- --------- Total long-term debt........................................................... $ 102,394 $ 126,280 $ -- ---------- ---------- --------- ---------- ---------- ---------
F-90 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. LONG-TERM DEBT (CONTINUED) Aggregate maturities required on long-term debt for years following March 31, 1998 are as follows: 1998.............................................................. $ 38,362 1999.............................................................. 42,207 2000.............................................................. 46,474 2001.............................................................. 13,713 --------- $ 140,756 --------- ---------
7. INCOME TAXES The provision (benefit) for income taxes consists of the following:
SEVEN MONTH PERIOD ENDED YEAR ENDED MARCH 31, AUGUST 31, ----------------------- ---------------------- 1998 1997 1997 1996 ---------- ----------- ---------- ---------- (UNAUDITED) Current income taxes: Federal........................................................ $ -- $ -- $ -- $ -- State.......................................................... -- -- 1,598 -- Deferred income taxes.......................................... (22,000) -- 166,000 -- ---------- ----------- ---------- ---------- ($ 22,000) $ -- $ 167,598 $ -- ---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
Income tax expense (benefit) differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income due to the following:
SEVEN MONTH PERIOD ENDED YEAR ENDED MARCH 31, AUGUST 31, ----------------------- ---------------------- 1998 1997 1997 1996 ---------- ----------- ---------- ---------- (UNAUDITED) Computed "expected" tax expense (benefit) at 34%................. ($ 90,000) $ 3,000 $ 457,700 ($ 41,600) Increase (decrease) in income taxes resulting from: Effect of graduated rates lower than 34%....................... 42,000 (1,000) (167,802) 10,600 State income taxes............................................. -- -- 1,600 -- Increase (reduction) in valuation allowance.................... 31,000 (4,000) (133,000) 15,000 Expiration of general business tax credits..................... -- -- 3,000 8,400 Reduction in contribution carryforward......................... -- -- 2,000 -- Permanently nondeductible expenses............................. 2,000 2,000 4,100 7,600 Adjustment of prior year taxes................................. (7,000) -- -- -- ---------- ----------- ---------- ---------- Total income tax expense................................... (22,000) $ -- $ 167,598 $ -- ---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
F-91 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) Deferred tax assets and liabilities consisted of the following at August 31:
MARCH 31, AUGUST 31, ----------- ----------------------- 1998 1997 1996 ----------- ----------- ---------- Deferred tax assets: Net operating loss carryforwards................................. $ 62,000 $ 49,000 $ 66,000 General business tax credits..................................... 43,000 43,000 46,000 Contribution carryforward........................................ 3,000 3,000 5,000 Allowance for doubtful accounts.................................. 3,000 2,000 3,000 Accrued expenses................................................. 31,000 22,000 16,000 ----------- ----------- ---------- 142,000 119,000 136,000 Less deferred tax valuation allowance............................ (31,000) -- (133,000) ----------- ----------- ---------- 111,000 119,000 3,000 Deferred tax liability relating to property and equipment.......... (255,000) (285,000) (3,000) ----------- ----------- ---------- Net deferred tax liabilities..................................... ($ 144,000) ($ 166,000) $ -- ----------- ----------- ---------- ----------- ----------- ----------
Net operating loss carryforwards aggregate $342,000 and expire August 31: 2005 - $16,000, 2006 - $74,000, 2007 - $34,000, 2008 - $100,000, 2009 - $7,000 and 2017 - $111,000. The general business credits expire August 31, 1998 - $9,000, 1999 - $8,000, 2000 - $14,000 and 2001 - $12,000. In view of the operating loss for the period ended March 31, 1998 and expected further losses in the near term, a valuation allowance of $31,000 was provided against the business credits expiring during the period 1998-2000. 8. RELATED PARTY TRANSACTIONS: The long-term receivables from affiliates of $12,367, $15,352 and $33,112 at March 31, 1998, August 31, 1997 and 1996, respectively, are due from radio stations owned by the principal stockholder of the Company and are personally guaranteed by him. The Company also leases land and buildings from the principal stockholder. The lease is on a yearly basis and provides that the lessee pay general maintenance plus a monthly rental. Rent expense related to this lease was $27,783 and (unaudited) $46,690 for the seven months ended March 31, 1998 and 1997, respectively, and $77,230 and $80,040 for the years ended August 31, 1997 and 1996, respectively. Unpaid rentals under the lease included in accounts payable were $26,680, $42,020 and $20,813 at March 31, 1998, August 31, 1997 and 1996, respectively. During the seven months ended March 31, 1998, but prior to the sale to Cumulus, the insurance policy on the life of the principal shareholder with a cash surrender value of $120,560 was transferred to a related company and notes payable owing to the stockholder were reduced by the same amount. 9. COMMITMENTS AND CONTINGENCIES: Commencing in 1997, the Company leases building space from an unrelated party. This operating lease expires March 31, 2001, and requires monthly payments of $2,430. Total rent expense recognized on F-92 COMMUNICATIONS PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. COMMITMENTS AND CONTINGENCIES: (CONTINUED) this lease for the seven month period ended March 31, 1998 was $17,010 and for the year ended August 31, 1997 was $19,440. Total minimum future lease commitments under this lease for the years ending March 31, 1998 are as follows: 1998................................................................ $ 29,160 1999................................................................ 29,160 2000................................................................ 29,160 --------- $ 87,480 --------- ---------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short maturity of these instruments. The carrying amount of long-term debt approximates its fair value. F-93 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Crystal Radio Group, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 13, 1998 F-94 CRYSTAL RADIO GROUP, INC. BALANCE SHEETS
DECEMBER 31, --------------------------- 1997 1996 ------------- ------------ ASSETS Current assets: Cash and cash equivalents.......................................................... $ 320,622 $ 93,459 Accounts receivable, less allowance for doubtful accounts of $9,000 and $9,000, respectively............................. 784,716 667,819 Receivable from shareholder........................................................ -- 41,289 Prepaid expenses and other current assets.......................................... 8,538 7,116 ------------- ------------ Total current assets........................................................... 1,113,876 809,683 Property and equipment, net.......................................................... 637,162 693,866 Intangible assets, net of accumulated amortization of $560,477 and $406,025, respectively............................................. 1,020,266 474,718 Deposits and other................................................................... 2,438 3,888 ------------- ------------ Total assets................................................................... $ 2,773,742 $ 1,982,155 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Short-term borrowings.............................................................. $ 326,530 -- Current portion of long-term debt.................................................. 1,326,250 $ 457,747 Accounts payable................................................................... 21,391 60,717 Notes payable--stockholders........................................................ 250,000 250,000 Current portion of payable to former stockholder................................... 579,978 -- Dividends payable.................................................................. -- 131,537 Accrued wages and commissions...................................................... 69,735 65,761 Accrued and other current liabilities.............................................. 25,853 28,589 ------------- ------------ Total current liabilities...................................................... 2,599,737 994,351 ------------- ------------ Long-term debt....................................................................... -- 1,363,360 Long term payable to former stockholder.............................................. 1,106,374 -- ------------- ------------ Total liabilities.............................................................. 3,706,111 2,357,711 Commitments and contingent liabilities............................................... -- -- Stockholders' equity (deficit): Common stock, $1 par value, 100,000 shares authorized, 93,094 issued and outstanding.................................................... 93,094 93,094 Additional paid-in capital......................................................... 303,036 290,664 Accumulated deficit................................................................ (9,478) (759,314) Less--treasury stock at cost, 26,264 shares........................................ (1,319,021) -- ------------- ------------ Total stockholders' equity (deficit)........................................... (932,369) (375,556) ------------- ------------ Total liabilities and stockholders' equity (deficit)........................... $ 2,773,742 $ 1,982,155 ------------- ------------ ------------- ------------
See Notes to Financial Statements. F-95 CRYSTAL RADIO GROUP, INC. STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Revenues:............................................................... $ 4,579,576 $ 4,125,962 $ 3,774,516 Less: agency commissions.............................................. (601,172) (530,197) (472,154) ------------ ------------ ------------ Net revenues...................................................... 3,978,404 3,595,765 3,302,362 Operating expenses: Programming........................................................... 1,037,483 973,259 900,929 Sales and promotions.................................................. 733,875 682,557 673,289 Technical............................................................. 116,504 60,741 56,750 General and administrative............................................ 802,006 866,620 804,973 Depreciation and amortization......................................... 237,108 141,769 122,189 ------------ ------------ ------------ Total operating expenses.......................................... 2,926,976 2,724,946 2,558,130 ------------ ------------ ------------ Income from operations.................................................. 1,051,428 870,819 744,232 Interest expense........................................................ 221,735 217,674 269,374 Interest income......................................................... (9,430) (4,752) (6,899) ------------ ------------ ------------ Net income.............................................................. $ 839,123 $ 657,897 $ 481,757 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-96 CRYSTAL RADIO GROUP, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
ADDITIONAL COMMON PAID-IN ACCUMULATED TREASURY STOCK CAPITAL DEFICIT STOCK TOTAL --------- ---------- ------------- ------------- ------------- Balance at January 1, 1995................... $ 93,094 $ 290,664 $ (1,490,815) $ 1,107,057 Net income................................... 481,757 481,757 Dividends.................................... (149,145) (149,145) --------- ---------- ------------- ------------- ------------- Balance at December 31, 1995................. 93,094 290,664 (1,158,203) (774,445) Net income................................... 657,897 657,897 Dividends.................................... (259,008) (259,008) --------- ---------- ------------- ------------- ------------- Balance at December 31, 1996................. 93,094 290,664 (759,314) (375,556) Net income................................... 839,123 839,123 Dividends.................................... (89,287) (89,287) Purchase of treasury stock................... $ (1,506,649) (1,506,649) Sale of treasury stock....................... 12,372 187,628 200,000 --------- ---------- ------------- ------------- ------------- Balance at December 31, 1997................. $ 93,094 $ 303,036 $ (9,478) $ (1,319,021) $ (932,369) --------- ---------- ------------- ------------- ------------- --------- ---------- ------------- ------------- -------------
See Notes to Financial Statements. F-97 CRYSTAL RADIO GROUP, INC. STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ------------ ----------- ----------- Cash flows from operating activities: Net income.............................................................. $ 839,123 $ 657,897 $ 481,757 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................... 237,108 141,769 122,189 Increase in accounts receivable....................................... (116,897) (18,495) (114,574) Increase in shareholder receivable.................................... -- -- (11,961) Non-compete payment................................................... (175,000) -- -- Decrease (increase) in prepaid expenses and other assets.............. 28 (295) (5,757) (Decrease) increase in accounts payable............................... (39,326) (58,888) 100,394 Increase (decrease) in accrued and other liabilities.................. 28,030 (37,358) 16,014 ------------ ----------- ----------- Net cash provided by operating activities............................... 773,066 684,630 588,062 ------------ ----------- ----------- Cash flows from investing activities: Purchases of property and equipment..................................... (25,952) (139,478) (279,629) Proceeds from life insurance policy..................................... -- -- 10,000 Cash payments for other assets.......................................... -- -- (56,032) Proceeds from other assets.............................................. -- 75,854 -- ------------ ----------- ----------- Cash used for investing activities...................................... (25,952) (63,624) (325,661) ------------ ----------- ----------- Cash flows from financing activities: Proceeds from short-term borrowings..................................... 326,530 -- 250,000 Repayment of long-term obligations...................................... (494,857) (456,238) (471,596) Dividends paid.......................................................... (220,824) (175,533) (101,083) Purchase of treasury stock.............................................. (330,800) -- -- Sale of treasury stock.................................................. 200,000 -- -- ------------ ----------- ----------- Cash used for financing activities...................................... (519,951) (631,771) (322,679) ------------ ----------- ----------- Increase (decrease) in cash and cash equivalents.......................... 227,163 (10,765) (60,278) Cash and cash equivalents at beginning of period.......................... 93,459 104,224 164,502 ------------ ----------- ----------- Cash and cash equivalents at end of period................................ $ 320,622 $ 93,459 $ 104,224 ------------ ----------- ----------- ------------ ----------- ----------- Supplemental disclosure of cash flow information: Cash paid for interest.................................................. $ 194,943 $ 217,674 $ 269,374 ------------ ----------- ----------- ------------ ----------- ----------- Non-cash operating and financing activities: Trade revenue........................................................... $ 179,578 $ 138,410 $ 96,813 ------------ ----------- ----------- ------------ ----------- ----------- Trade expense........................................................... $ 101,539 $ 131,719 $ 106,567 ------------ ----------- ----------- ------------ ----------- ----------- Purchase of treasury stock.............................................. $ 1,175,849 $ -- $ -- ------------ ----------- ----------- ------------ ----------- -----------
See Notes to Financial Statements. F-98 CRYSTAL RADIO GROUP, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Crystal Radio Group, Inc. (the "Company") owns and operates radio stations WKFR-FM, WKMI-AM and WRKR-FM located in Kalamazoo, Michigan. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its accounts receivable. The Company reserves for potential credit losses based upon the expected collectibility of all accounts receivable. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Broadcasting towers and equipment................. 5-15 years Buildings......................................... 19-31.5 years Office furniture and equipment.................... 5-7 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. F-99 CRYSTAL RADIO GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INTANGIBLE ASSETS Intangible assets primarily include a covenant not-to-compete, goodwill and Federal Communications Commission ("FCC") license. Intangible assets are stated at cost and are being amortized using the straight-line method over estimated useful lives of 3 to 40 years. Amortization expense was $154,452 in 1997, and $57,230 in each of 1996 and 1995. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company's shareholders elected S Corporation status in 1986. In lieu of corporate income taxes, the Company's taxable income or loss is reported by its shareholders. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Broadcasting towers and equipment............................ $1,865,697 $1,849,793 Buildings.................................................... 562,412 562,412 Office furniture and equipment............................... 275,119 265,073 ------------ ------------ 2,703,228 2,677,278 Accumulated depreciation..................................... (2,142,322) (2,059,668) ------------ ------------ 560,906 617,610 Land......................................................... 76,256 76,256 ------------ ------------ Property and equipment, net.................................. $ 637,162 $ 693,866 ------------ ------------ ------------ ------------
Depreciation expense for 1997, 1996 and 1995 was $82,656, $84,539 and $64,959, respectively. 3. RELATED PARTY TRANSACTIONS: Notes payable--stockholders in the amount of $250,000 at December 31, 1997 consist of promissory notes, which require monthly payments of interest at 8% per annum. The notes are unsecured and are due December 31, 1998. In August 1997, the Company entered into a Settlement and Purchase Agreement with a stockholder (the "Former Stockholder"). Under this agreement, the Company purchased the 30,000 shares of the Company owned by the Former Stockholder and settled various matters in dispute with the Former Stockholder. The Former Stockholder also entered into a three year non-compete agreement. As consideration for the shares, the Former Stockholder received $330,800 in cash and a note for $1,134,560. The note bears interest at 6.07% and is due in three installments on each of August 7, 1998, 1999 and 2000. The shares purchased have been classified as treasury stock. Under the non-compete agreement the Former Stockholder received $175,000 in cash and will receive three additional payments of $175,000 each on August 8, 1998, 1999 and 2000. The non-compete agreement is being amortized on a straight line basis over three years. As part of the agreement, the Company paid the Former Stockholder $144,000 which represented his portion of dividends which had been held in arrears and forgave a receivable of $41,289 due to the Company from the Former Stockholder. The forgiveness of this receivable has been recorded as additional F-100 CRYSTAL RADIO GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. RELATED PARTY TRANSACTIONS: (CONTINUED) cost of the shares purchased from the Former Stockholder. In addition, a pending lawsuit brought by the Former Stockholder against the Company was set aside and dismissed. Subsequently, during 1997, certain stockholders of the Company purchased an aggregate 3,736 shares of the treasury stock for $200,000. 4. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, 1997 1996 ------------ ------------ Michigan National Bank........................................ $ 1,326,250 $ 1,821,107 Less: current maturities...................................... 1,326,250 457,747 ------------ ------------ $ -- $ 1,363,360 ------------ ------------ ------------ ------------
The note with Michigan National Bank calls for monthly payments of $50,256 (includes both principal and interest) with a balloon payment of $1,074,250 due September 1, 1998. Interest is calculated at prime plus .75%. The prime rate at December 31, 1997 and 1996 was 8.0% and 8.25%, respectively. The note is secured by mortgages on all real estate, a security agreement and a life insurance policy on a shareholder. The Company also has a line of credit for $750,000 with Michigan National Bank available for its use as of December 31, 1997. The line bears interest at .75% over the bank's prime rate and is due July 1, 1998. There was $326,530 due on the line at December 31, 1997. 5. BENEFITS PLAN: The Company has a 401(k) plan that covers eligible employees. Employees may contribute up to the maximum amount allowed by the Internal Revenue Code. The Company does not match employee contributions. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short maturity of these instruments. The carrying amount of notes payable approximates fair value based on current market rates. 7. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT: In March 1998, the Company entered into an agreement with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) to sell the assets of the Company, subject to approval of the Federal Communications Commission, for approximately $14,000,000. F-101 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in shareholder's equity and of cash flows present fairly, in all material respects, the financial position of Forjay Broadcasting Corporation (the "Company") at December 31, 1997, and the results of its operations and its cash flows for the year ended December 31, 1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois January 23, 1998 F-102 FORJAY BROADCASTING CORPORATION BALANCE SHEET
DECEMBER 31, 1997 ------------ ASSETS Current assets: Cash.............................................................................................. $ 217,000 Accounts receivable, less allowance for doubtful accounts of $13,000.............................. 228,000 ------------ Total current assets............................................................................ 445,000 Property and equipment, net......................................................................... 203,000 Intangible assets, net.............................................................................. 145,000 Other assets, net................................................................................... 32,000 ------------ Total assets.................................................................................... $ 825,000 ------------ ------------ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Current maturities of note payable to related party............................................... $ 17,000 Accounts payable.................................................................................. 35,000 Accrued and other current liabilities............................................................. 137,000 Deferred compensation............................................................................. 191,000 ------------ Total current liabilities....................................................................... 380,000 ------------ Note payable to related party....................................................................... 42,000 Long-term debt...................................................................................... 384,000 ------------ Total long-term liabilities..................................................................... 426,000 ------------ Total liabilities............................................................................... 806,000 ------------ Commitments and contingencies Shareholder's equity: Common stock, $100 par value, 200 shares authorized, 40 shares issued and outstanding................................................................ 20,000 Retained earnings................................................................................. 390,000 Less: treasury stock at cost, 160 shares.......................................................... (391,000) ------------ Total shareholder's equity...................................................................... 19,000 ------------ Total liabilities and shareholder's equity...................................................... $ 825,000 ------------ ------------
See Notes to Financial Statements. F-103 FORJAY BROADCASTING CORPORATION STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------ Revenues.................................................................. $ 1,667,000 Less: agency commissions................................................ (178,000) ------------------ Net revenues.......................................................... 1,489,000 ------------------ Operating expenses: Programming............................................................. 305,000 Sales and promotions.................................................... 465,000 Technical............................................................... 23,000 General and administrative.............................................. 485,000 Depreciation and amortization........................................... 29,000 ------------------ Total operating expenses.............................................. 1,307,000 ------------------ Income from operations.................................................... 182,000 Interest expense.......................................................... (48,000) ------------------ Income before income tax.................................................. 134,000 Income tax expense........................................................ (44,000) ------------------ Net income................................................................ $ 90,000 ------------------ ------------------
See Notes to Financial Statements. F-104 FORJAY BROADCASTING CORPORATION STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
RETAINED TREASURY COMMON STOCK EARNINGS STOCK TOTAL -------------- ---------- ----------- ---------- Balance at January 1, 1997.................................. $ 20,000 $ 300,000 ($ 391,000) ($ 71,000) Net income.................................................. -- 90,000 -- 90,000 ------- ---------- ----------- ---------- Balance at December 31, 1997................................ $ 20,000 $ 390,000 ($ 391,000) $ 19,000 ------- ---------- ----------- ---------- ------- ---------- ----------- ----------
See Notes to Financial Statements. F-105 FORJAY BROADCASTING CORPORATION STATEMENT OF CASH FLOWS
DECEMBER 31, 1997 ------------ Cash flows from operating activities: Net income........................................................................................ $ 90,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................................... 29,000 Increase in accounts receivable................................................................. (37,000) Decrease in other assets........................................................................ 40,000 Increase in accounts payable.................................................................... 11,000 Increase in accrued and other liabilities....................................................... 64,000 Increase in deferred compensation............................................................... 77,000 ------------ Net cash provided by operating activities....................................................... 274,000 ------------ Cash flows from investing activities: Purchases of property and equipment............................................................... (5,000) ------------ Cash used for investing activities.............................................................. (5,000) ------------ Cash flows from financing activities: Payments on bank notes payable.................................................................... (135,000) Payments on borrowings from related party......................................................... (16,000) ------------ Cash used for financing activities.............................................................. (151,000) ------------ Increase in cash.................................................................................... 118,000 Cash at beginning of year........................................................................... 99,000 ------------ Cash at end of year................................................................................. $ 217,000 ------------ ------------ Supplemental disclosures of cash flow information: Cash paid for interest.......................................................................... $ 48,000 ------------ ------------ Cash paid for income taxes...................................................................... $ 22,000 ------------ ------------ Non-cash operating and financing activities: Trade revenue..................................................................................... $ 104,000 ------------ ------------ Trade expense..................................................................................... $ 91,000 ------------ ------------
See Notes to Financial Statements. F-106 FORJAY BROADCASTING CORPORATION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Forjay Broadcasting Corporation ("the Company") owns and operates the radio stations WYNN-FM and WYNN-AM (the "Stations") located in Florence, South Carolina. USE OF ESTIMATES The preparation of the 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. CASH Cash includes deposits in demand deposit accounts. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a declining balance method for equipment and furniture, and by the straight-line method for buildings over the estimated useful lives of the related assets as follows: Buildings....................................................... 25 years Tower and ground system......................................... 20 years Technical and studio equipment.................................. 5-10 years Office furniture, fixtures, and equipment....................... 6-10 years
INTANGIBLE ASSETS Intangible assets are comprised of an FCC license and are stated at cost and amortized using the straight-line method over the estimated useful life of 40 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows for the related businesses. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company provides advertising air time before products and services are exchanged, a trade asset is recognized. F-107 FORJAY BROADCASTING CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts cash, accounts receivable and accounts payable approximates fair value due to their short-term maturities. The fair value of notes payable and long-term debt are estimated based on currents market rates and approximate the carrying value. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, 1997 ------------ Office furniture and equipment.................................................. $ 229,000 Buildings....................................................................... 69,000 Broadcasting towers and equipment............................................... 194,000 ------------ 492,000 Accumulated depreciation........................................................ (379,000) Land............................................................................ 90,000 ------------ Property and equipment, net..................................................... $ 203,000 ------------ ------------
Depreciation expense for the year ended December 31, 1997 was $23,000. 3. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, 1997 ------------ FCC license..................................................................... $ 182,000 Accumulated amortization........................................................ (37,000) ------------ Intangible assets, net.......................................................... $ 145,000 ------------ ------------
Amortization expense for the year ended December 31, 1997 was $6,000. 4. RELATED PARTY TRANSACTIONS: As of December 31, 1996, the Company had a payable to the sole shareholder of $114,000 related to deferred compensation. During 1997, the deferred compensation was paid with cash of $97,000 and the forgiveness of a $17,000 receivable due from this shareholder. During 1997, the sole shareholder earned a bonus of $300,000. The bonus was unpaid as of December 31, 1997 and $191,000, representing the liability for the bonus less applicable taxes, is recorded as deferred compensation. The Station has a note payable to the sole shareholder's mother, relating to the Company's buyout of Forjay Broadcasting Corporation stock held by her. This note bears interest at 6% per annum and is payable in equal monthly installments of $2,000, including principal and interest, until repaid in March 2001. The balance of this note at December 31, 1997 is $59,000. As of December 31, 1997, future maturities on this note are as follows: 1998--$17,000; 1999--$18,000; 2000--$20,000; 2001--$4,000. F-108 FORJAY BROADCASTING CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. LONG-TERM DEBT: In March 1995 the Company entered into a loan agreement with a bank which provided for a term note payable of $750,000. The term note is payable in fifty-nine monthly payments of principal and interest of $13,000, continuing through February, 2000, with a final payment of $292,000 due March, 2000. Payments remaining under the agreement for 1998 reflect advance payments made by the Company. The term note bears interest at the prime rate plus 1% (9.5%) at December 31, 1997, is secured by substantially all of the Company's assets, and is guaranteed by the sole shareholder of the Company. The agreement contains certain restrictive covenants, which, among other things, require the maintenance of a debt service ratio and limitations on debt and compensation. The Company did not calculate compliance with these covenants as of December 31, 1997, and was in violation of the covenant related to compensation. However, the bank has waived all financial covenants related to the debt as of December 31, 1997. As of December 31, 1997, future maturities of long-term debt are as follows: 1998--$0; 1999-- $72,000; 2000--$312,000. 6. INCOME TAXES: The components of the provision for income taxes consists of the following for the year ended December 31, 1997 are as follows: Current income taxes: Federal.......................................................... $ 38,000 State and local.................................................. 7,000 --------- Total.......................................................... 45,000 Deferred income taxes: Federal.......................................................... (1,000) --------- Total.......................................................... $ 44,000 --------- ---------
During 1997, the effective tax rate differs from the federal statutory tax rate of 34% as a result of the following: Federal income tax expense at U.S. statutory rate.................. $ 45,000 State income tax expense, net of U.S. benefit...................... 5,000 Impact of U.S. surtax exemption.................................... (9,000) Nondeductible items................................................ 3,000 --------- $ 44,000 --------- ---------
Temporary differences giving rise to deferred tax assets relate to the FCC license. 7. TREASURY STOCK: Treasury stock relates to the buyout of the Company stock from family members. 8. SUBSEQUENT EVENTS: In 1997, the Company entered into an agreement with Cumulus Broadcasting, Inc. ("Cumulus") (a wholly owned subsidiary of Cumulus Media Inc.) to sell the stock of the Company, subject to approval of the Federal Communications Commission ("FCC"), to Cumulus for approximately $4,100,000. F-109 INDEPENDENT AUDITOR'S REPORT To the Stockholders Fritz Broadcasting, Inc. Toledo Division We have audited the accompanying divisional balance sheet of Fritz Broadcasting, Inc. Toledo Division as of December 29, 1996 and December 31, 1995 and the related statements of divisional income, changes in divisional equity and divisional cash flows for the years then ended. These financial statements are the responsibility of the Division'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 incudes assessing the accounting principles used and significant estimates made by management, we 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 Fritz Broadcasting, Inc. Toledo Division as of December 29, 1996 and December 31, 1995 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Plante & Moran, LLP Troy, Michigan February 11, 1997 F-110 FRITZ BROADCASTING, INC. TOLEDO DIVISION DIVISIONAL BALANCE SHEET
DECEMBER 29, DECEMBER 31, 1996 1995 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents.......................................................... $ 61,813 $ 110,732 Accounts receivable--Less allowance for doubtful accounts of $30,957 for 1996 and $35,400 for 1995.................................................... 1,430,977 1,002,035 Prepaid expenses and deposits...................................................... 18,223 18,446 ------------ ------------ Total current assets........................................................... 1,511,013 1,131,213 PROPERTY, PLANT AND EQUIPMENT (Note 2)............................................... 868,736 861,566 INTANGIBLE ASSETS (Note 1)........................................................... 5,935,825 5,007,725 ------------ ------------ Total assets................................................................... $8,315,574 $7,000,504 ------------ ------------ ------------ ------------ LIABILITIES AND DIVISIONAL EQUITY CURRENT LIABILITIES Current portion of long-term obligations: Notes payable (Note 3)........................................................... $ 479,000 $ 12,000 Capital lease obligations (Note 4)............................................... 15,885 -- Accounts payable................................................................... 69,025 99,493 Accrued corporate charges.......................................................... 1,353,123 786,561 Accrued expenses................................................................... 650,172 470,773 ------------ ------------ Total current liabilities...................................................... 2,567,205 1,368,837 LONG-TERM LIABILITIES Notes payable--Long-term portion (Note 3).......................................... 2,836,000 2,238,000 Capital lease obligations (Note 4)................................................. 9,964 -- ------------ ------------ Total liabilities.............................................................. 5,413,169 3,606,827 DIVISIONAL EQUITY.................................................................... 2,902,405 3,393,677 ------------ ------------ Total liabilities and divisional equity........................................ $8,315,574 $7,000,504 ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-111 FRITZ BROADCASTING, INC. TOLEDO DIVISION STATEMENT OF DIVISIONAL INCOME
YEAR ENDED -------------------------- DECEMBER 29, DECEMBER 31, 1996 1995 ------------ ------------ BROADCASTING REVENUE--Net Local.............................................................................. $4,488,610 $3,878,911 National........................................................................... 535,614 610,446 Network............................................................................ 6,724 50,740 Other.............................................................................. 115,098 118,861 ------------ ------------ Total broadcasting revenue--Net................................................ 5,146,046 4,658,958 BROADCASTING EXPENSES Programming........................................................................ 1,206,076 1,327,977 Technical.......................................................................... 124,413 115,967 News............................................................................... 49,761 44,172 Sales.............................................................................. 791,369 711,510 Promotions......................................................................... 182,723 303,354 General and administrative......................................................... 836,209 695,031 Depreciation....................................................................... 161,175 199,282 Amortization of intangible assets.................................................. 193,648 129,746 Corporate charges.................................................................. 566,562 544,914 ------------ ------------ Total broadcasting expenses.................................................... 4,111,936 4,071,953 ------------ ------------ OPERATING INCOME..................................................................... 1,034,110 587,005 OTHER EXPENSES Interest expense................................................................... 260,459 224,188 Loss on sale of assets............................................................. 2,868 -- ------------ ------------ Total other expense............................................................ 263,327 224,188 ------------ ------------ INCOME--Before income taxes.......................................................... 770,783 362,817 STATE AND LOCAL INCOME TAXES......................................................... 66,485 52,277 ------------ ------------ NET INCOME........................................................................... $ 704,298 $ 310,540 ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-112 FRITZ BROADCASTING, INC. TOLEDO DIVISION STATEMENT OF CHANGES IN DIVISIONAL EQUITY DIVISIONAL EQUITY--January 1, 1995.............................................. $4,289,689 Net income...................................................................... 310,540 Distribution of corporate division.............................................. (1,206,552) --------- DIVISIONAL EQUITY--December 31, 1995............................................ 3,393,677 Net income...................................................................... 704,298 Distribution of corporate division.............................................. (1,195,570) --------- DIVISIONAL EQUITY--December 29, 1996............................................ $2,902,405 --------- ---------
See Notes to Financial Statements. F-113 FRITZ BROADCASTING, INC. TOLEDO DIVISION STATEMENT OF DIVISIONAL CASH FLOWS
YEAR ENDED -------------------------- DECEMBER 29, DECEMBER 31, 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income......................................................................... $ 704,298 $ 310,540 Adjustments to reconcile net income to net cash from operating activities: Depreciation..................................................................... 161,175 199,282 Loss on sale of assets........................................................... 2,868 -- Bad debt expense................................................................. -- 20,400 Amortization of intangible assets................................................ 193,648 129,746 Changes in assets and liabilities: Accounts receivable............................................................ (428,942) 3,040 Prepaid expenses and deposits.................................................. 223 (6,432) Accounts payable............................................................... (30,468) (24,077) Accrued expenses............................................................... 745,961 766,069 ------------ ------------ Net cash provided by operating activities.................................... 1,348,763 1,398,568 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of intangible assets...................................................... (1,121,748) (2,572) Purchase of fixed assets........................................................... (171,213) (166,921) ------------ ------------ Net cash used in investing activities........................................ (1,292,961) (169,493) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term obligations................................................ 3,355,667 -- Payments of stockholder notes payable.............................................. (2,250,000) -- Principal payments under long-term obligations..................................... (14,818) -- Distributions to corporate division, net of advances............................... (1,195,570) (1,206,552) ------------ ------------ Net cash used in financing activities........................................ (104,721) (1,206,552) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (48,919) 22,523 CASH AND CASH EQUIVALENTS--Beginning of year......................................... 110,732 88,209 ------------ ------------ CASH AND CASH EQUIVALENTS--End of year............................................... $ 61,813 $ 110,732 ------------ ------------ ------------ ------------
The Division paid approximately $280,000 in 1996 and $224,000 in 1995 for interest expense. See Notes to Financial Statements. F-114 FRITZ BROADCASTING, INC. TOLEDO DIVISION NOTES TO FINANCIAL STATEMENTS DECEMBER 29, 1996 AND DECEMBER 31, 1995 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fritz Broadcasting, Inc. (the "Company") owns and operates radio stations within the Saginaw, Michigan and Toledo, Ohio markets. The station's advertisers consist of a broad spectrum of services and industries, located primarily within those markets. These financial statements present the operations of the Fritz Broadcasting, Inc. Toledo Division (the "Division") only. During 1996, the Division acquired a new station, WIMX. The 1995 financial statements include the operations of the stations WTOD-AM, WKKO-FM and WRQN-FM. The 1996 financial statements include the operations of the original stations plus the newly acquired station. The new station was accounted for under the purchase method. Significant accounting policies are as follows: BROADCAST REPORTING--The Division reports operations on a broadcast year as opposed to a calendar year. The broadcast year ends on the last Sunday in December. CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and cash equivalents include checking and savings account balances and money market funds. PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are recorded at cost. The Division uses predominantly accelerated methods of depreciation. Costs of maintenance and repairs are charged to expense when incurred. NOTES PAYABLE--The divisional balance sheet reflects long-term debt that has been allocated to the Toledo division by the corporate division. RECOGNITION OF BROADCASTING REVENUE--The Division recognizes broadcasting revenue as the air time is produced. The fair value of barter and trade-out transactions is included in broadcasting revenue and broadcasting expenses. These transactions represent advertising time exchanged for program material, merchandise or services. DIVISIONAL EQUITY--Divisional equity represents the cumulative results of operations of the Toledo division stations since their acquisition by Fritz Broadcasting, Inc., the initial capitalization of the Division, cumulative contributions of cash to the Division from Fritz Broadcasting, Inc., less distributions paid back to the corporate division. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. INTANGIBLE ASSETS--Broadcasting licenses and goodwill represent the excess of consideration paid for the purchase of radio stations over the amounts assigned to the net identifiable assets acquired. They are being amortized by the straight-line method over 40 years. Noncompete agreements are amortized straight-line over the lives of the agreements. F-115 FRITZ BROADCASTING, INC. TOLEDO DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 29, 1996 AND DECEMBER 31, 1995 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Organization costs are recorded at cost and are amortized over 69 months.
1996 1995 ------------ ------------ Organization costs................................................ $ 67,336 $ -- Broadcasting licenses, goodwill and noncompete agreements......... 6,244,256 5,189,844 ------------ ------------ Total cost.................................................. 6,311,592 5,189,844 Less accumulated amortization..................................... 375,767 182,119 ------------ ------------ Net carrying amount......................................... $ 5,935,825 $ 5,007,725 ------------ ------------ ------------ ------------
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
ESTIMATED USEFUL LIVES 1996 1995 (YEARS) ---------- ---------- ------------- Land..................................................... $ 217,369 $ 198,229 -- Buildings................................................ 217,614 183,914 40 Vehicles................................................. 62,082 1,000 5 Furniture, fixtures and equipment........................ 666,389 625,701 5-20 Leasehold improvements................................... 162,041 19,514 20 Construction............................................. -- 126,878 -- ---------- ---------- Total cost......................................... 1,325,495 1,155,236 Less accumulated depreciation............................ 456,759 293,670 ---------- ---------- Net carrying amount................................ $ 868,736 $ 861,566 ---------- ---------- ---------- ----------
F-116 FRITZ BROADCASTING, INC. TOLEDO DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 29, 1996 AND DECEMBER 31, 1995 NOTE 3--NOTES PAYABLE Notes payable consists of the following:
1996 1995 ------------ ------------ Bank note payable with one-half of the principal outstanding bearing interest at prime (8.25 percent at December 29, 1996), and the remaining half bearing interest at the swap rate as determined by the bank (9.20 percent at December 29, 1996). This note is payable in quarterly principal installments of $103,500 to $212,750, plus interest, from March 31, 1997 through December 31, 2001. The note is collateralized by all Company assets and is guaranteed by the Company's stockholders and subject to restrictive covenants relating to the Company's cash flow and liquidity............... $ 3,250,000 $ -- Notes payable issued for covenant not to compete with former owner of an acquired station. The note bears no interest and is due on January 14, 1997.................... 65,000 -- Notes payable--stockholders bearing interest at 1 percent over prime (9.5 percent at December 31, 1995). The notes were paid during 1996 with the proceeds of the bank note described above....................................................................... -- 2,250,000 ------------ ------------ Total........................................................................... 3,315,000 2,250,000 Less current portion............................................................ 479,000 12,000 ------------ ------------ Long-term portion............................................................... $ 2,836,000 $ 2,238,000 ------------ ------------ ------------ ------------
The following is a schedule by year of approximate future maturities on the above notes:
YEARS ENDING AMOUNT - -------------------------------------------------------------------------------- ------------ 1997............................................................................ $ 479,000 1998............................................................................ 552,000 1999............................................................................ 690,000 2000............................................................................ 690,000 2001............................................................................ 904,000 ------------ Total $ 3,315,000 ------------ ------------
The notes payable were repaid in full in 1997 in connection with the sale of the Division (see Note 8). The Division has recorded $79,629 and $224,188 of interest expense on the stockholder notes for 1996 and 1995, respectively. NOTE 4--LEASE COMMITMENTS The Division owns vehicles under capital leases with a cost of $61,082 and accumulated depreciation of $43,490. F-117 FRITZ BROADCASTING, INC. TOLEDO DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 29, 1996 AND DECEMBER 31, 1995 NOTE 4--LEASE COMMITMENTS (CONTINUED) Future minimum capital lease payments are as follows: 1997............................................................... $ 18,143 1998............................................................... 12,892 --------- Total minimum lease payments................................. 31,035 Less interest................................................ 5,186 --------- Net minimum lease payments................................... $ 25,849 --------- ---------
NOTE 5--INCOME TAXES Fritz Broadcasting, Inc. operates as an S Corporation under the provisions of the Internal Revenue Code. Accordingly, no provision for income taxes has been made since income or losses of the Company are allocated to the stockholders. Additionally, the Company uses the modified cash basis method of accounting for income tax reporting purposes. NOTE 6--EMPLOYEE BENEFIT PLAN Effective October 1995, Fritz Broadcasting, Inc. sponsors a defined contribution 401(k) plan that covers all employees meeting a one-year eligibility period. Contributions to the plan include employee contributions and an employer amount determined on a yearly basis by management. The Division's employer contributions to the plan for 1996 and 1995 amounted to approximately $25,000 and $8,000, respectively. NOTE 7--RELATED PARTY TRANSACTIONS The corporate division of Fritz Broadcasting, Inc. incurs expenses for executive management, compensation, professional services and other administrative costs. These expenses have been allocated to the Company's operating divisions as a corporate charge. The corporate charge for 1996 and 1995 was $566,562 and $544,914, respectively. NOTE 8--SUBSEQUENT EVENT In June 1997, Fritz Broadcasting, Inc. sold the assets of its Toledo division to an unrelated company. The stations were resold to a third owner in 1997. All assets were sold for amounts in excess of their carrying amounts at December 29, 1996. F-118 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in partners' equity and of cash flows present fairly, in all material respects, the financial position of HVS Partners at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 25, 1998 F-119 HVS PARTNERS BALANCE SHEETS
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents........................................................... $ 149,465 $ 56,980 Accounts receivable, less allowance for doubtful accounts of $60,000 and $60,000, respectively...................................................................... 242,176 1,461,429 Receivable from related party....................................................... 429,827 211,823 Prepaid expenses and other current assets........................................... 289,570 88,845 ------------ ------------ Total current assets............................................................ 1,111,038 1,819,077 Property and equipment, net........................................................... 1,686,276 2,257,829 Intangible assets, net................................................................ 2,357,006 4,947,887 ------------ ------------ Total assets.................................................................... $ 5,154,320 $ 9,024,793 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable.................................................................... $ 517,461 $ 844,833 Accrued and other current liabilities............................................... 235,889 314,229 Notes payable due within one year................................................... 63,726 43,405 Capital lease obligations due within one year....................................... 4,575 51,072 ------------ ------------ Total current liabilities....................................................... 821,651 1,253,539 Long-term liabilities: Note payable........................................................................ 676,177 374,809 Capital lease obligations........................................................... 12,312 76,804 Commitments and contingencies Partners' equity:..................................................................... 3,644,180 7,319,641 ------------ ------------ Total liabilities and partners' equity.......................................... $ 5,154,320 $ 9,024,793 ------------ ------------ ------------ ------------
See Notes to Financial Statements F-120 HVS PARTNERS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ------------- ------------ ------------ Revenues............................................................... $ 5,714,682 $ 7,733,057 $ 6,520,289 Less: agency commissions............................................. (383,862) (655,900) (363,666) ------------- ------------ ------------ Net revenues....................................................... 5,330,820 7,077,157 6,156,623 ------------- ------------ ------------ Operating expenses: Programming.......................................................... 1,178,362 1,625,755 1,432,463 Sales and promotions................................................. 1,548,549 1,777,075 1,646,461 Technical............................................................ 246,142 335,545 300,296 General and administrative........................................... 1,364,685 1,532,663 1,492,444 News................................................................. 82,208 117,098 87,687 Trade................................................................ 527,803 762,912 594,699 Depreciation and amortization........................................ 638,098 661,683 631,379 ------------- ------------ ------------ Total operating expenses......................................... 5,585,847 6,812,731 6,185,429 ------------- ------------ ------------ Income (loss) from operations.......................................... (255,027) 264,426 (28,806) ------------- ------------ ------------ Other income (expense): Gain on sales of assets.............................................. 12,261,305 -- -- Interest income...................................................... 451 768 679 Interest expense..................................................... (68,740) (26,297) (14,061) ------------- ------------ ------------ Total other income............................................... 12,193,016 (25,529) (13,382) ------------- ------------ ------------ Net income (loss)...................................................... $ 11,937,989 $ 238,897 $ (42,188) ------------- ------------ ------------ ------------- ------------ ------------
See Notes to Financial Statements. F-121 HVS PARTNERS STATEMENTS OF CHANGES IN PARTNERS' EQUITY
TOTAL ------------- Balance at January 1, 1995......................................................................... $ 8,346,275 Net loss........................................................................................... (42,188) Partner distributions.............................................................................. (735,603) ------------- Balance at December 31, 1995....................................................................... 7,568,484 Net income......................................................................................... 238,897 Partner distributions.............................................................................. (487,740) ------------- Balance at December 31, 1996....................................................................... 7,319,641 Net income......................................................................................... 11,937,989 Partner distributions.............................................................................. (15,613,450) ------------- Balance at December 31, 1997....................................................................... $ 3,644,180 ------------- -------------
See Notes to Financial Statements. F-122 HVS PARTNERS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ------------- ---------- ---------- Cash flows from operating activities: Net income (loss)....................................................... $ 11,937,989 $ 238,897 $ (42,188) Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of assets................................................ (12,261,305) -- -- Depreciation and amortization......................................... 638,098 661,683 631,379 Changes in current assets and liabilities: Decrease (increase) in accounts receivable.......................... 1,219,253 (463,094) 621,514 Increase in receivable from related party........................... (218,004) Decrease (increase) in prepaid expenses and other current assets.... (200,725) 949 14,632 (Decrease) increase in accounts payable............................. (327,372) 85,180 148,593 Increase (decrease) in accrued and other liabilities................ (78,340) 104,554 (124,522) Other............................................................... (67,422) (4,038) (8,963) ------------- ---------- ---------- Net cash provided by operating activities........................... 642,172 624,131 1,240,445 ------------- ---------- ---------- Cash flows from investing activities: Proceeds from sale of assets............................................ 15,200,000 -- -- Purchases of property and equipment..................................... (88,490) (562,879) (329,009) ------------- ---------- ---------- Net cash provide by (used in) investing activities.................. 15,111,510 (562,879) (329,009) ------------- ---------- ---------- Cash flows from financing activities: Distributions to partners............................................... (15,613,450) (487,740) (735,603) Proceeds from issuance of notes payable................................. 37,773 436,066 115,572 Principal payments on notes payable and capital lease obligations....... (85,520) (74,273) (215,667) ------------- ---------- ---------- Net cash used in financing activities............................... (15,661,197) (125,947) (835,698) ------------- ---------- ---------- Increase (decrease) in cash and cash equivalents.......................... 92,485 (64,695) 75,738 Cash and cash equivalents at beginning of year............................ 56,980 121,675 45,937 ------------- ---------- ---------- Cash and cash equivalents at end of year.................................. $ 149,465 $ 56,980 $ 121,675 ------------- ---------- ---------- ------------- ---------- ---------- Supplemental disclosures of cash flow information Cash paid for interest.................................................. $ 68,000 $ 26,000 $ 14,000 ------------- ---------- ---------- ------------- ---------- ---------- Non-cash operating activities: Trade revenue........................................................... $ 516,083 $ 696,540 $ 633,398 ------------- ---------- ---------- ------------- ---------- ---------- Trade expense........................................................... $ 527,803 $ 762,912 $ 594,699 ------------- ---------- ---------- ------------- ---------- ----------
See Notes to Financial Statements. F-123 HVS PARTNERS NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS HVS Partners (Partnership) was organized under the laws of the State of Florida on June 1, 1985 as a general partnership for the purpose of acquiring and operating the following radio stations: WQHQ-FM.......................................... Salisbury, Maryland WLVW-FM.......................................... Salisbury, Maryland WRXS-FM.......................................... Salisbury, Maryland WLBW-FM.......................................... Fenwick Island, Delaware WTGM-AM.......................................... Salisbury, Maryland WBZE-FM.......................................... Tallahassee, Florida WHBT-AM.......................................... Tallahassee, Florida WHBX-FM.......................................... Tallahassee, Florida Wilmington, North WWQQ-FM.......................................... Carolina Jacksonville, North WQSL-FM.......................................... Carolina Jacksonville, North WXQR-FM.......................................... Carolina
In January 1997, the Partnership entered into a Local Management Agreement (LMA) to operate WRXS-FM, Salisbury, Maryland. The Partnership acquired this station in April 1997. In August 1997, the Partnership completed the sale of substantially all of the property and equipment and Federal Communications Commission ("FCC") licenses related to WWQQ-FM, WQSL-FM and WSQR-FM to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus") for $6,000,000 in cash. The results of operations for the year ended December 31, 1997 include net review of $1,384,000 and a loss from operations of 5,000 related to these stations. In August 1997, the Partnership entered into a LMA granting Cumulus the right to operate all remaining stations. In December 1997, the Partnership completed the sale of substantially all of the property and equipment and FCC licenses related to WQHQ-FM, WLVW-FM, WTGM-AM to Cumulus for $9,200,000 in cash. The results of operations for the year ended December 31, 1997 include net revenues of $1,801,000 and a loss from operations of $178,000. The remaining stations were sold to Cumulus in January 1998 for $15,400,000. The carrying value of the remaining stations at December 31, 1997 was approximately $3,600,000. The results of operation for the year ended December 31, 1997 include net revenue of $2,146,0000 and income from operations of $436,000 for the remaining stations. The significant accounting principles followed by the Partnership and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. F-124 HVS PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. RECEIVABLE FROM RELATED PARTY Receivable from related party represents transactions in the ordinary course of business with other radio stations owned by certain partners of the Partnership. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions, improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Building..................................................... 39 years Broadcasting towers and equipment............................ 15 years Office and studio furniture and equipment.................... 5-6 years Leasehold improvement........................................ Term of lease Station vehicles............................................. 5 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include goodwill and FCC licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life term for periods not exceeding 25 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Partnership operated as a general partnership under the provisions of the Internal Revenue Code during its ownership by HVS Partners. Accordingly, no provision for income taxes has been made since income or losses of the Partnership are allocated to the partners. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Partnership enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Partnership uses exchanged products or services before advertising air time is provided, a trade liability is recognized. F-125 HVS PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. ACQUISITIONS: On April 4, 1997, the Partnership acquired WXRS-FM in Salisbury, Maryland for $360,000 in the form of a note payable to the former owner, plus various other direct acquisition costs. The acquisition was accounted for as a purchase. Accordingly, the accompanying financial statements include the results of operations of the acquired stations from the date of acquisition. Pro forma results assuming the acquisition had occurred on January 1, 1997 are not significantly different from reported results. 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets consists of the following:
DECEMBER 31, --------------------- 1997 1996 ---------- --------- Prepaid assets......................................................... $ 103,894 $ 5,581 Deposits refundable.................................................... 70,398 27,398 Prepaid insurance...................................................... 58,025 51,412 Prepaid property taxes................................................. 17,887 -- Other assets........................................................... 39,366 4,454 ---------- --------- Total.................................................................. $ 289,570 $ 88,845 ---------- --------- ---------- ---------
4. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Office and studio furniture and equipment......................... $ 862,056 $ 1,736,690 Broadcasting towers and equipment................................. 786,185 1,690,130 Building.......................................................... 460,425 429,618 Station vehicles.................................................. 28,212 154,110 Leasehold improvements............................................ 5,225 99,015 ------------ ------------ Total property and equipment...................................... 2,142,103 4,109,563 Accumulated depreciation.......................................... (996,850) (2,392,757) ------------ ------------ 1,145,253 1,716,806 Land and land improvements........................................ 541,023 541,023 ------------ ------------ Property and equipment, net....................................... $ 1,686,276 $ 2,257,829 ------------ ------------ ------------ ------------
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $359,244, $392,486 and $362,323, respectively. F-126 HVS PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Goodwill and FCC licenses......................................... $ 2,987,203 $ 6,314,593 Other............................................................. 9,082 44,001 ------------ ------------ Total intangible assets........................................... 2,996,285 6,358,594 Accumulated amortization.......................................... (639,279) (1,410,707) ------------ ------------ Intangible assets, net............................................ $ 2,357,006 $ 4,947,887 ------------ ------------ ------------ ------------
Amortization expense for the year ended December 31, 1997, 1996 and 1995 was $278,854, $269,197 and $269,056, respectively. 6. NOTES PAYABLE: Notes payable consists of the following at December 31, 1997: Promissory note--interest and principal payable monthly at an interest rate of 8%....................... $ 343,885 Promissory Note--interest and principal payable monthly at an interest rate of 8.5%..................... 332,673 Promissory Note--interest and principal payable monthly at an interest rate of 9%....................... 63,345 --------- $ 739,903 --------- ---------
A summary of the future maturities of long-term debt follows: 1998.............................................................. $ 63,726 1999.............................................................. 47,764 2000.............................................................. 51,381 2001.............................................................. 55,310 2002.............................................................. 42,985 Thereafter........................................................ 478,737 --------- Total............................................................. 739,903 Less current portion.............................................. (63,726) --------- Total long term debt.............................................. $ 676,177 --------- ---------
F-127 HVS PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. ACCRUED AND OTHER CURRENT LIABILITIES: Accrued and other current liabilities consist of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- Federal withholding tax payable....................................... $ 55,019 $ 18,391 FICA tax payable...................................................... 63,254 22,008 State withholding tax liabilities..................................... 8,719 12,176 Vacation and commission accrual....................................... 44,971 170,856 Bonus accrual......................................................... 33,100 59,400 Other................................................................. 30,826 31,398 ---------- ---------- $ 235,889 $ 314,229 ---------- ---------- ---------- ----------
8. COMMITMENTS AND CONTINGENCIES: The Partnership incurred expenses of approximately $29,000, $25,000 and $13,000 for the years ended December 31, 1997, 1996 and 1995, respectively, under capital leases for radio broadcasting facilities and vehicles. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. The carrying amount of notes payable approximates fair value. F-128 INDEPENDENT AUDITOR'S REPORT To the Boards of Directors JKJ Broadcasting, Inc. Missouri River Broadcasting, Inc. Ingstad Mankato, Inc. James Ingstad Broadcasting, Inc. Hometown Wireless, Inc. Fargo, North Dakota We have audited the accompanying combined balance sheets of JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc. and Hometown Wireless, Inc. (the Companies) as of December 31, 1997 and 1996 and the related combined statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Companies' 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 combined financial statements referred to above present fairly, in all material respects, the financial position of the Companies as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP Pierre, South Dakota February 11, 1998, except for Note 12 as to which the date is February 19, 1998 F-129 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. COMBINED BALANCE SHEETS
DECEMBER 31, ---------------------------- 1997 1996 MARCH 31, ------------- ------------- 1998 ------------- (UNAUDITED) ASSETS (NOTE 4) Current Assets Cash.............................................................. $ 147,871 $ 143,691 $ 300,883 Accounts receivable, less allowance for doubtful accounts of $121,416, $111,200 and $116,046, respectively................... 1,694,595 1,783,164 1,374,013 Prepaid expenses.................................................. 140,563 140,369 98,500 Salary advances and other assets.................................. 89,723 57,441 21,354 ------------- ------------- ------------- Total current assets.......................................... 2,072,752 2,124,665 1,794,750 ------------- ------------- ------------- Notes receivable, related parties (Note 7).......................... 4,883,156 2,063,806 1,519,309 Property and Equipment, at cost Land.............................................................. 481,123 481,123 180,502 Buildings......................................................... 1,024,906 1,024,175 920,127 Equipment......................................................... 5,929,305 5,921,283 5,660,785 ------------- ------------- ------------- 7,435,334 7,426,581 6,761,414 Less accumulated depreciation..................................... 3,449,962 3,322,623 2,815,231 ------------- ------------- ------------- 3,985,372 4,103,958 3,946,183 ------------- ------------- ------------- Other Assets (Note 3) Cost in excess of net assets of businesses acquired, net of amortization.................................................... 369,241 378,553 433,673 Organization costs, net of amortization........................... 214,902 220,062 240,699 Loan fees, net of amortization.................................... 56,442 57,520 61,834 Noncompete agreement, net of amortization......................... 205,546 217,375 264,693 Broadcast licenses, net of amortization........................... 1,633,569 1,670,455 1,841,348 ------------- ------------- ------------- 2,479,700 2,543,965 2,842,247 ------------- ------------- ------------- $ 13,420,980 $ 10,836,394 $ 10,102,489 ------------- ------------- ------------- ------------- ------------- ------------- See Notes to Combined Financial Statements.
F-130
DECEMBER 31, ---------------------------- 1997 1996 ------------- ------------- MARCH 31, 1998 ------------- (UNAUDITED) LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Current maturities of long-term debt (Note 4)..................... $ 450,556 $ 500,642 $ 605,238 Accounts payable.................................................. 212,583 277,202 198,568 Accrued compensation.............................................. 157,535 159,535 144,435 Accrued interest.................................................. 60,747 54,544 64,217 Other accrued expenses............................................ 117,959 82,676 59,824 ------------- ------------- ------------- Total current liabilities..................................... 999,380 1,074,599 1,072,282 Notes Payable, related parties (Note 7)............................. 300,910 396,284 358,302 Long-Term Debt, less current maturities (Note 4).................... 11,143,493 8,463,493 8,055,824 Commitments (Note 5) Stockholder's Equity (Note 6) Common stock...................................................... 121,000 121,000 121,000 Additional paid-in capital........................................ 109,917 109,917 109,917 Retained earnings................................................. 746,280 671,101 385,164 ------------- ------------- ------------- 977,197 902,018 616,081 ------------- ------------- ------------- $ 13,420,980 $ 10,836,394 $ 10,102,489 ------------- ------------- ------------- ------------- ------------- -------------
See Notes to Combined Financial Statements. F-131 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ---------------------------- ----------------------------------------- 1998 1997 1997 1996 1995 ------------- ------------- ------------- ------------ ------------ (UNAUDITED) Revenues............................... $ 2,549,271 $ 2,245,442 $ 10,362,585 $ 9,679,658 $ 8,017,046 Less--agency commissions............... 114,735 107,360 448,417 396,165 285,161 ------------- ------------- ------------- ------------ ------------ 2,434,536 2,138,082 9,914,168 9,283,493 7,731,885 ------------- ------------- ------------- ------------ ------------ Operating expenses: Direct programming................... 447,481 460,300 1,778,786 1,723,535 1,510,232 Studio............................... 33,103 20,599 124,206 127,816 89,338 Sales................................ 833,015 754,948 3,240,346 2,810,494 2,270,613 Administrative....................... 816,635 799,114 3,293,360 3,131,579 2,570,160 ------------- ------------- ------------- ------------ ------------ Total expenses..................... 2,130,234 2,034,961 8,436,698 7,793,424 6,440,343 ------------- ------------- ------------- ------------ ------------ Operating income................... 304,302 103,121 1,477,470 1,490,069 1,291,542 Interest income, including related party interest of $55,660, $17,654, $88,141, $51,323 and $18,679, respectively......................... 50,988 16,814 88,141 52,557 22,138 Interest expense, including related party interest of $8,453, $9,375, $22,748, $7,630 and $7,326, respectively......................... (261,312) (207,713) (937,244) (853,907) (630,267) Gain from antenna agreement (Note 10).................................. -- -- -- 100,000 50,000 ------------- ------------- ------------- ------------ ------------ Net income (loss).................. $ 93,978 $ (87,778) $ 628,367 $ 788,719 $ 733,413 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ Pro forma data (unaudited): Net income (loss) before income taxes (credits), as reported............. $ 93,978 $ (87,778) $ 628,367 $ 788,719 $ 733,413 Pro forma provision for income taxes (credits).......................... 36,300 (36,100) 244,500 306,600 286,700 ------------- ------------- ------------- ------------ ------------ Pro forma net income (loss)........ $ 57,678 $ (51,678) $ 383,867 $ 482,119 $ 446,713 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------
See Notes to Combined Financial Statements. F-132 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ---------- ---------- ----------- ----------- Balance, December 31, 1994..................................... $ 61,000 $ 94,602 $ (266,775) $ (111,173) Net income..................................................... -- -- 733,413 733,413 Shareholder distributions...................................... -- -- (281,399) (281,399) Issuance of 10,000 shares of Ingstad Mankato common stock...... 10,000 -- -- 10,000 ---------- ---------- ----------- ----------- Balance, December 31, 1995..................................... 71,000 94,602 185,239 350,841 Net income..................................................... -- -- 788,719 788,719 Shareholder distributions...................................... -- -- (588,794) (588,794) Issuance of 50,000 shares of Hometown Wireless, Inc. common stock........................................................ 50,000 15,315 -- 65,315 ---------- ---------- ----------- ----------- Balance, December 31, 1996..................................... 121,000 109,917 385,164 616,081 Net income..................................................... -- -- 628,367 628,367 Shareholder distributions...................................... -- -- (342,430) (342,430) ---------- ---------- ----------- ----------- Balance, December 31, 1997..................................... $ 121,000 $ 109,917 $ 671,101 $ 902,018 ---------- ---------- ----------- ----------- ---------- ---------- ----------- ----------- Net income (unaudited)......................................... -- -- 93,978 93,978 Shareholder distributions (unaudited).......................... -- -- (18,799) (18,799) ---------- ---------- ----------- ----------- Balance, March 31, 1998 (unaudited)............................ $ 121,000 $ 109,917 $ 746,280 $ 977,197 ---------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
See Notes to Combined Financial Statements. F-133 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------ ----------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- ----------- ---------- ---------- (UNAUDITED) Cash Flows From Operating Activities Net income (loss)................................... $ 93,978 $ (87,778) $ 628,367 $ 788,719 $ 733,413 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.......................................... 127,339 119,900 506,980 472,930 441,859 Amortization.......................................... 64,265 87,140 298,282 310,302 230,639 Provision for doubtful accounts....................... 35,107 67,683 231,777 227,481 104,194 Imputed interest accrued and added to notes receivable, related parties......................... (55,660) (17,654) (88,141) (51,323) (18,679) Imputed interest accrued and added to notes payable, related parties..................................... 8,453 9,375 22,748 -- -- Change in assets and liabilities: (Increase) decrease in accounts receivable............ 53,462 (81,442) (640,928) (399,199) (304,587) (Increase) in prepaid expenses and salary advances.... (32,476) (78,463) (77,956) (32,198) (57,370) Decrease in accrued interest receivable............... -- -- -- 2,234 -- Increase (decrease) in accounts payable and accrued expenses............................................ (25,133) 129,063 106,913 (41,197) 178,254 (Decrease) in excess of outstanding checks over bank balances............................................ -- -- -- -- (37,902) ----------- ----------- ----------- ---------- ---------- Net cash provided by operating activities............. 269,335 147,824 988,042 1,277,749 1,269,821 ----------- ----------- ----------- ---------- ---------- Cash Flows From Investing Activities Change in related party notes receivable, net......... (2,763,690) (553,791) (456,356) (2,320,601) (69,850) Payment of organizational costs....................... -- -- -- (233,271) -- Purchase of property and equipment.................... (8,753) (74,086) (664,755) (515,309) (580,157) Purchase of radio stations............................ -- -- -- (1,111,630) (413,370) Purchase of license for station construction.......... -- -- -- (56,885) (10,000) ----------- ----------- ----------- ---------- ---------- Net cash (used in) investing activities............... (2,772,443) (627,877) (1,121,111) (4,237,696) (1,073,377) ----------- ----------- ----------- ---------- ---------- Cash Flows From Financing Activities Principal payments made on related party notes payable............................................. $ (113,827) $ -- $ -- $ -- $ (106,001) Proceeds from related party notes payable............. -- -- 15,234 -- -- Payment of loan fees.................................. -- -- -- (64,709) (22,114) Proceeds from long-term borrowings.................... 2,950,050 715,340 987,080 6,610,735 896,666 Principal payments on long-term borrowings............ (310,136) (354,958) (684,007) (3,103,068) (604,739) Proceeds from issuance of common stock................ -- -- -- 65,315 10,000 Distributions to stockholder.......................... (18,799) (164,284) (342,430) (588,794) (281,399) ----------- ----------- ----------- ---------- ---------- Net cash provided by (used in) financing activities... 2,507,288 196,098 (24,123) 2,919,479 (107,587) ----------- ----------- ----------- ---------- ---------- Increase (decrease) in cash........................... 4,180 (283,955) (157,192) (40,468) 88,857 Beginning cash........................................ 143,691 300,883 300,883 341,351 252,494 ----------- ----------- ----------- ---------- ---------- Ending cash........................................... $ 147,871 $ 16,928 $ 143,691 $ 300,883 $ 341,351 ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- ---------- ---------- Supplemental Disclosures of Cash Flow Information Cash payments for interest............................ $ 255,108 $ 234,721 $ 924,169 $ 839,539 $ 583,027
See Notes to Combined Financial Statements. F-134 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: The Companies' operations are in the radio broadcasting industry. The Companies own and operate radio stations in Mankato, New Ulm, Owatonna, Sleepy Eye, Springfield and Waseca, Minnesota and Mason City, Charles City, New Hampton, Osage, Iowa and Bismarck, North Dakota. The Companies grant credit to customers primarily in the immediate vicinity of each station. A summary of the Companies' significant accounting policies is as follows: PRINCIPLES OF COMBINATION: The combined financial statements include the accounts of JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc. (IMI), James Ingstad Broadcasting, Inc. (JIB) and Hometown Wireless, Inc. (HW), which are under common ownership, control and financing. All material related party balances and transactions have been eliminated in the combination. Combined financial statements for 1995 include the accounts of James Ingstad Broadcasting of Iowa, Inc. This entity was merged with James Ingstad Broadcasting, Inc. during 1996 and operates under this corporate name. 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 vary from those estimates. REVENUE RECOGNITION: Revenues are earned primarily by selling advertising air time on the radio. The Companies recognize revenue as the advertising time is broadcast. CONCENTRATIONS OF CREDIT RISK: Financial instruments, which potentially subject the Companies to concentration of credit risk, consist principally of uncollateralized trade receivables. The Companies perform ongoing credit evaluations of their customers' financial conditions but do not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. TRADE AGREEMENTS: The Companies trade commercial air time for goods and services used principally for promotional, sales and other business activities. An asset and liaiblity is recorded at the fair market value of the goods or services received. Trade revenue is recorded and the liability relieved when commercials are broadcast and trade expense is recorded and the assets relieved when goods or services are received or used. The amount of trade agreements included in revenue and expense was approximately $198,000, $156,000, $773,000, $705,000 and $487,000 as of March 31, 1998 and 1997, December 31, 1997, 1996 and 1995, respectively. DEPRECIATION: It is the policy of the Companies to provide depreciation using either the straight-line method or accelerated methods based on the estimated useful life of individual units. The estimated useful lives are as follows:
YEARS --------- Buildings................................................................................................. 19-20 Equipment................................................................................................. 5-10
F-135 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AMORTIZATION: The cost in excess of net assets of businesses acquired is being amortized by the straight-line method over fifteen to twenty years. Broadcast licenses and noncompete agreement are being amortized by the straight-line method over ten to fifteen years. The Companies assess long-lived assets for impairment under FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Intangible assets are therefore included in impairment evaluations when events or circumstances exist that indicate the carrying amount of the assets may not be recoverable. Organization costs are being amortized by the straight-line method over ten years. Loan fees are being amortized by the straight line method over the term of the loan. Amortization of assets acquired under capital leases is included in depreciation expense. PRO FORMA INCOME TAXES (UNAUDITED): The unaudited pro forma adjustment to reflect income taxes in the accompanying statement of income is for informational purposes only and has been calculated based on the estimated effective tax rate in each year, assuming the Companies had been subject to corporate federal and state income taxes in each year presented. INCOME TAX STATUS: Each of the Companies, with the consent of their stockholder, have elected to be taxed under sections of the federal and state income tax laws, which provide that in lieu of corporation income taxes, the stockholder separately accounts for the Companies' items of income, deductions, losses and credits. Therefore, these statements do not include any provision for corporation income taxes (refunds). As of December 31, 1997, the Company's reported net assets exceed their tax basis by approximately $1,270,000. Accordingly, if the elections were terminated on that date, net deferred tax liabilities totaling approximately $432,000 would be recognized by charges to income tax expense. Also, no provision has been made for any amounts which may be advanced or paid as dividends to the stockholder to assist the stockholder in paying personal income taxes on the income of the Companies. INTERIM FINANCIAL DATA (UNAUDITED): The financial statements and notes related thereto at March 31, 1998 and for the three month periods ended March 31, 1997 and 1998 are unaudited, but in the Companies' opinion reflect all adjustments consisting only of normal recurring adjustments necessary for a fair presentation. The operating results for the Interim periods are not necessarily indicative of the operating results to be expected for a full year. NOTE 2. STATION PURCHASES The Companies have acquired several operating radio stations during 1996 and 1995 as described in the following paragraphs. All acquisitions were accounted for as purchases and the results of operations from the dates of purchase are included in the accompanying combined financial statements. Hometown Wireless, Inc. was formed in 1995 and purchased two Minnesota radio stations in June 1996. Both are operated in connection with a third nearby Minnesota radio station. The purchase price of $1,000,000 was allocated to the assets acquired and consisted of a $250,000 cash down payment with the remaining $750,000 financed by the seller. Ingstad Northern Iowa Broadcasting, Inc. (INIBI), a related entity, entered into an agreement to purchase four Iowa radio stations. INIBI assigned all rights under this agreement to JIB in 1996. The F-136 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. STATION PURCHASES (CONTINUED) purchase in the amount of $875,000, less a cash down payment of $13,370 paid in 1995, occurred in April 1996 and was financed from the loan with a commercial finance corporation described in Note 4. Ingstad Mankato, Inc. purchased a Minnesota radio station in January 1995. The station had previously been and continues to be operated under a Local Marketing Agreement (LMA) by James Ingstad Broadcasting, Inc. Under the LMA, JIB operates the radio station which is licensed to the owner, now IMI, and pays a monthly fee to the owner. All revenues and expenses relating to the station while operated under a LMA are recognized by JIB. The purchase price of $1,741,169, $1,341,169 of which was financed by the seller, was allocated to the assets acquired. The purchase price of business acquisitions was allocated as follows:
YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 ------------ ------------- Accounts receivable.................................................................. $ 25,000 $ -- Property and equipment............................................................... 1,040,000 550,000 Costs in excess of fair value of net assets acquired................................. -- 366,169 Other intangibles.................................................................... 810,000 825,000 Issuance of notes payable............................................................ (750,000) (1,341,169) ------------ ------------- Total cash purchase price............................................................ 1,125,000 400,000 Change in acquisition deposits....................................................... (13,370) 13,370 ------------ ------------- $ 1,111,630 $ 413,370 ------------ ------------- ------------ -------------
NOTE 3. OTHER ASSETS Accumulated amortization for other assets as of March 31, 1998, December 31, 1997 and 1996 is as follows:
MARCH 31, DECEMBER 31, 1998 ------------------------ (UNAUDITED) 1997 1996 ------------ ------------ ---------- Cost in excess of net assets of businesses acquired....................... $ 294,116 $ 284,804 $ 229,684 Organization costs........................................................ 43,164 38,004 17,367 Loan fees................................................................. 8,268 7,190 2,876 Noncompete agreement...................................................... 290,335 278,506 231,188 Broadcast licenses........................................................ 485,592 448,706 277,813 ------------ ------------ ---------- $ 1,121,475 $ 1,057,210 $ 758,928 ------------ ------------ ---------- ------------ ------------ ----------
F-137 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. LONG-TERM DEBT
MARCH 31, DECEMBER 31, 1998 -------------------------- (UNAUDITED) 1997 1996 ------------- ------------ ------------ Term note payable to a commercial finance corporation, interest rate at 4.5 percent above the 30 day Commercial Paper rate, paid monthly. Principal payments monthly in amounts ranging from $30,500 in 1996 to $47,000 in 2001. (1) (2) (3)..................................... $ 8,767,100 $ 6,037,000 $ 6,006,000 9% Seller financed term note payable, due in monthly payments of $12,021, including interest to January 2000, followed by payments of $19,468, including interest to January 2007, at which time all remaining principal and accrued interest will be payable in full, secured by the assets and stock of Ingstad Mankato, Inc. and the personal guarantee of stockholder................................... 1,255,271 1,262,973 1,292,718 8% Seller financed term note payable, due in monthly payments of $7,167, including interest to June 2011, at which time all remaining principal and accrued interest will be payable in full, secured by blanket security interest on all assets purchased, a first mortgage on real estate, and the personal guarantee of the stockholder (Note 6).................................................................. 701,318 708,696 736,777 Term note payable to a bank, variable interest rate of 1% below prior months prime rate, due in monthly payments of $8,172, including interest, through April 2004, at which time all remaining principal and accrued interest will be payable in full, secured by the assets and stock of Missouri River Broadcasting, Inc. and the personal guarantee of the stockholder........................................ 461,806 475,005 262,920 9% Seller financed term note payable, due in monthly payments of $4,424, including interest, beginning June 1998 through May 2005, secured by personal guarantee of stockholder........................ 275,000 275,000 -- Other bank loans at 10% to 10.5% interest rate, payable in monthly payments ending at various dates through July 1999, secured by technical equipment................................................. 87,803 120,203 208,179 Other debt obligations................................................ 45,751 85,258 154,468 ------------- ------------ ------------ 11,594,049 8,964,135 8,661,062 Less current maturities............................................... 450,556 500,642 605,238 ------------- ------------ ------------ $ 11,143,493 $ 8,463,493 $ 8,055,824 ------------- ------------ ------------ ------------- ------------ ------------
F-138 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. LONG-TERM DEBT (CONTINUED) - ------------------------ (1) The term note payable to a commercial finance corporation is secured by all James Ingstad Broadcasting, Inc. equipment, accounts receivable, the stock of JIB, the personal guarantee of the stockholder, and is also secured by a collateral assignment of life insurance on the life of the stockholder in an amount not less than $1,500,000. The loan agreement also provides for a penalty for early payment of the note and restrictive debt covenants. The amounts loaned to affiliates exceeded the amount permitted in the loan covenants during 1996; however, the Companies received a waiver of the covenant from the lender. Subsequent to December 31, 1997, the terms of this note were renegotiated. The interest rate will be reduced to 4.25% above the 30 day commercial paper rate and monthly payments will be reduced to $14,500 beginning in February 1998 increasing to $21,350 in February 2002 with final payment in January 2003. (2) Subsequent to December 31, 1997, James Ingstad Broadcasting, Inc. negotiated additional financing with the commercial finance corporation in the amount of $2,672,000 with interest at 4.25% above the 30 day commercial paper rate for high-grade unsecured notes sold through dealers by major corporations. This agreement provides for JIB to make loans to certain affiliates and to enable such affiliates to acquire certain radio broadcast properties as well as fund working capital needs of JIB and its affiliates. This loan is payable in monthly principal payments ranging from $6,950 in 1998 to $10,250 in 2002, plus interest. The security for this loan is the same as (1) above. (3) Also subsequent to December 31, 1997, James Ingstad Broadcasting, Inc. negotiated a line of credit with the commercial finance corporation in the amount of $1,450,000 with interest at 4.25% above the 30 day commercial paper rate for high-grade unsecured notes sold through dealers by major corporations. Each advance shall be payable in monthly installments based on a percentage of the outstanding principal balance from the date of the advance continuing until January 2003 when all remaining outstanding principal and accrued interest will be due and payable in full. The security for this loan is the same as (1) above. Maturities of long-term debt as of December 31, 1997 are as follows: 1998............................................................................ $ 500,642 1999............................................................................ 519,898 2000............................................................................ 583,736 2001............................................................................ 630,233 2002............................................................................ 693,546 Thereafter...................................................................... 6,036,080 --------- $8,964,135 --------- ---------
F-139 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. COMMITMENTS The following is a schedule by year of the minimum future rentals under noncancelable operating leases and minimum future payments under noncompetition and consulting agreements as of December 31, 1997:
YEAR LEASES AGREEMENTS TOTAL - ------------------------------------------------------------------------------- --------- ----------- --------- 1998........................................................................... $ 22,032 $ 21,292 $ 43,324 1999........................................................................... 15,364 21,296 36,660 2000........................................................................... 700 -- 700 2001........................................................................... 700 -- 700 2002........................................................................... 700 -- 700 Thereafter..................................................................... 10,500 -- 10,500 --------- ----------- --------- $ 49,996 $ 42,588 $ 92,584 --------- ----------- --------- --------- ----------- ---------
Total rental expense under all operating leases was $73,756, $83,356 and $80,374 for the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 6. STOCKHOLDER'S EQUITY Common stock, all of which is owned by the same individual, consists of the following at December 31, 1997 and 1996:
AMOUNT OUTSTANDING PAR SHARES SHARES ---------------------- VALUE AUTHORIZED ISSUED 1997 1996 --------- ----------- ---------- ---------- ---------- JKJ Broadcasting, Inc. .................................. $ 1 100,000 1,000 $ 1,000 $ 1,000 Missouri River Broadcasting, Inc. ....................... $ 1 200,000 25,000 25,000 25,000 Ingstad Mankato, Inc. ................................... $ 1 250,000 10,000 10,000 10,000 James Ingstad Broadcasting, Inc. ........................ $ 1 100,000 35,000 35,000 35,000 Hometown Wireless, Inc. ................................. $ 1 100,000 50,000 50,000 50,000 ----------- ---------- ---------- ---------- 750,000 121,000 $ 121,000 $ 121,000 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Additional paid-in capital and retained earnings by Company follows:
ADDITIONAL PAID-IN RETAINED EARNINGS CAPITAL (DEFICIT) ---------------------- ----------------------- 1997 1996 1997 1996 ---------- ---------- ----------- ---------- JKJ Broadcasting, Inc. ......................................... $ -- $ -- $ 38,618 $ 11,272 Missouri River Broadcasting, Inc. .............................. -- -- 278,215 231,429 Ingstad Mankato, Inc. .......................................... -- -- 80,605 50,210 James Ingstad Broadcasting, Inc. ............................... 94,602 94,602 381,678 90,704 Hometown Wireless, Inc. ........................................ 15,315 15,315 (108,015) 1,549 ---------- ---------- ----------- ---------- $ 109,917 $ 109,917 $ 671,101 $ 385,164 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
F-140 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. RELATED PARTY TRANSACTIONS NOT DISCLOSED ELSEWHERE Notes receivable from parties related through common ownership as of March 31, 1998, December 31, 1997 and 1996 consist of the following unsecured loans which bear interest at the annual applicable federal rate. None of the loans include structured repayment terms.
MARCH 31, DECEMBER 31, 1998 -------------------------- (UNAUDITED) 1997 1996 ------------ ------------ ------------ Radio Ingstad of Iowa, Inc. ............................................ $ 263,164 $ 258,509 $ 298,785 Ingstad Broadcasting, Inc. ............................................. 935,689 993,075 1,008,501 Radio Iowa Broadcasting, Inc. .......................................... 2,905,975 618,413 109,184 Stockholder............................................................. 778,328 193,809 102,839 ------------ ------------ ------------ $ 4,883,156 $ 2,063,806 $ 1,519,309 ------------ ------------ ------------ ------------ ------------ ------------
Notes payable to parties related through common ownership at March 31, 1998, December 31, 1997 and 1996 consist of the following unsecured loans which bear interest at the annual applicable federal rate. None of the loans include structured repayment terms.
MARCH 31, DECEMBER 31, 1998 ---------------------- (UNAUDITED) 1997 1996 ----------- ---------- ---------- Stockholder................................................................. $ 263,910 $ 383,089 $ 319,707 Ingstad Broadcasting, Inc. ................................................. 37,000 13,195 38,595 ----------- ---------- ---------- $ 300,910 $ 396,284 $ 358,302 ----------- ---------- ---------- ----------- ---------- ----------
The Companies use the management services of their stockholder. The amount of charges by the stockholder included in corporate office expense for travel, postage, rent, staff salaries and other business expenses was $33,000, $14,400, $85,253, $98,572 and $89,616 for the periods ended March 31, 1998 and 1997, December 31, 1997, 1996 and 1995, respectively. NOTE 8. DEFINED CONTRIBUTION RETIREMENT PLAN The Companies have a 401(k) plan covering substantially all their employees, which allows eligible employees to contribute a portion of their compensation to the plan. The employer companies may make an additional contribution subject to the terms of the plan. The Companies did not make any contribution to the plan in 1997, 1996 and 1995. NOTE 9. SELF INSURED HEALTH COVERAGE The Company is self insured for health care up to predetermined amounts above which third party insurance applies. F-141 JKJ BROADCASTING, INC. MISSOURI RIVER BROADCASTING, INC. INGSTAD MANKATO, INC. JAMES INGSTAD BROADCASTING, INC. HOMETOWN WIRELESS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. GAIN FROM ANTENNA AGREEMENT James Ingstad Broadcasting, Inc. entered into an antenna agreement in December 1995 whereby JIB agreed to elect to allow the tower of the other party to be modified from directional to nondirectional pending FCC approval and the results of interference on JIB's broadcast signal within certain defined areas. The tests of interference would not be determined until modifications to the other facility were complete and tested. The agreement provided for JIB to receive a nonrefundable $50,000 initial deposit and $100,000 upon receiving results of tests of interference and FCC approval. The initial $50,000 was reported as gain from antenna agreement for the year ended December 31, 1995. The remaining $100,000 was reported in 1996 when the results of the tests were known and the FCC approved the agreement terms. NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS FASB Statement No. 107, "Disclosures of Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Statement No. 107 provides exclusions for certain trade receivables, trade payables and accruals and all nonfinancial assets and liabilities from its disclosure requirements. Cash approximates fair value because of its highly liquid and short term nature. The aggregate fair values of the notes receivable from and notes payable to related parties approximates their carrying amounts as there are no structured repayment terms and interest is adjusted annually. The carrying amounts reported for the variable rate note payable to a commercial finance corporation and notes payable to banks and sellers approximates their fair values. NOTE 12. SUBSEQUENT SALE OF BUSINESS On February 19, 1998, the Companies and their shareholder and Radio Iowa Broadcasting, Inc. agreed to sell all radio station assets and liabilities, as defined in the agreements, to an outside party for approximately $49,500,000, of which $40,200,000 is allocated to these Companies. Approval of the sale must be received from the Federal Communications Commission ("FCC"). Closing on the sale will occur on the last day of the month in which the FCC approves the assignment application. F-142 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Cumulus Media, Inc. In our opinion, the accompanying balance sheet and the related statement of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Jan-Di Broadcasting, Inc. (the "Company") at March 31, 1998, June 30, 1997 and June 30, 1996, and the results of its operations and its cash flows for the nine months ended March 31, 1998 and for each of the years ended June 30, 1997 and 1996 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois April 30, 1998 F-143 JAN-DI BROADCASTING, INC. BALANCE SHEETS (DOLLARS IN 000'S)
JUNE 30, MARCH 31, -------------------- 1998 1997 1996 ----------- --------- --------- ASSETS Current assets: Cash and cash equivalents........................................................ $ 303 $ 181 $ 195 Accounts receivable, less allowance for doubtful accounts of $20................. 234 292 346 Note receivable from KMXY-FM..................................................... -- -- 213 Prepaid and other current assets................................................. 14 11 9 ----------- --------- --------- Total current assets........................................................... 551 484 763 Property and equipment, net........................................................ 440 496 277 Intangible assets, net............................................................. 193 215 166 ----------- --------- --------- Total assets................................................................... $ 1,184 $ 1,195 $ 1,206 ----------- --------- --------- ----------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................................................. $ 50 $ 14 $ 12 Current portion of notes payable................................................. 24 60 34 Commissions payable.............................................................. 45 63 20 Accrued and other current liabilities............................................ 24 36 19 ----------- --------- --------- Total current liabilities...................................................... 143 173 85 Long-term liabilities: Notes payable.................................................................... 486 505 515 ----------- --------- --------- Total liabilities.............................................................. 629 678 600 ----------- --------- --------- Commitments and contingencies Shareholders' equity: Common stock, $2.60 par value, 50,000 shares authorized, 20,000 issued and outstanding.................................................................... 52 52 52 Retained earnings................................................................ 503 465 554 ----------- --------- --------- Total shareholders' equity..................................................... 555 517 606 ----------- --------- --------- Total liabilities and shareholders' equity..................................... $ 1,184 $ 1,195 $ 1,206 ----------- --------- --------- ----------- --------- ---------
See Notes to Financial Statements. F-144 JAN-DI BROADCASTING, INC. STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, JUNE 30, ---------------------- -------------------- 1998 1997 1997 1996 --------- ----------- --------- --------- (UNAUDITED) Revenues....................................................... $ 1,484 $ 1,523 $ 2,087 $ 1,939 Less: agency commissions....................................... (87) (86) (116) (111) --------- ----------- --------- --------- Net revenues............................................... 1,397 1,437 1,971 1,828 Operating expenses: Programming.................................................. 292 292 391 304 Sales and promotions......................................... 331 385 570 419 Technical.................................................... 111 101 145 105 General and administrative................................... 491 432 627 524 Trade........................................................ 15 6 13 20 Depreciation and amortization................................ 86 68 112 53 --------- ----------- --------- --------- Total operating expenses................................... 1,326 1,284 1,858 1,425 --------- ----------- --------- --------- Income from operations......................................... 71 153 113 403 Interest expense............................................... (30) (38) (50) (43) Other income, net.............................................. (1) 6 27 13 --------- ----------- --------- --------- Net income..................................................... $ 40 $ 121 $ 90 $ 373 --------- ----------- --------- --------- --------- ----------- --------- ---------
See Notes to Financial Statements. F-145 JAN-DI BROADCASTING, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS IN 000'S)
COMMON RETAINED STOCK EARNINGS TOTAL ------------- ------------- --------- Balance at June 30, 1995........................................................... $ 52 $ 426 $ 478 Net income......................................................................... -- 373 373 Dividends.......................................................................... -- (245) (245) --- ----- --------- Balance at June 30, 1996........................................................... 52 554 606 Net income......................................................................... -- 90 90 Dividends.......................................................................... -- (179) (179) --- ----- --------- Balance at June 30, 1997........................................................... $ 52 $ 465 $ 517 Net income......................................................................... -- 40 40 Dividends.......................................................................... -- (2) (2) --- ----- --------- Balance at March 31, 1998.......................................................... $ 52 $ 503 $ 555 --- ----- --------- --- ----- ---------
See Notes to Financial Statements. F-146 JAN-DI BROADCASTING, INC. STATEMENTS OF CASH FLOWS (DOLLARS IN 000'S)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, JUNE 30, ------------------------ -------------------- 1998 1997 1997 1996 --------- ------------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net income........................................................ $ 40 $ 121 $ 90 $ 373 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................... 86 68 112 53 Decrease (increase) in accounts receivable...................... 58 45 54 (111) Decrease (increase) in prepaid expenses and other current assets........................................................ (3) (3) (2) 54 Increase in accounts payable.................................... 36 63 2 3 Decrease in commissions payable................................. (18) (15) -- -- Increase (decrease) in accrued and other liabilities............ (12) (6) 60 (18) --------- ----- --- --------- Net cash provided by operating activities......................... 187 273 316 354 --------- ----- --- --------- Cash flows from investing activities: Purchases of property and equipment............................... (8) (211) (92) (434) Acquisition of KMXY-FM............................................ -- (52) (52) -- --------- ----- --- --------- Cash used in investing activities................................. (8) (263) (144) (434) --------- ----- --- --------- Cash flows from financing activities: Proceeds from notes payable....................................... -- 25 27 305 Repayments of notes payable....................................... (55) (40) (34) (29) Proceeds from notes receivable.................................... -- 213 -- -- Dividends paid to shareholders.................................... (2) (122) (179) (245) --------- ----- --- --------- Net cash (used in) provided by financing activities............... (57) 76 (186) 31 --------- ----- --- --------- Increase (decrease) in cash and cash equivalents.................... 122 86 (14) (49) Cash and cash equivalents at beginning of period.................... 181 195 195 244 --------- ----- --- --------- Cash and cash equivalents at end of period.......................... $ 303 $ 281 $ 181 $ 195 --------- ----- --- --------- --------- ----- --- --------- Supplemental disclosures of cash flow information: Cash paid for interest.............................................. $ 35 $ 40 $ 54 $ 43 --------- ----- --- --------- --------- ----- --- --------- Non-cash operating activities: Trade revenue................................................... $ 3 $ 11 $ 20 $ 16 --------- ----- --- --------- --------- ----- --- --------- Trade expense................................................... $ 15 $ 6 $ 13 $ 20 --------- ----- --- --------- --------- ----- --- ---------
See Notes to Financial Statements. F-147 JAN-DI BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Jan-Di Broadcasting, Inc. (the "Company") is a broadcasting company formed in 1980 to own and operate radio stations in Western Colorado. As of March 31, 1998, the Company owned and operated three FM stations, KEKB-FM, KBKL-FM and KMXY-FM. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flow are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Broadcasting towers and equipment............................ 7 years Office furniture and equipment............................... 6 years Leasehold improvement........................................ Term of lease
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include FCC licenses and non-compete agreements. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life or contract term for periods not exceeding 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company has elected to be treated as an S-Corporation for federal income tax purposes. Under this election the income or loss of the S-Corporation is included in the tax returns of the individual shareholders. Accordingly, federal income taxes are not included in the accompanying financial statements. F-148 JAN-DI BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) REVENUE RECOGNITION Revenue is recognized as advertising air time is broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. ACQUISITION On July 23, 1996, the Company acquired the intangible assets of Station KMXY-FM in Grand Junction, Colorado for total consideration of $77 including a non-compete agreement for $25. The acquisition was accounted for using the purchase method of accounting. The Company's results of operations for the year ended June 30, 1997 and 1996 include the results of operations of the KMXY-FM from the date of acquisition. The following unaudited pro forma statement of operations data give effect to the acquisition as if it had occurred on July 1, 1995. In addition, depreciation and amortization has been increased for each period to reflect initial purchase price allocations as if the acquisition had occurred as of July 1, 1995.
PRO FORMA FOR THE YEARS ENDED JUNE 30, ------------------------ 1997 1996 ----------- ----------- (UNAUDITED) Net revenues........................................................ $ 1,987 $ 2,084 ----------- ----------- ----------- ----------- Income from operations.............................................. $ 116 $ 449 ----------- ----------- ----------- ----------- Net income.......................................................... $ 103 $ 419 ----------- ----------- ----------- -----------
3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
MARCH 31, JUNE 30, ------------------------ -------------------- 1998 1997 1997 1996 --------- ------------- --------- --------- (UNAUDITED) Broadcasting towers and equipment........................ $ 872 $ 837 $ 857 $ 593 Office furniture and equipment........................... 57 54 57 35 Leasehold improvements................................... 60 50 67 50 --------- ----- --------- --------- 989 941 981 678 Less accumulated depreciation............................ (549) (459) (485) (401) --------- ----- --------- --------- Property and equipment, net.............................. $ 440 $ 482 $ 496 $ 277 --------- ----- --------- --------- --------- ----- --------- ---------
F-149 JAN-DI BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) (CONTINUED) 3. PROPERTY AND EQUIPMENT: (CONTINUED) Depreciation expense for the years ended June 30, 1997 and 1996 was $84 and $43, respectively, and for the nine months ended March 31, 1998 and 1997 was $64 and (unaudited) $58, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
MARCH 31, JUNE 30, ------------------------ -------------------- 1998 1997 1997 1996 --------- ------------- --------- --------- (UNAUDITED) FCC licenses............................................. $ 260 $ 208 $ 260 $ 208 Non-compete agreement.................................... 25 25 25 -- --------- ----- --------- --------- 285 233 285 208 Less accumulated amortization............................ (92) (52) (70) (42) --------- ----- --------- --------- Intangible assets, net................................... $ 193 $ 181 $ 215 $ 166 --------- ----- --------- --------- --------- ----- --------- ---------
Amortization expense for the years ended June 30, 1997 and 1996 was $28 and $10, respectively, and for the nine months ended March 31, 1998 and 1997 was $22 and (unaudited) $10, respectively. 5. RELATED PARTY TRANSACTIONS: The Company leases business offices and studio space from the shareholders. Monthly rental paid by the Company is $2.5 under a month to month agreement, whereby the Company is responsible for all insurance, maintenance and utilities. 6. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $42 and $40, respectively, for the years ended June 30, 1997 and 1996, and for the nine months ended March 31, 1998 and 1997 (unaudited) under operating leases for equipment and broadcasting facilities. Future minimum annual payments under the non-cancelable operating equipment leases and agreements as of March 31, 1998, are as follows:
MARCH 31, - ------------------------------------------------------------------------------------ 1999 $ 6 ----- -----
F-150 JAN-DI BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) (CONTINUED) 7. NOTES PAYABLE: Outstanding amounts under the Company's long-term debt arrangements consist of the following:
MARCH JUNE 30, ----------- -------------------- 1998 1997 1996 ----------- --------- --------- Note payable to Norwest Bank of Colorado, $538 principal, interest at prime rate plus 1.5% (9.5% and 9.25% at June 30, 1997 and 1996, respectively and 10.0% and 9.8% at March 31, 1998 and 1997, respectively) due June 14, 2006, secured by accounts receivable, inventory, and equipment........... $ 479 $ 505 $ 493 Note payable to Norwest Bank of Colorado with interest at 9.5%, due January 13, 2001, secured by Jeep Cherokee....................................... 11 13 -- Note payable with interest at 8.0%, due March 1, 1998, secured by equipment................................................................ -- 22 56 Note payable with interest imputed at average funds rate, due December, 1998..................................................................... 20 25 -- ----- --------- --------- 510 565 549 Less current maturities.................................................... (24) (60) (34) ----- --------- --------- Long-term debt............................................................. $ 486 $ 505 $ 515 ----- --------- --------- ----- --------- ---------
A summary of the future maturities of long-term debt follows:
MARCH 31, - -------------------------------------------------------------------------------------- 1999.................................................................................. $ 24 2000.................................................................................. 29 2001.................................................................................. 51 2002.................................................................................. 54 2003.................................................................................. 56 Thereafter............................................................................ 296 --------- $ 510 --------- ---------
The Company also has a revolving line of credit with Norwest Bank of Colorado which provides short-term borrowings up to $100. Interest on advances is payable monthly at one percent above the prime rate. The line of credit is reviewed annually by the bank, contains no fee for the unused balance and expires November 1, 1998. There were no outstanding balances on this line of credit as of March 31, 1998 and June 30, 1997 and 1996. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. The fair value of note payable are estimated based on current market rates and approximates the carrying value. 9. SUBSEQUENT EVENTS On January 5, 1998, the Company entered into an asset purchase agreement to sell substantially all of the assets of the Company to Cumulus Media Inc. (a wholly-owned subsidiary of Cumulus Holdings, Inc.) for $5 million. F-151 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheets and the related combined statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of K--Country, Inc. at December 31, 1997 and June 30, 1997, and the results of its operations and its cash flows for the six months ended December 31, 1997 and the year ended June 30, 1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 16, 1998 F-152 K-COUNTRY, INC. COMBINED BALANCE SHEETS
MARCH 31, DECEMBER 31, JUNE 30, 1998 1997 1997 ------------ ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................ $ 160,852 $ 149,904 $ 76,153 Accounts receivable, less allowance for doubtful accounts of $11,880, $11,880, and $11,880, respectively................................. 196,136 363,806 271,236 Prepaid expenses..................................................... 2,131 4,123 4,973 ------------ ------------ ------------ Total current assets............................................. 359,119 517,833 352,362 Property and equipment, net............................................ 630,123 652,398 706,711 Intangible assets, net of accumulated amortization of $105,409, $94,264, and $71,876, respectively................................... 529,241 540,386 562,774 ------------ ------------ ------------ Total asset...................................................... $ 1,518,483 $1,710,617 $ 1,621,847 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable on demand to stockholder................................ $ 1,161,157 $1,206,156 $ 1,296,156 Accounts payable..................................................... 33,571 22,786 41,862 Accrued salaries and commissions payable............................. 20,268 20,217 22,342 Income taxes payable................................................. 1,433 67,735 2,206 Other accrued expenses............................................... 8,256 7,183 11,998 ------------ ------------ ------------ Total current liabilities........................................ 1,224,685 1,324,077 1,374,564 ------------ ------------ ------------ Commitment and contingencies Stockholders' equity: Common stock, $1 par value, 5,000 shares authorized, 500 issued and outstanding........................................................ 500 500 500 Retained earnings.................................................... 293,298 386,040 246,783 ------------ ------------ ------------ Total stockholders' equity....................................... 293,798 386,540 247,283 ------------ ------------ ------------ Total liabilities and stockholders' equity....................... $ 1,518,483 $1,710,617 $ 1,621,847 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Combined Financial Statements. F-153 K-COUNTRY, INC. COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS SIX MONTHS ENDED MARCH 31 ENDED ---------------------- DECEMBER 31, YEAR ENDED 1998 1997 1997 JUNE 30, 1997 ---------- ---------- ------------ ------------- (UNAUDITED) Revenues:................................................... $ 304,269 $ 504,487 $1,106,178 $ 1,822,078 Less: agency commissions.................................. (32,607) (10,070) (58,687) (128,526) ---------- ---------- ------------ ------------- Net revenues.......................................... 271,662 494,417 1,047,491 1,693,552 Operating expenses: Programming............................................... 109,577 102,415 189,073 423,610 Magazine expenses......................................... -- 58,309 135,733 261,650 Selling and promotions expenses........................... 145,553 87,051 250,302 459,242 General and administrative................................ 126,358 116,339 186,167 308,426 Depreciation and amortization............................. 33,420 36,083 81,430 159,649 ---------- ---------- ------------ ------------- Total operating expenses.............................. 414,908 400,197 842,705 1,612,577 ---------- ---------- ------------ ------------- Income before income taxes.................................. (143,246) 94,220 204,786 80,975 Income taxes (expense) benefit.............................. 50,504 (27,513) (65,529) (24,777) ---------- ---------- ------------ ------------- Net income (loss)........................................... (92,742) 66,707 139,257 56,198 Beginning retained earnings................................. 386,040 196,895 246,783 190,585 ---------- ---------- ------------ ------------- Ending retained earnings.................................... $ 293,298 $ 263,602 $ 386,040 $ 246,783 ---------- ---------- ------------ ------------- ---------- ---------- ------------ -------------
See Notes to Combined Financial Statements. F-154 K-COUNTRY, INC. COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS SIX MONTHS ENDED MARCH 31 ENDED ---------------------- DECEMBER 31, YEAR ENDED 1998 1997 1997 JUNE 30, 1997 ---------- ---------- ------------ ------------- UNAUDITED Cash flows from operating activities: Net income (loss)......................................... $ (92,742) $ 66,707 $ 139,257 $ 56,198 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization......................... 33,420 36,083 81,430 159,649 (Increase) decrease in accounts receivable............ 167,670 (97,389) (92,570) (5,435) (Increase) decrease in prepaid insurance.............. 1,992 (16,505) 850 5,311 Increase (decrease) in accounts payable............... 10,785 12,400 (19,076) (80,790) Increase (decrease) in accrued liabilities............ 1,125 (2,750) (6,939) (10,677) Increase (decrease) in income taxes payable........... (66,302) 27,513 65,529 1,095 ---------- ---------- ------------ ------------- Net cash provided by operating activities........... 55,948 26,059 168,481 125,351 ---------- ---------- ------------ ------------- Cash flows from investing activities: Acquisition of radio station.............................. -- -- -- (804,000) Purchases of property and equipment....................... -- (8,169) (4,730) (65,757) ---------- ---------- ------------ ------------- Cash used for investing activities........................ -- (8,169) (4,730) (869,757) ---------- ---------- ------------ ------------- Cash flows from financing activities: Repayment of note payable to stockholder.................. (45,000) (45,000) (90,000) (165,000) Proceeds from borrowings from stockholder................. -- 28,303 -- 895,538 ---------- ---------- ------------ ------------- Cash provided by financing activities..................... (45,000) (16,697) (90,000) 730,538 ---------- ---------- ------------ ------------- Decrease in cash and cash equivalents....................... 10,948 1,193 73,751 (13,868) Cash and cash equivalents at beginning of period............ 149,904 97,591 76,153 90,021 ---------- ---------- ------------ ------------- Cash and cash equivalents at end of period.................. $ 160,852 $ 98,784 $ 149,904 $ 76,153 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Supplemental disclosures of cash flow information: Cash paid for interest.................................... $ -- $ -- $ -- $ -- ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Cash paid for income taxes................................ $ 15,798 $ 24,777 $ -- $ 24,777 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Non-cash operating activities: Trade revenue............................................. -- -- $ 84,113 $ 125,080 ---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------- Trade expense............................................. -- -- $ 107,805 $ 159,890 ---------- ---------- ------------ ------------- ---------- ---------- ------------ -------------
See Notes to Combined Financial Statements. F-155 K--COUNTRY, INC. COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS The combined financial statements of K--Country, Inc. include the operations of radio stations WEGC-FM, WJAD-FM, WKAK-FM and WALG-FM located in Albany, GA and the operations of Albany Magazine. K--Country, Inc. owns radio stations WKAK-FM and WALG-AM. WEGC-FM, WJAD-FM and the Albany Magazine are wholly owned by the 89% owner of K--Country, Inc. All significant intercompany transactions are eliminated. The combined operations are hereinafter referred to as the "Company". Effective January 1, 1998, the owner of K-Country, Inc. transferred the operations of Albany Magazine to a family member. The transfer was recorded on a historical cost basis. Accordingly the combined financial statements of K-Country for the three months ended March 31, 1998 exclude the operations of Albany Magazine. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Building......................................................... 27 years Vehicles......................................................... 5 years 7-15 Studio and broadcasting equipment................................ years Office furniture and fixtures.................................... 10 years Program library.................................................. 7 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets primarily represent the excess of cost over the fair market value of tangible net assets acquired. Intangible assets are stated at cost and are being amortized using the straight-line method over F-156 K--COUNTRY, INC. COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) the estimated useful life of 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. 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 amount at each year-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 total of tax payable for the period and the change during the period in deferred tax assets and liabilities. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. ORGANIZATION COSTS Organization costs are amortized using the straight-line method over a useful life of 5 years. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. ACQUISITIONS On July 23, 1996, the Company acquired the assets of WEGC-FM and WJAD-FM for $804,000 of cash. The acquisition was accounted for as a purchase. Accordingly, the accompanying combined financial statements include the results of operations of the acquired stations from the date of acquisition. The purchase price was allocated $267,850 to property and equipment and $536,150 to intangible assets. The Company operated the WEGC-FM and WJAD-FM under a local marketing agreement from May 1, 1996 to July 23, 1996. F-157 K--COUNTRY, INC. COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 and June 30, 1997 consists of the following:
DECEMBER 31, JUNE 30, 1997 1997 ------------ ----------- Building.......................................................... $ 96,209 $ 96,209 Vehicles.......................................................... 93,783 93,783 Studio and broadcasting equipment................................. 665,965 665,965 Office furniture and fixtures..................................... 35,833 31,103 Program library................................................... 47,387 47,387 ------------ ----------- 939,177 934,447 Accumulated depreciation.......................................... (316,779) (257,736) ------------ ----------- 622,398 676,711 Land.............................................................. 30,000 30,000 ------------ ----------- Property and equipment, net....................................... $ 652,398 $ 706,711 ------------ ----------- ------------ -----------
Depreciation expense for the six months ended December 31, 1997 and the year ended June 30, 1997 was $59,043 and $114,873. 4. NOTE PAYABLE TO STOCKHOLDER The Company is dependent on the controlling stockholder for financing. Note payable to stockholder is payable on demand and is non-interest bearing. 5. EMPLOYEE 401-K PLAN The Company has an elective contribution program for employees, where contributions are withheld from employee salaries and remitted to the plan administrator each month. The Company makes no contributions and only gives to employees the service of withholding and remitting for their convenience. 6. INCOME TAXES The Company's effective income tax rate differs from the statutory federal income tax rate of 34% for the six months ended December 31, 1997 and the year ended June 30, 1997 as follows:
DECEMBER 31, JUNE 30, 1997 1997 ------------ --------- Income tax benefit at federal statutory rate......................... $ 69,627 $ 27,531 State income taxes (net of federal benefit).......................... 11,592 3,616 Other................................................................ (15,690) (6,370) ------------ --------- $ 65,529 $ 24,777 ------------ --------- ------------ ---------
Temporary differences are insignificant. F-158 K--COUNTRY, INC. COMBINED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $3,750 for the six months ended December 31, 1997 and $7,500 for the year ended June 30, 1997 under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997 are as follows:
DECEMBER 31, 1997 ---------------- 1998........................................................................ $ 7,556 1999........................................................................ 7,650 2000........................................................................ 7,650 2001........................................................................ 7,650 Thereafter.................................................................. 44,284 ---------------- $ 74,790 ---------------- ----------------
8. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and note payable to stockholder approximates fair value due to their short-term nature. 9. SUBSEQUENT EVENT: In April 1998, the Company entered into an asset purchase agreement with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) to sell the assets of the Company, subject to approval of the Federal Communications Commission, for $3,300,000. F-159 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Lesnick Communications, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 20, 1998 F-160 LESNICK COMMUNICATIONS, INC. BALANCE SHEETS
MARCH 31 DECEMBER 31, ----------- ---------------------- 1998 1997 1996 ----------- ---------- ---------- (UNAUDITED) ASSETS Current assets: Cash...................................................................... $ 8,262 $ 7,678 $ 8,524 Accounts receivable, less allowance for doubtful accounts of $8,000 in both 1997 and 1996...................................................... 57,102 77,560 63,332 Income tax receivable..................................................... 400 2,025 25,000 Prepaid expenses and other current assets................................. 650 3,300 3,099 ----------- ---------- ---------- Total current assets.................................................. 66,414 90,563 99,955 Property and equipment, net................................................. 12,086 16,595 17,844 Intangible assets, net...................................................... 177,450 182,000 204,750 ----------- ---------- ---------- Total assets.......................................................... $ 255,950 $ 289,158 $ 322,549 ----------- ---------- ---------- ----------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................................... $ 46,113 $ 54,219 $ 50,710 Accrued expenses and other current liabilities............................ 33,169 22,748 12,304 Current portion of settlements payable.................................... 14,400 14,400 38,400 Loan from shareholder..................................................... 223,780 170,530 27,000 ----------- ---------- ---------- Total current liabilities............................................. 317,462 261,897 128,414 Long-term settlements payable............................................... 13,600 17,200 31,600 ----------- ---------- ---------- Total liabilities..................................................... 331,062 279,097 160,014 ----------- ---------- ---------- Commitments and contingencies Stockholders' equity: Common stock, $1 par value, 75,000 shares authorized, issued and outstanding............................................................. 75,000 75,000 75,000 Retained earnings (deficit)............................................... (150,112) (64,939) 87,535 ----------- ---------- ---------- Total stockholders' equity............................................ (75,112) 10,061 162,535 ----------- ---------- ---------- Total liabilities and stockholders' equity............................ $ 255,950 $ 289,158 $ 322,549 ----------- ---------- ---------- ----------- ---------- ----------
See Notes to Financial Statements. F-161 LESNICK COMMUNICATIONS, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ---------------------- ------------------------ 1998 1997 1997 1996 ---------- ---------- ----------- ----------- (UNAUDITED) Revenues.......................................... $ 68,841 $ 79,626 $ 438,062 $ 482,946 Less: agency commissions.......................... (4,668) (1,836) (12,947) (22,129) ---------- ---------- ----------- ----------- Net revenues................................ 64,173 77,790 425,115 460,817 ---------- ---------- ----------- ----------- Operating expenses: Programming..................................... 40,440 32,242 126,953 135,012 Sales and promotions............................ 22,510 20,436 147,619 155,647 Technical....................................... 9,259 6,994 23,082 21,474 General and administrative...................... 63,736 57,189 242,874 267,561 Depreciation and amortization................... 9,059 5,787 29,882 22,383 ---------- ---------- ----------- ----------- Total operating expenses.................... 145,004 122,648 570,410 602,077 ---------- ---------- ----------- ----------- Loss from operations.............................. (80,831) (44,858) (145,295) (141,260) Interest income................................... -- -- 91 1,194 Interest expense.................................. 4,342 1,161 (5,645) (3,056) Other expense..................................... -- -- -- (70,000) ---------- ---------- ----------- ----------- Loss before income taxes.......................... (85,173) (46,019) (150,849) (213,122) Income tax expense (benefit)...................... -- 1,625 (1,625) 24,613 ---------- ---------- ----------- ----------- Net loss.......................................... $ (85,173) $ (47,644) $ (152,474) $ (188,509) ---------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
See Notes to Financial Statements. F-162 LESNICK COMMUNICATIONS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
RETAINED COMMON EARNINGS STOCK (DEFICIT) TOTAL ---------- ---------- ---------- Balance at January 1, 1996................................................... $ 75,000 $ 276,044 $ 351,044 Net loss..................................................................... (188,509) (188,509) ---------- ---------- ---------- Balance at December 31, 1996................................................. 75,000 87,535 162,535 Net loss..................................................................... (152,474) (152,474) ---------- ---------- ---------- Balance at December 31, 1997................................................. $ 75,000 $ (64,939) $ 10,061 ---------- ---------- ---------- ---------- ---------- ----------
See Notes to Financial Statements. F-163 LESNICK COMMUNICATIONS, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH FOR THE YEAR ENDED 31, DECEMBER 31, ------------------------ ------------------------ 1998 1997 1997 1996 ----------- ----------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net loss....................................... $ (85,173) $ (47,644) $ (152,474) $ (188,509) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................ 9,059 7,674 29,882 22,383 Decrease (increase) in accounts receivable... 20,458 8,062 (14,228) 12,671 Decrease (increase) in income tax receivable................................. 1,625 (4,375) 22,975 -- Decrease (increase) in prepaid expenses and other current assets....................... 2,650 449 (201) 19,601 Increase (decrease) in accounts payable...... (8,106) 24,325 3,509 7,509 Increase (decrease) in accrued settlement payments................................... (3,600) (21,000) (38,400) 70,000 Increase in accrued expenses and other liabilities................................ 10,421 971 10,444 6,446 ----------- ----------- ----------- ----------- Net cash used in operating activities...... (52,666) (31,538) (138,493) (49,899) Cash flows from investing activities: Purchases of property and equipment............ -- -- (5,883) (2,153) ----------- ----------- ----------- ----------- Cash used for investing activities......... -- -- (5,883) (2,153) ----------- ----------- ----------- ----------- Cash flows from financing activities: Repayment of borrowings........................ -- -- -- (4,324) Proceeds from borrowings....................... 53,250 28,500 143,530 27,000 ----------- ----------- ----------- ----------- Cash provided by financing activities...... 53,250 28,500 143,530 22,676 ----------- ----------- ----------- ----------- Increase (decrease) in cash...................... 584 (3,038) (846) (29,376) Cash at beginning of period...................... 7,678 8,524 8,524 37,900 ----------- ----------- ----------- ----------- Cash at end of period............................ $ 8,262 $ 5,486 $ 7,678 $ 8,524 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Non-cash operating activities: Trade revenue.................................. $ 24,724 $ 20,199 $ 97,096 $ 80,795 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Trade expense.................................. $ 22,601 $ 18,620 $ 90,405 $ 74,481 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements. F-164 LESNICK COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Lesnick Communications, Inc. owns and operates radio station WTWR-FM (the "Station" or the "Company") located in Monroe, Michigan. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Vehicles........................................................ 5 years 10-12 Broadcasting towers and equipment............................... years Office furniture and equipment.................................. 7-12 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include goodwill, Federal Communications Commission ("FCC") license and favorable lease contracts. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life or contract term for periods not exceeding 40 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. Fees paid pursuant to various time brokerage agreements are amortized to expense, respectively, over the term of the agreement using the straight-line method. 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. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products F-165 LESNICK COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Vehicles......................................................... $ 31,047 $ 31,047 Broadcasting towers and equipment................................ 141,962 141,962 Office furniture and equipment................................... 97,357 91,474 ------------ ------------ 270,366 264,483 Accumulated depreciation......................................... 253,771 246,639 ------------ ------------ Property and equipment, net...................................... $ 16,595 $ 17,844 ------------ ------------ ------------ ------------
Depreciation expense for the year ended December 31, 1997 and 1996 was $7,132 and $4,183, respectively. 3. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Goodwill, FCC license and others................................. $ 455,000 $ 455,000 Accumulated amortization......................................... (273,000) (250,250) ------------ ------------ Intangible assets, net........................................... $ 182,000 $ 204,750 ------------ ------------ ------------ ------------
Amortization expense for the year ended December 31, 1997 and 1996 was $22,750 and $18,200, respectively. F-166 LESNICK COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS A stockholder of the Company provides cash for operations to the Station as needed. At December 31, 1997 and 1996, the Company had a balance payable to the stockholder of $170,530 and $27,000, respectively. The balance is payable on demand of the stockholder. The interest rate applicable to the payable balance was 8.5% for the two years ended December 31, 1997. The Company leases the land on which the tower transmitter is located from a stockholder of the Company. The Company was not required to pay monthly rent payments during 1997 and 1996; however, rent expense was accrued for that period. Rent expense for the tower site was $6,000 for each of the years ended December 31, 1997 and 1996. Future rent expense will be $6,000 for each of the next five years. 5. INCOME TAXES In 1996, the Company recorded an income tax benefit for alternative minimum taxes paid in prior years due to the carryforward of a portion of the 1996 income tax loss. The Company has established a valuation allowance against all of its operating loss carryforwards following an assessment of the likelihood of realizing such amounts. In arriving at the determination as to the amount of the valuation allowance required, the Company considered its past operating history, tax planning strategies and its expectation of the level and timing of future taxable income. At December 31, 1997, the Company had net operating loss carryforwards for income tax purposes of approximately $350,000. 6. COMMITMENTS AND CONTINGENCIES During 1997, the Company settled two lawsuits which were filed during 1996. The first lawsuit was settled in January 1997 for $20,000. The second lawsuit was settled in May 1997 for $50,000. The Company paid $38,400 in relation to these settlements in 1997. Future payments will be $14,400 in 1998 and 1999 and $2,800 in 2000. The Company incurred expenses of approximately $12,675 for the year ended December 31, 1997 and $12,375 for the year ended December 31, 1996, under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997 include payments of $9,675 in 1998. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash accounts receivables and accounts payable, and long term settlements payable approximates fair value because of the short maturity of these instruments. 8. SUBSEQUENT EVENT In January 1998, the Company entered into an agreement with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) ("Cumulus") to sell substantially all the assets of the Company to Cumulus, subject to approval of the FCC. F-167 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Louisiana Media Interests, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 9, 1998 F-168 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, -------------------------- 1998 1997 1996 ------------- ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................ $ 31,472 $ 98,568 $ 15,528 Accounts receivable, less allowance for doubtful accounts of $ , $15,000 and $15,000, respectively.................................. 530,123 631,741 472,755 Prepaid expenses and other current assets............................ 15,308 23,997 12,212 ------------- ------------ ------------ Total current assets............................................. 576,903 754,306 500,495 Property and equipment, net............................................ 1,136,950 1,056,060 370,276 Intangible assets, net................................................. 5,965,340 6,076,587 4,364,569 Other assets........................................................... 7,093 7,093 7,093 ------------- ------------ ------------ Total assets..................................................... $ 7,686,286 $ 7,894,046 $ 5,242,433 ------------- ------------ ------------ ------------- ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable..................................................... $ 68,101 $ 72,980 $ 403 Accrued expenses and other current liabilities....................... 330,320 329,782 272,621 Current portion of long-term debt.................................... 1,362,858 1,266,429 245,174 ------------- ------------ ------------ Total current liabilities........................................ 1,761,279 1,669,191 518,198 ------------- ------------ ------------ Long-term debt, less current portion................................... 6,257,516 6,195,594 4,482,717 Preferred stock of subsidiary.......................................... 761,520 748,000 694,000 Commitments and contingencies Stockholders' equity: 8% Convertible preferred stock, no par value, 100,000 shares authorized, 10,000 issued and 10,000 outstanding (liquidation value of $15.91 per share)............................................... -- -- 175,000 Common stock, no par value, 100,000 shares authorized, 91,000 issued and outstanding at December 31, 1997; 75,500 issued and outstanding at December 31, 1996............................................... 598,040 598,040 125,000 Treasury stock at cost............................................... (226,565) (79,063) (79,063) Accumulated deficit.................................................. (1,465,504) (1,237,716) (673,419) ------------- ------------ ------------ Total stockholders' equity (deficit)............................. (1,094,029) (718,739) (452,482) ------------- ------------ ------------ Total liabilities and stockholders' equity (deficit)............. $ 7,686,286 $ 7,894,046 $ 5,242,433 ------------- ------------ ------------ ------------- ------------ ------------
See Notes to Financial Statements F-169 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31, ------------------------ ---------------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- ------------ ------------ ------------ (UNAUDITED) Revenues............................................. $ 824,235 $ 614,886 $ 3,362,885 $ 2,738,549 $ 1,937,337 Less: agency commissions............................. (71,531) (48,919) (298,763) (216,756) (147,038) ----------- ----------- ------------ ------------ ------------ Net revenues................................... 752,704 565,967 3,064,122 2,521,793 1,790,299 Operating expenses: Programming........................................ 197,926 126,764 613,462 470,544 262,524 Sales and promotions............................... 189,277 121,064 696,540 532,788 360,018 Technical.......................................... 32,485 41,663 141,063 135,832 73,839 News............................................... 22,485 26,967 93,736 109,446 96,436 General and administrative......................... 196,131 154,094 1,008,404 727,272 441,223 Depreciation and amortization...................... 136,244 97,344 393,817 368,640 436,066 ----------- ----------- ------------ ------------ ------------ Total operating expenses....................... 774,548 567,896 2,947,022 2,344,522 1,670,106 ----------- ----------- ------------ ------------ ------------ Income from operations............................... (21,844) (1,929) 117,100 177,271 120,193 Interest expense..................................... 174,044 104,830 (543,717) (390,350) (363,944) ----------- ----------- ------------ ------------ ------------ Loss before income taxes and minority interest....... (195,888) (106,759) (426,617) (213,079) (243,751) Income taxes......................................... -- -- -- -- -- Minority interest.................................... (31,900) (30,780) (121,680) (54,431) -- ----------- ----------- ------------ ------------ ------------ Net loss............................................. (227,788) (137,539) (548,297) (267,510) (243,751) Preferred dividends.................................. -- -- 16,000 16,000 16,000 ----------- ----------- ------------ ------------ ------------ Net loss attributable to common shares............... $ (227,788) $ (137,539) $ (564,297) $ (283,510) $ (259,751) ----------- ----------- ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------
See Notes to Financial Statements. F-170 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED COMMON TREASURY ACCUMULATED STOCK STOCK STOCK DEFICIT TOTAL ----------- ---------- ---------- ------------- ----------- Balance at January 1, 1995...................... $ 175,000 $ 125,000 -- $ (130,158) $ 169,842 Repurchased 5,000 shares of common stock........ -- -- $ (39,062) -- (39,062) Net loss........................................ -- -- -- (243,751) (243,751) Preferred stock dividends....................... -- -- -- (16,000) (16,000) ----------- ---------- ---------- ------------- ----------- Balance at December 31, 1995.................... 175,000 125,000 (39,062) (389,909) (128,971) Repurchased 5,000 shares of common stock........ -- -- (40,001) -- (40,001) Net loss........................................ -- -- -- (267,510) (267,510) Preferred stock dividends....................... -- -- -- (16,000) (16,000) ----------- ---------- ---------- ------------- ----------- Balance at December 31, 1996.................... 175,000 125,000 (79,063) (673,419) (452,482) Conversion of preferred stock to common stock... (175,000) 175,000 -- -- -- Issuance of 4,500 shares of common stock........ -- 298,040 -- -- 298,040 Net loss........................................ -- -- -- (548,297) (548,297) Preferred stock dividends....................... -- -- -- (16,000) (16,000) ----------- ---------- ---------- ------------- ----------- Balance at December 31, 1997.................... $ -- $ 598,040 $ (79,063) $ (1,237,716) $ (718,739) ----------- ---------- ---------- ------------- ----------- ----------- ---------- ---------- ------------- -----------
See Notes to Financial Statements. F-171 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31, ------------------------ --------------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- ------------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net loss........................................... $ (227,788) $ (137,539) $ (548,297) $ (267,510) $ (243,751) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization...................... 136,244 97,345 393,817 368,640 436,066 Minority interest.................................. 31,900 30,780 121,680 54,431 -- Stock-based compensation expense................... -- -- 278,040 20,000 -- (Increase) decrease in accounts receivable......... 101,618 78,205 (158,986) (152,432) (41,783) (Increase) decrease in other long-term assets...... -- -- -- (8,000) (7,082) (Increase) decrease in other current assets........ 8,689 (762) (11,785) (4,969) (7,243) Increase (decrease) in accounts payable............ (4,879) 10,017 72,577 403 (58,250) Increase (decrease) in other accrued liabilities... (8,192) (13,291) 65,831 82,794 119,964 ----------- ----------- ------------- ----------- ----------- Net cash provided by operating activities...... 37,592 64,755 212,877 93,357 197,921 ----------- ----------- ------------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment................ (105,887) (9,550) (616,619) (127,625) (14,337) Acquisition of radio stations...................... -- -- (550,000) (500,000) -- ----------- ----------- ------------- ----------- ----------- Net cash used in investing activities.......... (105,887) (9,550) (1,166,619) (627,625) (14,337) ----------- ----------- ------------- ----------- ----------- Cash flows from financing activities: Proceeds from borrowings of notes payable, net..... 158,351 (3,472) 1,109,132 (194,439) (26,480) Issuance of preferred stock of subsidiary.......... -- -- -- 676,000 -- Repurchase of treasury stock....................... (147,502) -- -- (40,001) (39,062) Dividends paid on preferred stock of subsidiary.... (9,650) (20,900) (56,350) (36,431) -- Cash dividends paid................................ -- -- (16,000) (16,000) (16,000) ----------- ----------- ------------- ----------- ----------- Net cash (used in) provided by financing activities................................... 1,199 (24,372) 1,036,782 389,129 (81,542) ----------- ----------- ------------- ----------- ----------- Net increase (decrease) in cash...................... (67,096) 30,833 83,040 (145,139) 102,042 Cash at beginning of period.......................... 98,568 15,528 15,528 160,667 58,625 ----------- ----------- ------------- ----------- ----------- Cash at end of period................................ $ 31,472 $ 46,361 $ 98,568 $ 15,528 $ 160,667 ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- ----------- ----------- Supplemental disclosure of cash flow information: Cash paid for interest............................. $ 153,344 $ 104,830 $ 496,035 $ 363,077 $ 251,599 ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
See Notes to Financial Statements. F-172 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Louisiana Media Interests, Inc. and subsidiaries (the "Company") owns and operates radio stations KKGB-FM, KBIU-FM, KYKZ-FM and KXZZ-AM in Lake Charles, Louisiana. The consolidated financial statements include the accounts of Louisiana Media Interests, Inc. and all wholly owned subsidiaries. All significant intercompany transactions are eliminated. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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 these estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. Revenues and expenses under these agreements were insignificant during 1997; such revenues and expenses totaled $35,877 and $36,945, respectively during 1996 and $29,807 and $32,926, respectively during 1995. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its accounts receivable. The Company maintains reserves for potential credit losses based upon the expected collectibility of all accounts receivable. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using an accelerated method over the estimated useful lives of the property and equipment, ranging from 3 to 39 years. F-173 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include FCC licenses, non-compete agreements, organizational costs and goodwill. Intangible assets are recorded at cost and amortized over their respective estimated useful lives. Amortization is calculated using the straight-line method over a 15-year life. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. 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 amount at each year-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 total of taxes payable for the period and the change during the period in deferred tax assets and liabilities. The Company files separate federal and state income tax returns. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments, including cash, accounts receivable, accounts payable and long-term debt, approximate fair value. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of managment, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITIONS: On July 15, 1997, the Company acquired KKGB-FM for $2,175,000 consisting of cash of $550,000 and the issuance of a note payable of $1,625,000. The purchase price was allocated to property and equipment ($115,798), intangibles ($1,959,202) and a covenant not to compete ($100,000). On August 21, 1996, the Company acquired KBIU-FM and KXZZ-AM for $1,500,000 consisting of cash of $500,000 and the issuance of a note payable of $1,000,000. The purchase price was allocated to property and equipment ($59,411) and intangibles ($1,440,589). The Company operated these stations under a local marketing agreement from February 1, 1996 to the acquisition date. The unaudited 1997 and 1996 pro forma results of operations for these acquisitions are shown below. The pro forma information was prepared as if the acquisitions occurred at the beginning of each year. The F-174 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. ACQUISITIONS: (CONTINUED) pro forma results may not be indicative of the results that would have been reported if the transaction had actually occurred at the beginning of each year presented, or of results that may be attained in the future.
1997 1996 ------------ ------------ Net revenues...................................................... $ 3,311,427 $ 3,039,657 Income from operations............................................ 106,778 145,424 Net loss.......................................................... (692,283) (638,981)
The acquisitions discussed above were accounted for as purchases. Accordingly, the accompanying consolidated financial statements include the results of operations of the acquired entities from the dates of acquisition. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Broadcasting towers and equipment................................ $ 356,802 $ 221,290 Buildings........................................................ 678,118 106,000 Office furniture and equipment................................... 42,525 33,524 ------------ ------------ 1,077,445 360,814 Accumulated depreciation......................................... (153,669) (107,036) ------------ ------------ 923,776 253,778 Land............................................................. 132,284 116,498 ------------ ------------ Property and equipment, net...................................... $1,056,060 $ 370,276 ------------ ------------ ------------ ------------
Depreciation expense for 1997, 1996 and 1995 was $46,633, $57,307 and $36,713, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ FCC licenses and goodwill........................................ $6,982,791 $5,023,589 Noncompete and organizational costs.............................. 179,193 79,193 ------------ ------------ 7,161,984 5,102,782 Accumulated amortization......................................... (1,085,397) (738,213) ------------ ------------ Intangible assets, net........................................... $6,076,587 $4,364,569 ------------ ------------ ------------ ------------
Amortization expense for 1997, 1996 and 1995 was $347,184, $311,333 and $399,353, respectively. F-175 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES The Company's effective income tax rate differs from the statutory federal income tax rate as a follows:
% OF % OF % OF 1997 PRE-TAX 1996 PRE-TAX 1995 PRE-TAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ----------- ----------- ---------- ----------- ---------- ----------- Income tax benefit at federal statutory rate................................. $ (186,421) (34.0) $ (90,953) (34.0) $ (82,875) (34.0) State income taxes (net of federal benefit)............................. (14,475) (2.6) (6,955) (2.6) (6,435) (2.6) Other nondeductible items.............. 1,428 0.3 1,400 0.5 1,962 0.8 Minority interest expense.............. 41,371 7.5 18,507 6.9 -- -- Change in valuation allowance.......... 158,097 28.8 78,001 29.2 87,348 35.8 ----------- ----- ---------- ----- ---------- ----- $ -- -- $ -- -- $ -- -- ----------- ----- ---------- ----- ---------- ----- ----------- ----- ---------- ----- ---------- -----
Significant components of the deferred tax asset (liabilities) are as follows:
1997 1996 ---------- ---------- Deferred tax assets (liabilities): Net operating loss carryforwards.................................... $ 329,316 $ 185,694 Allowance for doubtful accounts..................................... 5,100 5,100 Other items......................................................... 27,865 13,390 ---------- ---------- Net deferred tax asset.............................................. 362,281 204,184 ---------- ---------- Less valuation allowance............................................ (362,281) (204,184) ---------- ---------- Total net deferred tax asset........................................ $ -- $ -- ---------- ---------- ---------- ----------
The net deferred tax asset at December 31, 1997 and 1996 is fully offset by a valuation allowance. The amount of the valuation allowance is reviewed periodically by management and is determined based on management's assessment of the Company's ability to generate future taxable income and realize the tax benefits associated with the deferred tax assets. Net operating losses expire as follows: 2009.............................................................. $ 114,158 2010.............................................................. 238,040 2011.............................................................. 193,962 2012.............................................................. 422,417 --------- $ 968,577 --------- ---------
F-176 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. LONG-TERM DEBT: Debt consists of the following:
1997 1996 ------------ ------------ Note payable to former owner of KYKZ at 9.4%, payable in monthly installments through February 2011.............................. $ 3,616,798 $ 3,748,468 Note payable to former owner under non-compete agreement; payable in monthly installments of $1,110 through 2010.................. 100,000 -- Note payable at 9.55%, due December 1998.......................... 71,144 27,847 Note payable at 8.625%, secured by certain assets of the Company, due December 2001............................................... 546,617 50,263 Note payable to former owner of KBIU and KXZZ at 8%, due August 2001............................................................ 787,656 848,313 Note payable to former owner of KKGB at 8.5%, due September 2009............................................................ 1,598,609 -- Notes payable upon demand to stockholders at rates ranging from 12% to 18%...................................................... 725,000 53,000 Capital lease obligation, due in monthly installments of $476 through November 2000........................................... 16,199 -- ------------ ------------ 7,462,023 4,727,891 Less: Current portion of long-term debt........................... (1,266,429) (245,174) ------------ ------------ $ 6,195,594 $ 4,482,717 ------------ ------------ ------------ ------------
Maturities of debt are as follows:
YEAR ENDING DECEMBER 31 AMOUNT - -------------------------------------------------------------------------------- ------------ 1998............................................................................ $ 1,266,429 1999............................................................................ 490,071 2000............................................................................ 510,765 2001............................................................................ 1,020,178 2002............................................................................ 465,281 Thereafter...................................................................... 3,709,299 ------------ $ 7,462,023 ------------ ------------
7. RELATED PARTY TRANSACTIONS: The Company paid management fees to a related party of $120,711 and $127,290 during 1997 and 1996, respectively. 8. STOCKHOLDERS' EQUITY: In December 1997, the 10,000 issued and outstanding voting shares of convertible preferred stock were converted to 11,000 shares of the Company's common stock at a conversion price $15.91 per share. In February 1998, the Company repurchased 10,000 shares of common stock for $147,502 in cash. In January 1996, the Company repurchased 5,000 shares of common stock for $79,063 in cash. These F-177 LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. STOCKHOLDERS' EQUITY: (CONTINUED) repurchases were made under stock purchase agreements by and bewteen certain stockholders and the Company at a price mutually agreed to by both parties. 9. PREFERRED STOCK OF SUBSIDIARY: In July 1996, KBIU Acquisition, Inc., a subsidiary of the Company, issued 96,572 shares of preferred stock for $676,000 in cash in connection with the acquisition of KBIU-FM. Dividends on the preferred stock are payable by the Company at an annual rate of 10% on a quarterly basis plus 8% cumulative at redemption and are reported as minority interest in the statements of operations. The preferred stock has a stated redemption value equal to the original par value of the stock plus accrued but unpaid dividends. Unpaid dividends payable upon redemption of the stock were $72,000 and $18,000 at December 31, 1997 and 1996, respectively. The Company has the right to repurchase the stock at any time after July 18, 1999 but prior to July 18, 2001 at which time the stated redemption value plus accrued dividends must be paid. 10. LEASES: The Company leases certain equipment under various operating leases. Rent expense under operating leases for 1997, 1996 and 1995 was $78,058, $34,447 and $29,832, respectively. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997, are as follows:
PAYMENT --------- 1998............................................................................... $ 77,660 1999............................................................................... 77,660 2000............................................................................... 77,660 2001............................................................................... 61,570 2002............................................................................... 32,863
11. STOCK COMPENSATION: During 1997 and 1996, the Company awarded common stock to a stockholder and an employee for services rendered. Participants are fully vested in the shares issued at date of grant which totaled 4,500 during 1997, 1,000 of which were issued in both January and December 1997 and 2,500 shares were issued in October 1997. The Company recognized compensation expense of $278,040 and $20,000, for the years ended December 31, 1997 and 1996, respectively, representing the estimated fair value of the shares awarded at the date of grant. 12. SALE OF STOCK: In February 1998, the Company and its stockholders entered into an agreement with Cumulus Media Inc. ("Cumulus") to sell all of the issued and outstanding stock of the Company, subject to approval of the Federal Communications Commission, to Cumulus for $14,848,000. F-178 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of M&M Partners (the "Partnership") at November 30, 1997 and December 31, 1996, and the results of its operations and its cash flows for the eleven months ended November 30, 1997, and for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 24, 1998 F-179 M&M PARTNERS BALANCE SHEETS (DOLLARS IN 000'S)
NOVEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------- ASSETS Current assets: Cash and cash equivalents.......................................................... $ 171 $ 144 Accounts receivable, less allowance for doubtful accounts of $25..................................................... 689 386 Deposit on broadcast property...................................................... 100 -- Prepaid and other current assets................................................... 11 3 ------ ------ Total current assets........................................................... 971 533 ------ ------ Property and equipment, net.......................................................... 573 589 Intangible assets, net............................................................... 2,336 2,641 ------ ------ Total assets................................................................... $ 3,880 $ 3,763 ------ ------ ------ ------ LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued liabilities........................................... $ 111 $ 45 Related party notes payable........................................................ -- 1,245 Current portion of notes payable................................................... 100 1,432 ------ ------ Total current liabilities...................................................... 211 2,722 Commitments and contingencies Notes payable........................................................................ -- 100 ------ ------ Total liabilities.............................................................. 211 2,822 ------ ------ Partners' capital.................................................................... 3,669 941 ------ ------ Total liabilities and partners' capital........................................ $ 3,880 $ 3,763 ------ ------ ------ ------
See Notes to Financial Statements. F-180 M&M PARTNERS STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
FOR THE ELEVEN FOR THE YEAR FOR THE YEAR MONTHS ENDED ENDED ENDED NOVEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 --------------- ------------- ------------- Revenues........................................................... $ 3,295 $ 2,332 $ 1,531 Less: agency commissions........................................... (354) (264) (177) ------ ------ ------ Net revenues................................................. 2,941 2,068 1,354 Operating expenses: Programming...................................................... 554 401 238 Sales and promotions............................................. 375 247 152 Technical........................................................ 21 21 16 General and administrative....................................... 789 702 429 Trade............................................................ 526 238 108 Time brokerage fees.............................................. 70 48 -- Depreciation and amortization.................................... 485 335 222 ------ ------ ------ Total operating expenses..................................... 2,820 1,992 1,165 ------ ------ ------ Income from operations............................................. 121 76 189 Interest expense, net.............................................. (114) (118) (152) Other income....................................................... 2 2 8 ------ ------ ------ Net income (loss)............................................ $ 9 $ (40) $ 45 ------ ------ ------ ------ ------ ------
See Notes to Financial Statements. F-181 M&M PARTNERS STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DOLLARS IN 000'S) Balance at December 31, 1994........................................................ $ 71 Partner contribution................................................................ 478 Net income.......................................................................... 45 --------- Balance at December 31, 1995........................................................ 594 Partner contribution................................................................ 672 Partner withdrawal.................................................................. (285) Net loss............................................................................ (40) --------- Balance at December 31, 1996........................................................ 941 Partner contribution................................................................ 2,898 Partner withdrawal.................................................................. (179) Net income.......................................................................... 9 --------- Balance at November 30, 1997........................................................ $ 3,669 --------- ---------
See Notes to Financial Statements. F-182 M&M PARTNERS STATEMENTS OF CASH FLOWS (DOLLARS IN 000'S)
FOR THE ELEVEN FOR THE YEAR FOR THE YEAR MONTHS ENDED ENDED ENDED NOVEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 --------------- ------------- ------------- Cash flows from operating activities: Net income (loss)................................................ $ 9 $ (40) $ 45 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................................ 485 335 222 Increase in accounts receivable.............................. (303) (93) (58) Increase in prepaid and other current assets................. (8) -- -- Increase in accounts payable and accrued liabilities......... 66 8 26 ------ ------ ------ Net cash provided by operating activities.................. 249 210 235 ------ ------ ------ Cash flows from investing activities: Acquisitions of broadcast properties............................. (35) (2,000) -- Deposit on broadcast property.................................... (100) -- -- Purchases of property and equipment.............................. (129) (3) (73) ------ ------ ------ Net cash used in investing activities...................... (264) (2,003) (73) ------ ------ ------ Cash flows from financing activities: Proceeds from related party note payable......................... -- 1,245 68 Payments of related party note payable........................... (1,245) (56) -- Proceeds from notes payable...................................... -- 254 -- Payments of notes payable........................................ (1,432) -- (603) Partner contributions............................................ 2,898 672 478 Partner withdrawal............................................... (179) (285) -- ------ ------ ------ Net cash provided by (used in) investing activities........ 42 1,830 (57) ------ ------ ------ Net increase in cash and cash equivalents.......................... 27 37 105 Cash and cash equivalents at beginning of year..................... 144 107 2 ------ ------ ------ Cash and cash equivalents at end of year........................... $ 171 $ 144 $ 107 ------ ------ ------ ------ ------ ------ Supplemental disclosures of cash flow information: Cash paid for interest........................................... $ 114 $ 118 $ 152 ------ ------ ------ ------ ------ ------ Non-cash operating activities: Trade revenue.................................................... $ 523 $ 238 $ 108 ------ ------ ------ Trade expense.................................................... $ 526 $ 238 $ 108 ------ ------ ------ ------ ------ ------
See Notes to Financial Statements. F-183 M&M PARTNERS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: M&M Partners (The "Partnership") was organized for the purpose of owning and operating radio broadcasting stations in and around Columbus, Georgia. The Partnership consists of two general partner interests whose ownership interests are allocated 99% and 1%, respectively. Until January 6, 1998, the Partnership owned and operated four stations WVRK-FM, WPNX-AM, WMLF-AM and WGSY-FM (the "Stations") and operated one station, WAGH-FM, under a time brokerage agreement ("TBA"). The Partnership has placed $100 on deposit with the licensor of WAGH-FM pending completion of a stock purchase agreement between the parties. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated using accelerated methods over their estimated useful lives as follows: Buildings.................................................... 31.5 years Broadcasting towers and equipment............................ 5-6 years Office furniture and equipment............................... 5-10 years Leasehold improvement........................................ Term of lease
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets consist of FCC licenses which are stated at cost and amortized using the straight-line method over 15 years. The Partnership evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. F-184 M&M PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INCOME TAXES Income or loss of the Partnership is included in the tax returns of the individual partners. Accordingly, federal income taxes are not recognized by the Partnership. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TIME BROKERAGE The Partnership operates station WAGH-FM under a TBA whereby the stations' operating revenues and expenses are controlled by the Partnership and, accordingly, are reflected in the Partnership's financial statements over the term of the TBA. A TBA fee is paid to the licensee of the station on a monthly basis. TRADE AGREEMENTS The Partnership enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Partnership uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. ACQUISITIONS: In March 1997, the Partnership acquired station WMLF-AM licensed to Columbus, Georgia for approximately $35 in total consideration. In July 1996, the Partnership acquired station WGSY-FM licensed to Phoenix City, Alabama for $1,950 in total consideration. The acquisitions were accounted for using the purchase method of accounting. The Partnership's results of operations for the eleven months ended November 30, 1997 and for the year ended December 31, 1996 include the results of operations of WGSY-FM and WMLF-AM from their respective dates of acquisition. The following unaudited pro forma statement of operations data give effect to the acquisitions as if they had occurred on January 1, 1996. In addition, depreciation and amortization F-185 M&M PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 2. ACQUISITIONS: (CONTINUED) has been increased each period to reflect initial purchase price allocations as if the acquisitions had occurred on January 1, 1996.
PRO FORMA ------------------------------ FOR THE ELEVEN MONTHS FOR THE ENDED YEAR ENDED NOVEMBER 30, DECEMBER 31, 1997 1996 --------------- ------------- (UNAUDITED) Net revenues.................................................... $ 2,946 $ 2,486 ------ ------ ------ ------ Income from operations.......................................... $ 121 $ 181 ------ ------ ------ ------ Net income...................................................... $ 9 $ 32 ------ ------ ------ ------
3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
NOVEMBER 30, DECEMBER 31, 1997 1996 --------------- --------------- Buildings........................................................ $ 241 $ 241 Broadcasting towers and equipment................................ 659 616 Office furniture and equipment................................... 307 189 Leasehold improvements........................................... 70 70 ----- ----- 1,277 1,116 Accumulated depreciation......................................... (731) (554) Land............................................................. 27 27 ----- ----- Property and equipment, net...................................... $ 573 $ 589 ----- ----- ----- -----
Depreciation expense for the periods ended November 30, 1997 and December 31, 1996 and 1995 was $177, $91 and $25, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
NOVEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------- FCC licenses..................................................... $ 4,623 $ 4,620 Accumulated amortization......................................... (2,287) (1,979) ------ ------ Intangible assets, net........................................... $ 2,336 $ 2,641 ------ ------ ------ ------
Amortization expense for the periods ended November 30, 1997 and December 31, 1996 and 1995 was $308, $244 and $197, respectively. F-186 M&M PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 5. RELATED PARTY TRANSACTIONS: JTM, Inc., which is under common ownership, provides accounting and payroll services to the Partnership in exchange for advertising time for other businesses operated by JTM, Inc. The value of these transactions, which are recorded as trade revenue and trade expense, were approximately $16.5 for the eleven months ended November 30, 1997 and $18 for the years ended December 31, 1996 and 1995. The majority partner provides space for radio broadcasting facilities for which rent expense is allocated based on the estimated fair value of rental expense for similar facilities. Rent allocations included in expense were $73, $51 and $46 for the eleven months ended November 30, 1997 and the two years ended December 31, 1996 and 1995.
NOVEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------- Related party note payable, interest accrues at the applicable short-term federal rate prescribed by the Internal Revenue Service with the balance of principal and interest due upon demand......................................................... $ -- $ 1,245 ------ ------ ------ ------
6. NOTES PAYABLE Notes payable consist of the following:
NOVEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------- Line of credit loan, interest at prime (8.5% at November 30, 1997), principal and interest payments due monthly.............................. $ 50 $ 804 Line of credit loan, interest at prime (8.5% at November 30, 1997), principal and interest payments due monthly.............................. 50 728 ------ ------ Less current maturities.......................................... 100 1,532 (100) (1,432) ------ ------ $ - $ 100 ------ ------ ------ ------
7. COMMITMENTS AND CONTINGENCIES The Partnership is involved from time to time in various other claims and lawsuits which arise in the ordinary course of business. The Partnership is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its financial position, results of operations or cash flows. The Partnership incurred expenses of approximately $28, $20 and $15, respectively for the eleven months ended November 30, 1997 and the two years ended December 31, 1996 and 1995 under operating leases for equipment and broadcast towers and a time brokerage arrangement. Future minimum annual F-187 M&M PARTNERS NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) payments under these non-cancelable operating leases and agreements as of November 30, 1997, are as follows: 1998.................................................................. $ 30 1999.................................................................. 5 --- $ 35 --- ---
8. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short term nature. The fair value of notes payable are estimated based on current market rates and approximate the carrying value. 9. SUBSEQUENT EVENTS On January 6, 1998, the assets of the Partnership were sold to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) for $12.75 million. F-188 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Midland Broadcasters, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Chicago, Illinois May 12, 1998 F-189 MIDLAND BROADCASTERS, INC. BALANCE SHEETS
DECEMBER 31, MARCH 31, -------------------------- 1998 1997 1996 ------------ ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................. $ 265,189 $ 205,723 $ 81,364 Accounts receivable, less allowance for doubtful accounts of $30,000, $30,000 and $26,000, respectively................................... 420,521 391,343 343,890 Receivable from shareholder and related party......................... 19,561 20,230 35,391 Prepaid expenses and other current assets............................. 31,427 6,456 4,343 ------------ ------------ ------------ Total current assets.............................................. 736,698 623,752 464,988 Property and equipment, net............................................. 688,271 708,403 770,783 Intangible assets, net of accumulated amortization of $109,916, $100,032 and $60,498 respectively.............................................. 483,101 492,985 532,519 ------------ ------------ ------------ Total assets...................................................... $ 1,908,070 $ 1,825,140 $ 1,768,290 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt..................................... $ 75,652 $ 113,259 $ 81,449 Accounts payable...................................................... 79,603 35,559 27,208 Accrued wages and commissions......................................... 107,246 101,456 90,430 Accrued and other current liabilities................................. 53,888 37,113 19,618 ------------ ------------ ------------ Total current liabilities............................................. 316,389 287,387 218,705 Long-term debt.......................................................... 813,048 817,779 950,434 ------------ ------------ ------------ Total liabilities................................................. 1,129,437 1,105,166 1,169,139 ------------ ------------ ------------ Commitments and contingent liabilities.................................. -- -- -- Stockholders' equity: Common stock, $100 par value, 10,000 shares authorized, 601 issued and outstanding.......................................... 60,100 60,100 60,100 Additional paid-in capital............................................ 99,001 99,001 99,001 Retained earnings..................................................... 619,532 560,873 440,050 ------------ ------------ ------------ Total stockholders' equity........................................ 778,633 719,974 599,151 ------------ ------------ ------------ Total liabilities and stockholders' equity........................ $ 1,908,070 $ 1,825,140 $ 1,768,290 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-190 MIDLAND BROADCASTERS, INC. STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31, ---------------------- ---------------------------------------- 1998 1997 1997 1996 1995 ---------- ---------- ------------ ------------ ------------ (UNAUDITED) Revenues....................................... $ 740,540 $ 757,883 $ 3,206,055 $ 2,853,570 $ 2,567,786 Less: agency commissions....................... (66,990) (69,534) (286,605) (248,813) (228,924) ---------- ---------- ------------ ------------ ------------ Net revenues............................... 673,550 688,349 2,919,450 2,604,757 2,338,862 ---------- ---------- ------------ ------------ ------------ Operating expenses: Programming and promotions................... 197,765 193,190 917,724 867,754 678,529 Sales........................................ 145,225 147,377 686,589 626,850 576,668 Technical.................................... 11,262 8,954 38,091 34,123 45,442 General and administrative................... 174,033 156,665 834,052 685,775 610,220 Depreciation and amortization................ 45,305 49,771 211,560 209,228 132,100 ---------- ---------- ------------ ------------ ------------ Total operating expenses................. 573,590 555,957 2,688,016 2,423,730 2,042,959 ---------- ---------- ------------ ------------ ------------ Income from operations......................... 99,960 132,392 231,434 181,027 295,903 Interest expense............................... 21,116 23,131 88,586 104,724 60,802 Interest income................................ (2,315) (1,055) (6,438) (4,215) (6,839) ---------- ---------- ------------ ------------ ------------ Net income..................................... $ 81,159 $ 110,316 $ 149,286 $ 80,518 $ 241,940 ---------- ---------- ------------ ------------ ------------ ---------- ---------- ------------ ------------ ------------
See Notes to Financial Statements. F-191 MIDLAND BROADCASTERS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL --------- ---------- ----------- ----------- Balance at January 1, 1995...................................... $ 60,100 $ 99,001 $ 437,823 $ 596,924 Net income...................................................... 241,940 241,940 Dividends....................................................... (195,876) (195,876) --------- ---------- ----------- ----------- Balance at December 31, 1995.................................... 60,100 99,001 483,887 642,988 Net income...................................................... 80,518 80,518 Dividends....................................................... (124,355) (124,355) --------- ---------- ----------- ----------- Balance at December 31, 1996.................................... 60,100 99,001 440,050 599,151 Net income...................................................... 149,286 149,286 Dividends....................................................... (28,463) (28,463) --------- ---------- ----------- ----------- Balance at December 31, 1997.................................... $ 60,100 $ 99,001 $ 560,873 $ 719,974 --------- ---------- ----------- ----------- --------- ---------- ----------- -----------
See Notes to Financial Statements. F-192 MIDLAND BROADCASTERS, INC. STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS FOR THE YEAR ENDED MARCH 31, ENDED DECEMBER 31, ----------------------- --------------------------------------- 1998 1997 1997 1996 1995 ----------- ---------- ----------- ----------- ------------- (UNAUDITED) Cash flows from operating activities: Net income................................... $ 81,159 $ 110,316 $ 149,286 $ 80,518 $ 241,940 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............. 45,305 49,771 211,560 209,228 132,100 (Increase) decrease in accounts receivable............................... (29,178) (97,804) (47,453) 142,099 (193,154) Decrease in shareholder receivable......... 669 1,790 15,161 4,130 119,275 (Increase) decrease in prepaid expenses and other assets............................. (24,970) (27,215) (2,113) 3,235 (3,252) Increase (decrease) in accounts payable.... 44,042 39,307 8,351 (38,295) 43,812 Increase (decrease) in accrued and other liabilities.............................. 21,146 42,433 28,521 (47,113) 90,676 ----------- ---------- ----------- ----------- ------------- Net cash provided by operating activities.... 138,173 118,598 363,313 353,802 431,397 ----------- ---------- ----------- ----------- ------------- Cash flows from investing activities: Purchases of property and equipment.......... (23,679) (51,631) (121,574) (240,064) (380,659) Proceeds from sale of assets................. 8,390 8,554 11,928 45,662 73,280 Acquisition of KDVV-FM....................... -- -- -- -- (725,000) Acquisition of other stations................ -- -- -- -- (75,000) ----------- ---------- ----------- ----------- ------------- Cash used for investing activities........... (15,289) (43,077) (109,646) (194,402) (1,107,379) ----------- ---------- ----------- ----------- ------------- Cash flows from financing activities: Proceeds from borrowings..................... 35 6,827 6,827 185,727 989,349 Repayment of long-term obligations........... (40,953) (30,863) (107,672) (208,940) (136,931) Dividends paid............................... (22,500) -- (28,463) (124,355) (195,876) Payment of note to shareholder............... -- -- -- -- (109,453) ----------- ---------- ----------- ----------- ------------- Cash used for financing activities........... (63,418) (24,036) (129,308) (147,568) 547,089 ----------- ---------- ----------- ----------- ------------- Increase (decrease) in cash and cash equivalents.................................. 59,466 51,485 124,359 11,832 (128,893) Cash and cash equivalents at beginning of period....................................... 205,723 81,364 81,364 69,532 198,425 ----------- ---------- ----------- ----------- ------------- Cash and cash equivalent at end of period...... $ 265,189 $ 132,849 $ 205,723 $ 81,364 $ 69,532 ----------- ---------- ----------- ----------- ------------- ----------- ---------- ----------- ----------- ------------- Supplemental disclosure of cash information: Cash paid for interest....................... $ 21,116 $ 23,131 $ 88,586 $ 104,724 $ 60,802 ----------- ---------- ----------- ----------- ------------- ----------- ---------- ----------- ----------- ------------- Non-cash operating and financing activities: Trade revenue................................ $ 37,933 $ 58,296 $ 303,893 $ 284,557 $ 229,064 ----------- ---------- ----------- ----------- ------------- ----------- ---------- ----------- ----------- ------------- Trade expense................................ ($ 30,343) ($ 27,080) ($ 303,859) ($ 274,278) ($ 173,760) ----------- ---------- ----------- ----------- ------------- ----------- ---------- ----------- ----------- ------------- Trade acquisition of assets.................. ($ 2,374) ($ 6,263) ($ 31,845) ($ 43,021) ($ 70,400) ----------- ---------- ----------- ----------- ------------- ----------- ---------- ----------- ----------- -------------
See Notes to Financial Statements. F-193 MIDLAND BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Midland Broadcasters, Inc. (the "Company") owns and operates radio stations KMAJ-AM, KMAJ-FM, KDVV-FM and KTOP-AM located in Topeka, Kansas. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are capitalized or expensed, respectively, when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its accounts receivable. The Company reserves for potential credit losses based upon the expected collectibility of all accounts receivable. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, F-194 MIDLAND BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) are capitalized at cost and depreciated using accelerated methods over their estimated useful lives as follows: Broadcasting towers and equipment............................... 5-15 years Buildings....................................................... 15-39 years Office furniture and equipment.................................. 5-7 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets primarily include goodwill and FCC licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over estimated useful lives of 15 years. Amortization expense was $39,534, $39,535 and $20,963 in 1997, 1996 and 1995, respectively. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company's shareholders elected S Corporation status. In lieu of corporate income taxes, the Company's taxable income or loss is reported by its shareholders. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITION In June 1995, the Company acquired KDVV-FM in Topeka, Kansas for $725,000 in cash. The purchase price was allocated to property and equipment ($321,323) and intangibles ($403,677). The acquisition was accounted for as a purchase. Accordingly, the accompanying financial statements include the results of operations of the acquired entity from the date of the acquisition. Had this Company been acquired at the beginning of the year, the results of operations would have not changed materially. F-195 MIDLAND BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Broadcasting towers and equipment.......................................... $ 851,085 $ 785,920 Buildings.................................................................. 250,198 239,820 Automobiles................................................................ 99,709 99,709 Office furniture and equipment............................................. 274,394 247,717 ------------ ------------ 1,475,386 1,373,166 Accumulated depreciation................................................... (871,909) (707,309) ------------ ------------ 603,477 665,857 Land....................................................................... 104,926 104,926 ------------ ------------ Property and equipment, net................................................ $ 708,403 $ 770,783 ------------ ------------ ------------ ------------
Depreciation expense for 1997, 1996 and 1995 was $172,026, $169,693 and $111,137, respectively. 4. RELATED PARTY TRANSACTIONS: In June 1995, the Company sold KMAJ-AM to FR Corporation (a related party) for $50,000. FR Corporation also acquired KTOP-AM in June 1995 from an unrelated party for $25,000 in cash. In October 1995, FR Corporation sold KMAJ-AM and KTOP-AM to the Company for $75,000 and then ceased operations. The Company and FR Corporation were operated independently during the period June 1995 to October 1995. The financial statements of the Company include the operations of KMAJ-AM, KDVV-FM and KTOP-AM only for the periods they were owned by the Company, and thus do not include the results of operations of KMAJ-AM and KTOP-AM during the time they were operated by FR Corporation. Revenues of FR Corporation were $158,880 (unaudited) and net loss was $2,001 (unaudited) for the five month operations of KMAJ-AM and KTOP-AM. In November 1995, the Company purchased from a related party land and real property for $195,000. F-196 MIDLAND BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997 and 1996:
BANK LOANS: 1997 1996 - ------------------------------------------------------------------------------ ---------- ------------ NationsBank, principal amount of $740,000, with monthly payments of $9,525 (including principal and interest) with final payment due December 2005. The interest rate is Topeka Base rate plus 0.75%, which resulted in 8.75% at December 31, 1997........................................................... $ 617,964 $ 679,491 NationsBank, principal amount of $75,000, with monthly payments of $1,612 (including principal and interest) with final payment due June 12, 2000. The interest rate is 10.5% fixed................................................ 35,779 54,836 NationsBank, principal amount of $29,881, with monthly payments of $725 (including principal and interest) with final payment due August 27, 2000.The interest rate is 7.59% fixed....................................... 22,257 28,269 Capitol Federal Savings, principal amount of $263,500, with monthly payments of $2,634 (including principal and interest) with final payment due November 10, 2010.The interest rate is 8.75% fixed.This note is collateralized by a mortgage on part of the Company's real property............................. 244,894 254,602 Santa Fe Credit Union, principal amount of $15,451 with monthly payments of $500 (including principal and interest). The interest rate 8.25% fixed.This note is collateralized by an automobile owned by the Company................ 10,144 14,685 ---------- ------------ Long term debt................................................................ 931,038 1,031,883 Less: current maturities...................................................... 113,259 81,449 ---------- ------------ $ 817,779 $ 950,434 ---------- ------------ ---------- ------------
The notes with NationsBank are collateralized by substantially all of the assets of the Company and a pledge of stock and personal guaranty by the majority stockholder. The note with Santa Fe Credit Union was paid in full in March, 1998 in advance of its original maturity. As of December 31, 1997, the Company had no additional available credit lines. Long term debt expires as follows: 1998.............................................................. $ 113,259 1999.............................................................. 112,748 2000.............................................................. 95,468 2001.............................................................. 96,371 2002.............................................................. 105,150 Thereafter........................................................ 408,042 --------- $ 931,038 --------- ---------
F-197 MIDLAND BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short maturity of these instruments. The carrying amount of notes payable approximates fair value based on current market rates. 7. CONTINGENCIES The Company is the guarantor of a note dated May 20, 1997 in the original amount of $505,993 between Nations Bank and Frederick P. Reynolds, Jr., current controlling stockholder. 8. SUBSEQUENT EVENT In April 1998, the Company signed a letter of intent with Cumulus Media Inc. to sell the assets of the Company. F-198 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheets and the related combined statements of income and retained earnings and of cash flows present fairly, in all material respects, the combined financial position of The Midwestern Broadcasting Company's radio stations, WWWM-FM and WLQR-AM at October 31, 1997 and December 31, 1996, and the results of their operations and their cash flows for the period January 1, 1997 to October 31, 1997 and for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Toledo, Ohio February 11, 1998 F-199 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM COMBINED BALANCE SHEETS
OCTOBER 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.......................................................... $ 310,134 $ 95,279 Marketable securities, at fair value............................................... 303,546 544,510 Trade accounts receivable, less allowance of $10,000 in 1997 and $10,000 in 1996... 593,249 397,661 Amounts due from related parties................................................... 63,431 170,722 Amount due from shareholders....................................................... 79,500 37,620 Prepaid expenses................................................................... 10,431 25,615 Income tax receivable.............................................................. 7,177 7,750 Interest receivable................................................................ 5,018 ------------ ------------ Total current assets........................................................... 1,367,468 1,284,175 Property and equipment: Land and land improvements......................................................... 85,040 85,040 Buildings and leasehold improvements............................................... 168,510 153,028 Transmitter, towers, antenna system, and other equipment........................... 307,821 313,751 Furniture and fixtures............................................................. 160,409 159,418 Automobiles and other vehicles..................................................... 54,858 54,858 ------------ ------------ 776,638 766,095 Less accumulated depreciation...................................................... 550,705 522,117 ------------ ------------ 225,933 243,978 ------------ ------------ $ 1,593,401 $1,528,153 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the combined financial statements. F-200 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM COMBINED BALANCE SHEETS
OCTOBER 31, DECEMBER 31, 1997 1996 ------------ ------------ LIABILITIES AND STATIONS' EQUITY Current liabilities: Accounts payable and accrued expenses.............................................. $ 15,860 $ 71,084 Amounts due to affiliates.......................................................... 470,951 426,566 Employees' compensation, payroll taxes, and commissions............................ 83,761 83,292 Income taxes....................................................................... 9,800 418 Current maturities of long-term liabilities........................................ 4,539 4,389 Deferred barter revenue............................................................ 89,055 86,882 ------------ ------------ Total current liabilities...................................................... 673,966 672,631 Long-term liabilities: Notes payable to bank.............................................................. 36,863 38,003 Capital lease obligations.......................................................... 12,355 15,349 ------------ ------------ 49,218 53,352 Less current maturities............................................................ 4,539 4,389 ------------ ------------ 44,679 48,963 Stations' equity: Contributed equity................................................................. 105,702 105,702 Retained earnings.................................................................. 769,054 700,857 ------------ ------------ 874,756 806,559 ------------ ------------ $ 1,593,401 $1,528,153 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the combined financial statements. F-201 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD YEAR ENDED JANUARY 1, TO DECEMBER 31, OCTOBER 31, -------------------------- 1997 1996 1995 --------------- ------------ ------------ Operating revenues: Local announcements............................................... $ 1,234,931 $ 1,561,720 $ 1,893,321 Regional announcements............................................ 618,134 545,996 797,467 Barter revenue.................................................... 172,656 239,395 333,300 National announcements............................................ 454,405 342,953 403,487 Remotes........................................................... 37,111 39,779 105,195 Political announcements........................................... 4,206 Other............................................................. 446 6,957 --------------- ------------ ------------ 2,517,237 2,734,495 3,539,727 Less: agency and national representative commissions.............. 279,227 317,038 408,451 --------------- ------------ ------------ 2,238,010 2,417,457 3,131,276 --------------- ------------ ------------ Operating costs and expenses: Engineering....................................................... 110,848 117,195 91,620 Production........................................................ 443,054 647,557 717,461 Selling........................................................... 560,613 619,285 781,565 General and administrative........................................ 626,268 825,500 825,606 --------------- ------------ ------------ 1,740,783 2,209,537 2,416,252 --------------- ------------ ------------ Other income (expense): Investment income................................................. 13,070 31,556 27,938 Interest expense.................................................. (4,573) (5,992) (4,180) Miscellaneous..................................................... (18,788) (7,941) (877) --------------- ------------ ------------ (10,291) 17,623 22,881 --------------- ------------ ------------ Income before local income taxes.................................... 486,936 225,543 737,905 Provision for local income taxes.................................... 9,800 6,000 16,000 --------------- ------------ ------------ Net income.......................................................... 477,136 219,543 721,905 Retained earnings at beginning of year.............................. 700,857 716,705 347,768 Dividends and distributions......................................... (408,939) (235,391) (352,968) --------------- ------------ ------------ Retained earnings at end of year.................................... $ 769,054 $ 700,857 $ 716,705 --------------- ------------ ------------ --------------- ------------ ------------
The accompanying notes are an integral part of the combined financial statements. F-202 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD YEAR ENDED JANUARY 1, TO DECEMBER 31, OCTOBER 31, ---------------------- 1997 1996 1995 --------------- ---------- ---------- Cash flows from operating activities Net income.............................................................. $ 477,136 $ 219,543 $ 721,905 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................... 49,678 53,510 37,326 Provision for losses on accounts receivable........................... 20,084 Interest income from marketable securities............................ (906) Loss on disposal of property, plant and equipment..................... 995 Barter revenue........................................................ (172,656) (239,395) (333,300) Barter expense........................................................ 174,829 187,317 277,828 Changes in operating assets and liabilities: Trade accounts and other receivables.................................. (189,997) 233,534 (74,890) Amounts due related parties and shareholders.......................... (36,917) (121,408) (26,683) Intercompany payable/receivable....................................... 146,713 (71,876) 5,287 Prepaid expenses...................................................... 15,184 (6,304) (5,259) Other assets.......................................................... 3,250 873 Accounts payable and accrued expenses................................. (45,373) (28,516) (12,556) --------------- ---------- ---------- Net cash provided by operating activities............................... 418,686 229,655 610,615 --------------- ---------- ---------- Cash flows from investing activities Purchases of property and equipment................................... (32,628) (51,176) (111,503) Sales (purchases) of marketable securities, net....................... 241,870 (544,510) --------------- ---------- ---------- Net cash provided by (used in) investing activities..................... 209,242 (595,686) (111,503) --------------- ---------- ---------- Cash flows from financing activities Principal payments on note payable to bank and capital lease obligations........................................................... (4,134) (1,366) (631) Proceeds from issuance of debt.......................................... 40,000 Dividends and distributions............................................. (408,939) (235,391) (352,968) --------------- ---------- ---------- Net cash used in financing activities................................... (413,073) (236,757) (313,599) --------------- ---------- ---------- Increase (decrease) in cash and cash equivalents........................ 214,855 (602,788) 185,513 Cash and cash equivalents at beginning of period........................ 95,279 698,067 512,554 --------------- ---------- ---------- Cash and cash equivalents at end of period.............................. $ 310,134 $ 95,279 $ 698,067 --------------- ---------- ---------- --------------- ---------- ---------- Supplemental schedule of non-cash activities Equipment acquired under capital leases................................. $ -- $ 15,349 $ -- --------------- ---------- ---------- --------------- ---------- ----------
The accompanying notes are an integral part of the combined financial statements. F-203 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM NOTES TO COMBINED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Midwestern Broadcasting Company (the "Company") owns and operates radio stations WWWM-FM and WLQR-AM (the "Stations") located in Toledo, Ohio. At the close of business on November 12, 1997, the stations were sold to Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc. For accounting purposes, the acquisition date has been designated as of the close of business on October 31, 1997. The combined financial statements present the operations of the Stations on a "carved out" basis. The results of operations for the period from November 1, 1997 through November 12, 1997 were not considered significant. In addition, there were no significant differences between the balance sheet at October 31, 1997 and November 12, 1997. The significant accounting principles followed by the Stations and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. BASIS OF PRESENTATION The combined financial statements include the assets and liabilities of the Stations and the results of their operations. CASH EQUIVALENTS The Stations consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES Marketable securities consist of U.S. Government debt securities and have original maturities of six months. Management considers all marketable securities to be "available for sale" as defined by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Such securities are carried at market value. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for additions and improvements that add materially to productive capacity or extend the useful life of an asset are capitalized, and expenditures for maintenance and repairs are charged to operations. When property is retired or otherwise disposed of, the related accounts for cost and depreciation are relieved, and any gain or loss resulting from the disposal is included in results of operations. Depreciation is computed by accelerated and straight-line methods. Useful lives ranged from 5 to 20 years for land improvements; 5 to 45 years for buildings and leasehold improvements; 5 to 10 years for transmitting equipment, towers, antennas, and furniture; and 5 to 12 years for automobiles and other vehicles. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. F-204 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BARTER TRANSACTIONS Goods and services received in exchange for commercial broadcasts are recorded at fair value when received, and the related revenue is recorded when the advertisement is broadcast. The Stations recorded $10,000, $1,700 and $7,000 of fixed assets obtained through various barter transactions during 1997, 1996 and 1995, respectively. INCOME TAXES Midwestern Broadcasting is a Subchapter S corporation for federal and state income tax purposes. As a result, the shareholders of Midwestern include their pro-rata share of Midwestern's taxable income in their respective personal income tax returns. Therefore, federal and state income tax provisions have not been recorded for the Stations. 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 that period. Actual results could differ from those estimates. 2. LONG-TERM LIABILITIES During 1995, the Stations borrowed $40,000 from a bank under a term note. The note bears interest at a fixed interest rate of 10.75% per annum and is payable in equal monthly installments of principal and interest of $448 over fifteen years. At October 31, 1996 the balance is $36,863. The Stations entered into a capital lease for certain equipment during 1996. The liability under the lease was $12,355 and $15,349 at October 31, 1997 and December 31, 1996, respectively. The equipment is included in furniture and fixtures and has a net book value of $11,831 and $15,028 at October 31, 1997 and December 31, 1996, respectively. Amortization of the capital lease asset is included in depreciation expense. F-205 THE MIDWESTERN BROADCASTING COMPANY RADIO STATIONS WWWM-FM AND WLQR-AM NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM LIABILITIES (CONTINUED) Future minimum payments for all long-term obligations as of October 31, 1997 are as follows:
NOTES CAPITALIZED PAYABLE LEASES --------- ----------- 1998................................................................... $ 1,239 $ 4,680 1999................................................................... 1,524 4,680 2000................................................................... 1,696 4,680 2001................................................................... 1,888 390 2002................................................................... 2,101 Future Years........................................................... 28,415 --------- ----------- $ 36,863 14,430 --------- ----------- Amount representing interest........................................... 2,075 ----------- Present value of minimum lease payments................................ $ 12,355 ----------- -----------
Total interest payments were $4,573, $5,992 and $4,180 in 1997, 1996 and 1995, respectively. 3. RELATED PARTIES Stratford Research, a company affiliated through common ownership and management, provides market research and consulting services to the Stations. Consulting fees charged during 1997, 1996 and 1995 to the Stations totaled $43,000, $71,000 and $98,000, respectively, and are included in general and administrative expenses. Certain expenditures are incurred by the Stations and charged to Stratford. At October 31, 1997 and December 31, 1996 and 1995, the Stations had a receivable from Stratford totaling $6,611, $3,438 and $10,388, respectively, which is included in amounts due from related parties. During 1997 and 1996, the shareholders of the Company incurred travel and other personal expenses in excess of dividends paid, resulting in a net $31,864 and $38,000 receivable due from shareholders as of October 31, 1997 and December 31, 1996, respectively. F-206 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in stockholder's equity and of cash flows present fairly, in all material respects, the financial position of Mustang Broadcasting Company at December 31, 1997, and the results of its operations and its cash flows for the year in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 5, 1998 F-207 MUSTANG BROADCASTING COMPANY BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................................... $ 49,508 $ 51,353 Accounts receivable, less allowance for doubtful accounts of $5,000................. 123,752 160,167 Prepaid expenses.................................................................... 125 227 ----------- ------------ Total current assets............................................................ 173,385 211,747 ----------- ------------ Property and equipment, net........................................................... 283,175 295,303 Intangible assets, net................................................................ 350,041 362,606 ----------- ------------ Total asset..................................................................... $ 806,601 $ 869,656 ----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable.................................................................... $ -- $ 4,067 Accrued expenses.................................................................... 45,882 40,793 Current portion of debt............................................................. 21,540 21,540 Current portion of stockholder advances............................................. 429,483 429,483 ----------- ------------ Total current liabilities....................................................... 496,905 495,883 ----------- ------------ Long-term debt........................................................................ 27,012 31,134 Stockholder advances.................................................................. 299,280 299,280 Commitments and contingencies Stockholder's equity (deficit): Common stock, $.01 par value, 100,000 shares authorized, 68,500 issued and outstanding....................................................................... 685 685 Additional paid-in-capital.......................................................... 684,315 684,315 Accumulated deficit................................................................. (701,596) (641,641) ----------- ------------ Total stockholder's equity (deficit)............................................ (16,596) 43,359 ----------- ------------ Total liabilities and stockholder's equity (deficit)............................ $ 806,601 $ 869,656 ----------- ------------ ----------- ------------
See Notes to Financial Statements. F-208 MUSTANG BROADCASTING COMPANY STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ------------------------ FOR THE YEAR ENDED 1998 1997 DECEMBER 31, 1997 ----------- ----------- ------------------ (UNAUDITED) Revenues............................................................ $ 210,303 $ 251,171 $ 1,139,924 Less: agency commissions.......................................... (6,976) (9,389) (46,753) ----------- ----------- ------------------ Net revenues.................................................. 203,327 241,782 1,093,171 Operating expenses: Programming....................................................... 83,119 80,442 334,345 Sales and promotions.............................................. 84,805 100,035 436,741 Technical......................................................... 16,587 17,259 68,058 General and administrative........................................ 52,813 56,146 238,628 Depreciation and amortization..................................... 24,693 24,168 96,673 ----------- ----------- ------------------ Total operating expenses...................................... 262,017 278,050 1,174,445 ----------- ----------- ------------------ Loss from operations................................................ (58,690) (36,268) (81,274) Interest expense.................................................... (1,265) (14,323) (36,096) ----------- ----------- ------------------ Net loss............................................................ $ (59,955) $ (50,591) $ (117,370) ----------- ----------- ------------------ ----------- ----------- ------------------
See Notes to Financial Statements. F-209 MUSTANG BROADCASTING COMPANY STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ----------- ---------- ------------ ----------- Balance at January 1, 1997...................................... $ 520 $ 519,480 $ (524,271) $ (4,271) Issuance of common stock........................................ 165 164,835 -- 165,000 Net loss........................................................ -- -- (117,370) (117,370) ----- ---------- ------------ ----------- Balance at December 31, 1997.................................... $ 685 $ 684,315 $ (641,641) $ 43,359 ----- ---------- ------------ ----------- ----- ---------- ------------ -----------
See Notes to Financial Statements. F-210 MUSTANG BROADCASTING COMPANY STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ------------------------ FOR THE YEAR ENDED 1998 1997 DECEMBER 31, 1997 ----------- ----------- ------------------ (UNAUDITED) Cash flows from operating activities: Net loss.......................................................... $ (59,955) $ (50,591) $ (117,370) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization................................... 24,693 24,168 96,673 Loss on disposal of assets...................................... -- -- 21,616 Changes in assets and liabilities: Accounts receivable............................................. 36,415 5,797 19,984 Prepaid expenses and other current assets....................... 102 (5,849) 13,203 Accounts payable................................................ (4,067) (7,749) (8,837) Accrued and other liabilities................................... 5,089 (16,660) (11,252) ----------- ----------- ---------- Net cash provided by (used for) operating activities.............. 2,277 (50,884) 14,017 ----------- ----------- ---------- Cash flows from investing activities: Capital expenditures.............................................. -- -- (23,769) ----------- ----------- ---------- Net cash used for investing activities............................ -- -- (23,769) ----------- ----------- ---------- Cash flows from financing activities: Net repayment of borrowings....................................... (4,122) (3,211) (4,625) Proceeds from issuance of stock................................... -- -- 165,000 Net repayment of advances from stockholder........................ -- -- (182,888) ----------- ----------- ---------- Net cash used for financing activities............................ (4,122) (3,211) (22,513) ----------- ----------- ---------- Net decrease in cash and cash equivalents........................... (1,845) (54,095) (32,265) Cash and cash equivalents at beginning of period.................... 51,353 83,618 83,618 ----------- ----------- ---------- Cash and cash equivalents at end of period.......................... $ 49,508 $ 29,523 $ 51,353 ----------- ----------- ---------- ----------- ----------- ---------- Supplemental disclosure of cash flow information: Interest paid....................................................... $ 1,265 $ 14,323 $ 36,096 ----------- ----------- ---------- ----------- ----------- ---------- Non-cash operating activities: Trade revenue..................................................... $ 24,968 $ 18,720 $ 93,878 ----------- ----------- ---------- ----------- ----------- ---------- Trade expense..................................................... $ 24,968 $ 18,720 $ 93,878 ----------- ----------- ---------- ----------- ----------- ----------
See Notes to Financial Statements. F-211 MUSTANG BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Mustang Broadcasting Company (the "Company") owns and operates radio stations KEXO-AM, KKNN-FM, KQIX-FM, KQIL AM/FM located in Grand Junction, CO. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: 5-15 Office furniture and equipment................................... years Leasehold improvement............................................ 39 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include organizational costs, goodwill and Federal Communications Commission ("FCC") licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life or contract term for periods not exceeding 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted cash flows of the related businesses. INCOME TAXES The Company has elected to be treated as a Subchapter S Corporation for federal and state income tax purposes. Under this election, the income or loss of the Company is included in the tax return of the stockholder. Accordingly, federal and state income taxes are not included in the accompanying financial statements. F-212 MUSTANG BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Pro forma results reflecting the treatment of the Company as a tax paying entity are not included since the Company incurred a net loss for the year ended December 31, 1997. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. FAIR VALUE OF FINANCIAL STATEMENTS The carrying amounts of the Company's financial instruments, including cash, accounts receivable accounts payable, short-term and long-term debt, approximate fair value. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 consists of the following: Equipment......................................................... $ 272,476 Office Furniture and Leasehold improvements....................... 30,340 --------- 302,816 Accumulated depreciation.......................................... (132,789) --------- 170,027 Land.............................................................. 125,276 --------- Property and equipment, net....................................... $ 295,303 --------- ---------
Depreciation expense for the year ended December 31, 1997 was $46,412. F-213 MUSTANG BROADCASTING COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. INTANGIBLE ASSETS: Intangible assets at December 31, 1997 consist of the following: Organization costs................................................ $ 105,263 Goodwill and FCC license.......................................... 438,124 --------- 543,387 Accumulated amortization.......................................... (180,781) --------- Intangible assets, net............................................ $ 362,606 --------- ---------
Amortization expense for the year ended December 31, 1997 was $50,261. 4. LONG-TERM DEBT: At December 31, 1997, the Company had a note payable for $52,674 with Alpine Bank related to equipment purchases. The note bears interest at 9.25% and the final payment is due on October 2, 2000. The Company also receives advances from its sole stockholder to be used in business operations. At December 31, 1997, net advances were $728,763. Of this amount, $343,763 is due on demand and has been classified as a current liability. The remaining $385,000 is outstanding pursuant to a promissory note payable and is due in quarterly installments with the balance due April 15, 1999. No interest is paid or accrued related to the stockholder advances. A summary of the future maturities of long-term debt follows: 1998.............................................................. $ 451,023 1999.............................................................. 320,820 2000.............................................................. 9,594
5. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $32,836 for the year ended December 31, 1997 under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997 are as follows: 1998............................................................... $ 26,309 1999............................................................... 3,278 2000............................................................... 3,278 2001............................................................... 3,278 Thereafter......................................................... 42,616
6. SUBSEQUENT EVENT (UNAUDITED): In February 1998, the Company entered into an agreement to sell certain assets, subject to approval of the Federal Communications Commission, to Cumulus Media Inc. for approximately $2,800,000. F-214 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors New Frontier Communications, Inc. We have audited the balance sheets of New Frontier Communications, Inc. as of December 31, 1997 and 1996, and the related statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 1997, 1996 and 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 financial statements referred to above present fairly, in all material respects, the financial position of New Frontier Communications, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. /s/ JOHNSON, MILLER & CO. Odessa, Texas February 24, 1998 F-215 NEW FRONTIER COMMUNICATIONS, INC. BALANCE SHEET
DECEMBER 31, -------------------------- 1997 1996 MARCH 31, ------------ ------------ 1998 ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash.................................................................. $ 232,307 $ 388,925 118,189 Receivables Trade (note B)...................................................... 144,246 686,003 689,987 Current maturities of notes receivable (note C)..................... 5,517 5,108 4,023 Affiliates.......................................................... 549,504 67,693 -- Prepaid expenses...................................................... 93,725 113,107 52,728 ------------ ------------ ------------ Total current assets.............................................. 1,025,299 1,260,836 864,927 PROPERTY AND EQUIPMENT (notes A5 and D)................................. 1,435,247 1,505,691 1,281,154 GOODWILL, LICENSES AND OPERATING RIGHTS (net of accumulated amortization of $507,041 in 1997 and $295,942 in 1996) (notes A6 and E)................................................ 2,199,779 2,244,784 1,826,981 NOTES RECEIVABLE--less current maturities (note C)...................... 27,050 28,475 14,077 ------------ ------------ ------------ $ 4,687,375 $ 5,039,786 3,987,139 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Current maturities of long-term debt (note G)......................... $ 338,360 $ 369,995 246,504 Accounts payable (note F)............................................. 117,077 183,735 206,641 Accrued liabilities Interest............................................................ 45,308 123,376 -- Wages............................................................... -- 87,170 67,625 Other............................................................... 2,581 19,321 29,612 Advance from affiliates............................................... 118,759 116,675 -- ------------ ------------ ------------ Total current liabilities......................................... 622,085 900,272 550,382 LONG-TERM DEBT, less current maturities (note G)........................ 4,587,938 4,646,346 3,922,241 DEFERRED INCOME TAX LIABILITY (note J).................................. 68,360 71,919 26,651 ------------ ------------ ------------ 5,278,383 5,618,537 4,499,274 ------------ ------------ ------------ STOCKHOLDERS' DEFICIT Common stock, no par value; 1,000,000 shares authorized, 560,000 shares issued and outstanding............................... 315,000 315,000 315,000 Accumulated deficit................................................... (906,008) (893,751) (827,135) ------------ ------------ ------------ (591,008) (578,751) (512,135) ------------ ------------ ------------ $ 4,687,375 $ 5,039,786 3,987,139 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. F-216 NEW FRONTIER COMMUNICATIONS, INC. STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, -------------------------- ---------------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Broadcast revenue.......................... $ 132,596 $ 884,434 $ 4,642,280 3,539,479 2,245,326 Local marketing agreement.................. 681,981 -- -- -- -- ------------ ------------ ------------ ------------ ------------ 814,577 884,434 4,642,280 3,539,479 2,245,326 Costs and expenses Direct expenses.......................... 117,995 232,497 410,290 351,210 211,335 Engineering.............................. 30,388 267,676 192,044 111,213 75,959 Programming (note H)..................... 22,390 48,658 801,943 496,046 326,620 Marketing................................ 6,743 99,548 1,315,784 951,446 752,828 Administrative........................... 397,820 120,401 968,263 802,281 544,409 Depreciation and amortization............ 115,449 69,968 485,883 298,303 108,211 ------------ ------------ ------------ ------------ ------------ Total operating expenses............. 690,785 838,748 4,174,207 3,010.499 2,019,362 ------------ ------------ ------------ ------------ ------------ Operating profit..................... 123,792 45,686 468,073 528,980 225,964 ------------ ------------ ------------ ------------ ------------ Other (income) expenses Loss on disposal of assets............... -- 2,500 33,850 -- 13,076 Interest and financing................... 146,521 110,106 497,234 363,733 167,363 Other.................................... (6,913) -- (1,926) (1,724) 10,209 ------------ ------------ ------------ ------------ ------------ 139,608 112,606 529,158 362,009 190,648 ------------ ------------ ------------ ------------ ------------ (Loss) earnings before income tax.......... (15,816) (66,920) (61,085) 166,971 35,316 Income tax benefit (expense) Current.................................. -- 34,290 39,737 (32,824) (7,207) Deferred................................. 3,559 (4,099) (45,268) (26,651) -- ------------ ------------ ------------ ------------ ------------ 3,559 30,191 (5,531) (59,475) (7,207) ------------ ------------ ------------ ------------ ------------ NET (LOSS) EARNINGS.................. $ (12,257) $ (36,729) $ (66,616) 107,496 28,109 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (Loss) earnings per share.................. $ (.02) $ (.06) $ (.12) .19 .05 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. F-217 NEW FRONTIER COMMUNICATIONS, INC. STATEMENT OF STOCKHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NUMBER OF SHARES COMMON ACCUMULATED ISSUED STOCK DEFICIT TOTAL ----------- ---------- ------------ ---------- Balances at December 31, 1994.................................... 560,000 $ 315,000 (962,740) (647,740) Net earnings..................................................... -- -- 28,109 28,109 ----------- ---------- ------------ ---------- Balances at December 31, 1995.................................... 560,000 315,000 (934,631) (619,631) Net earnings..................................................... -- -- 107,496 107,496 ----------- ---------- ------------ ---------- Balances at December 31, 1996.................................... 560,000 315,000 (827,135) (512,135) Net loss......................................................... -- -- (66,616) (66,616) ----------- ---------- ------------ ---------- Balances at December 31, 1997.................................... 560,000 $ 315,000 (893,751) (578,751) ----------- ---------- ------------ ---------- ----------- ---------- ------------ ----------
The accompanying notes are an integral part of these financial statements. F-218 NEW FRONTIER COMMUNICATIONS, INC. STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, --------------------- -------------------------------- 1998 1997 1997 1996 1995 --------- ---------- --------- ---------- --------- (UNAUDITED) Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities: Net (loss) earnings................................... $ (12,257) $ (36,729) $ (66,616) 107,496 28,109 Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: Depreciation and amortization..................... 115,449 74,539 485,883 298,303 108,211 Decrease (increase) in accounts receivable........ 59,946 169,143 3,984 (307,645) (55,008) Increase in prepaid expense....................... 19,382 (28,947) (60,379) (28,337) (1,719) (Decrease) increase in accounts payable........... (66,658) (76,506) (22,906) (41,974) 55,616 Increase in accrued interest payable.............. (78,068) -- 123,376 -- -- Increase in wages payable......................... (87,170) (24,008) 19,545 42,736 2,926 Loss on disposal of assets........................ -- 2,500 33,850 -- 13,076 (Decrease) increase in other accrued liabilities..................................... (16,740) 2,298 (10,291) 22,405 7,207 Increase in deferred income tax liability......... (3,559) 4,099 45,268 26,651 -- Donation of fixed assets to charity............... -- -- 22,041 -- -- --------- ---------- --------- ---------- --------- Net cash provided by operating activities....... (69,675) 86,389 573,755 119,635 158,418 --------- ---------- --------- ---------- --------- Cash flows from investing activities: Acquisition of property and equipment................. -- -- (31,972) (24,452) (55,562) Acquisition of radio stations......................... -- -- (28,013) -- -- Loan made to employees................................ -- -- (33,583) -- (21,752) Principal payments received on employee loan.......... 1,016 970 18,100 3,652 -- --------- ---------- --------- ---------- --------- Net cash used in investing activities........... 1,016 970 (75,468) (20,800) (77,314) --------- ---------- --------- ---------- --------- Cash flows from financing activities: Loan proceeds......................................... -- -- 94,438 1,607,301 125,505 Principal payments under note obligations............. (90,043) (81,587) (280,588) (1,526,499) (195,949) Payment of loan fees.................................. -- -- (90,383) (107,341) -- Advance from affiliates, net.......................... 2,084 -- 48,982 -- -- --------- ---------- --------- ---------- --------- Net cash provided by financing activities....... (87,959) (81,587) (227,551) (26,539) (70,444) --------- ---------- --------- ---------- --------- Net increase in cash and cash equivalents............... (156,618) 5,772 270,736 72,296 10,660 Cash and cash equivalents at beginning of year.......... 388,925 118,189 118,189 45,893 35,233 --------- ---------- --------- ---------- --------- Cash and cash equivalents at end of year................ $ 232,307 $ 123,961 $ 388,925 118,189 45,893 --------- ---------- --------- ---------- --------- --------- ---------- --------- ---------- --------- Cash paid during the year for: Interest.............................................. $ 146,624 $ 110,106 $ 373,858 363,733 167,363 Noncash investing and financing activities: Detail of radio station purchases Assets acquired Property, plant and equipment..................... $ -- $ -- $ 517,676 1,084,500 -- Goodwill, licenses and operating rights........... -- -- 588,527 1,557,035 -- --------- ---------- --------- ---------- --------- Total consideration............................. -- -- 1,106,203 2,641,535 -- Less: Issuance of long-term debt...................... -- -- 1,033,746 2,641,535 -- Cancellation of noncompete agreement.............. -- -- 44,444 -- -- --------- ---------- --------- ---------- --------- Cash paid......................................... $ -- $ -- $ 28,013 -- -- --------- ---------- --------- ---------- --------- --------- ---------- --------- ---------- ---------
The accompanying notes are an integral part of these financial statements. F-219 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. GENERAL New Frontier Communications, Inc. (the Company) is an Arizona Corporation organized in 1989. Its principal business is the operation of five radio stations, KGEE, KODM, KMND, KNFM and KBAT, in Midland/Odessa, Texas. 2. CASH AND CASH EQUIVALENTS For the purposes of the statement of cash flows, the Company considers cash on hand and cash on deposit in banks to be cash and cash equivalents. 3. ACCOUNTS RECEIVABLE The Company has set up an allowance for specific accounts deemed uncollectible at year end. 4. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. 5. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciated principally on the straight-line method over the estimated useful lives of the assets. Major additions and betterments are capitalized while replacements, maintenance and repairs that do not improve or extend the life of the respective assets are expensed. When the assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is charged or credited to operations. 6. GOODWILL, LICENSES AND OPERATING RIGHTS The Company's intangible assets result from station acquisitions and are being amortized on the straight-line basis over estimated useful lives of 2 to 40 years. 7. BARTER TRANSACTIONS Revenue from such transactions is recorded at the time the commercials are broadcast, and barter expense is recorded at the time the services are used. If the services or products have not been received at the date the commercial is aired, a receivable is reported. On the other hand, if services or products are received before the date the commercial is aired, a liability is reported. Revenue from barter transactions totaled approximately $669,000 in 1997, $481,000 in 1996, and $380,000 in 1995. Expenses from barter transactions totaled approximately $635,000 in 1997, $490,000 in 1996, and $420,000 in 1995. F-220 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 8. INCOME TAXES The Company has elected C Corporation status under the Internal Revenue Code. Provisions for income taxes are based on amounts reported in the statements of earnings and include deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Deferred taxes are computed using the asset and liability approach as prescribed in Financial Accounting Standards Board Statement No. 109, ACCOUNTING FOR INCOME TAXES. 9. USE OF ESTIMATES In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. 10. EARNINGS PER SHARE Net loss/earnings per share is determined by dividing net loss/earnings by the weighted average number of common shares outstanding for the period. The computation of fully diluted net loss/earnings per share was antidilutive in each of the periods presented; therefore, the amounts reported as primary and fully diluted are the same. 11. RECLASSIFICATIONS, NOT MATERIAL Certain reclassifications have been made to conform to the 1997 presentation. 12. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. NOTE B--ACCOUNTS RECEIVABLE Receivables consist of the following at December 31:
1997 1996 ---------- --------- Regular trade.......................................................... $ 686,003 689,987 Barter trade........................................................... -- -- ---------- --------- Net receivables...................................................... $ 686,003 689,987 ---------- --------- ---------- ---------
F-221 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE C--NOTE RECEIVABLE In November 1995, the Company purchased two vehicles through a finance company for the personal use of two employees. The payments, including interest, are being made by the two employees. The amounts of the notes receivable are for the same amounts as the notes payable. The balance on the notes receivable is $23,998 and $9,585 respectively at December 31, 1997. Schedule of long-term notes receivable for the years following December 31, 1997: 1998............................................................... $ 5,108 1999............................................................... 5,981 2000............................................................... 20,157 2001............................................................... 2,337 --------- $ 33,583 --------- ---------
NOTE D--PROPERTY AND EQUIPMENT The classification of the Company's property and equipment, and their estimated useful lives, are as follows:
ESTIMATED 1997 1996 USEFUL LIFE ------------ ---------- ----------- Land................................................. $ 10,000 10,000 Buildings............................................ 30,000 65,010 31.5 years Transmitter equipment................................ 946,301 752,558 5-20 years Studio equipment..................................... 760,247 511,880 5-20 years Office furniture and equipment....................... 430,535 387,537 3-10 years Antenna.............................................. 110,913 110,913 6-15 years Vehicles............................................. 60,566 28,066 3-5 years ------------ ---------- 2,348,562 1,865,964 Less accumulated depreciation.................... 842,871 584,810 ------------ ---------- $ 1,505,691 1,281,154 ------------ ---------- ------------ ----------
Depreciation expense was $269,220 in 1997, $181,938 in 1996 and $75,360 in 1995. NOTE E--GOODWILL, LICENSES AND OPERATING RIGHTS Intangible assets consist of the following at December 31:
1997 1996 ------------ ------------ License agreements, less accumulated amortization of $278,369 and $201,200............ $ 988,678 777,847 Goodwill, less accumulated amortization of $135,771 and $78,214....................... 926,291 908,321 Non-compete agreements and deferred charges, less accumulated amortization of $92,901 and $16,528......................................................................... 329,815 140,813 ------------ ------------ $ 2,244,784 1,826,981 ------------ ------------ ------------ ------------
F-222 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE E--GOODWILL, LICENSES AND OPERATING RIGHTS (CONTINUED) Amortization expense charged to operations in 1997 was $216,663, in 1996 was $116,365, and in 1995 was $32,851. NOTE F--ACCOUNTS PAYABLE Payables consist of the following at December 31:
1997 1996 ---------- --------- Regular trade.......................................................... $ 121,751 101,581 Barter trade........................................................... 40,048 70,979 Agencies and royalties................................................. 21,936 34,081 ---------- --------- $ 183,735 206,641 ---------- --------- ---------- ---------
NOTE G--LONG-TERM OBLIGATIONS Long-term debt at December 31 consists of the following:
1997 1996 ------------ ------------ Note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%, payable in quarterly installments with final payment of $2,692,650 due on 5/1/01. Interest is payable monthly. Payment schedule is as follows: 1/1/98 - 4/1/98 $75,000 7/1/98 81,250 10/1/98 - 7/1/99 100,000 10/1/99 - 7/1/00 112,500 10/1/00 - 4/1/01 166,700 5/1/01 Remaining balance 2,629,650 All existing and after-acquired property of Borrower, including accountings, equipment, inventory, and all proceeds of the foregoing have been pledged as collateral for all three FINOVA notes. $ 4,211,000 --
F-223 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE G--LONG-TERM OBLIGATIONS (CONTINUED)
1997 1996 ------------ ------------ Note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%, payable in seventeen consecutive quarterly installments on the first business day of each quarter commencing with the first business day of the fourth quarter following the closing with final payment of $1,902,895 due on 5/1/01. Monthly interest payment commences 5/1/96. Payment schedule is as follows: 4/1/97 $50,000 7/1/97 - 4/1/98 75,000 7/1/98 - 4/1/99 81,250 7/1/99 - 4/1/00 93,750 7/1/00 - 4/1/01 112,500 5/1/01 Remaining balance 1,902,895 All existing and after-acquired property of Borrower, including accountings, equipment, inventory, and all proceeds of the foregoing have been pledged as collateral for all three FINOVA notes. -- 3,386,000 Note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%, payable in full on May 1, 2001. Interest is payable monthly. Collateral as stated in above note. 614,000 614,000 Revolving note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%, payable in full on May 1, 2001 with interest payable monthly. Collateral as stated in above note. ........................................ 124,121 100,000 Note payable to finance company at 12.00%, due in monthly principal and interest installment of $514. The note is unsecured. ....................... $ 2,981 -- Note payable to finance company at 11%, due in monthly principal and interest installments of $4,000. The note is unsecured. .................... 19,469 -- Note payable to bank at 11.50%, due in monthly principal and interest installments of $1,157. The note is secured by accounts receivable, equipment and fixtures. .................................................... 2,631 15,443
F-224 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE G--LONG-TERM OBLIGATIONS (CONTINUED)
1997 1996 ------------ ------------ Note payable to finance company at 8.75%, due in monthly principal and interest installments of $439. The note is secured by a vehicle. (See Note C).......................................................................... 23,998 -- Note payable to finance company at 14% due in monthly principal and interest installments of $275. The note is secured by a vehicle. (See Note C). ...... 9,585 -- Note payable to finance company at 13.75%, due in monthly principal and interest installments of $526. The note is unsecured........................ 3,032 -- Note payable to a finance company at 12.6%, due in monthly principal and interest installments of $943. The note is secured by equipment............. 5,524 15,384 Other....................................................................... -- 37,914 ------------ ------------ 5,016,341 4,168,745 Less current maturities................................................. 369,995 246,504 ------------ ------------ $ 4,646,346 3,922,241 ------------ ------------ ------------ ------------
Aggregate maturities of long-term debt for the five years following December 31, 1997 are as follows: 1998............................................................ $ 369,995 1999............................................................ 418,482 2000............................................................ 524,357 2001............................................................ 3,703,507 --------- $5,016,341 --------- ---------
As part of the FINOVA debt agreements, the Company must comply with certain restrictive covenants, including restrictions on capital expenditures, operating leases, involvement in mergers or acquisitions and must comply with certain financial ratios. At December 31, 1997, the Company was in compliance with these various covenants. NOTE H--RELATED PARTY TRANSACTIONS The Company's majority stockholder also operates a radio station in Arizona. This station provides programming research and consulting to the Company at cost. Such consulting charges totalled approximately $32,000 in 1997 and $15,000 in 1996, and have been included in the Company's operating expenses. Another employee of this related party, also a stockholder of the Company, provides programming consulting to the Company at no charge. The consulting services provided have an estimated market value between approximately $4,800 and $3,600 for the years ended December 31, 1997 and 1996. F-225 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE H--RELATED PARTY TRANSACTIONS (CONTINUED) The Company's current trade payables include balances owed the Arizona station of approximately $19,210 at December 31, 1996. NOTE I--OPERATING LEASES AND COMMITMENTS The Company conducts its operations utilizing leased facilities and equipment consisting of a sales and production office, antenna space, computer and software. The operating lease covering the office space provides that the Company pay taxes and a portion of the annual increments to operating expenses applicable to the leased premises. The leases provide for renewals for various periods at stipulated rates. Total rental expenses were approximately $124,000, $99,000, and $46,000 for the years ended December 31, 1997, 1996 and 1995, respectively, of which a substantial portion was provided by advertising services rendered in both years. The minimum rental commitments under noncancelable operating leases are as follows:
YEAR ENDED DECEMBER 31, - ---------------------------------------------------------------------------------- 1998.............................................................................. $ 82,459 1999.............................................................................. 65,228 2000.............................................................................. 24,795 2001.............................................................................. 9,500 ---------- $ 181,982 ---------- ----------
The Company renewed a license agreement to use a rating service's market share information for advertising sales through March, 1999. The noncancelable agreement requires the following minimum annual payments: 1998............................................................... $ 22,314 1999............................................................... 5,672 --------- $ 27,986 --------- ---------
NOTE J--TAXES The income tax provision reconciled to the tax computed at the Company's effective statutory rate was as follows:
1997 1996 ---------- --------- Tax at statutory rate (34%)............................................. $ (20,769) 56,770 Non-deductible portion of meals--entertainment.......................... 3,035 3,583 Other................................................................... (6,056) (878) Limitation of net operating loss carryback.............................. 29,321 -- ---------- --------- $ 5,531 59,475 ---------- --------- ---------- ---------
F-226 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE J--TAXES (CONTINUED) Deferred tax liabilities consist of the following at December 31:
1997 1996 ---------- --------- Deferred tax assets Excess tax basis over book basis of intangibles....................... $ 10,982 36,905 Net operating loss carryforward....................................... 21,560 -- ---------- --------- 32,542 36,905 Less allowance.................................................... 21,560 -- ---------- --------- 10,982 36,905 Deferred tax liability Excess book basis over tax basis of property and equipment............ (82,901) (63,556) ---------- --------- Net deferred tax liability............................................ $ (71,919) (26,651) ---------- --------- ---------- ---------
NOTE K--ACQUISITIONS On May 1, 1997, the Company entered into negotiations to purchase KBAT, a privately owned radio station. Between May 1, 1997 and the date of closing, the Company operated the radio station under a local marketing agreement. On August 1, 1997, the Company purchased substantially all the assets of KBAT. The aggregate purchase price was approximately $1,106,000, including related acquisition costs. The aggregate purchase price, which was financed by substantially long-term debt, has been allocated to the assets of the company based on their respective market values. The excess of the purchase price over the underlying assets acquired, approximately $75,000, was allocated to goodwill and is being amortized over 15 years. For financial statement purposes, the acquisition was accounted for as a purchase. Accordingly, the assets of the acquired business are included in the financial statement since the date of acquisition. The unaudited proforma results below assume the acquisition occurred at the beginning of the fiscal years ending December 31, 1997 and 1996.
1997 1996 ------------ ---------- Net sales.......................................................... $ 4,762,507 3,900,159 Operating income................................................... 473,319 544,717 Net earnings....................................................... (75,191) 81,768 Net (loss) earnings per share Primary.......................................................... (.13) .18
Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results under the ownership and management of the Company. NOTE L--STOCK SALE AGREEMENT Effective December 17, 1997, the Company's stockholders entered into a Stock Sale Agreement (the Agreement) with Cumulus Holdings, Inc., an Illinois corporation. The Agreement provides for the sale of F-227 NEW FRONTIER COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 NOTE L--STOCK SALE AGREEMENT (CONTINUED) 100% of the outstanding capital stock of the Company to Cumulus. In consideration for 100% of the Company's stock, Cumulus will pay the stockholders a purchase price as follows: -- on December 17, 1997, Cumulus deposited with an earnest money escrow agent, the amount of $750,000 in the form of an irrevocable letter of credit, -- on the closing date, Cumulus will deposit with a retainage agent, in cash, the amount of $500,000. The retainage deposit shall be placed in an interest-bearing account and will be released to the Company's stockholders on the first anniversary of the closing date if Cumulus has not submitted an indemnification claim, -- on the closing date, Cumulus will pay to the Company's stockholders the amount of $13,000,000 less an amount equal to the total of the Company's long-term debt and other liabilities (except certain lease obligations), -- on the closing date, Cumulus will pay to the Company's stockholders an amount equal to the Company's cash at closing plus adjusted accounts receivable and prepaid expenses and deposits. The closing date will occur no later than the tenth business day after the FCC approval. If closing does not occur because of a breach by Cumulus, the earnest money deposit will be paid to the Company's stockholders; and, if the closing does not occur because of a breach by the Company's stockholders, the earnest money deposit will be returned to Cumulus. Concurrent with the execution of the Agreement, the Company's stockholders and Cumulus entered into a Local Marketing Agreement (the LMA) in which Cumulus will purchase airtime on the Company's stations effective January 1, 1998. The agreement will expire on the earliest of December 31, 1998 or the closing of the sale. In consideration for the airtime, Cumulus will pay monthly amounts ranging from $73,000 to $81,334. In addition, Cumulus will reimburse the Company certain station expenses, estimated to be $43,675 monthly. At December 31, 1997, the Company had received advances on these payments from Cumulus of $116,675. Concurrent with the closing date, the Company's President (and one of it's stockholders), will execute a noncompete agreement whereby he will agree not to compete with Cumulus in the markets served by the stations. In consideration for the noncompete agreement, in addition to his portion of the purchase price, he will receive $500,000. F-228 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of the Radio Stations In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of changes in net investment of parent and of cash flows present fairly, in all material respects, the financial position of Ninety Four Point One, Inc. (a subsidiary of Petracom Broadcasting, Inc.) and KAYD AM/FM (a division of Petracom Broadcasting of Rockford, Inc.) (the "Radio Stations") at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Radio Stations' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Atlanta, Georgia February 20, 1998, except as to Note 7, which is as of March 6, 1998 F-229 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.) COMBINED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, ------------ -------------------- 1998 1997 1996 ------------ --------- --------- (UNAUDITED) ASSETS Current assets: Cash.......................................................................... $ 192 $ 91 $ 81 Accounts receivable, less allowance for doubtful accounts of $110, $101 and $108, respectively.......................................................... 469 641 634 Trade receivables............................................................. 22 40 23 Prepaid expenses and other current assets..................................... 33 13 18 ------------ --------- --------- Total current assets...................................................... 716 785 756 Property and equipment, net..................................................... 756 733 685 Intangible assets, net.......................................................... 124 136 189 ------------ --------- --------- Total assets.............................................................. $ 1,596 $ 1,654 $ 1,630 ------------ --------- --------- ------------ --------- --------- LIABILITIES AND NET INVESTMENT OF PARENT Current liabilities: Accounts payable.............................................................. $ 96 $ 76 $ 90 Trade payables................................................................ 52 74 71 Accrued expenses and other current liabilities................................ 58 25 7 ------------ --------- --------- Total current liabilities................................................. 206 175 168 Net investment of parent........................................................ 1,390 1,479 1,462 Commitments and contingencies (Note 6).......................................... -- -- -- ------------ --------- --------- Total liabilities and net investment of parent............................ $ 1,596 $ 1,654 $ 1,630 ------------ --------- --------- ------------ --------- ---------
See Notes to Financial Statements. F-230 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.) COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31, -------------------- --------------------------------- 1998 1997 1997 1996 1995 --------- --------- --------- ----------- --------- (UNAUDITED) Revenues..................................................... $ 926 $ 816 $ 3,821 $ 3,840 $ 2,934 Less: commissions.......................................... 112 103 396 506 309 --------- --------- --------- ----------- --------- 814 713 3,425 3,334 2,625 Barter and trade revenues.................................... 53 93 351 345 404 --------- --------- --------- ----------- --------- Total net revenues..................................... 867 806 3,776 3,679 3,029 --------- --------- --------- ----------- --------- Operating expenses: Operating.................................................. 23 21 98 57 96 Selling, general and administrative........................ 541 509 2,439 2,391 2,145 Programming................................................ 190 168 763 650 602 Depreciation and amortization.............................. 47 45 185 186 264 --------- --------- --------- ----------- --------- Total operating expenses............................... 801 743 3,485 3,284 3,107 --------- --------- --------- ----------- --------- Income (loss) from operations................................ 66 63 291 395 (78) Other (expense) income: Interest expense........................................... (105) (91) (380) (336) (239) Other...................................................... (12) (1) (22) (12) 24 --------- --------- --------- ----------- --------- Net (loss) income...................................... $ (51) $ (29) $ (111) $ 47 $ (293) --------- --------- --------- ----------- --------- --------- --------- --------- ----------- ---------
See Notes to Financial Statements. F-231 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.) COMBINED STATEMENT OF CHANGES IN NET INVESTMENT OF PARENT FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS) Balance at January 1, 1995.......................................................... $ 836 Net loss............................................................................ (293) Net transfers from Parent........................................................... 1,109 --------- Balance at December 31, 1995........................................................ 1,652 Net income.......................................................................... 47 Net transfers to Parent............................................................. (237) --------- Balance at December 31, 1996........................................................ 1,462 Net loss............................................................................ (111) Net transfers from Parent........................................................... 128 --------- Balance at December 31, 1997........................................................ $ 1,479 --------- ---------
See Notes to Financial Statements. F-232 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.) COMBINED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH (IN THOUSANDS)
THREE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------ ------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net (loss) income.................................................. $ (51) $ (29) $ (111) $ 47 $ (293) Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities: Depreciation................................................. 33 31 132 141 168 Amortization................................................. 14 14 53 45 96 Net trade (revenue) expense.................................. (6) (42) (14) 91 41 Gain on sale of fixed assets................................. -- (2) (2) -- -- Minority interest share of net loss.......................... -- -- -- -- 22 Forgiveness of debt.......................................... -- -- -- -- (44) Changes in assets and liabilities: (Increase) decrease in net investment of parent............ (38) -- 128 (237) 1,109 Decrease (increase) in accounts receivable................. 172 55 (7) (110) (79) (Increase) decrease in prepaid expenses and other current assets........................................... (20) -- 5 9 (7) Increase (decrease) in accounts payable.................... 20 19 (14) (16) (101) Increase (decrease) in accrued expenses and other current liabilities...................................... 33 23 18 (38) 45 ----- ----- --------- --------- --------- Net cash provided by (used for) operating activities..... 157 69 188 (68) 957 ----- ----- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment.............................. (56) (39) (187) (65) (253) Proceeds from sale of fixed assets............................... -- 9 9 -- -- ----- ----- --------- --------- --------- Net cash used for investing activities................... (56) (30) (178) (65) (253) ----- ----- --------- --------- --------- Cash flows from financing activities: Payments on long-term debt....................................... -- -- -- (9) (516) ----- ----- --------- --------- --------- Cash used for financing activities....................... -- -- -- (9) (516) ----- ----- --------- --------- --------- Increase (decrease) in cash........................................ 101 39 10 (142) 188 Cash at beginning of year.......................................... 91 81 81 223 35 ----- ----- --------- --------- --------- Cash at end of year................................................ $ 192 $ 120 $ 91 $ 81 $ 223 ----- ----- --------- --------- --------- ----- ----- --------- --------- ---------
See Notes to Financial Statements. F-233 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) 1. BASIS OF PRESENTATION The accompanying combined financial statements present the financial position, results of operations, changes of net investment of parent and cash flows of Ninety Four One, Inc. and KAYD AM/FM. Ninety Four Point One, Inc. owns and operates the KQXY and KQHN radio stations in Beaumont, Texas. Petracom Broadcasting of Rockford, Inc. owns and operates the KAYD AM/FM radio stations in Beaumont, Texas (collectively the "Radio Stations"). Throughout the periods presented, the Radio Stations' operations were conducted and accounted for as subsidiaries or divisions of Petracom Holdings, Inc. ("Holdings"). These financial statements have been derived from the historical accounting records of the Radio Stations and include all revenues and expenses directly attributable to the Radio Station, including allocations for the costs of general and administrative expenses performed on behalf of the Radio Stations by Holdings. As more fully described in Note 2, a pro forma provision for income taxes for the year ended December 31, 1997 was made to reflect the provision for income taxes of the Radio Stations if they were a separate taxpayer. See Note 5 for a description of the allocation methodology. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. REVENUE RECOGNITION Advertising revenue is recognized in the period during which the spots are aired. Revenues from other sources are recognized in the period when the services are provided. PROPERTY AND EQUIPMENT Property and equipment, is recorded at cost. Depreciation is computed over the estimated useful lives of the assets which range from 5 to 20 years on a straight line basis. INTANGIBLE ASSETS Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life. The Radio Stations evaluate the recoverability of goodwill annually to determine if the expected undiscounted future cash flows from goodwill is inadequate to exceed the carrying value. In those instances, the carrying value would be reduced and an impairment loss would be recognized. The Radio Stations did not recognize any impairment loss during the years ended December 31, 1997, 1996 and 1995. F-234 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Radio Stations' operating results have been included in the consolidated tax returns filed by Holdings and no effect for income taxes has been recorded in the historical results of operations. A pro forma adjustment for income taxes has been made for the year ended December 31, 1997 as if the Radio Stations were a separate taxpayer. TRADE TRANSACTIONS The Radio Stations trade certain advertising time in exchange for various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. The related revenue is recognized when the advertisements are broadcast while expenses are recognized when the goods or services are received or used. FINANCIAL INSTRUMENTS Management estimates that the fair value of all financial instruments approximates their carrying value at December 31, 1997. EARNINGS PER SHARE Due to the historical organization and capital structure of the Radio Stations, earning per share information is not considered relevant. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. F-235 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
ESTIMATED DECEMBER 31, USEFUL LIFE -------------------- (YEARS) 1997 1996 --------------- --------- --------- Land........................................................ 20 $ 194 $ 153 Building and improvements................................... 20 155 150 Broadcasting towers and equipment........................... 10 541 499 Office furniture and equipment.............................. 5 725 632 Motor vehicles.............................................. 5 74 70 Construction in progress.................................... -- 7 21 --------- --------- 1,696 1,525 Accumulated depreciation and amortization................... (963) (840) --------- --------- $ 733 $ 685 --------- --------- --------- ---------
4. INTANGIBLE ASSETS Intangible assets consist of the following:
AMORTIZATION DECEMBER 31, PERIOD -------------------- (YEARS) 1997 1996 ----------------- --------- --------- Deferred financing costs.................................... 7-8 $ 143 $ 143 Customer list............................................... 5 125 125 Goodwill.................................................... 5 25 25 Organizational costs........................................ 5 12 12 --------- --------- 305 305 Accumulated amortization.................................... (169) (116) --------- --------- $ 136 $ 189 --------- --------- --------- ---------
The amortization of deferred financing costs is recorded as interest expense in the statement of operations. 5. RELATED PARTY TRANSACTIONS The financial statements include significant transactions with Holdings involving functions and services that were provided to or for the Radio Stations. The costs of these functions and services have been directly charged or allocated to the Radio Stations using methods that management believes are reasonable. Such charges and allocations are not necessarily indicative of costs which may have been incurred if the Radio Stations had been a separate entity. Allocated costs for the years ended December 31, 1997, 1996 and 1995 were $137, $117 and $128, respectively. F-236 NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD AM/FM (A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.) NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES The Radio Stations have operating lease agreements for broadcasting facilities and equipment. Rental expense for the years ended December 31, 1997, 1996 and 1995 was $93, $59 and $26, respectively. Future minimum annual payments under these noncancelable operating leases as of December 31, 1997, are as follows: 1998............................................................... $ 23 1999............................................................... 3 --- $ 26 --- ---
7. SUBSEQUENT EVENT On March 6, 1998, Holdings entered into an asset purchase agreement to sell substantially all of the assets of the Radio Stations. The sale is expected to close in the second quarter 1998. F-237 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheet and the related statements of operations and of cash flows present fairly, in all material respects, the financial position of Pamplico Broadcasting, L.P. (the "Partnership") at December 31, 1997, and the results of its operations and its cash flows for the year ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 13, 1998 F-238 PAMPLICO BROADCASTING, L.P. BALANCE SHEETS
THREE MONTHS FOR THE YEAR ENDED ENDED MARCH 31, DECEMBER 31, --------------- ------------------ 1998 1997 --------------- ------------------ (UNAUDITED) ASSETS Current assets: Cash....................................................................... $ 4,169 $ -- Accounts receivable, less allowance for doubtful accounts of $53,127 and $53,127, respectively.................................................... 24,133 91,915 Other current assets....................................................... 1,000 1,000 --------------- ---------- Total current assets................................................... 29,302 92,915 Property and equipment, net.................................................. 399,480 413,197 Intangible assets, net....................................................... 466,931 473,888 --------------- ---------- Total assets........................................................... $ 895,713 $ 980,000 --------------- ---------- --------------- ---------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Current liabilities: Accounts payable........................................................... $ 65,395 $ 89,051 Accrued and other current liabilities...................................... 123,653 73,653 Deferred liabilities....................................................... 50,000 50,000 Demand notes............................................................... 3,524,799 3,476,993 Due to affiliate........................................................... 98,092 63,700 --------------- ---------- Total current liabilities.............................................. 3,861,939 3,753,397 --------------- ---------- Commitments and contingencies Partners' capital (deficit): Beginning capital (deficit)................................................ (2,773,397) (2,229,399) Partner contributions...................................................... -- 31,974 Current year loss.......................................................... (192,829) (575,972) --------------- ---------- Total partners' capital (deficit)...................................... (2,966,226) (2,773,397) --------------- ---------- Total liabilities and partners' capital................................ $ 895,713 $ 980,000 --------------- ---------- --------------- ----------
See Notes to Financial Statements. F-239 PAMPLICO BROADCASTING, L.P. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED -------------------------- DECEMBER 31, 1998 1997 1997 ------------ ------------ ------------------ (UNAUDITED) Revenues.......................................................... $ 111,568 $ 216,110 $ 1,046,516 Less: agency commissions........................................ -- -- (51,325) Income from time brokerage agreement.............................. 15,000 -- -- ------------ ------------ ------------------ Net revenues................................................ 126,568 216,110 995,191 Operating expenses: Sales and promotions............................................ 24,911 29,864 132,143 Technical....................................................... 88,909 74,896 293,412 General and administrative...................................... 87,978 102,116 416,506 Trade........................................................... 53,350 75,628 440,082 ------------ ------------ ------------------ Total operating expenses.................................... 255,148 282,504 1,282,143 ------------ ------------ ------------------ Loss from operations.............................................. (128,580) (66,394) (286,952) Other income (expense): Interest expense................................................ (51,631) (39,422) (270,944) Other........................................................... (12,618) (2,680) (18,076) ------------ ------------ ------------------ Net loss.......................................................... $ (192,829) $ (108,496) $ (575,972) ------------ ------------ ------------------ ------------ ------------ ------------------
See Notes to Financial Statements. F-240 PAMPLICO BROADCASTING, L.P. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ------------------------ DECEMBER 31, 1998 1997 1997 ----------- ----------- ------------------ (UNAUDITED) Cash flows used in operating activities: Net loss.......................................................... $ (192,829) $ (108,496) $ (575,972) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................................. 22,013 17,105 68,419 Decrease/(increase) in accounts receivable.................... 67,782 (736) 16,092 Increase in other current assets.............................. -- -- (1,000) Decrease in accounts payable.................................. (23,656) (36,414) (33,165) Increase in accrued and other current liabilities............. 50,000 -- 73,653 Increase/(decrease) in payable to affiliate................... 33,432 33,836 (36,158) ----------- ----------- ---------- Net cash used in operating activities....................... (43,258) (94,705) (488,131) ----------- ----------- ---------- Cash flows used in investing activities-- Purchases of property and equipment............................... (379) (20,076) (291,554) ----------- ----------- ---------- Cash flows from financing activities: Proceeds of borrowings of notes payable, net...................... 47,806 103,671 747,711 Proceeds from partner contributions............................... -- 16,574 31,974 ----------- ----------- ---------- Net cash provided by financing activities................... 47,806 129,245 779,685 ----------- ----------- ---------- Increase in cash.................................................... 4,169 5,464 -- Cash at beginning of period......................................... -- -- -- ----------- ----------- ---------- Cash at end of period............................................... $ 4,169 $ 5,464 $ -- ----------- ----------- ---------- ----------- ----------- ---------- Supplemental disclosures of cash flow information: Interest paid..................................................... $ 51,631 $ 39,422 $ 197,291 ----------- ----------- ---------- ----------- ----------- ---------- Non-cash operating activities: Trade revenue..................................................... $ 53,350 $ 75,628 $ 440,082 ----------- ----------- ---------- ----------- ----------- ---------- Trade expense..................................................... $ 53,350 $ 75,628 $ 440,082 ----------- ----------- ---------- ----------- ----------- ----------
See Notes to Financial Statements. F-241 PAMPLICO BROADCASTING, L.P. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Pamplico Broadcasting, L.P. (the "Partnership") is a limited partnership whose partners include a general partner and two limited partners. The Partnership owns and operates radio stations WMXT-FM, WBZF-FM, WYNA-FM and maintains a management operating lease for WWFN (the "Stations") located in Florence, SC. The significant accounting principles followed by the Partnership and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. The Partnership is entirely dependent on the continued financial support of its partners to meet its obligations as they come due. 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. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Partnership enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Partnership uses exchanged products or services before advertising air time is provided, a trade liability is recognized. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Broadcasting towers and equipment............................ 7 years Office furniture and equipment............................... 5 years Term of Leasehold improvement........................................ lease
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include Federal Communications Commission ("FCC") licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over a fifteen year period. The F-242 PAMPLICO BROADCASTING, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Partnership evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. FEDERAL INCOME TAXES The Partnership is not a taxpaying entity for Federal income tax purposes, and thus no income tax expense or benefit have been recorded. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable, and demand notes approximates fair value due to their short-term nature. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, 1997 ------------ Broadcasting towers and equipment............................................... $ 631,341 Office furniture and equipment.................................................. 26,016 Leasehold improvements.......................................................... 12,317 ------------ 669,674 Accumulated depreciation........................................................ (256,477) ------------ Property and equipment, net..................................................... $ 413,197 ------------ ------------
Depreciation expense for the year ended December 31, 1997 was $36,753. 3. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, 1997 ------------ FCC licenses.................................................................... $ 550,000 Accumulated amortization........................................................ (76,112) ------------ Intangible assets, net.......................................................... $ 473,888 ------------ ------------
Amortization expense for the year ended December 31, 1997 was $31,666. F-243 PAMPLICO BROADCASTING, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. DEMAND NOTES: Demand notes consists of the following:
DECEMBER 31, 1997 ----------------- Note payable at prime rate minus 1%, due February 1998, and secured by substantially all assets of the Partnership and the personal stock of a certain partner.......................................................... $ 1,900,000 Note payable at 9.25%, total payment due January, 1998..................... 190,143 Note payable on demand to partners at prime rate plus 1%................... 1,386,850 ----------------- $ 3,476,993 ----------------- -----------------
5. RELATED PARTIES: The Partnership entered into several transactions with an affiliate owned by two of the same partners as the Partnership. At December 31, 1997, $63,700 was owed to the affiliate. Of the $1,386,850 note payable to partners, $715,000 was loaned to the Partnership during 1997 to be used in the daily operations of the Partnership. The loans are payable on demand at prime plus 1%. 6. COMMITMENTS AND CONTINGENCIES: The Partnership incurred expenses of approximately $57,042 for the year ended December 31, 1997 under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997, are as follows:
PAYMENTS ---------- 1998.............................................................................. $ 57,000 1999.............................................................................. 55,800 2000.............................................................................. 55,800 2001.............................................................................. -- Thereafter........................................................................ -- ---------- $ 168,600 ---------- ----------
7. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT: In February 1998, the Partnership entered into an asset purchase agreement with Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus") to sell all of the assets of the Partnership to Cumulus, subject to approval of the FCC. In conjunction with the sale, the Partnership entered into a time-brokerage agreement ("TBA") with Cumulus effective March 16, 1998. Under the terms of the TBA, Cumulus has the night to broadcast certain programming and sell advertising on the stations until the earlier of the closing or termination of the asset purchase agreement. In exchange, Cumulus has agreed to pay the Partnership a monthly fee of $ . F-244 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations and accumulated deficit and of cash flows present fairly, in all material respects, the financial position of Phoenix Broadcast Partners, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 16, 1998 F-245 PHOENIX BROADCAST PARTNERS, INC. BALANCE SHEETS
MARCH 31, DECEMBER 31, ----------- ------------------------ 1998 1997 1996 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.............................................. $ -- $ 543 $ -- Accounts receivable, less allowance for doubtful accounts of $26,606, $35,300 and $25,413, respectively...... 70,516 100,704 75,057 ----------- ----------- ----------- Total current assets............................................... 70,516 101,247 75,057 Property and equipment, net.............................................. 149,403 163,410 181,643 Intangible assets, net................................................... 573,225 586,054 637,271 Due from related party................................................... 14,750 14,950 14,250 Other assets............................................................. 3,274 3,274 3,274 ----------- ----------- ----------- Total assets....................................................... $ 811,168 $ 868,935 $ 911,495 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Note payable........................................................... $ 661,000 $ 661,000 $ 661,000 Due to related party................................................... 617,720 604,728 423,917 Accounts payable....................................................... 56,509 59,475 48,757 Accrued interest....................................................... 331,329 313,547 243,267 Other current liabilities.............................................. 137,424 134,293 155,564 ----------- ----------- ----------- Total current liabilities.......................................... 1,803,982 1,773,043 1,532,505 Long-term liabilities.................................................... 94,721 96,625 104,239 ----------- ----------- ----------- Total liabilities.................................................. 1,898,703 1,869,668 1,636,744 ----------- ----------- ----------- Commitments and contingencies Stockholders' deficit: Common stock, $1 par value; 7,500 shares authorized; 7,500 issued and outstanding; 1,000 fully paid........... 1,000 1,000 1,000 Paid-in capital........................................................ 320,668 320,668 320,668 Accumulated deficit.................................................... (1,409,203) (1,322,401) (1,046,917) ----------- ----------- ----------- Total stockholders' deficit........................................ (1,087,535) (1,000,733) (725,249) ----------- ----------- ----------- Total liabilities and stockholders' deficit........................ $ 811,168 $ 868,935 $ 911,495 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements F-246 PHOENIX BROADCAST PARTNERS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
THREE MONTHS FOR THE YEARS ENDED ENDED MARCH 31, DECEMBER 31, ---------------------------- ---------------------------- 1998 1997 1997 1996 ------------- ------------- ------------- ------------- (UNAUDITED) Revenues.............................................. $ 128,652 $ 148,365 $ 777,905 $ 636,638 Less: agency commissions.............................. (5,589) (7,262) (46,633) (27,060) ------------- ------------- ------------- ------------- Net revenues.................................. 123,063 141,103 731,272 609,578 ------------- ------------- ------------- ------------- Operating expenses: Programming......................................... 54,187 57,888 267,448 205,132 Sales and promotions................................ 39,719 43,451 222,603 141,430 Technical and engineering........................... 12,665 16,503 81,492 81,182 General and administrative.......................... 48,277 31,524 171,130 175,805 Bad debt expense.................................... 4,200 12,996 47,059 41,727 Depreciation and amortization....................... 26,836 23,542 94,069 90,697 ------------- ------------- ------------- ------------- Total operating expenses...................... 185,884 185,904 883,801 735,973 ------------- ------------- ------------- ------------- Loss from operations.................................. (62,821) (44,801) (152,529) (126,395) Other income.......................................... -- -- 7,645 -- Interest expense.................................... (23,981) (32,650) (130,600) (102,580) ------------- ------------- ------------- ------------- Loss before income taxes............................ (86,802) (77,451) (275,484) (228,975) Income taxes........................................ -- -- -- -- ------------- ------------- ------------- ------------- Net loss.............................................. (86,802) (77,451) (275,484) (228,975) Accumulated deficit at beginning of period............ (1,322,401) (1,046,917) (1,046,917) (817,942) ------------- ------------- ------------- ------------- Accumulated deficit at end of period.................. $ (1,409,203) $ (1,124,368) ($ 1,322,401) ($ 1,046,917) ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
See Notes to Financial Statements. F-247 PHOENIX BROADCAST PARTNERS, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS FOR THE YEARS ENDED ENDED MARCH 31, DECEMBER 31, ---------------------------- ------------------------ 1998 1997 1997 1996 ------------- ------------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net loss............................................... $ (86,802) $ (77,451) $ (275,484) $ (228,975) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization...................... 26,836 23,542 94,069 90,697 Decrease (increase) in accounts receivable......... 30,188 3,305 (25,647) (18,905) Increase (decrease) in accounts payable............ (2,966) 9,432 10,718 21,412 Increase in accrued interest....................... 17,782 26,528 70,280 59,095 Decrease in long term liabilities.................. (1,904) (1,904) (7,614) (7,614) Increase in due to related parties, net............ 13,192 9,580 180,111 53,624 Increase (decrease) in accrued expenses and other............................................ 3,131 25,164 (21,271) 44,298 ------------- ------------- ----------- ----------- Net cash provided by (used for) operating activities..... (543) 18,196 25,162 13,632 ------------- ------------- ----------- ----------- Cash flows from investing activities: Purchase of intangible assets.......................... -- -- -- (1,500) Purchases of property and equipment.................... -- (2,227) (24,619) (12,904) ------------- ------------- ----------- ----------- Net cash used for investing activities................... -- (2,227) (24,619) (14,404) ------------- ------------- ----------- ----------- Net increase (decrease) in cash.......................... (543) 15,969 543 (772) Cash at beginning of period.............................. 543 -- -- 772 ------------- ------------- ----------- ----------- Cash at end of period.................................... $ -- $ 15,969 $ 543 $ -- ------------- ------------- ----------- ----------- ------------- ------------- ----------- ----------- Supplemental disclosures of cash flow information: Cash paid for taxes.................................... $ -- $ -- $ -- $ -- ------------- ------------- ----------- ----------- ------------- ------------- ----------- ----------- Cash paid for interest................................. $ -- $ $ 30,496 $ 14,070 ------------- ------------- ----------- ----------- ------------- ------------- ----------- -----------
See Notes to Financial Statements. F-248 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Phoenix Broadcast Partners, Inc. (the "Company"), a C corporation, owns and operates radio stations WZAT-FM and WSGA-AM in Savannah, Georgia. The Company shares common owners and officers with WGUL-FM, Inc. (WGUL), a radio station operating in Palm Harbor, Florida, which provides certain services to the Company. As more fully described in Note 2, the Company has significant transactions with WGUL, its owners and other related parties and is dependent upon its owners and the related parties for continued financial support. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. Trade activities were not significant during 1997 and 1996. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its accounts receivable. The Company maintains reserves for potential credit losses based upon the expected collectibility of all accounts receivable. F-249 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using accelerated methods over the estimated useful lives of the respective assets, generally 5 to 7 years. Leasehold improvements are amortized on the straight-line basis over the shorter of their estimated useful life or the lease term. Maintenance, repairs and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets are amortized on a straight line basis over their respective estimated useful lives of 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company files separate federal and state income tax returns on the cash basis of accounting. 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 amount at each year-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. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments, including cash, accounts receivable, accounts payable and notes payable, approximate fair value due to their short term nature. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. F-250 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. RELATED PARTY TRANSACTIONS: The due to/(from) related parties at December 31, 1997 and 1996 consist of the following:
1997 1996 ----------- ----------- Advances due from shareholder....................................... $ (14,950) $ (14,250) ----------- ----------- ----------- ----------- Advances due to shareholders........................................ $ 40,710 $ 40,710 Note payable to shareholders........................................ 293,700 293,700 Accrued interest on note payable.................................... 64,205 39,417 Balance due to WGUL................................................. 206,113 50,090 ----------- ----------- $ 604,728 $ 423,917 ----------- ----------- ----------- -----------
The Company shares its owners and officers with WGUL which has from time to time paid for certain expenses on behalf of the Company. During 1997, WGUL advanced $156,023 of working capital to the Company. During 1996, WGUL advanced $29,335 of working capital to the Company. Advances due from shareholder present an amount advanced to an employee/shareholder of the Company for investment in an unrelated business entity. The advance is unsecured and does not accrue interest. Advances due to shareholders represent amounts received from certain shareholders in 1996 and 1995. The amounts received were used primarily to fund the operating activities of the Company and its capital expenditures. The advances are due on demand and do not accrue interest. Note payable to shareholders represents a promissory note entered into on June 20, 1995 between the Company and its principal shareholders. The note is secured on all equipment, accounts receivable and intangible assets of the Company, subordinate to Lewis Broadcasting Corporation's security interest. The note is payable on demand and accrues simple interest at Prime. The weighted average interest rate on this note for the year ended December 31, 1997 and 1996 was 8.27% and 8.44% respectively. Interest expense on the note payable was $24,788 and $24,289 in 1997 and 1996 respectively. 3. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 and 1996 consists of the following:
1997 1996 ----------- ---------- Leasehold improvements............................................... $ 36,113 $ 24,113 Broadcasting equipment............................................... 227,993 215,374 Office furniture and equipment....................................... 36,500 36,500 ----------- ---------- 300,606 275,987 Accumulated depreciation............................................. (137,196) (94,344) ----------- ---------- Property and equipment, net.......................................... $ 163,410 $ 181,643 ----------- ---------- ----------- ----------
Depreciation expense for 1997 and 1996 was $42,852 and $39,305, respectively. F-251 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INTANGIBLE ASSETS: Intangible assets at December 31, 1997 and 1996 consist of the following:
1997 1996 ----------- ----------- FCC licenses........................................................ $ 635,000 $ 635,000 Other............................................................... 134,757 134,757 ----------- ----------- 769,757 769,757 Accumulated amortization............................................ (183,703) (132,486) ----------- ----------- Intangible assets, net.............................................. $ 586,054 $ 637,271 ----------- ----------- ----------- -----------
Amortization expense for 1997 and 1996 was $51,217 and $51,392, respectively. 5. NOTE PAYABLE: The Note Payable balance at December 31. 1997 and 1996 is represented by the following:
1997 1996 ---------- ---------- Lewis Broadcasting Corporation Note, matured on June 10, 1995; fixed interest rate of 10%; secured by accounts receivable, tangible assets and intangible assets of the Company................................ $ 661,000 $ 661,000 ---------- ---------- ---------- ----------
The Lewis Broadcasting Corporation (Lewis) note matured on June 10, 1995, however the Company defaulted on the loan repayment. Consequently, Lewis notified the Company and its shareholders on July 15, 1995 of the default and tendered the requisite notice to pursue remedy under the terms of the note. In connection with the default, Lewis filed a suit against the Company and its shareholders seeking specific performance of the default remedies under the note. (See Note 9 Commitments and Contingencies) As a consequence of the default, interest at a rate of 10% per annum is still accruing on the outstanding note and interest with a late charge of 5% of the outstanding principal at the date of default and attorneys' fees at the rate of 15% on the foregoing outstanding principal and interest. Interest, late charges and attorneys' fees amounted to $70,889 and $76,015 in 1997 and 1996, respectively. 6. LONG TERM LIABILITIES: Long term liabilities consist of obligations due, under an employment contract, to a former employee and consist of the following: - $93,757 under the employment contract payable in semi-annual installments of $3,825 for principal and 6% simple interest commencing January 1994 and maturing January 2014, and - $50,000 bonus payable in ten equal annual installments of $5,000 commencing May 1994. The Company has not been making payments in accordance with the terms set out in the contract and consequently has recorded a liability of $127,932 and $129,432 at December 31, 1997 and 1996 respectively, F-252 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. LONG TERM LIABILITIES: (CONTINUED) of which $31,307 and $25,193, representing the portion currently payable, has been recorded in accrued liabilities as of December 31, 1997 and 1996, respectively. Interest expense on the employment contract obligation amounted to $5,036 and $5,126 for the years ended December 31, 1997 and 1996, respectively. 7. INCOME TAXES: The Company's effective income tax rate differs from the statutory federal income tax rate as follows:
1997 1996 ----------- --------- Income tax benefit at federal statutory rate................. $ (93,665) (34.0%) $ (77,852) (34.0%) State income taxes (net of federal benefit).................. (10,902) (4.0%) (9,060) (4.0%) Non-deductible items......................................... 60 -- 60 -- Change in valuation allowance................................ 104,507 -- 86,852 -- ----------- --------- ---------- --------- $ -- --% $ -- --% ----------- --------- ---------- --------- ----------- --------- ---------- ---------
Significant items giving rise to deferred taxes as of December 31, 1997 and 1996 are as follows:
1997 1996 ----------- ----------- Deferred tax assets (liabilities): Net operating loss carryforwards.................................... $ 176,340 $ 112,204 Accounts receivable................................................. (38,227) (27,526) Depreciation and amortization....................................... 26,643 27,252 Accounts payable and accrued liabilities............................ 216,949 170,370 Other............................................................... -- (5,102) ----------- ----------- Net deferred tax asset.............................................. 381,705 277,198 Less valuation allowance............................................ (381,705) (277,198) ----------- ----------- Total net deferred tax asset........................................ $ -- $ -- ----------- ----------- ----------- -----------
The net deferred tax asset at December 31, 1997 and 1996 is fully offset by the valuation allowance. The amount of the valuation allowance is reviewed periodically by management and is determined based on management's assessment of the Company's ability to generate future taxable income and realize the tax benefits associated with the deferred tax assets. Net operating losses expire as follows: 2009..... $ 69,955 2010..... 97,291 2011..... 129,536 2012..... 168,639 --------- $ 465,421 --------- ---------
F-253 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES: (CONTINUED) If certain substantial changes in the Company's ownership should occur, there would be an annual limitation on the amount of the operating loss carryforwards which can be utilized. 8. DEFINED CONTRIBUTION PLAN: Effective August 1997, the Company in conjunction with WGUL adopted a qualified profit sharing plan under Section 401(k) of the Internal Revenue Code. All employees meeting eligibility requirements are qualified for participation in the plan. Participants of the plan may contribute 1% to 15% of their annual compensation, up to $10,000 for the year, through payroll deductions. The Company has the option to provide a matching and discretionary contribution each year. For fiscal 1997, the total matching contribution was $2,214. No discretionary contributions were made in 1997. 9. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES AND LICENSING AGREEMENTS The Company leases its station studios and certain equipment under various operating leases and enters into licensing agreements to obtain the rights to broadcast shows. Rent expense under operating leases and payments under the licensing agreements for the years ended December 31, 1997 and 1996 amounted to $48,250 and $34,009 respectively. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997 are as follows: 1998............................................................... $ 51,300 1999............................................................... 36,000 2000............................................................... 12,000 Thereafter......................................................... -- --------- $ 99,300 --------- ---------
CONTINGENCIES The Company is party to a lawsuit relating to the default on the note payable to Lewis. The Lewis note was originally executed by Gulf Atlantic, the previous owners of the radio stations, and as security for the note, Gulf Atlantic executed a security agreement conveying to Lewis a first priority interest in all of the operating assets of WZAT-FM and WSGA-AM. In conjunction with the execution of the promissory note and the security agreement, Gulf Atlantic and the Company's shareholders executed an option agreement granting Lewis an irrevocable right to purchase both radio stations for $650,000, less any amounts remaining to be paid on the note plus a $100,000 non-compete fee as well as the right of first refusal on the sale of the stations' operational assets and business. Upon the Company's default on the note, Lewis notified the Company and its shareholders of the default and tendered requisite notice of its intention to exercise its rights under the option agreement. Lewis also filed a suit against the Company and its shareholders to seek specific performance of exercising the option under the option agreement and collection of all amounts due under the note. Through a counterclaim for declaratory judgment, the Company obtained a court ruling concluding that the option agreement is void as a matter of law. The court ruling, however, upheld Lewis' claim that the Company and its shareholders are indebted to Lewis for the principal and interest due under the promissory note together with reasonable attorneys' fees of F-254 PHOENIX BROADCAST PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. COMMITMENTS AND CONTINGENCIES: (CONTINUED) 15% of all outstanding principal and interest amounts owed. Lewis has appealed the court's decision with respect to the option agreement being void and is awaiting a decision from the appellate court. Management expects to prevail in the appellate court decision. 10. SUBSEQUENT EVENTS On March 16, 1998, the Company entered into a 1 year Local Marketing Agreement (LMA) with Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc., in return for a monthly license fee. The Company has also commenced negotiations with Cumulus Broadcasting, Inc., to sell certain assets of WZAT-FM, subject to approval of the Federal Communications Commission, in return for consideration of approximately $3.5 million. The Company has also commenced negotiation with Lewis regarding a proposed settlement agreement for $1,700,000. The proposed settlement agreement will satisfy the Company's obligations with respect to the following: (1) all principal, interest, late fees, origination fees and attorneys' fees related to the Lewis note referred to in Note 9 above; (2) rent and late fees related to the lease of the Company's antenna and tower from Lewis for the period up through the date of the proposed settlement agreement and through May, 1998; (3) all obligations of the Company and its shareholders to pay Lewis some proceeds from the proposed sale of the Company to Cumulus Broadcasting, Inc. under the option agreement as discussed in Note 9 above; and (4) any and all remaining obligations of the Company with respect to the note and option agreement with Lewis. 11. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT On April 8, 1998, the Company signed an agreement with Lewis to settle the suit referred to in Note 9. The terms of the agreement were substantially the same as those outlined in Note 10. On April 8, 1998, the Company signed the agreement with Cumulus Broadcasting, Inc. to sell certain assets of WZAT-FM, as outlined in the second paragraph of Note 10. On April 13, 1998, a suit was filed against the Company and others alleging violation of the plaintiff's rights under Title IX of the Organized Crime Control Act of 1970. The plaintiff is asking for treble damages in the amount of $1.5 million from each of the defendants. Management believes that the Company will prevail in this matter. F-255 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Republic Corporation Montgomery, Alabama We have audited the consolidated balance sheets of Republic Corporation and subsidiary (radio broadcasting operations only) as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 Republic Corporation and subsidiary (radio broadcasting operations only) as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Montgomery, Alabama March 2, 1998 F-256 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, -------------------- 1997 1996 MARCH 31, --------- --------- 1998 ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................................................... $ 313 $ 247 $ 257 Accounts receivable, net of allowance for doubtful accounts of $547, $521, and $479, respectively..................................................... 159 1,515 1,449 Other current assets......................................................... 47 246 172 State income taxes receivable................................................ 44 44 47 Due from Cumulus Media Inc................................................... 661 ----------- --------- --------- Total current assets..................................................... 1,224 2,052 1,925 Other assets: Land, building and equipment, net............................................ 2,997 2,397 2,167 Investment in equity investee................................................ 621 628 633 Intangible assets and other.................................................. 11,912 12,152 13,103 ----------- --------- --------- Total assets............................................................. $ 16,754 $ 17,229 $ 17,828 ----------- --------- --------- ----------- --------- --------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable............................................................. $ 189 $ 131 $ 263 Accrued expenses............................................................. 518 693 484 ----------- --------- --------- Total current liabilities................................................ 707 824 747 Deferred tax liability......................................................... 272 272 4,123 ----------- --------- --------- Total liabilities........................................................ 979 1,096 4,870 ----------- --------- --------- Stockholder's Equity: Common stock, $0.01 par; 500,000 shares authorized, 50,000 shares issued and outstanding....................................... 1 1 1 Contributed capital.......................................................... 8,003 8,003 8,003 Retained earnings............................................................ 7,771 8,129 4,954 ----------- --------- --------- Total stockholder's equity............................................... 15,775 16,133 12,958 ----------- --------- --------- Total liabilities and stockholder's equity..................................... $ 16,754 $ 17,229 $ 17,828 ----------- --------- --------- ----------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-257 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
THREE MONTHS FOR THE YEARS ENDED ENDED MARCH 31, DECEMBER 31, -------------------- ------------------------------- 1998 1997 1997 1996 1995 --------- --------- --------- --------- --------- (UNAUDITED) Revenue: Advertising.............................................. $ 1,192 $ 2,478 $ 11,677 $ 10,959 $ 11,047 LMA Income............................................... 811 Other.................................................... 4 4 14 161 36 --------- --------- --------- --------- --------- Total revenue........................................ 2,007 2,482 11,691 11,120 11,083 Less commissions......................................... 155 504 2,360 2,114 2,090 --------- --------- --------- --------- --------- Net revenues......................................... 1,852 1,978 9,331 9,006 8,993 --------- --------- --------- --------- --------- Expenses: Selling, general, and administrative..................... 1,429 1,356 6,323 5,990 5,981 Amortization............................................. 238 238 954 954 844 Depreciation............................................. 83 83 252 251 267 Reorganization expenses.................................. 438 --------- --------- --------- --------- --------- Total expenses....................................... 1,750 1,677 7,529 7,195 7,530 --------- --------- --------- --------- --------- Operating income..................................... 102 301 1,802 1,811 1,463 --------- --------- --------- --------- --------- Other income (expense): Interest income.......................................... 1 2 11 14 13 Equity in loss of equity investee........................ (15) (9) (32) (41) (62) --------- --------- --------- --------- --------- Total other income (expense)......................... (14) (7) (21) (27) (49) --------- --------- --------- --------- --------- Income before provision for (benefit from) income taxes.............................................. 88 294 1,781 1,784 1,414 Provision for (benefit from) income taxes.................. 11 (3,770) (3,724) 561 464 --------- --------- --------- --------- --------- Net income........................................... $ 77 $ 4,064 $ 5,505 $ 1,223 $ 950 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share (basic and diluted): Net income........................................... $ 1.54 $ 81.28 $ 110.10 $ 24.46 $ 19.00 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-258 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN THOUSANDS)
TOTAL COMMON CONTRIBUTED RETAINED STOCKHOLDER'S STOCK CAPITAL EARNINGS EQUITY ----------- ----------- ----------- ------------ Balance, December 31, 1994....................................... $ 1 $ 236 $ 8,655 $ 8,892 Change in ownership step-up, net of taxes........................ 7,767 7,767 Dividends to former parent....................................... (3,231) (3,231) Net distributions to stockholder................................. (1,284) (1,284) Net income....................................................... 950 950 ----------- ----------- ----------- ------------ Balance, December 31, 1995....................................... 1 8,003 5,090 13,094 Net distributions to stockholder................................. (1,359) (1,359) Net income....................................................... 1,223 1,223 ----------- ----------- ----------- ------------ Balance, December 31, 1996....................................... 1 8,003 4,954 12,958 Net distributions to stockholder................................. (2,330) (2,330) Net income....................................................... 5,505 5,505 ----------- ----------- ----------- ------------ Balance, December 31, 1997....................................... $ 1 $ 8,003 $ 8,129 $ 16,133 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
The accompanying notes are an integral part of these financial statements. F-259 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS FOR THE YEARS ENDED ENDED MARCH 31, DECEMBER 31, -------------------- ------------------------------- 1998 1997 1997 1996 1995 --------- --------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net income..................................................... $ 77 $ 4,064 $ 5,505 $ 1,223 $ 950 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 321 321 1,206 1,205 1,111 Equity in loss of investee................................. 15 9 32 41 62 Deferred income taxes...................................... (3,851) (3,851) (311) (261) (Gain) loss on sale of land, buildings, and equipment...... (3) (3) (2) 6 (4) Changes in: Accounts receivable, net................................. 1,356 257 (66) 34 (311) Other current assets..................................... 199 (65) 79 (72) (47) Due from Cumulus Media Inc............................... (811) Accounts payable and accrued expenses.................... (117) (186) 77 126 265 State income taxes receivable............................ 47 3 (35) (24) --------- --------- --------- --------- --------- Net cash provided by operating activities........................ 1,037 593 2,983 2,217 1,741 --------- --------- --------- --------- --------- Cash flows from investing activities: Purchases of land, buildings, and equipment.................... (681) (43) (662) (913) (271) Proceeds from sale of land, buildings, and equipment........... 3 3 26 4 Contribution to equity investee................................ (8) (2) (27) (25) (35) --------- --------- --------- --------- --------- Net cash used in investing activities............................ (686) (42) (663) (938) (302) --------- --------- --------- --------- --------- Cash flows from financing activities: Net distributions to stockholder............................... (435) (384) (2,330) (1,359) (1,284) Advance from Cumulus Media Inc................................. 150 --------- --------- --------- --------- --------- Net cash used in financing activities............................ (285) (384) (2,330) (1,359) (1,284) --------- --------- --------- --------- --------- (Decrease) increase in cash and cash equivalents............... 66 167 (10) (80) 155 Cash and cash equivalents, beginning of period................... 247 257 257 337 182 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period......................... $ 313 $ 424 $ 247 $ 257 $ 337 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Supplemental disclosure of cash flow information: Income taxes paid.............................................. $ 42 $ 144 $ 137 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-260 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION Republic Corporation (the Company) was formed on February 17, 1995, at which time The Colonial Company (TCC) effected a divisive reorganization and transferred ownership of Colonial Broadcasting Company, Inc. (CBC) to the Company's stockholder which is one of the three previous owners of TCC. The Company's stockholder then contributed CBC to the Company. The Company is engaged in radio broadcasting, operating four radio stations: WLWI-FM, WMSP-AM, WMXS-FM, and WNZZ-AM in Montgomery, Alabama; and operating one radio station, WUSY-FM, in Chattanooga, Tennessee. On January 10, 1998, the stockholder of the Company entered into a Stock Purchase Agreement (the Stock Purchase Agreement) with Cumulus Holdings, Inc. (Cumulus) pursuant to which Cumulus will acquire all of the outstanding shares of the Company. Prior to or concurrent with the acquisition by Cumulus, the Company will repay all long term debt and spin-off all non-broadcasting assets and liabilities to the stockholder of the Company. These consolidated financial statements have been prepared to reflect the broadcasting assets and liabilities of the Company to be acquired by Cumulus pursuant to the Stock Purchase Agreement. The Company's only asset, for all periods presented, is the investment in its wholly owned broadcasting subsidiary, CBC. These financial statements exclude the non-broadcasting assets to be spun-off to the stockholder of the Company (which include CBC's two subsidiaries, CBC Realty, Inc. and Radio Management Services, Inc., as well as certain related party receivables and cash surrender value of life insurance) and all long term debt. Historically, the CBC broadcasting operations have been managed, financed, and accounted for on an independent stand alone basis, requiring no allocation of overhead costs by the Company. The broadcasting operations will continue to be managed and operated autonomously after the spin-off, with no material financial commitments, guarantees, or contingent liabilities with the spun-off, non-broadcasting operations. These financial statements exclude all unrelated, non-broadcasting expenses incurred by the Company at the holding company level. In connection with the Stock Purchase Agreement, Republic and Cumulus entered into a Local Programming and Marketing Agreement (the LMA) which became effective on February 11, 1998. The LMA provides that all advertising revenue is the property of Cumulus and that Cumulus will reimburse Republic for the operating expenses of the radio broadcasting operations. As a result, the interim financials for the three months ended March 31, 1998 include advertising revenue for the period from January 1, 1998 through February 10, 1998 and LMA Income (representing reimbursement of the operating expenses) for the period from February 11, 1998 through March 31, 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION--The consolidated financial statements and notes to the consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, CBC. All significant intercompany balances and transactions have been eliminated. BASIS IN NET ASSETS CONTRIBUTED--The February 17, 1995 divisive reorganization of TCC and the resulting contribution of CBC to the Company was a change in control which resulted in the removal of CBC's due from TCC of $3,231 through a noncash dividend and a new basis of accounting for CBC, the F-261 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) primary effect of which was a step-up in basis for Federal Communications Commission (FCC) rights of $12,481, or $7,767 net of deferred taxes. INCOME RECOGNITION--Advertising income is recognized as services are provided. Barter transactions are reported at the estimated fair market value of the product or services received. Barter revenue is reported when commercials are broadcast, and merchandise or services received as consideration are reported when used or received. CASH AND CASH EQUIVALENTS--For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. LAND, BUILDINGS, AND EQUIPMENT--Land, buildings, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method for financial statement purposes and straight-line and accelerated methods for income tax purposes. Costs for maintenance and repairs are expensed when incurred; betterments and improvements which materially prolong the lives of assets are capitalized. The cost of assets sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts and the gain or loss on such disposition is included in income. INVESTMENT IN EQUITY INVESTEE--The investment in equity investee, in which CBC does not exercise control and has a 50% or less ownership interest, is carried at cost and adjusted for equity in undistributed earnings or losses since the date of acquisition or investment. INTANGIBLE ASSETS--Intangible assets are recorded at a stepped-up basis in connection with the change in ownership described in Note 2. These assets are being amortized using the straight-line method predominately over a period of 15 years. ACCOUNTING FOR INCOME TAXES--Effective January 1, 1997, the Company elected to be taxed as an S Corporation for federal and state income tax purposes. Under the provisions of the Internal Revenue Code, an S Corporation generally is not subject to federal income tax because its taxable income or loss accrues to the individual stockholder. Accordingly, no current federal income tax expense is recognized by the Company for 1997. The Company files tax returns in the State of Tennessee, which does not recognize S Corporations for income tax purposes. Prior to its S Corporation election, the Company utilized an asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets are recognized only to the extent of their anticipated realization. Deferred income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and the amounts reported for the financial statements. The radio broadcasting operations have historically been included in the consolidated income tax returns filed with the Company. Income tax expense for 1996 and 1995 has been calculated on a separate tax return basis. EARNINGS PER SHARE--Earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. The weighted average number of shares used in the computation for 1997, 1996, and 1995 was 50,000 each year. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts F-262 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) reported in the financial statements and accompanying notes. Actual results could differ from these estimates. INTERIM FINANCIAL DATA (UNAUDITED)--The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 3. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No. 128 establishes standards for computing and presenting earnings per share (EPS). This Statement simplifies the standards for computing earnings per share previously found in Accounting Principles Bulletin Opinion No. 15, EARNINGS PER SHARE, and replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. The Company does not anticipate that any other recently issued accounting standards will have a material impact on its financial position, results of operations, or cash flows. 4. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment consists of the following at December 31, 1997 and 1996:
1997 1996 --------- --------- Land....................................................................... $ 128 $ 128 Development in process..................................................... 1,081 789 Buildings and improvements................................................. 69 69 Furniture and fixtures..................................................... 227 219 Equipment.................................................................. 3,302 3,148 Land improvements.......................................................... 67 67 Leasehold improvements..................................................... 320 313 --------- --------- 5,194 4,733 Accumulated depreciation................................................... (2,797) (2,566) --------- --------- $ 2,397 $ 2,167 --------- --------- --------- ---------
F-263 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 5. INVESTMENT IN EQUITY INVESTEE The following sets forth the condensed unaudited financial information of investment in equity investee at December 31, 1997 and 1996. A comparison of the Company's investment (through CBC) in Montgomery Tower Partners along with the Company's portion of Montgomery Tower Partners' capital is as follows:
1997 1996 -------------------------- -------------------------- BALANCE SEPARATE BALANCE SEPARATE PERCENT SHEET ENTITY SHEET ENTITY INTEREST INVESTMENT EQUITY INVESTMENT EQUITY ----------- ------------- ----------- ------------- ----------- Montgomery Tower Partners................................. 50% $ 628 $ 628 $ 633 $ 633 --- ----- ----- ----- ----- --- ----- ----- ----- -----
Shown below is condensed financial information relating to the Company's investment in equity investee based on the entity's separate financial reporting.
1997 --------- Assets............................................................................... $ 1,299 Liabilities.......................................................................... 24 --------- Partners' capital.................................................................... $ 1,275 --------- --------- Revenue.............................................................................. $ 91 --------- --------- Net loss............................................................................. $ (64) --------- --------- Republic Corporation's share of: Partners' capital.................................................................. $ 628 --------- --------- Equity in loss of investee......................................................... $ (32) --------- ---------
6. INTANGIBLE ASSETS AND OTHER Unamortized intangible assets and other consist of the following at December 31, 1997 and 1996:
1997 1996 --------- --------- Federal Communications Commission rights................................ $ 12,083 $ 13,031 Brokers' fees and other................................................. 69 72 --------- --------- $ 12,152 $ 13,103 --------- --------- --------- ---------
F-264 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 7. OPERATING LEASES The Company leases office facilities and equipment under operating leases. Future minimum lease payments as of December 31, 1997 are as follows: FOR THE YEAR ENDING DECEMBER 31: - ------------------------------------------------------------------------------------ 1998.............................................................................. $ 159 1999.............................................................................. 148 2000.............................................................................. 148 2001.............................................................................. 148 2002.............................................................................. 147 Thereafter........................................................................ 609 ----------- $ 1,359 ----------- -----------
Rent expense amounted to $254, $240 and $233 for the years ended December 31, 1997, 1996, and 1995, respectively. 8. INCOME TAXES As discussed in Note 2, effective January 1, 1997, the Company elected to be taxed as an S Corporation for federal and state income tax purposes. Prior to that election, the Company used an asset and liability approach for financial accounting and reporting for income taxes. The provision for (benefit from) income taxes is composed of the following at December 31, 1997, 1996 and 1995:
1997 1996 1995 --------- --------- --------- Current: Federal......................................................... $ 760 $ 610 State........................................................... $ 127 112 115 --------- --------- --------- Total......................................................... 127 872 725 --------- --------- --------- Deferred: Federal......................................................... (3,756) (278) (219) State........................................................... (95) (33) (42) --------- --------- --------- Total......................................................... (3,851) (311) (261) --------- --------- --------- $ (3,724) $ 561 $ 464 --------- --------- --------- --------- --------- ---------
F-265 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 8. INCOME TAXES (CONTINUED) The components of the Company's net deferred tax liability as of December 31, 1997 and 1996, were as follows:
1997 1996 --------- --------- Deferred tax assets; Allowance for bad debts.................................................... $ 14 $ 175 Pension accrual in excess of contributions................................. 2 36 Other...................................................................... 26 --------- --------- Total deferred tax asset................................................. 16 237 --------- --------- Deferred tax liabilities: Accelerated tax depreciation............................................... 8 109 Intangible assets--FCC rights.............................................. 274 4,143 Equity investment.......................................................... 6 108 --------- --------- Total deferred tax liability............................................. 288 4,360 --------- --------- Net deferred tax liability............................................... $ 272 $ 4,123 --------- --------- --------- ---------
At the time of the S Corporation election, it was determined by management that any built-in gains as a result of the tax basis of the Company's net assets would not be realized during the prescribed holding period. Therefore, the net deferred tax liability, excluding the portion related to the State of Tennessee, was written off, through the recognition of a deferred benefit in the 1997 statement of income. 9. EMPLOYEE BENEFIT PLAN The Company and its subsidiary are participants in a pension plan with related companies. This plan covers most employees who have met certain age and length of service requirements. The Company's policy is to contribute annually an amount that can be deducted for federal income tax purposes using the frozen entry age actuarial method. Actuarial computations for financial reporting purposes are based on the projected unit credit method. F-266 REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 9. EMPLOYEE BENEFIT PLAN (CONTINUED) Employee pension benefit plan status at December 31, 1997 and 1996:
1997 1996 --------- --------- Actuarial present value of benefit obligations: Accumulated benefit obligation............................................. $ 801 $ 577 --------- --------- --------- --------- Vested benefit obligation.................................................. $ 737 $ 549 --------- --------- --------- --------- Projected benefit obligation for service rendered to date.................. $ 1,278 $ 965 Plan assets at fair value.................................................. 1,240 888 --------- --------- Projected benefit obligation in excess of plan assets.................... (38) (77) Unrecognized transition asset.............................................. (18) (20) Unrecognized prior service cost............................................ (40) (43) Unrecognized gain.......................................................... (13) 53 --------- --------- Accrued pension cost..................................................... $ (109) $ (87) --------- --------- --------- ---------
Net pension cost includes the following components for the years ended December 31, 1997, 1996, and 1995:
1997 1996 1995 --------- ----- ----- Service cost............................................................. $ 75 $ 73 $ 56 Interest cost............................................................ 88 70 61 Return on plan assets.................................................... (286) (90) (48) Net amortization and deferral............................................ 196 18 (7) --- --- --- Net pension cost....................................................... $ 73 $ 71 $ 62 --- --- --- --- --- ---
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25%, 7.75%, and 7.75% for 1997, 1996, and 1995, respectively. The rate of increase in future compensation levels used was 4.25%, 4.75%, and 5.00% for 1997, 1996, and 1995, respectively, and the expected long-term rate of return was 9% for all years. 10. RELATED PARTY TRANSACTIONS The Company entered into lease agreements with an affiliate for its office facilities in Montgomery. Rent expense under these agreements was $167, $141, and $137 for the years ended December 31, 1997, 1996, and 1995, respectively, and future rent obligations were $1,340 and $1,477, respectively, at December 31, 1997 and 1996. The Company received $101, $117, and $69 in advertising revenue from related parties during the years ended December 31, 1997, 1996, and 1995, respectively. The Company maintains cash and cash equivalent amounts in an affiliated financial institution. The book value of the accounts totaled $219 and $224 at December 31, 1997 and 1996, respectively. F-267 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Savannah Communications, L.P. We have audited the accompanying balance sheets of Savannah Communications, L.P. (the "Partnership") as of December 31, 1997 and 1996, and the related statements of operations, partners' capital and cash flows for the years 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 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 Savannah Communications, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership has experienced losses since its inception in 1995 and is in default on certain of its long-term debt, raising substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Coopers & Lybrand L.L.P. Atlanta, Georgia February 27, 1998 F-268 SAVANNAH COMMUNICATIONS, L.P. BALANCE SHEETS
DECEMBER 31, -------------------------- 1997 1996 MARCH 31, ------------ ------------ 1998 ------------ (UNAUDITED) ASSETS Current assets: Cash.................................................................. $ 60,011 $ 3,812 $ 9,265 Accounts receivable, net of allowance for doubtful accounts of $23,824, $14,815 and $10,556, respectively.......................... 97,152 177,899 267,995 Accounts receivable, partners......................................... 110,000 Prepaid expenses...................................................... 1,687 2,805 8,804 ------------ ------------ ------------ Total current assets.............................................. 158,850 184,516 396,064 Property and equipment, net of accumulated depreciation................. 1,385,009 1,427,694 1,592,468 Intangible assets, net of accumulated amortization...................... 3,352,022 3,464,139 3,073,085 ------------ ------------ ------------ Total assets...................................................... $ 4,895,881 $ 5,076,349 $ 5,061,617 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Current maturities and long-term debt in default...................... $ 2,800,000 $ 2,800,000 $ 2,800,000 Accounts payable...................................................... 64,158 81,797 118,236 Cash advances from affiliate.......................................... 52,876 52,876 32,876 Cash advances from partners........................................... 55,000 -- -- Accrued expenses...................................................... 85,336 51,220 39,783 ------------ ------------ ------------ Total current liabilities......................................... 3,057,370 2,985,893 2,990,895 Long-term debt, less current maturities and debt in default............. 600,000 600,000 150,000 Partners' capital....................................................... 1,238,511 1,490,456 1,920,722 ------------ ------------ ------------ Total liabilities and partners' capital........................... $ 4,895,881 $ 5,076,349 $ 5,061,617 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. F-269 SAVANNAH COMMUNICATIONS, L.P. STATEMENTS OF OPERATIONS
THREE MONTHS FOR THE YEARS ENDED ENDED MARCH 31, DECEMBER 31, --------------------------- --------------------------- 1998 1997 1997 1996 ------------- ------------ ------------- ------------ (UNAUDITED) Revenues: Advertising........................................... $ 30,763 $ 282,410 $ 1,405,307 $ 1,785,059 Income from local Marketing Agreement................. 73,992 -- -- -- Less commissions...................................... (2,878) (25,899) (147,772) (216,604) ------------- ------------ ------------- ------------ Net revenues...................................... 101,877 256,511 1,257,535 1,568,455 ------------- ------------ ------------- ------------ Operating expenses: Promotion............................................. 1,000 10,947 32,511 66,349 Programming........................................... 26,118 110,437 553,475 439,130 Selling, general and administrative................... 79,887 154,229 898,676 744,145 Depreciation and amortization......................... 160,523 119,529 507,168 149,480 Local management agreement fees....................... -- 12,000 12,000 365,813 ------------- ------------ ------------- ------------ 267,528 407,142 2,003,830 1,764,917 ------------- ------------ ------------- ------------ Operating loss.................................... (165,651) (150,631) (746,295) (196,462) ------------- ------------ ------------- ------------ Other income (expense): Interest expense...................................... (83,294) (85,247) (366,450) (67,642) Other, net............................................ (3,000) (514) 14,621 (47,411) ------------- ------------ ------------- ------------ (86,294) (85,761) (351,829) (115,053) ------------- ------------ ------------- ------------ Net loss.......................................... $ (251,945) $ (236,392) $ (1,098,124) $ (311,515) ------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------
The accompanying notes are an integral part of these financial statements. F-270 SAVANNAH COMMUNICATIONS, L.P. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 Partners' capital, December 31, 1995............................................ $1,313,349 Capital contributions......................................................... 918,888 Net loss...................................................................... (311,515) ---------- Partners' capital, December 31, 1996............................................ 1,920,722 Capital contributions......................................................... 667,858 Net loss...................................................................... (1,098,124) ---------- Partners' capital, December 31, 1997............................................ $1,490,456 ---------- ----------
The accompanying notes are an integral part of these financial statements. F-271 SAVANNAH COMMUNICATIONS, L.P. STATEMENTS OF CASH FLOWS
THREE MONTHS FOR THE YEARS ENDED DECEMBER ENDED MARCH 31, 31, ---------------------------- ---------------------------- 1998 1997 1997 1996 ------------- ------------- ------------- ------------- (UNAUDITED) Cash flows from operating activities: Net loss............................................ $ (251,945) $ (236,392) $ (1,098,124) $ (311,515) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation...................................... 58,194 61,563 255,048 77,585 Amortization of intangibles....................... 102,329 57,966 252,128 71,895 Changes in operating assets and liabilities: Accounts receivable............................. 80,083 41,174 90,096 (10,611) Prepaid expenses................................ 1,118 (23,430) 5,999 (8,804) Accounts payable and accrued expenses........... (16,477) (72,209) (25,002) 134,754 ------------- ------------- ------------- ------------- Net cash from (used by) operating activities.................................. 6,256 (171,328) (519,855) (46,696) ------------- ------------- ------------- ------------- Cash flows from investing activities: Acquisition of business, including related costs.... (729,410) (729,410) (4,450,000) Organization costs.................................. (4,046) (4,046) (61,579) Purchases of property and equipment................. (5,057) (104,883) ------------- ------------- ------------- ------------- Net cash used in investing activities......... (5,057) (733,456) (733,456) (4,616,462) ------------- ------------- ------------- ------------- Cash flows from financing activities: Proceeds from long-term debt, net of loan fees...... 450,000 450,000 2,775,134 Cash advances from affiliate........................ 20,000 32,876 Cash advances from partners......................... 55,000 -- -- -- Proceeds from capital contributions................. 450,000 777,858 808,888 ------------- ------------- ------------- ------------- Net cash provided by financing activities..... 55,000 900,000 1,247,858 3,616,898 ------------- ------------- ------------- ------------- Net increase (decrease) in cash............... 56,199 (4,784) (5,453) (1,046,260) Cash, beginning of period............................. 3,812 9,265 9,265 1,055,525 ------------- ------------- ------------- ------------- Cash, end of period................................... $ 60,011 $ 4,481 $ 3,812 $ 9,265 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Supplemental disclosure of cash flow information: Cash paid for interest.............................. $ 34,128 $ 64,750 $ 329,372 $ 51,966 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements. F-272 SAVANNAH COMMUNICATIONS, L.P. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION AND BASIS OF PRESENTATION: Savannah Communications, L.P. (the "Partnership") was formed to acquire, own and operate radio stations servicing the Savannah, Georgia area. The Partnership commenced operations effective October 1995, at which time it entered into a local marketing agreement (LMA) permitting the Partnership to program and market two stations, WBMQ-AM and WIXV-FM, prior to acquiring them on July 31, 1996. The Partnership entered into an LMA commencing August 1996 with respect to another station, WSFG-FM, prior to acquiring it on February 28, 1997. 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. 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 respective assets. Expenditures for repairs are expensed while major additions are capitalized. 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 over 15 years. Goodwill over 15 years. Organization costs over five years. 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. REVENUE RECOGNITION Revenue from the sale of air-time is recognized at the time the related program or advertisement is broadcast. Barter transactions are reported at the estimated fair market value of the product or services received. Barter revenue is reported when commercials are broadcast, and merchandise or services received as consideration are reported as expense when used or received. ALLOCATIONS AND DISTRIBUTIONS The profits and losses of the Partnership are allocated 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. F-273 SAVANNAH COMMUNICATIONS, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 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. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITIONS: On July 31, 1996, the Partnership acquired substantially all of the assets of two radio stations for $4,450,000, including related costs. The Partnership operated the two stations under an LMA from October 1995 until the acquisition. On February 28, 1997, the Partnership acquired substantially all of the assets of a third radio station for $729,410, including related costs. The Partnership operated this station under an LMA from August 1996 until the acquisition. The 1997 and 1996 acquisitions were accounted for as purchase transactions and, accordingly, the purchase price was allocated to assets based on their estimated fair value with the excess of the purchase price over the fair value of the identifiable tangible and intangible assets acquired reflected as goodwill, as follows:
1997 1996 ---------- ------------ Property and equipment.............................................. $ 90,274 $ 1,571,407 FCC broadcast licenses.............................................. 100,000 1,999,000 Goodwill............................................................ 539,136 879,593 ---------- ------------ Purchase price, including related costs............................. $ 729,410 $ 4,450,000 ---------- ------------ ---------- ------------
Had the acquisition of the two stations acquired in July 1996 occurred at the beginning of that year, there would be no effect on revenue and an immaterial effect on net loss reported for 1996 because the Partnership operated the stations under an LMA from the beginning of the year until the acquisition. Had the acquisition of the station acquired in February 1997 occured at the beginning of 1996, there would be no effect on revenue and an immaterial effect on net loss reported for 1997 because the Partnership operated the station under an LMA from the beginning of 1997 until the acquisiiton. It is estimated that revenue for 1996 would have increased by approximately $67,000 (revenue prior to the LMA commencing August 1996) and that the effect on net loss for 1996 would be immaterial. F-274 SAVANNAH COMMUNICATIONS, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following at December 31, 1997 and 1996:
1997 1996 ------------ ------------ Land and improvements............................................. $ 279,685 $ 279,685 Buildings......................................................... 260,690 260,690 Tower and antenna................................................. 790,297 712,397 Furniture and equipment........................................... 420,539 408,165 Other............................................................. 9,116 9,116 ------------ ------------ 1,760,327 1,670,053 Less accumulated depreciation..................................... (332,633) (77,585) ------------ ------------ $ 1,427,694 $ 1,592,468 ------------ ------------ ------------ ------------
4. INTANGIBLE ASSETS: Intangible assets consisted of the following at December 31, 1997 and 1996:
1997 1996 ------------ ------------ FCC broadcast licenses............................................ $ 2,099,000 $ 1,999,000 Goodwill.......................................................... 1,418,729 879,593 Deferred financing costs.......................................... 176,970 176,970 Organization costs................................................ 93,463 89,417 ------------ ------------ 3,788,162 3,144,980 Less accumulated amortization..................................... (324,023) (71,895) ------------ ------------ $ 3,464,139 $ 3,073,085 ------------ ------------ ------------ ------------
5. LONG-TERM DEBT: Long-term debt consisted of the following at December 31, 1997 and 1996:
1997 1996 ------------ ------------ Bank note payable, quarterly payments ranging from $50,000 to $125,000 commencing January 1, 1998 with a balloon payment of $1,275,000 due October 1, 2002, bearing interest at the bank's reference rate plus 2.5% (reference rate was 8.5% at December 31, 1997), collateralized by substantially all assets of the Partnership............ $ 2,800,000 $ 2,800,000 Note payable, due September 2001, interest payable quarterly at 10%................... 150,000 150,000 Note payable, due February 2002, interest payable monthly at 9%....................... 450,000 ------------ ------------ 3,400,000 2,950,000 Less current maturities and long-term debt in default................................. (2,800,000) (2,800,000) ------------ ------------ $ 600,000 $ 150,000 ------------ ------------ ------------ ------------
F-275 SAVANNAH COMMUNICATIONS, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. LONG-TERM DEBT: (CONTINUED) The bank note 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 Partnership was in violation of certain of these financial covenants at December 31, 1997 and 1996. Additionally, the Partnership did not make the first required principal payment of $50,000 due January 1, 1998. As a result of these matters, the noteholder has the right to demand payment. Therefore, the entire principal balance has been classified as current at December 31, 1997 and 1996. Interest payments on this note are current. The carrying amount reported for long-term debt approximates fair value. 6. OPERATING LEASES: The Partnership leases a vehicle and a tower site under operating leases with future minimum rental payments as follows:
1998............................................................... $ 57,700 1999............................................................... 56,600 2000............................................................... 58,700 2001............................................................... 60,900 Thereafter......................................................... 13,200
Rental expense charged to operations was $56,800 and $50,500 for the years ended December 31, 1997 and 1996. 7. RELATED PARTY TRANSACTIONS: Included in other expenses are fees paid to the general partner in the amounts of $19,400 and $43,800 in 1997 and 1996, respectively. Cash advances from an affiliate are non-interest bearing and have no fixed due dates. It is anticipated that these advances will be repaid upon completion of the events described in Note 8. Accounts receivable, partners at December 31, 1996 were collected in January 1997. 8. SUBSEQUENT EVENTS: On January 14, 1998, the Partnership entered into an agreement to sell substantially all of the assets associated with its three radio stations for $5,250,000 in cash. The party agreeing to purchase the stations began programming and marketing all three stations on that date under an LMA. Subject to FCC approval, the Partnership expects to consummate this sale in the second quarter of 1998. F-276 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of changes in owner's equity (deficit) in stations and of cash flows present fairly, in all material respects, the financial position of Savannah Valley Broadcasting Radio Properties at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 27, 1998 F-277 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES COMBINED BALANCE SHEETS
MARCH 31, DECEMBER 31, ------------ -------------------------- 1998 1997 1996 ------------ ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash.................................................................. $ -- $ -- $ -- Short term investments................................................ -- -- 199,000 Accounts receivable, less allowance for doubtful accounts of $58,000, $58,000 and $25,000, respectively..... 170,000 11,000 560,000 Receivable from Cumulus............................................... 80,000 85,000 -- Prepaid expenses and other current assets............................. 69,000 3,000 34,000 ------------ ------------ ------------ Total current assets.............................................. 319,000 99,000 793,000 Property and equipment, net............................................. 302,000 649,000 787,000 Intangible assets, net.................................................. 2,416,000 2,435,000 2,640,000 ------------ ------------ ------------ Total assets...................................................... $ 3,037,000 $ 3,183,000 $ 4,220,000 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND OWNER'S EQUITY (DEFICIT) IN STATIONS Current liabilities: Line of credit........................................................ $ 717,000 $ 866,000 $ 1,142,000 Current portion of notes payable...................................... 2,000,000 2,280,000 20,000 Related party note payable............................................ 50,000 50,000 50,000 Due to related party.................................................. -- -- 174,000 Accounts payable...................................................... 35,000 30,000 77,000 Accrued legal fees.................................................... -- 81,000 -- Accrued and other current liabilities................................. 186,000 54,000 23,000 ------------ ------------ ------------ Total current liabilities......................................... 2,988,000 3,361,000 1,486,000 ------------ ------------ ------------ Long-term liabilities: Notes payable, less current portion................................... -- -- 2,280,000 ------------ ------------ ------------ Total liabilities................................................. 2,988,000 3,361,000 3,766,000 ------------ ------------ ------------ Commitments and contingencies Owner's equity (deficit) in stations.................................... 49,000 (178,000) 454,000 ------------ ------------ ------------ Total liabilities and owner's equity (deficit) in stations........ $ 3,037,000 $ 3,183,000 $ 4,220,000 ------------ ------------ ------------ ------------ ------------ ------------
See Notes to Combined Financial Statements. F-278 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31, ----------------------- ---------------------------------------- 1998 1997 1997 1996 1995 ----------- ---------- ------------ ------------ ------------ Revenues...................................... $ 248,000 $ 767,000 $ 2,283,000 $ 3,351,000 $ 3,380,000 Less: agency commissions.................... (26,000) (84,000) (258,000) (309,000) (427,000) Income from time brokerage agreement........ 60,000 -- 118,000 -- -- ----------- ---------- ------------ ------------ ------------ Net revenues............................ 282,000 683,000 2,143,000 3,042,000 2,953,000 Operating expenses: Programming................................. 94,000 233,000 829,000 1,368,000 1,339,000 Sales and promotions........................ 41,000 156,000 590,000 607,000 665,000 Technical................................... 26,000 61,000 188,000 216,000 224,000 General and administrative.................. 130,000 152,000 604,000 705,000 729,000 Depreciation and amortization............... 74,000 87,000 352,000 362,000 354,000 ----------- ---------- ------------ ------------ ------------ Total operating expenses................ 365,000 689,000 2,563,000 3,258,000 3,311,000 ----------- ---------- ------------ ------------ ------------ Loss from operations.......................... (83,000) (6,000) (420,000) (216,000) (358,000) Donation expense, net....................... (217,000) -- -- -- -- Interest expense, net....................... (75,000) (49,000) (246,000) (287,000) (253,000) ----------- ---------- ------------ ------------ ------------ Net loss...................................... $ (375,000) $ (55,000) $ (666,000) $ (503,000) $ (611,000) ----------- ---------- ------------ ------------ ------------ ----------- ---------- ------------ ------------ ------------
See Notes to Combined Financial Statements. F-279 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY (DEFICIT) IN STATIONS Balance at January 1, 1995...................................................... $1,540,000 Distribution to owner........................................................... (12,000) Net loss........................................................................ (611,000) --------- Balance at December 31, 1995.................................................... 917,000 Distribution from partnership................................................... 40,000 Net loss........................................................................ (503,000) --------- Balance at December 31, 1996.................................................... 454,000 Contribution of related party obligation........................................ 174,000 Distribution to owner........................................................... (140,000) Net loss........................................................................ (666,000) --------- Balance at December 31, 1997.................................................... $(178,000) --------- ---------
See Notes to Combined Financial Statements. F-280 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ----------------------- FOR THE YEAR ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 1995 ----------- ---------- ----------- ----------- 1997 ----------- Cash flows from operating activities: Net loss....................................... $ (375,000) $ (55,000) $ (666,000) $ (503,000) $ (611,000) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Donation of station, net....................... 217,000 -- -- -- -- Depreciation and amortization.................. 74,000 84,000 352,000 362,000 354,000 Decrease (increase) in accounts receivable, net.......................................... (159,000) 68,000 549,000 44,000 (34,000) Decrease (increase) in receivable from Cumulus...................................... 61,000 -- (85,000) -- -- Decrease (increase) in prepaid expenses and other current assets......................... (66,000) (53,000) 31,000 (4,000) Increase in due to related party............... -- -- -- 70,000 10,000 (Decrease) increase in accounts payable........ 5,000 (31,000) (47,000) 20,000 57,000 Increase (decrease) in accrued and other liabilities.................................. 132,000 (18,000) 112,000 (19,000) 88,000 ----------- ---------- ----------- ----------- ----------- Net cash (used in) provided by operating activities............................... (168,000) (5,000) 246,000 (26,000) (140,000) ----------- ---------- ----------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment............ -- -- (9,000) (8,000) (362,000) Purchase (sale) of short-term investment, net.......................................... -- -- 199,000 148,000 (35,000) ----------- ---------- ----------- ----------- ----------- Cash (used for) provided by investing activities............................... -- -- 190,000 140,000 (397,000) ----------- ---------- ----------- ----------- ----------- Cash flows from financing activities: (Decrease) increase in notes payable........... -- (5,000) (20,000) (89,000) 390,000 Contribution from owner........................ 317,000 -- -- -- -- Distribution from partnership.................. -- 5,000 -- 40,000 -- Dividends and distributions.................... -- -- (140,000) -- (12,000) Borrowings (payments) on line of credit........ (149,000) 43,000 (276,000) (98,000) -- Payments on borrowings from related party...... -- -- -- -- 50,000 ----------- ---------- ----------- ----------- ----------- Cash (used for) provided by financing activities............................... 168,000 43,000 (436,000) (147,000) 428,000 ----------- ---------- ----------- ----------- ----------- Net change in cash............................. -- 38,000 -- (33,000) (109,000) ----------- ---------- ----------- ----------- ----------- Cash at beginning of period.................... -- -- -- 33,000 142,000 ----------- ---------- ----------- ----------- ----------- Cash at end of period.......................... $ -- $ 38,000 $ -- $ -- $ 33,000 ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Non-cash operating activities: Trade revenue.................................. $ 23,127 $ 44,062 $ 121,000 $ 276,000 $ 315,000 ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Trade expense.................................. $ 78,709 $ 55,720 $ 108,000 $ 239,000 $ 315,000 ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Supplemental disclosure of cash flow information: Cash paid for interest......................... $ 46,000 $ 92,000 $ 200,000 $ 293,000 $ 310,000 ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Contribution of related party obligation....... $ -- $ 174,000 $ 174,000 $ -- -- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Payment of legal fees by third party........... $ 81,000 $ -- $ -- $ -- $ -- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Payment of notes payable and accrued interest by owner..................................... $ 286,000 $ -- $ -- $ -- $ -- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
See Notes to Combined Financial Statements. F-281 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Savannah Valley Broadcasting Radio Properties (the "Company") consists of radio stations WBBQ-AM/FM and WZNY-FM ("the Stations") located in Augusta, Georgia which are owned and operated by common related ownership. The combination of the financial statements includes the accounts of WBBQ-AM/FM and WZNY-FM due to common ownership of the Stations. In September, 1997, Savannah Valley Broadcasting Radio Properties entered into an agreement with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) ("Cumulus"), to sell the assets of Savannah Valley Broadcasting Radio Properties, subject to approval of the Federal Communication Commission, to Cumulus. Effective September 4, 1997, the Stations have been operating under time brokerage agreements ("TBAs") with Cumulus. Under these TBAs, the Stations have agreed to sell certain broadcast time on the Stations and Cumulus has agreed to provide programming to and sell advertising on the Stations during the purchased time. Accordingly, during the TBA period, revenue derived from the advertising sold during the purchased time and certain expenses of the Stations are recorded by Cumulus in exchange for a TBA fee. This TBA fee has been reflected in the combined statement of operations. The Stations retain responsibility for ultimate control of the Stations in accordance with FCC policies. As of December 31, 1997, Savannah Valley Broadcasting Radio Properties has a term note payable and a line of credit of $2,000,000 and $866,000, respectively. The original maturity dates of these instruments were extended by the bank to April 15, 1998 in anticipation of the closing of the sale to Cumulus. These financial statements have been prepared assuming the sale will close by April 15, 1998, or that Savannah Valley Broadcasting Radio Properties will have the ability to extend or refinance these debt instruments. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. SHORT-TERM INVESTMENTS The Company accounts for short term investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") which requires investment securities to be classified as either held to maturity, trading or available for sale. Short term investments are comprised of mutual funds with no stated maturity date and are therefore classified as current. F-282 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) At December 31, 1996, the Company held available for sale mutual funds of $199,000. The difference between the fair value and the cost basis of these investments is not significant at December 31, 1996. These investments were sold during 1997. As the carrying value approximated the respective fair value, no gain or loss was recognized on the sale. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed primarily using accelerated methods of depreciation over the estimated useful lives of the respective assets, generally five to thirty-nine years. Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include Federal Communications Commission ("FCC") license. Intangible assets are stated at cost and are being amortized using the straight-line method over 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company is operated as pass-through entities for Federal tax purposes. Under this election the income or loss of the entities is included in the tax returns of the individual shareholders. Accordingly, federal income taxes are not included in the accompanying financial statements. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value due to their short-term nature. The fair value of notes payable is based on current market rates and approximates the carrying value. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in F-283 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, ---------------------------- 1997 1996 ------------- ------------- Building and improvements....................................... $ 601,000 $ 596,000 Broadcasting towers and equipment............................... 1,324,000 1,324,000 Office furniture and equipment.................................. 456,000 458,000 ------------- ------------- 2,381,000 2,378,000 Accumulated depreciation........................................ (1,864,000) (1,723,000) Land............................................................ 132,000 132,000 ------------- ------------- Property and equipment, net..................................... $ 649,000 $ 787,000 ------------- ------------- ------------- -------------
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $145,000, $155,000 and $147,000, respectively. 3. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ FCC licenses...................................................... $ 3,106,000 $ 3,106,000 Accumulated amortization.......................................... (671,000) (466,000) ------------ ------------ Intangible assets, net............................................ $ 2,435,000 $ 2,640,000 ------------ ------------ ------------ ------------
Amortization expense for the years ended December 31, 1997, 1996 and 1995 was $207,000 for each of these years, respectively. 4. RELATED PARTY TRANSACTIONS: As of December 31, 1997 and 1996, the Company has a note payable to a former owner in the amount of $50,000 related to the re-purchase of stock from him. This note is due upon demand and bears interest at 6% per annum, payable on June 30 and December 31 of each year. F-284 SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS: (CONTINUED) As of December 31, 1996, the Company had a payable to a related entity. During 1997, this entity was donated to charity. The payable balance remaining at the time of donation of $174,000 was forgiven and has therefore been accounted for as a contribution to the owner of the stations. 5. NOTES PAYABLE In October 1994, and as amended October 1996, the Company entered into a Master Note Agreement (the "Agreement") with a bank which provided for a $2,000,000 term note and a $1,240,000 line of credit. Both the term note and the line of credit bear interest at the adjusted prime rate (8.5% at December 31, 1997) and are secured by substantially all of the Station's assets. Accrued interest is payable monthly. The original maturities of these notes of October 27, 1997 have been extended through April 15, 1998, at which time all principal and accrued interest is due and payable. The balance of the term note and line of credit as of December 31, 1997 are $2,000,000 and $866,000, respectively. In March 1995, the Company entered into a note agreement with a bank which provided for a note payable in the amount of $425,000. The note is payable in 120 monthly installments of principal and interest through April 2001. The interest rate on this note was 7.8% at December 31, 1997. The note is secured by substantially all of the Station's assets. Subsequent to December 31, 1997, the principal balance of the note and all remaining accrued interest was paid in full; therefore, the balance of this note of $280,000 as of December 31, 1997 has been classified as current. In September 1997, the assets of WZNY were transferred from the Company to the Company's sole shareholder causing an event of default under the note agreements with the bank. In October 1997, the Company and the Company's sole shareholder entered into an agreement with the bank, whereby, the bank waived this default and permitted the transfer of the assets of WZNY as well as the assumption of the obligation of payments on the notes by the Company's sole shareholder. This agreement does not release the Company from its obligations under the original note agreements, nor does it affect the original collateral securing the notes.
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Notes payable consist of: Term loan payable to a bank............................................... $ 2,000,000 $ 2,000,000 Note payable to a bank.................................................... 280,000 300,000 ------------ ------------ Less: current portion..................................................... (2,280,000) (20,000) ------------ ------------ Long term portion......................................................... $ -- $ 2,280,000 ------------ ------------ ------------ ------------
6. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $33,000, $48,000 and $103,000 for the years ended December 31, 1997, 1996 and 1995, respectively, under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997, are $55,000 for 1998 and $54,000 for 1999. F-285 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in members' equity and of cash flows present fairly, in all material respects, the financial position of Seacoast Radio Company, LLC (the "Company") at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 24, 1998 F-286 SEACOAST RADIO COMPANY, LLC BALANCE SHEETS (DOLLARS IN 000'S)
DECEMBER 31, -------------------- 1997 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents....................................................................... $ 15 $ 44 Accounts receivable, less allowance for doubtful accounts of $8................................. 104 82 Prepaid and other current assets................................................................ 4 4 --------- --------- Total current assets.......................................................................... 123 130 --------- --------- Property and equipment, net....................................................................... 137 176 Intangible assets, net............................................................................ 205 223 --------- --------- Total assets.................................................................................. $ 465 $ 529 --------- --------- --------- --------- LIABILITIES AND MEMBERS' EQUITY Current liabilities: Accounts payable and accrued expenses........................................................... $ 13 $ 15 Related party payable........................................................................... 112 90 Current portion of long-term debt............................................................... 284 50 --------- --------- Total current liabilities..................................................................... 409 155 Long-term debt.................................................................................... 44 330 --------- --------- Total liabilities............................................................................. 453 485 --------- --------- Commitments and contingencies Members' equity................................................................................... 12 44 --------- --------- Total liabilities and members' equity......................................................... $ 465 $ 529 --------- --------- --------- ---------
See Notes to Financial Statements. F-287 SEACOAST RADIO COMPANY, LLC STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
FOR THE YEAR ENDED DECEMBER 31, -------------------- 1997 1996 --------- --------- Revenues.......................................................................................... $ 820 $ 752 Less: agency commissions.......................................................................... (80) (66) --------- --------- Net revenues.................................................................................. 740 686 --------- --------- Operating expenses: Programming..................................................................................... 131 89 Sales and promotions............................................................................ 101 92 Technical....................................................................................... 15 18 General and administrative...................................................................... 168 165 Trade........................................................................................... 65 71 Depreciation and amortization................................................................... 58 56 --------- --------- Total operating expenses...................................................................... 538 491 --------- --------- Income from operations............................................................................ 202 195 Interest expense, net............................................................................. (34) (37) --------- --------- Net income........................................................................................ $ 168 $ 158 --------- --------- --------- ---------
See Notes to Financial Statements. F-288 SEACOAST RADIO COMPANY, LLC STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DOLLARS IN 000'S) Balance at January 1, 1996........................................... $ (72) Dividend to members.................................................. (42) Net income........................................................... 158 --------- Balance at December 31, 1996......................................... 44 Dividend to members.................................................. (200) Net income........................................................... 168 --------- Balance at December 31, 1997......................................... $ 12 --------- ---------
See Notes to Financial Statements. F-289 SEACOAST RADIO COMPANY, LLC STATEMENTS OF CASH FLOWS (DOLLARS IN 000'S)
FOR THE YEAR ENDED DECEMBER 31, -------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net income...................................................................................... $ 168 $ 158 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................................... 58 56 Increase in accounts receivable................................................................. (23) (41) Decrease in prepaid expenses and other current assets........................................... -- 2 Increase (decrease) in accounts payable......................................................... 20 (31) --------- --------- Net cash provided by operating activities..................................................... 223 144 --------- --------- Cash flows from investing activities: Purchases of property and equipment............................................................. (1) (17) Net cash used for investing activities........................................................ (1) (17) Cash flows from financing activities: Proceeds from borrowing......................................................................... -- 18 Repayments of borrowing......................................................................... (51) (59) Dividends to members............................................................................ (200) (42) --------- --------- Net cash used in financing activities......................................................... (251) (83) --------- --------- (Decrease) increase in cash and cash equivalents.................................................. (29) 44 Cash and cash equivalents at beginning of year.................................................... 44 -- --------- --------- Cash and cash equivalents at end of year.......................................................... $ 15 $ 44 --------- --------- --------- --------- Supplemental disclosures of cash flow information: Cash paid for interest.......................................................................... $ 34 $ 38 --------- --------- --------- --------- Non-cash operating activities: Trade revenue................................................................................... $ 65 $ 71 --------- --------- --------- --------- Trade expense................................................................................... $ 65 $ 71 --------- --------- --------- ---------
See Notes to Financial Statements. F-290 SEACOAST RADIO COMPANY, LLC NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Seacoast Radio Company, LLC ("the Company") is engaged in the operation of WDAI-FM, a radio broadcasting station in Surfside Beach, South Carolina. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Broadcasting tower and equipment.................................. 5-7 years Office furniture and equipment.................................... 5-7 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include FCC licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life of up to 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related station. INCOME TAXES The Company has organized in the state of South Carolina as a Limited Liability Company and is treated as a partnership for federal and state income tax purposes. Consequently, income taxes are not payable by, or provided for, the Company. Members are taxed individually on their share of the Company's earnings. The Company's net income or loss is allocated equally among the members. F-291 SEACOAST RADIO COMPANY, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as advertising air time is broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- Broadcasting tower and equipment................................. $ 200 $ 199 Office furniture and equipment................................... 6 6 ----- ----- 206 205 Accumulated depreciation......................................... (107) (67) Land............................................................. 38 38 ----- ----- Property and equipment, net...................................... $ 137 $ 176 ----- ----- ----- -----
Depreciation expense for the years ended December 31, 1997 and 1996 was $40 and $38, respectively. 3. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- FCC license...................................................... $ 260 $ 260 Accumulated amortization......................................... (55) (37) ----- ----- Intangible assets, net........................................... $ 205 $ 223 ----- ----- ----- -----
Amortization expense for the years ended December 31, 1997 and 1996 was $18 and $18, respectively. 4. RELATED PARTY TRANSACTIONS: The Company has a related party payable to the Sunny Broadcasters, Inc., ("Sunny"), a company under common control, totaling $112 and $90 at December 31, 1997 and 1996, respectively. F-292 SEACOAST RADIO COMPANY, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 4. RELATED PARTY TRANSACTIONS: (CONTINUED) Sunny performs certain corporate and accounting functions for the Company and allocates corporate overhead expenses to the Company based on estimated hours expended on the operations of the station. Corporate overhead allocations were approximately $84 and $86 for the years ended December 31, 1997 and 1996, respectively, including rent expense of $7 for each of the periods ended December 31, 1997 and 1996. 5. LONG-TERM DEBT:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------- ------------- Long-term debt consists of the following: Note payable, interest at prime plus 1% (9.5% at December 31, 1997) $4 principal plus interest due monthly, balance due July 2, 1998. $ 274 $ 318 Installment loan, payable in 60 monthly installments of $1 including interest at 9.25%, final payment due September 2001, collateralized by equipment. 42 47 Installment loan, payable in 60 monthly installments of $.4 including interest at 8.95%, final payment due August 2000, collateralized by automobile. 12 15 ----- ----- 328 380 Less current portion (284) (50) ----- ----- $ 44 $ 330 ----- ----- ----- -----
The note payable is payable in 42 monthly installments with interest only due the first six months; principal payments of $3 plus interest at prime plus one percent the next twelve months; $3.5 principal plus interest the next twelve months; $4 principal plus interest the next twelve months with the final installment on July 2, 1998 to include all unpaid principal and interest due on the loan. The debt is collateralized by substantially all assets of the Company. The Company's long-term debt agreement contains certain restrictions and covenants. Under these restrictions, the Company must obtain the consent of the lender to borrow from others, make any loan or advance to any individual, partnership, corporation or other entity, sell, assign, dispose of, or transfer any assets of the Company or make capital expenditures in excess of $50 per year. In addition, the Company must maintain a specified cash flow debt coverage ratio. Maturities of long-term debt are as follows: 1998......................................................... $ 284 1999......................................................... 11 2000......................................................... 10 2001......................................................... 23 --------- $ 328 --------- ---------
F-293 SEACOAST RADIO COMPANY, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 6. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $7 for the year ended December 31, 1997 and 1996, under operating leases for radio broadcasting facilities. There are no future minimum annual payments under this cancelable operating lease. The Company is involved in various other claims and lawsuits which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximates fair value due to their short-term nature. The fair value of long-term debt is estimated based on current market rates and approximates the carrying value. 8. OTHER TRANSACTIONS: On October 11, 1997, the Company entered into an asset purchase agreement to sell all of the Company's assets to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) for $4 million. F-294 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Sunny Broadcasters, Inc. the ("Company") at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 24, 1998 F-295 SUNNY BROADCASTERS, INC. BALANCE SHEETS (DOLLARS IN 000'S)
DECEMBER 31, -------------------- 1997 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents..................................................................... $ 38 $ 58 Accounts receivable, less allowance for doubtful accounts of $8............................... 168 151 Related party receivable...................................................................... 112 90 Prepaid and other current assets.............................................................. 19 19 --------- --------- Total current assets........................................................................ 337 318 Property and equipment, net..................................................................... 501 599 Intangible assets, net.......................................................................... 114 124 --------- --------- Total assets................................................................................ $ 952 $ 1,041 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities...................................................... $ 48 $ 47 Trade payable................................................................................. 8 -- Current portion of notes payable.............................................................. 13 12 Current portion notes payable--stockholders................................................... 678 97 --------- --------- Total current liabilities................................................................... 747 156 Commitments and contingencies Long-term liabilities: Notes payable................................................................................. 129 142 Note payable--stockholders.................................................................... 192 869 --------- --------- Total liabilities........................................................................... 1,068 1,167 --------- --------- Stockholders' equity: Common stock, $10 par value, 100,000 shares authorized, 100 shares issued and outstanding..... 10 10 Additional paid-in-capital.................................................................... 400 400 Accumulated deficit........................................................................... (362) (372) Less treasury stock, at cost.................................................................. (164) (164) --------- --------- Total stockholders' equity.................................................................. (116) (126) --------- --------- Total liabilities and stockholders' equity.................................................. $ 952 $ 1,041 --------- --------- --------- ---------
See Notes to Financial Statements. F-296 SUNNY BROADCASTERS, INC. STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1997 1996 --------- --------- Revenues....................................................................................... $ 1,359 $ 1,268 Less: agency commissions....................................................................... (111) (101) --------- --------- Net revenues............................................................................... 1,248 1,167 Operating expenses: Programming.................................................................................. 253 227 Sales and promotions......................................................................... 182 174 Technical.................................................................................... 27 29 General and administrative................................................................... 271 256 Trade........................................................................................ 117 131 Depreciation and amortization................................................................ 117 113 --------- --------- Total operating expenses................................................................... 967 930 --------- --------- Income from operations......................................................................... 281 237 Other income and expense: Interest expense............................................................................. (99) (107) --------- --------- Net income..................................................................................... $ 182 $ 130 --------- --------- --------- ---------
See Notes to Financial Statements. F-297 SUNNY BROADCASTERS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN 000'S)
ADDITIONAL COMMON PAID-IN- ACCUMULATED TREASURY STOCK CAPITAL DEFICIT STOCK TOTAL ------------- ------------- ------------- ----------- --------- Balance at January 1, 1996................................ $ 10 $ 400 $ (500) $ (164) $ (254) Dividends................................................. -- -- (2) -- (2) Net income................................................ -- -- 130 -- 130 --- ----- ----- ----- --------- Balance at December 31, 1996.............................. 10 400 (372) (164) (126) Dividends................................................. -- -- (172) -- (172) Net income................................................ -- -- 182 -- 182 --- ----- ----- ----- --------- Balance at December 31, 1997.............................. $ 10 $ 400 $ (362) $ (164) $ (116) --- ----- ----- ----- --------- --- ----- ----- ----- ---------
See Notes to Financial Statements. F-298 SUNNY BROADCASTERS, INC. STATEMENT OF CASH FLOWS (DOLLARS IN 000'S)
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net income.................................................................................. $ 182 $ 130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................................. 117 113 Increase in accounts receivable........................................................... (17) (60) (Increase) decrease in receivable from related party...................................... (22) 21 Increase (decrease) in accounts payable................................................... 1 (39) Increase in accounts payable--trades...................................................... 8 -- --------- --------- Net cash provided by operating activities............................................... 269 165 --------- --------- Cash flows from investing activities: Purchases of property and equipment......................................................... (9) (27) --------- --------- Net cash used for investing activities.................................................. (9) (27) --------- --------- Cash flows from financing activities: Proceeds from borrowing..................................................................... -- 39 Repayments of borrowing..................................................................... (108) (118) Dividends paid to stockholders.............................................................. (172) (2) --------- --------- Net cash used for financing activities.................................................. (280) (81) --------- --------- (Decrease) increase in cash and cash equivalents.............................................. (20) 57 Cash and cash equivalents at beginning of year................................................ 58 1 --------- --------- Cash and cash equivalents at end of year...................................................... $ 38 $ 58 --------- --------- --------- --------- Supplemental disclosure of cash flow information Cash paid for interest...................................................................... $ 93 $ 100 --------- --------- --------- --------- Non-cash operating activities: Trade revenue............................................................................... $ 109 $ 131 --------- --------- --------- --------- Trade expense............................................................................... $ 117 $ 131 --------- --------- --------- ---------
See Notes to Financial Statements. F-299 SUNNY BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Sunny Broadcasters, Inc. (the "Company") owns and operates the radio station WSYN-FM in Surfside Beach, South Carolina. The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Buildings and improvements........................................ 31 years Broadcasting tower and equipment.................................. 5-7 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include Federal Communications Commission ("FCC") license and organization costs. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life or contract term for periods not exceeding 20 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related stations. INCOME TAXES The Company has elected to be treated as an S Corporation for federal income tax purposes. Under this election the income or loss of the S Corporation is included in the tax returns of the individual shareholders. Accordingly, federal income taxes are not included in the accompanying financial statement. F-300 SUNNY BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- Building and improvements........................................ $ 171 $ 171 Broadcasting tower and equipment................................. 704 695 ----- ----- 875 866 Accumulated depreciation......................................... (672) (565) Land............................................................. 298 298 ----- ----- Property and equipment, net...................................... $ 501 $ 599 ----- ----- ----- -----
Depreciation expense for the year ended December 31, 1997 and the year ended December 31, 1996 and $107 and $103, respectively. 3. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- FCC license...................................................... $ 190 $ 190 Organization expense............................................. 2 2 ----- ----- 192 192 Accumulated amortization......................................... (78) (68) ----- ----- Intangible assets, net........................................... $ 114 $ 124 ----- ----- ----- -----
Amortization expense for the year ended December 31, 1997 and the year ended December 31, 1996 was $10 and $10, respectively. F-301 SUNNY BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S) 4. RELATED PARTY TRANSACTIONS: The Company has receivables due from Seacoast Radio Company, LLC ("Seacoast"), which is under common ownership, totalling $112 and $90 at December 31, 1997 and 1996, respectively. Sunny performs certain corporate and accounting functions for Seacoast and allocates corporate overhead expenses to Seacoast based upon estimated hours expended on the operations of Seacoast. Corporate overhead allocations were approximately $84 and $86 for the years ended December 31, 1997 and 1996, respectively, including rent income for each of the periods ended December 31, 1997 and 1996. 5. NOTES PAYABLE: Notes payable consists of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- Note payable $150 principal, principal and interest due in 35 monthly installments of $1.5, interest at 7.5%, balance of $109 plus accrued interest due July 1999. Note collateralized by land and building................................................ $ 122 $ 129 Note payable, $26 principal, principal and interest due in 60 monthly installments of $.5, interest at 9.25%, through September 2001. Note collateralized by equipment.......................................................................... 20 25 ----- ----- 142 154 Less current portion................................................................. (13) (12) ----- ----- $ 129 $ 142 ----- ----- ----- -----
The Company's note payable agreement contains certain restrictions and covenants. Under these restrictions, the Company must obtain the consent of the lender to borrow from others, make any loan or advance to any individual, partnership, corporation or other entity, sell, assign, dispose of, or transfer any assets of the company or make capital expenditures in excess of $50 per fiscal year. In addition, the Company must maintain a specified cash flow debt coverage ratio. Maturities of notes payable are as follows: 1998................................................................. $ 13 1999................................................................. 116 2000................................................................. 7 2001................................................................. 6 --------- $ 142 --------- ---------
F-302 SUNNY BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S) 6. NOTE PAYABLE-STOCKHOLDERS Notes payable-stockholders consist of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- Note payable to stockholders, $755 principal, payable in 102 monthly installments of $6 plus interest at prime plus 1%, which equaled 9.5% at December 31, 1997, final payment due September 1998, collateralized by substantially all assets of the Company............................................................................ $ 654 $ 729 Note payable to former stockholder, $277 principal, principal and interest due in 120 monthly installment of $3.4, interest at 8.5% through December 2004. Note secured by the personal guarantees of the stockholders..................................... 216 237 ----- ----- 870 966 Less current portion................................................................. (678) (97) ----- ----- $ 192 $ 869 ----- ----- ----- -----
The note payable to former stockholder is comprised of $164 due from the Company for the repurchase of 333 1/3 shares of outstanding common stock into treasury and $113 of dividends payable to the same stockholder. Maturities of notes payable to stockholders are as follows: 1998................................................................. $ 678 1999................................................................. 26 2000................................................................. 28 2001................................................................. 31 2002................................................................. 33 Thereafter........................................................... 74 --------- $ 870 --------- ---------
7. COMMITMENTS AND CONTINGENCIES: The Company is involved in various other claims and lawsuits which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates fair value due to their short term nature. The fair value of notes payable are estimated based on current market rates and approximate the carrying value. F-303 SUNNY BROADCASTERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S) 9. OTHER TRANSACTIONS: On October 11, 1997, the Company entered into an asset purchase agreements to sell all of the assets of the Company to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) for $4 million. F-304 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Tallahassee Broadcasting, Inc., (the "Company") at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 20, 1998 F-305 TALLAHASSEE BROADCASTING, INC. BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 ------------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......................................................... $ 6,857 $ 6,653 Accounts receivable, less allowance for doubtful accounts of $3,698 and $7,693.... 2,008 37,761 Other current assets.............................................................. 18,001 19,517 ------------- ------------ Total current assets.......................................................... 26,866 63,931 Property and equipment, net......................................................... 542,014 581,014 Other assets........................................................................ 3,404 3,404 ------------- ------------ Total assets.................................................................. $ 572,284 $ 648,349 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................................. $ 52,711 $ 68,533 Accrued property taxes............................................................ 27,870 27,870 Accrued compensation.............................................................. 2,848 29,322 Due to related parties, net....................................................... 1,837,278 1,843,178 ------------- ------------ Total current liabilities..................................................... 1,920,707 1,968,903 ------------- ------------ Commitments and contingencies Stockholders' equity (deficit): Common stock, $1.00 par value, 500 shares authorized, issued and outstanding...... 500 500 Accumulated deficit............................................................... (1,348,923) (1,321,054) ------------- ------------ Total stockholders' equity (deficit).......................................... (1,348,423) (1,320,554) ------------- ------------ Total liabilities and stockholders' equity (deficit).......................... $ 572,284 $ 648,349 ------------- ------------ ------------- ------------
See Notes to Financial Statements. F-306 TALLAHASSEE BROADCASTING, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ------------------------ ------------------ 1998 1997 1997 ----------- ----------- ------------------ (UNAUDITED) Revenues............................................................ $ -- $ 227,855 $ 794,377 Less: agency commissions.......................................... -- (17,485) (75,516) ----------- ----------- ------------------ Net revenues.................................................. -- 210,370 718,861 Operating expenses: Sales and promotions.............................................. 3,659 48,566 307,705 Programming....................................................... 1,418 57,510 197,185 Engineering....................................................... 513 13,364 55,327 General and administrative........................................ 9,841 76,553 385,229 Depreciation...................................................... 39,000 39,000 170,107 ----------- ----------- ------------------ Total operating expenses...................................... 54,431 234,993 1,115,553 ----------- ----------- ------------------ Loss from operations................................................ (54,431) (24,623) (396,692) Other income........................................................ 26,562 11,155 39,494 ----------- ----------- ------------------ Loss before income taxes............................................ (27,869) (13,468) (357,198) Income taxes benefit................................................ -- -- -- ----------- ----------- ------------------ Net loss............................................................ $ (27,869) $ (13,468) $ (357,198) ----------- ----------- ------------------ ----------- ----------- ------------------
See Notes to Financial Statements. F-307 TALLAHASSEE BROADCASTING, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON ACCUMULATED STOCK DEFICIT TOTAL ----------- ------------- ------------- Balance at January 1, 1997............................................... $ 500 $ (963,856) $ (963,356) Net loss................................................................. -- (357,198) (357,198) ----- ------------- ------------- Balance at December 31, 1997............................................. $ 500 $ (1,321,054) $ (1,320,554) ----- ------------- ------------- ----- ------------- -------------
See Notes to Financial Statements. F-308 TALLAHASSEE BROADCASTING, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ------------------------ ------------------ 1998 1997 1997 ----------- ----------- ------------------ (UNAUDITED) Cash flows provided by operating activities: Net loss.......................................................... $ (27,869) $ (13,468) $ (357,198) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation.................................................... 39,000 42,281 170,107 Loss on equipment disposals..................................... -- 15,947 15,947 Provision for doubtful accounts................................. (4,001) -- 7,693 (Increase) decrease in accounts receivable...................... 39,754 (38,903) 77,210 (Increase) decrease in other current assets..................... 1,516 (15,312) (17,509) Decrease in other assets........................................ -- 2,500 2,500 Increase (decrease) in accounts payable......................... (15,822) 27,617 66,187 Decrease in accrued property taxes.............................. -- -- 27,870 Decrease in accrued compensation................................ (26,474) (47,098) (17,776) Increase (decrease) in due to related parties................... (5,900) 35,671 28,883 ----------- ----------- ---------- Net cash provided by operating activities..................... 204 9,235 3,914 ----------- ----------- ---------- Cash flows used in investing activities: Purchases of property and equipment............................... -- (5,828) (5,828) ----------- ----------- ---------- Cash used in investing activities............................. -- (5,828) (5,828) ----------- ----------- ---------- Increase (decrease) in cash......................................... 204 3,407 (1,914) Cash and cash equivalents at beginning of period.................... 6,653 8,576 8,567 ----------- ----------- ---------- Cash and cash equivalents at end of period.......................... $ 6,857 $ 11,983 $ 6,653 ----------- ----------- ---------- ----------- ----------- ---------- Non-cash operating activities: Trade revenue..................................................... $ 0 $ 51,386 $ 127,141 ----------- ----------- ---------- ----------- ----------- ---------- Trade expense..................................................... $ 0 $ 12,981 $ 127,141 ----------- ----------- ---------- ----------- ----------- ----------
See Notes to Financial Statements. F-309 TALLAHASSEE BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Tallahassee Broadcasting Inc., a Florida corporation (the "Company"), owns and operates the radio station WGLF-FM (the "Station") located in Tallahassee, FL. The Company shares common owners and officers with Timm Enterprises, Inc. ("Timm"), which provides certain services to the Station. As more fully described in Note 2, the accompanying financial statements include expense allocations from Timm for such services. In addition, the Company participates in a centralized cash management program sponsored by Timm. The Company has significant transactions with related parties and is dependent upon the related parties and its owners for continued financial support. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated using the straight-line method over estimated useful lives ranging from 5 to 40 years. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. F-310 TALLAHASSEE BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INCOME TAXES The Company files consolidated federal and state income tax returns with an affiliated company that shares common owners and officers, Sterling Communications Corporation. The Company has provided for federal income taxes on a stand-alone basis based on an informal tax allocation agreement between the two companies. Deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets and liabilities using the enacted tax rates and laws. Deferred income tax expense or benefit is based on the changes in the asset or liability from period to period. Future tax benefits, such as net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. RELATED PARTY TRANSACTIONS: Due to related parties consists of the following at December 31, 1997: Net balance due to Timm......................................... $ 449,413 Advances due to other affiliates................................ 859,311 Advances due to shareholder..................................... 306,154 Accrued rent payable to shareholder............................. 228,300 --------- $1,843,178 --------- ---------
The Company participates in a centralized cash management program with Timm. Accordingly, the Company's cash receipts and disbursements are controlled centrally by Timm, and the net activity under this program is reflected in the net balance due to Timm above. Additionally, the Company has been charged a fee from Timm for certain services performed on behalf of the Station, including management, employee benefit and accounting services. Management believes that the fees charged have been allocated to the Station on a reasonable basis (principally on the ratio of the Station's revenue to the combined revenues of all affiliates receiving such services). Such fees totalled $66,674 in 1997. F-311 TALLAHASSEE BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. RELATED PARTY TRANSACTIONS: (CONTINUED) Advances due to other affiliates represent amounts received from certain affiliated companies who share common owners and officers. Amounts received were used primarily to fund operating activities of the Station, including the construction of the Station's broadcasting equipment. The advances are due on demand and do not accrue interest. During the period September 1994 through December 1996, the Station received advances from a shareholder of the Company totalling $306,154. Such advances are due on demand and do not accrue interest. The Station leases its studio facility from a shareholder under the terms of an informal leasing arrangement which management considers to be at arms-length. Such leasing arrangement requires monthly rent payments of $2,000 and is expected to terminate upon the closing of the sale with Cumulus. The Company recorded rent expense of $24,000 during 1997 and has recorded an accrued rent payable to the shareholder of $228,300 at December 31, 1997. In addition, the Company pays the property taxes associated with this facility. Property taxes in 1997 totalled $7,097 and have been accrued at December 31, 1997. 3. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997 consists of the following: Broadcasting tower and equipment................................ $1,339,500 Building and improvements....................................... 51,931 Studio equipment................................................ 119,920 Furniture and other equipment................................... 235,434 --------- 1,746,785 Accumulated depreciation........................................ (1,222,771) --------- 524,014 Land............................................................ 57,000 --------- Property and equipment, net..................................... $ 581,014 --------- ---------
Depreciation expense for the year ended December 31, 1997 was $170,107. 4. INCOME TAXES: The Company's effective income tax rate differs from the statutory federal income tax rate as follows: Income tax benefit at federal statutory rate.............. $(121,447) (34.0%) State income taxes (net of federal benefit)............... (12,862) (3.6%) Non-deductible items...................................... 980 .3% Change in valuation allowance............................. 133,329 37.3% --------- --------- $ -- --% --------- --------- --------- ---------
F-312 TALLAHASSEE BROADCASTING, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INCOME TAXES: (CONTINUED) The significant components of the deferred income tax expense (benefit) for the year ended December 31, 1997 were as follows: Provision for doubtful accounts................................... $ 2,221 Depreciation...................................................... (12,498) Net operating loss carryforwards.................................. (123,052) Increase in the valuation allowance for deferred tax assets....... 133,329 --------- $ -- --------- ---------
Significant components of the deferred tax asset (liabilities) are as follows: Deferred tax assets (liabilities): Net operating loss carryforwards.................................. $ 704,059 Allowance for doubtful accounts................................... 2,895 Depreciation...................................................... (51,522) --------- Net deferred tax asset............................................ 655,432 Less valuation allowance.......................................... (655,432) --------- Total net deferred tax asset...................................... $ -- --------- ---------
The net deferred tax asset at December 31, 1997 is fully offset by a valuation allowance. The amount of the valuation allowance is reviewed periodically by management and is determined based on management's assessment of the Company's ability to generate future taxable income and realize the tax benefits associated with the deferred tax assets. Net operating losses expire as follows: 2007............................................................ $ 39,155 2008............................................................ 285,929 2009............................................................ 494,791 2010............................................................ 415,522 2011............................................................ 308,562 2012............................................................ 327,047 --------- $1,871,006 --------- ---------
5. SUBSEQUENT EVENTS: On October 31, 1997, the Company entered into an asset purchase agreement with Cumulus Broadcasting, Inc. ("Cumulus") to sell substantially all of the assets and liabilities of the Station to Cumulus. The sale is subject to certain events that must occur prior to closing which include, among other things, obtaining the approval of the Federal Communications Commission. In conjunction with the sale, the Company entered into a time-brokerage agreement ("TBA") with Cumulus effective November 1, 1997. Under the terms of the TBA, Cumulus has the right to broadcast certain programming and sell advertising on the Station until the earlier of the closing or termination of the asset purchase agreement. In exchange, Cumulus has agreed to pay the Company a monthly fee of $5,000. TBA fees totaled $10,000 during 1997 and are recorded as a component of other income. F-313 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Tryon-Seacoast Communications, Inc. at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 20, 1998 F-314 TRYON-SEACOAST COMMUNICATIONS, INC. BALANCE SHEETS
DECEMBER 31, MARCH 31, ------------------------ 1998 1997 1996 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................................ $ 20,088 $ 13,869 $ 10,251 Accounts receivable, less allowance for doubtful accounts of $26,600, $26,600 and $21,606, respectively........................................................... 156,229 185,503 260,327 ----------- ----------- ----------- Total current assets............................................... 176,317 199,372 270,578 Property and equipment, net................................................ 184,747 194,266 162,632 Intangible assets, net..................................................... 116,410 118,331 53,331 Other assets............................................................... 27,500 28,000 3,362 ----------- ----------- ----------- Total assets....................................................... $ 504,974 $ 539,969 $ 489,903 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities................................. $ 219,396 $ 188,803 $ 182,458 Line of credit........................................................... 125,000 125,000 125,000 Current maturities, long-term debt....................................... 55,193 55,193 36,608 ----------- ----------- ----------- Total current liabilities.......................................... 399,589 368,996 344,066 ----------- ----------- ----------- Noncurrent liabilities: Note payable--stockholders............................................... 54,900 54,900 54,900 Long term debt........................................................... 601,180 612,315 590,085 ----------- ----------- ----------- Total noncurrent liabilities....................................... 656,080 667,215 644,985 ----------- ----------- ----------- Commitments and contingencies Stockholders' deficit: Common stock, no par value, 4,000 shares authorized, 200 shares issued and outstanding........................................................ -- -- -- Additional paid-in-capital............................................... 61,000 61,000 -- Accumulated deficit...................................................... (611,695) (557,242) (499,148) ----------- ----------- ----------- Total stockholders' deficit........................................ (550,695) (496,242) (499,148) ----------- ----------- ----------- Total liabilities and stockholders' deficit........................ $ 504,974 $ 539,969 $ 489,903 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements. F-315 TRYON-SEACOAST COMMUNICATIONS, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ------------------------ -------------------------- 1998 1997 1997 1996 ----------- ----------- ------------ ------------ (UNAUDITED) Revenues................................................... $ 262,476 $ 268,115 $ 1,196,630 $ 1,289,985 Less: Agency commissions................................... (13,398) (12,782) (61,045) (65,422) ----------- ----------- ------------ ------------ Net revenues....................................... 249,078 255,333 1,135,585 1,224,563 Operating expenses: Programming.............................................. 69,534 68,503 255,462 247,771 Sales and promotions..................................... 72,376 88,327 388,961 341,231 Technical................................................ 29,047 22,359 102,170 95,840 General and administrative............................... 93,706 78,424 326,201 332,498 Depreciation and amortization............................ 11,440 10,658 33,882 45,838 ----------- ----------- ------------ ------------ Total operating expenses........................... 276,103 268,271 1,106,676 1,063,178 ----------- ----------- ------------ ------------ Income (loss) from operations.............................. (27,025) (12,938) 28,909 161,385 Interest income............................................ 198 324 1,689 883 Interest expense........................................... (27,626) (34,370) (88,692) (95,440) ----------- ----------- ------------ ------------ Income (loss) before income taxes.......................... (54,453) (46,984) (58,094) 66,828 Income tax expense (benefit)............................... -- -- -- -- ----------- ----------- ------------ ------------ Net income (loss).................................. $ (54,453) $ (46,984) $ (58,094) $ 66,828 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
See Notes to Financial Statements. F-316 TRYON-SEACOAST COMMUNICATIONS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
ADDITIONAL COMMON PAID-IN- ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ----------- ----------- ------------ ----------- Balance at January 1, 1996...................................... $ -- $ -- $ (565,976) $ (565,976) Net income...................................................... 66,828 66,828 ----------- ----------- ------------ ----------- Balance at December 31, 1996.................................... -- -- (499,148) (499,148) Stockholder contribution........................................ -- 61,000 -- 61,000 Net loss........................................................ (58,094) (58,094) ----------- ----------- ------------ ----------- Balance at December 31, 1997.................................... $ -- $ 61,000 $ (557,242) $ (496,242) ----------- ----------- ------------ ----------- ----------- ----------- ------------ -----------
See Notes to Financial Statements. F-317 TRYON-SEACOAST COMMUNICATIONS, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ---------------------- ---------------------- 1998 1997 1997 1996 ---------- ---------- ---------- ---------- UNAUDITED Cash flows from operating activities: Net income (loss)............................................... $ (54,453) $ (46,984) $ (58,094) $ 66,828 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................... 11,440 10,658 33,882 45,838 Provision for doubtful accounts............................. -- -- 4,994 2,563 Decrease (increase) in accounts receivable.................. 29,274 69,905 69,830 (25,305) Increase (decrease) in accounts payable and other liabilities............................................... 30,593 (23,679) 6,345 (29,542) ---------- ---------- ---------- ---------- Net cash provided by operating activities................. 16,854 9,900 56,957 60,382 ---------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of radio station.................................... -- -- (40,000) -- Purchases of property and equipment............................. -- -- (14,956) (7,115) Payment of escrow deposit....................................... -- -- (25,000) -- Other........................................................... 500 -- 362 846 ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities....... 500 -- (79,594) (6,269) ---------- ---------- ---------- ---------- Cash flows from financing activities: Principal payments for debt reduction........................... (11,135) (7,240) (34,745) (51,199) Stockholder contribution........................................ -- -- 61,000 -- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities....... (11,135) (7,240) 26,255 (51,199) ---------- ---------- ---------- ---------- Increase in cash and cash equivalents............................. 6,219 2,660 3,618 2,914 Cash and cash equivalents at beginning of period.................. 13,869 10,251 10,251 7,337 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period........................ $ 20,088 $ 12,911 $ 13,869 $ 10,251 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Supplemental disclosures of cash flow information: Cash paid for interest.......................................... $ 21,744 $ 28,488 $ 82,810 $ 95,440 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash paid for income taxes...................................... $ -- $ -- $ -- $ -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See Notes to Financial Statements. F-318 TRYON-SEACOAST COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Tryon-Seacoast Communications, Inc. (the "Company") is engaged in the operation of radio broadcasting stations in central Maine. The Company has stations licensed in Gardiner, Maine (WABK-FM and WFAU-FM), Augusta, Maine (WKCG-FM) and Madison, Maine (WIGY-FM). The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment are capitalized at cost and depreciated on an accelerated basis over their estimated useful lives as follows: Building and improvements......................................... 15 years Broadcasting towers and equipment................................. 5-7 years Office furniture and equipment.................................... 5 years Automobiles....................................................... 5 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include goodwill and FCC licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life of 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as advertising air time is broadcast. F-319 TRYON-SEACOAST COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. Trade revenues were $119,937 and $118,347 for the years ended December 31, 1997 and 1996, respectively. Trade expenses approximate trade revenues for each period. INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. ACQUISITIONS: In November 1997, the Company acquired WIGY-FM in Madison, Maine for $125,000 consisting of $40,000 paid in cash and the assumption of debt. The station was operated by the Company under a local marketing agreement from May 1997 through the date of acquisition. The acquisition was accounted for as a purchase. Pro forma results of operations have not been presented as the effect of the acquisition was not material in relation to the Company's reported results of operations. During 1997, the Company entered into an asset purchase agreement to purchase WCME-FM from Bay Communications Co. for $537,000. The closure of the sale is contingent upon Federal Communications Commission (FCC) approval. The Company paid an escrow deposit of $25,000 related to this transaction, which has been classified as other assets at December 31, 1997 in the accompanying balance sheet. F-320 TRYON-SEACOAST COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, ---------------------------- 1997 1996 ------------- ------------- Building and improvements....................................... $ 158,945 $ 145,170 Broadcast towers and equipment.................................. 1,137,032 1,090,613 Office furniture and equipment.................................. 221,920 221,598 Automobiles..................................................... 49,414 49,414 ------------- ------------- 1,567,311 1,506,795 Less--Accumulated depreciation.............................. (1,414,530) (1,385,648) ------------- ------------- 152,781 121,147 Land............................................................ 41,485 41,485 ------------- ------------- Property and equipment, net..................................... $ 194,266 $ 162,632 ------------- ------------- ------------- -------------
Depreciation expense for the years ended December 31, 1997 and 1996 was $28,882 and $40,835, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, ------------------------ 1997 1996 ----------- ----------- Goodwill, FCC licenses and others....................................................... $ 240,668 $ 170,668 Accumulated amortization................................................................ (122,337) (117,337) ----------- ----------- Intangible assets, net.................................................................. $ 118,331 $ 53,331 ----------- ----------- ----------- -----------
Amortization expense for the years ended December 31, 1997 and 1996 was $5,000 and $5,003, respectively. 5. RELATED PARTY TRANSACTIONS: During 1997, stockholders of the Company contributed $61,000 to fund operations. This contribution is a transfer of capital to the Company and, accordingly, is recorded as additional paid-in capital as of December 31, 1997. Stockholders of the Company provide cash for operations as needed. At December 31, 1997 and 1996, the Company had notes payable due to stockholders of $54,900. These notes payable are due March 1999 ($40,800) and November 1999 ($14,100). The interest rate applicable to the payable balance was 8% for the two years ended December 31, 1997. Included in long-term debt at December 31, 1997 and 1996, is a note payable of $300,421 due to a trust of which a stockholder of the Company is a beneficiary. (See Note 7). F-321 TRYON-SEACOAST COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $1,441 and $4,538 for the years ended December 31, 1997 and 1996, respectively, under operating leases for radio broadcasting facilities and other operating leases. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997 are as follows: 1998............................................................... $ 5,651 1999............................................................... 5,701 2000............................................................... 1,789 2001............................................................... 1,479 2002............................................................... 1,529 Thereafter......................................................... 2,245 --------- $ 18,394 --------- ---------
7. DEBT: Following is a summary of long-term debt at December 31:
1997 1996 ---------- ---------- Note payable to bank, due March 1, 2003, payable in monthly installments of $5,903, including interest at a variable interest rate of prime + 2.5% (11% at December 31, 1997), secured by the assets of the Company............................................... $ 291,527 $ 326,272 Note payable to bank, due December 31, 2006, payable in monthly installments of $573, including interest at a variable interest rate, (11% at December 31, 1997).................................... 38,166 -- Note payable to seller, non interest bearing, due in annual installments of $12,465 payable November 1998, 1999, and 2000, secured by an interest in the assets of WIGY-FM..................... 37,394 -- Note payable variable interest rate of prime + 2.5% requiring payments of interest only, secured by the assets of the Company.............. 300,421 300,421 Less--Current maturities included in current liability................ (55,193) (36,608) ---------- ---------- $ 612,315 $ 590,085 ---------- ---------- ---------- ----------
The Company also maintains a $150,000 line of credit at a financial institution of which $25,000 was unused at December 31, 1997 and 1996. The interest rate applied to outstanding balances is prime plus 2.5% (11% at December 31, 1997). This line of credit is secured by certain fixed assets and accounts receivable of the Company and is personally guaranteed by two officers of the Company. F-322 TRYON-SEACOAST COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. DEBT: (CONTINUED) Maturities for long-term debt in subsequent years from December 31, 1997 are as follows: 1998.............................................................................. $ 55,193 1999.............................................................................. 61,459 2000.............................................................................. 65,051 2001.............................................................................. 60,988 2002 and thereafter............................................................... 424,817 --------- $ 667,508 --------- ---------
8. INCOME TAXES: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, these deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. In 1996, the Company utilized prior year net operating losses to offset taxable income of $82,826. The Company has established a valuation allowance against all of its operating loss carryforwards following an assessment of the likelihood of realizing such amounts. In arriving at the determination as to the amount of the valuation allowance required, the Company considered its past operating history, tax planning strategies and its expectation of the level and timing of future taxable income. At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $96,000. Other temporary differences at December 31, 1997 and 1996 are insignificant. 9. PENDING SALE: In December 1997, the Company entered into an agreement with Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc., to sell the assets of the Company, including the assets of WCME-FM, subject to the approval of the FCC, to Cumulus for $4,000,000. F-323 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Value Radio Corporation at August 30, 1997 and August 31, 1996, and the results of its operations and its cash flows for each of the three years in the period ended August 30, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 24, 1998 F-324 VALUE RADIO CORPORATION BALANCE SHEETS (DOLLARS IN 000'S)
AUGUST 30, AUGUST 31, 1997 1996 ----------- ----------- ASSETS Current assets: Cash and cash equivalents............................................................... $ 167 $ 102 Accounts receivable, less allowance for doubtful accounts of $25 and $3, respectively... 606 222 Prepaid expenses........................................................................ 23 7 ----------- ----------- Total current assets................................................................ 796 331 ----------- ----------- Property and equipment, net............................................................... 1,570 739 Intangible assets, net.................................................................... 3,952 170 Other assets.............................................................................. 715 251 ----------- ----------- Total assets........................................................................ $ 7,033 $ 1,491 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities................................................ $ 191 $ 52 Trade payable, net...................................................................... 77 18 Note payable to stockholder............................................................. 250 -- Current portion of notes payable........................................................ 1,807 696 ----------- ----------- Total current liabilities........................................................... 2,325 766 ----------- ----------- Notes payable............................................................................. 4,300 22 ----------- ----------- Total liabilities 6,625 788 ----------- ----------- Commitments and contingencies Stockholders' equity: Common stock, no par value, 1,000 shares authorized, 591 shares issued and outstanding........................................................................... 55 55 Retained earnings....................................................................... 353 648 ----------- ----------- Total stockholders' equity.......................................................... 408 703 ----------- ----------- Total liabilities and stockholders' equity.......................................... $ 7,033 $ 1,491 ----------- ----------- ----------- -----------
See Notes to Financial Statements. F-325 VALUE RADIO CORPORATION STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
FOR THE YEAR ENDED ------------------------------------- AUGUST 30, AUGUST 31, AUGUST 31, 1997 1996 1995 ----------- ----------- ----------- Revenues...................................................................... $ 3,607 $ 2,259 $ 2,148 Less: agency commissions...................................................... (226) (105) (124) ----------- ----------- ----------- Net revenues............................................................ 3,381 2,154 2,024 ----------- ----------- ----------- Operating expenses: Programming................................................................. 728 488 438 Sales and promotions........................................................ 836 631 626 Technical................................................................... 150 100 106 General and administration.................................................. 470 316 341 Trade....................................................................... 278 153 162 Depreciation and amortization............................................... 624 174 77 ----------- ----------- ----------- Total operating expenses................................................ 3,086 1,862 1,750 ----------- ----------- ----------- Income from operations........................................................ 295 292 274 Other income (expense), net................................................... (1) (22) 2 Interest expense, net......................................................... (418) (36) (36) ----------- ----------- ----------- Net income (loss)............................................................. $ (124) $ 234 $ 240 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements. F-326 VALUE RADIO CORPORATION STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN 000'S)
COMMON STOCK ------------------------ RETAINED SHARES AMOUNT EARNINGS TOTAL ----------- ----------- ----------- --------- Balance at August 31, 1994.................................................. 580 $ 18 $ 324 $ 342 Sale of stock............................................................... 11 37 -- 37 Net income.................................................................. -- -- 240 240 --- --- ----- --------- Balance at August 31, 1995.................................................. 591 55 564 619 Distribution to stockholders................................................ -- -- (150) (150) Net income.................................................................. -- -- 234 234 --- --- ----- --------- Balance at August 31, 1996.................................................. 591 55 648 703 Distribution to stockholders................................................ -- -- (171) (171) Net loss.................................................................... -- -- (124) (124) --- --- ----- --------- Balance at August 30, 1997.................................................. 591 $ 55 $ 353 $ 408 --- --- ----- --------- --- --- ----- ---------
See Notes to Financial Statements. F-327 VALUE RADIO CORPORATION STATEMENTS OF CASH FLOWS (DOLLARS IN 000'S)
FOR THE YEAR ENDED ----------------------------------------- AUGUST 30, AUGUST 31, AUGUST 31, 1997 1996 1995 ----------- ------------- ------------- Cash flows from operating activities: Net income (loss)............................................................... $ (124) $ 234 $ 240 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................................................. 624 174 77 Provision for doubtful accounts 22 -- -- Decrease (increase) in accounts receivable.................................... (384) 34 (73) Decrease (increase) in prepaid expenses....................................... (16) (1) 1 (Increase) in other assets.................................................... (464) (22) (15) (Decrease) increase in accounts payable and accrued liabilities............... 139 (1) 2 (Decrease) increase in trade payable, net..................................... 59 (18) 8 ----------- ----- ----- Net cash provided by (used in) operating activities......................... (144) 400 240 ----------- ----- ----- Cash flows from investing activities: Acquisition of broadcast properties............................................. (5,200) (500) -- Purchase of property and equipment.............................................. (59) (160) (111) ----------- ----- ----- Net cash used in investing activities....................................... (5,259) (660) (111) ----------- ----- ----- Cash flows from financing activities: Proceeds from sale of stock..................................................... -- -- 37 Distribution to stockholders.................................................... (171) (150) -- Proceeds from note payable to stockholder....................................... 250 -- -- Proceeds from notes payable..................................................... 6,085 678 34 Repayment of notes payable...................................................... (696) (211) (199) ----------- ----- ----- Net cash provided by (used in) financing activities......................... 5,468 317 (128) ----------- ----- ----- Increase in cash and cash equivalents............................................. 65 57 1 Cash and cash equivalents at beginning of year.................................... 102 45 44 ----------- ----- ----- Cash and cash equivalents at end of year.......................................... $ 167 $ 102 $ 45 ----------- ----- ----- ----------- ----- ----- Non-cash operating and financing activities: Trade revenue................................................................... $ 194 $ 196 $ 168 ----------- ----- ----- ----------- ----- ----- Trade expense................................................................... $ 278 $ 153 $ 162 ----------- ----- ----- ----------- ----- ----- Supplemental cash information: Cash paid for interest.......................................................... $ 355 $ 34 $ 36 ----------- ----- ----- ----------- ----- -----
See Notes to Financial Statements. F-328 VALUE RADIO CORPORATION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Value Radio Corporation (the "Company") is an S-Corporation organized for the purpose of owning and operating radio broadcasting stations in and around the Appleton/Oshkosh, Wisconsin area. On August 30, 1997, the Company owned and operated five stations, WOSH-AM, WVBO-FM, WOGB-FM, WUSW-AM and WNAM-FM (the "Stations"). The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on an accelerated basis over their estimated useful lives as follows: 15-39 Buildings................................................... years Broadcasting towers and equipment........................... 5-10 years Office furniture and equipment.............................. 5-10 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include Federal Communications Commission ("FCC") licenses and are stated at cost and are being amortized using the straight-line method over the estimated useful life of 15 years. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES Income or loss of the S-Corporation is included in the tax returns of the individual stockholders. Accordingly, federal and state income taxes are not recognized by the Company. F-329 VALUE RADIO CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. ACQUISITION AND SWAP In January 1997, the Company acquired the partnership interest in WUSW-AM and WNAM-FM (the "Partnership") for the total consideration of approximately $5.2 million. In conjunction with the acquisition of the Partnership, the Company acquired the remaining ownership interest in Valley Radio Results Partnership, an entity which provided the sales department for both the Partnership and the Company, and has subsequently dissolved Valley Radio Results into the Company. In April 1996, the Company swapped the assets of WFDL-FM for the assets of WOGB-FM and paid total consideration of approximately $0.5 million. The acquisition and the swap were accounted for using the purchase method of accounting. The Company's results of operations for the periods ended August 30, 1997 and August 31, 1996 include the results of operations of WUSW-AM, WNAM-FM and WOGB-FM from their respective dates of acquisition and the results of WFDL-FM until its date of disposition. The following unaudited pro forma statement of operations data give effect to the acquisitions as if they had occurred on September 1, 1995. In addition, depreciation and amortization has been increased each period to reflect initial purchase price allocations as if the transactions had occurred on September 1, 1995.
PRO FORMA FOR THE YEAR ENDED ------------------------ AUGUST 30, AUGUST 31, 1997 1996 ----------- ----------- (UNAUDITED) Net revenues......................................................... $ 3,925 $ 3,557 ----------- ----------- ----------- ----------- Operating income..................................................... $ 305 $ 338 ----------- ----------- ----------- ----------- Net income (loss).................................................... $ 160 $ 142 ----------- ----------- ----------- -----------
F-330 VALUE RADIO CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
AUGUST 30, AUGUST 31, 1997 1996 ----------- ----------- Land and buildings................................................ $ 435 $ 346 Broadcasting towers and equipment................................. 1,716 911 Office furniture and equipment.................................... 662 289 ----------- ----- 2,813 1,546 Accumulated depreciation.......................................... (1,243) (807) ----------- ----- Property and equipment, net....................................... $ 1,570 $ 739 ----------- ----- ----------- -----
Depreciation expense for the three years ended August 30, 1997 was $436, $169 and $77, respectively. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
AUGUST 30, AUGUST 31, 1997 1996 ----------- ------------- FCC licenses...................................................... $ 4,145 $ 175 Accumulated amortization.......................................... (193) (5) ----------- ----- Intangible assets, net............................................ $ 3,952 $ 170 ----------- ----- ----------- -----
Amortization expense for the three years ended August 30, 1997 was $188, $5 and $0, respectively. 5. OTHER ASSETS: Other assets consist of the following:
AUGUST 30, AUGUST 31, 1997 1996 ------------- ------------- Cash Surrender value of life insurance............................ $ 110 $ 105 Investment in Radio Results....................................... -- 109 Note receivable................................................... 560 -- Deposits.......................................................... 45 37 ----- ----- Other assets...................................................... $ 715 $ 251 ----- ----- ----- -----
Prior to the January 1997 acquisition of the Partnership, the Company did not have majority ownership in Valley Radio Results and; accordingly, accounted for its investment in Radio Results using the equity method of accounting. F-331 VALUE RADIO CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 6. RELATED PARTY TRANSACTIONS: Certain of the Company's stockholders are also stockholders in Mid-West Management, Inc. ("Mid-West"), which provides accounting services, benefits administration, legal assistance and programming consulting to the Company. Mid-West allocates expenses to the Company, on a monthly basis, based on estimated hours expended. Allocations were $46, $44 and $40 for the periods ended August 30, 1997 and August 31, 1996 and 1995, respectively. At August 30, 1997, the Company had a note payable due of $250 to a stockholder, bearing interest at 9% and due on demand. 7. LONG-TERM DEBT Long-term debt consists of the following at August 30, 1997:
AUGUST 30, AUGUST 31, 1997 1996 ----------- ----------- Note payable, $4,300 principal, interest only due the first six months at 8.1%, interest and principal due monthly through January 2002.................................................... $ 4,300 $ -- Note payable, $1,320 principal, interest at 8%, due quarterly, principal due July 1998......................................... 1,292 -- Line of credit, interest at 9.25% due monthly, principal due on demand.......................................................... 100 -- Note payable, $401 principal, interest at 8%, due quarterly, principal due July 1998......................................... 392 -- Note payable, $678 principal, interest and principal due monthly through 1998, interest at prime plus 3/4% (9% at August 31, 1996)........................................................... -- 678 Note payable, interest at 8%, $1.4 due monthly through November 1998............................................................ 23 40 ----------- ----------- 6,107 718 Less: current maturities.......................................... (1,807) (696) ----------- ----------- $ 4,300 $ 22 ----------- ----------- ----------- -----------
A summary of the future maturities of long-term debt follows: 1998........................................................... $ 1,807 1999........................................................... -- 2000........................................................... -- 2001........................................................... -- 2002........................................................... -- Thereafter..................................................... 4,300 ----------- $ 6,107 ----------- -----------
F-332 VALUE RADIO CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN 000'S) 8. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $42 for the year ended December 31, 1997 and $22 for the year ended December 31, 1996, under operating leases for radio broadcasting facilities. Future minimum annual payments under these non-cancelable operating leases and agreements as of December 31, 1997, are as follows:
PAYMENT AUGUST 31, ------------- 1998.......................................................................... $ 44 1999.......................................................................... 35 2000.......................................................................... 19 2001.......................................................................... 4 ----- $ 102 ----- -----
The Company is also involved in various other claims and lawsuits which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates fair value due to their short term nature. The fair value of notes payable is estimated based on current market rates and approximates the carrying value. 10. SUBSEQUENT EVENT: On August 31, 1997, the Company, through a series of simultaneous transactions, sold the Stations to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus") for $12.15 million. WOSH-AM, WVBO-FM and WOGB-FM (the "Swapped Stations") were swapped, in a tax related transaction, with a third party, who simultaneously sold the Swapped Stations to Cumulus. WUSW-AM and WNAM-FM were sold directly to Cumulus by the Company. These financial statements report the financial position and results of operations of the five Stations which were subsequently sold to Cumulus, as of and for the period ended August 30, 1997, the last day of ownership of the Stations by the Company. F-333 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in shareholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Wilks Broadcast Acquisitions, Inc. at August 31, 1997 and December 31, 1996, and the results of its operations and its cash flows for the eight months ended August 31, 1997 and each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 16, 1998 F-334 WILKS BROADCAST ACQUISITIONS, INC. BALANCE SHEETS
AUGUST 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.......................................................... $ 292,714 $ 55,372 Accounts receivable, less allowance for doubtful accounts of $113,525 and $73,114, respectively..................................................................... 764,689 836,475 Prepaid expenses and other current assets.......................................... 25,371 17,087 ------------ ------------ Total current assets........................................................... 1,082,774 908,934 Property and equipment, net.......................................................... 1,447,487 1,768,059 Intangible assets, net............................................................... 4,048,587 4,249,003 Other assets......................................................................... 94,660 80,887 ------------ ------------ Total assets................................................................... $ 6,673,508 $7,006,883 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of note payable.................................................... $ 347,910 $ 225,544 Related party note payable......................................................... 3,232,348 3,201,097 Accounts payable................................................................... 114,982 113,079 Accrued and other current liabilities.............................................. -- 9,307 ------------ ------------ Total current liabilities...................................................... 3,695,240 3,549,027 ------------ ------------ Long-term liabilities: Note payable, less current portion................................................. 3,039,941 3,274,456 ------------ ------------ Total long-term liabilities.................................................... 3,039,941 3,274,456 ------------ ------------ Commitments and contingencies Shareholders' equity (deficit): Common stock, no par value, 200 shares authorized, 100 issued and outstanding...... 25,000 25,000 Retained earnings (deficit)........................................................ (86,673) 158,400 ------------ ------------ Total shareholders' equity (deficit)........................................... (61,673) 183,400 ------------ ------------ Total liabilities and shareholders' equity (deficit)........................... $ 6,673,508 $7,006,883 ------------ ------------ ------------ ------------
See Notes to Financial Statements. F-335 WILKS BROADCAST ACQUISITIONS, INC. STATEMENTS OF OPERATIONS
FOR THE EIGHT FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, AUGUST 31, -------------------------- 1997 1996 1995 ------------- ------------ ------------ Revenues.............................................................. $ 2,624,507 $ 3,410,871 $ 1,479,090 Less: agency commissions............................................ (22,716) (19,544) (5,803) ------------- ------------ ------------ Net revenues................................................... 2,601,791 3,391,327 1,473,287 Operating expenses: Programming......................................................... 101,794 151,701 103,434 Sales and promotions................................................ 329,393 555,725 210,809 Technical........................................................... 34,779 47,349 23,944 General and administrative.......................................... 1,402,526 1,475,659 664,129 Depreciation and amortization....................................... 554,181 572,014 242,238 ------------- ------------ ------------ Total operating expenses....................................... 2,422,673 2,802,448 1,244,554 ------------- ------------ ------------ Income from operations................................................ 179,118 588,879 228,733 Interest expense...................................................... 424,191 352,221 131,123 ------------- ------------ ------------ Net income (loss)..................................................... $ (245,073) $ 236,658 $ 97,610 ------------- ------------ ------------ ------------- ------------ ------------
See Notes to Financial Statements. F-336 WILKS BROADCAST ACQUISITIONS, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
RETAINED EARNINGS COMMON STOCK (DEFICIT) TOTAL -------------- ----------- ----------- Balance at January 1, 1995.............................................. $ 25,000 ($ 146,668) ($ 121,668) Net income.............................................................. -- 97,610 97,610 ------- ----------- ----------- Balance at December 31, 1995............................................ 25,000 (49,058) (24,058) Net income.............................................................. -- 236,658 236,658 Distribution to shareholder............................................. -- (29,200) (29,200) ------- ----------- ----------- Balance at December 31, 1996............................................ 25,000 158,400 183,400 Net loss................................................................ -- (245,073) (245,073) ------- ----------- ----------- Balance at August 31, 1997.............................................. $ 25,000 ($ 86,673) ($ 61,673) ------- ----------- ----------- ------- ----------- -----------
See Notes to Financial Statements. F-337 WILKS BROADCAST ACQUISITIONS, INC. STATEMENTS OF CASH FLOWS
FOR THE EIGHT FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, AUGUST 31, ------------------------ 1997 1996 1995 ------------- ----------- ----------- Cash flows from operating activities: Net income (loss)..................................................... ($ 245,073) $ 236,658 $ 97,610 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................................... 554,181 572,014 242,238 Decrease in accounts receivable, net.............................. 71,786 (470,562) (216,617) (Increase) decrease in prepaid expenses and other current assets........................................ (8,284) (53,287) 2,213 Decrease in other assets.......................................... (13,773) (22,256) -- Increase (decrease) increase in accounts payable.................. 1,903 49,822 (7,852) Increase (decrease) in accrued and other liabilities.............. (9,307) 9,307 (1,067) ------------- ----------- ----------- Net cash provided by operating activities......................... 351,433 321,696 116,525 ------------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment................................... (33,193) (317,366) (21,643) Acquisitions of broadcasting properties............................... -- (5,009,438) -- ------------- ----------- ----------- Cash used for investing activities.................................... (33,193) (5,326,804) (21,643) ------------- ----------- ----------- Cash flows from financing activities: Proceeds from borrowings.............................................. 31,251 5,048,807 -- Repayment of borrowings............................................... (112,149) -- (68,073) Distribution to shareholder........................................... -- (29,200) -- ------------- ----------- ----------- Cash (used for) provided by financing activities...................... (80,898) 5,019,607 (68,073) ------------- ----------- ----------- Increase in cash and cash equivalents................................... 237,342 14,499 26,809 Cash and cash equivalents at beginning of period........................ 55,372 40,873 14,064 ------------- ----------- ----------- Cash and cash equivalents at end of period.............................. $ 292,714 $ 55,372 $ 40,873 ------------- ----------- ----------- ------------- ----------- ----------- Supplemental disclosure of cash information: Cash paid for interest................................................ $ 424,191 $ 352,221 $ 131,123 ------------- ----------- ----------- ------------- ----------- -----------
See Notes to Financial Statements. F-338 WILKS BROADCAST ACQUISITIONS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Wilks Broadcast Acquisitions, Inc. (the "Company") owns and operates radio stations on the Augusta, Georgia and South Carolina border. The Company owns and operates radio stations WEKL-FM, WUUS-FM, WRXR-FM, and WGUS-AM ("the Stations"). The significant accounting principles followed by the Company and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents are highly liquid investments with original maturities of three months or less. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Trade revenues and trade expenses are recognized in equal amounts at the fair market value of products or services received as advertising air time is broadcast or as services are received. Trade revenues and expenses for the eight months ended August 31, 1997 and the years ended December 31, 1996 and 1995 were $320,652, $433,105 and $138,341, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using accelerated methods over the estimated useful lives of the respective assets of five to fifteen years. Leasehold improvements are amortized on the straight-line basis over their estimated useful lives of thirty-nine years. Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets consist of FCC licenses. Intangible assets are recorded at cost and amortized over 15 years. F-339 WILKS BROADCAST ACQUISITIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INCOME TAXES The Company has elected to be treated as an S-Corporation for federal income tax purposes. Under this election the income or loss of the S-Corporation is included in the tax returns of the individual shareholders. Accordingly, federal and state income taxes are not included in the accompanying financial statements FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. The fair value of notes payable are estimated based on current market rates and approximate the carrying value. 2. ACQUISITIONS In March 1996, the Company entered into an asset purchase agreement to acquire stations WUUS-FM (formerly WKBG-FM) and WRXR-FM in Augusta, Georgia for $5,000,000 in cash plus specific acquisition costs. The acquisitions discussed above were accounted for under the purchase method of accounting. Under the purchase method of accounting, the purchase price was allocated, on the closing date, to the assets acquired and liabilities assumed based on their respective fair values. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
AUGUST 31, DECEMBER 31, 1997 1996 ------------ ------------ Broadcasting towers and equipment................................ $ 1,987,243 $1,954,050 Buildings........................................................ 65,000 65,000 Office furniture and equipment................................... 176,366 176,366 Leasehold improvements........................................... 193,844 193,844 ------------ ------------ 2,422,453 2,389,260 Accumulated depreciation......................................... (974,966) (621,201) ------------ ------------ Property and equipment, net...................................... $ 1,447,487 $1,768,059 ------------ ------------ ------------ ------------
Depreciation expense was $353,765, $388,708, and $145,693 for the eight months ended August 31, 1997 and the years ended December 31, 1996 and 1995, respectively. F-340 WILKS BROADCAST ACQUISITIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
AUGUST 31, DECEMBER 31, 1997 1996 ------------ ------------ FCC licenses..................................................... $ 4,509,298 $4,509,298 Accumulated amortization......................................... (460,711) (260,295) ------------ ------------ Intangible assets, net........................................... $ 4,048,587 $4,249,003 ------------ ------------ ------------ ------------
Amortization expense was $200,416, $183,306, and $96,545 for the eight months ended August 31, 1997 and the years ended December 31, 1996 and 1995, respectively. 5. RELATED PARTY NOTES PAYABLE: The Company has notes payable to a related party. As of August 31, 1997 and December 31, 1996, the balances of these notes payable were $3,232,348 and $3,201,097 respectively. The notes are due upon demand and bear interest at rates ranging from 7% to 10%. Interest payments were $209,747, $176,406 and $125,698 for the eight months ended August 31, 1997 and the years ended December 31, 1996 and 1995, respectively. 6. LONG-TERM DEBT In July, 1996, the Company entered into a $3,500,000 term loan agreement (the "Agreement") with a bank for the purpose of acquiring two radio stations, WRXR-FM and WUUS-FM (formerly WKBG-FM). The term loan requires monthly interest and principal payments beginning July 1, 1996 with the final payment due March 31, 2004 and bears interest at the one month LIBOR Rate plus 2.25% (7.94% at August 31, 1997). The term loan is secured by substantially all of the company's assets as well as a pledge of the common stock of the corporation. The Agreement contains certain restrictive covenants, which among other things, require the maintenance of a funded debt to cash flow and pro forma debt service ratio, minimum net worth and limitations on dispositions of assets. The current portion of $347,910 represents amounts due one year past the balance sheet date of August 31, 1997. Subsequent to year end, all principal and remaining accrued interest was paid by the Company. A summary of the future maturities of long-term debt as of August 31, are as follows: Four months ended December 31, 1997............................. $ 100,667 1998............................................................ 385,974 1999............................................................ 444,038 2000............................................................ 487,671 2001............................................................ 533,881 2002............................................................ 587,164 Thereafter...................................................... 848,456 --------- $3,387,851 Less--current portion........................................... 347,910 --------- $3,039,941 --------- ---------
F-341 WILKS BROADCAST ACQUISITIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of $27,209, $31,245, and $18,267 for the eight months ended August 31, 1997 and the years ended December 31, 1996 and 1995, respectively, under operating leases for radio broadcasting facilities, broadcasting equipment automobiles, and land. Future minimum annual payments under these non-cancelable operating leases and agreements as of August 31, are as follows: 1997........................................................... $ 9,358 1998........................................................... 31,913 1999........................................................... 23,853 2000........................................................... 19,017 2001........................................................... 19,017 Thereafter..................................................... 275,900 --------- $ 379,058 --------- ---------
8. SUBSEQUENT EVENT: On September 1, 1997, the Stations were acquired by Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) pursuant to an asset purchase agreement with the Company for a purchase price of $15,500,000. F-342 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Lewis Broadcasting Corporation In our opinion, the accompanying balance sheets and the related statements of income, of changes in owners' net investment and of cash flows present fairly, in all material respects, the financial position of WJCL-FM (a division of Lewis Broadcasting Corporation) at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Atlanta, Georgia February 27, 1998 F-343 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) BALANCE SHEETS
DECEMBER 31, MARCH 31, ---------------------- 1998 1997 1996 ----------- ---------- ---------- (UNAUDITED) ASSETS Accounts receivable--trade (less allowance for doubtful accounts of $1,532, $19,494 and $15,668, respectively)........................................ $ 42,085 $ 370,387 $ 297,688 ----------- ---------- ---------- Total current assets........................................................ 42,085 370,387 297,688 Equipment and other fixed assets, net....................................... 18,338 20,353 29,981 ----------- ---------- ---------- Total assets................................................................ $ 60,423 $ 390,740 $ 327,669 ----------- ---------- ---------- ----------- ---------- ---------- LIABILITIES AND OWNERS' NET INVESTMENT Accounts payable............................................................ $ $ 8,693 $ 6,208 Accrued expenses............................................................ 23,107 13,484 ----------- ---------- ---------- Total current liabilities................................................... 31,800 19,692 Owners' net investment...................................................... 60,423 358,940 307,977 ----------- ---------- ---------- Total liabilities and owners' net investment................................ $ 60,423 $ 390,740 $ 327,669 ----------- ---------- ---------- ----------- ---------- ----------
See notes to financial statements. F-344 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, -------------------------- -------------------------- 1998 1997 1997 1996 ------------ ------------ ------------ ------------ (UNAUDITED) Revenues................................................. $ -- $ 318,925 $ 1,800,955 $ 1,924,745 Less: agency commissions............................... -- (38,529) (236,084) (261,440) ------------ ------------ ------------ ------------ Net revenues....................................... -- 280,396 1,564,871 1,663,305 ------------ ------------ ------------ ------------ Operating expense Programming............................................ 88,366 379,521 393,565 Sales and promotions................................... 86,917 413,957 459,593 Technical.............................................. 18,985 29,686 52,024 57,623 General and administrative............................. 12,502 97,936 622,857 621,430 Depreciation........................................... 2,015 3,900 13,043 8,333 ------------ ------------ ------------ ------------ 33,502 306,805 1,481,402 1,540,544 Other income............................................. 11,430 ------------ ------------ ------------ ------------ Net income (loss)........................................ $ (22,072) $ (26,409) $ 83,469 $ 122,761 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Pro forma adjustments (unaudited) Net income (loss) before pro forma adjustment............ $ (22,072) $ (26,409) $ 83,469 $ 122,761 Pro forma adjustment for provision (benefit) for federal and state income taxes.................................. (8,387) (10,035) 31,685 46,600 ------------ ------------ ------------ ------------ Pro forma net income (loss).............................. $ (13,685) $ (16,374) $ 51,784 $ 76,161 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
See notes to financial statements. F-345 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ----------------------- ----------------------- 1998 1997 1997 1996 ---------- ----------- ---------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)............................................. $ (22,072) $ (26,409) $ 83,469 $ 122,761 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................................ 2,015 3,900 13,043 8,333 (Increase) decrease in accounts receivable.................. 328,302 80,141 (72,699) 15,297 Increase (decrease) in accounts payable..................... (8,693) 2,360 2,485 (5,091) Increase (decrease) in accrued expenses..................... (23,107) 1,699 9,623 919 ---------- ----------- ---------- ----------- Net cash provided by operating activities....................... 276,445 61,691 35,921 142,219 ---------- ----------- ---------- ----------- Net cash used in investing activities: Purchases of equipment and other fixed assets................. (3,415) (36,172) ---------- ----------- ---------- ----------- Net cash used in financing activities: Distributions to owners....................................... (276,445) (61,691) (32,506) (106,047) ---------- ----------- ---------- ----------- Change in cash.................................................. -- -- -- -- Cash balance, beginning of period............................... -- -- -- -- ---------- ----------- ---------- ----------- Cash balance, end of period..................................... $ -- $ -- $ -- $ -- ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
See notes to financial statements. F-346 \ WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) STATEMENTS OF CHANGES IN OWNERS' NET INVESTMENT
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 ---------- ----------- Owners' net investment, beginning........................................................ $ 307,977 $ 291,263 Net income............................................................................... 83,469 122,761 Net distributions to owners.............................................................. (32,506) (106,047) ---------- ----------- Owners' net investment, ending........................................................... $ 358,940 $ 307,977 ---------- ----------- ---------- -----------
See notes to financial statements. F-347 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES WJCL-FM (the Business) is a division of Lewis Broadcasting Corporation (Corporation). Lewis Broadcasting Corporation also owns and operates television stations in Savannah and Columbus, Georgia, and Columbia, South Carolina. The Business operates an FM radio station in Savannah, Georgia. These financial statements have been derived from the historical accounting records of Lewis Broadcasting Corporation and present the financial position and results of operations as if the Business were a separate company. Accordingly, the net investment in the Business (owners' net investment) is shown in lieu of stockholders' equity. The significant accounting principles followed by the Business and the methods of applying these principles which materially affect the determination of financial position, changes in owners' net investment and results of operations are summarized as follows: REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE TRANSACTIONS The Business trades unsold commercial advertising time for various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. The related revenue is recognized when commercials are broadcast; goods or services received are recorded as assets or expenses when received or used, respectively. Trade revenues were $55,556 and $64,806 for the years ended December 31, 1997 and 1996, respectively. INCOME TAXES Lewis Broadcasting Corporation, of which WJCL-FM is a division, is an S corporation, and therefore, Lewis Broadcasting Corporation's stockholders are subject to taxes on the income of the Corporation. Proforma net income reflects the treatment of the business as a tax paying entity assuming an estimated statutory rate of 38%. It is not necessarily indicative of the actual results had the Business in fact been a tax paying entity. DEPRECIATION Equipment and other fixed assets are being depreciated over five years using accelerated methods. USE OF ESTIMATES The preparation of financial statements in accordance 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 liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-348 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data as of March 31, 1998 and for each of the three months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of results of the interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three months ended March 31, 1998 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 1998. 2. PENDING SALE OF BUSINESS On December 23, 1997 Lewis Broadcasting Corporation entered into an asset purchase agreement with affiliates of Cumulus Media Inc. (Cumulus) to sell the WJCL-FM station license and other station assets. The assignment of the station license and the transfer of the station assets is conditioned and subject to the prior consent and approval of the Federal Communication Commission (FCC). Effective January 1, 1998, WJCL-FM has been operating under a local marketing agreement ("LMA") with Cumulus. Under an LMA, WJCL-FM has agreed to sell certain broadcast time on WJCL-FM and Cumulus has agreed to provide programming to and sell advertising on WJCL-FM during the purchased time. Accordingly, during the LMA period, revenue derived from the advertising sold during the purchased time and certain expenses of WJCL-FM are recorded by Cumulus in exchange for a LMA fee. This LMA fee has been reflected in the combined statement of operations as other income. WJCL-FM retains responsibility for ultimate control of WJCL-FM in accordance with FCC policies. 3. RELATED PARTY TRANSACTIONS As part of a combined group, the Business is allocated various corporate overhead costs. The allocation method requires management to estimate the incremental overhead costs incurred as a result of servicing the Business. Corporate overhead allocations were approximately $289,509 and $255,434 for the years ended December 31, 1997 and 1996, respectively. The Business also leases a broadcasting tower from an affiliate on a month to month basis, which amounted to $30,000 per year for the years ended December 31, 1997 and 1996, respectively. The Business participates in Lewis Broadcasting Corporation's centralized cash management system. Accordingly, all cash received and disbursed that relates to operations of the Business is accounted for by Lewis Broadcasting Corporation and the net of such activity is reflected in the owners' net investment account in the accompanying balance sheet. F-349 WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 AND 1996 4. EQUIPMENT AND OTHER FIXED ASSETS Equipment and other fixed assets consists of the following:
DECEMBER 31, ---------------------- 1997 1996 ---------- ---------- Equipment and other fixed assets...................................... $ 114,289 $ 110,903 Accumulated depreciation.............................................. (93,936) (80,922) ---------- ---------- $ 20,353 $ 29,981 ---------- ---------- ---------- ----------
5. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. 6. RETIREMENT PLAN The Business participates in the Lewis Broadcasting Corporation National Automobile Dealership Association Retirement Trust (NADART) Salary Deferral 401(k) Profit-Sharing Plan (the Plan), a defined contribution plan operated by NADART which covers all employees who qualify and elect to participate. The normal cost is funded by contributions from participants at a required rate of 2% of their compensation on a pre-tax basis. In addition to this required contribution, participants may make additional contributions not to exceed $9,500 in both 1997 and 1996. The Business makes a matching contribution equal to the required 2% contribution made by all participants. F-350 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheet and the related combined statements of income, of changes in owner's equity and of cash flows present fairly, in all material respects, the financial position of WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM (the "Stations") at November 9, 1997, and the results of their operations and their cash flows for the period from June 30, 1997 through November 9, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Stations' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Effective June 29, 1997, 62nd Street Broadcasting LLC (62nd Street) acquired the Stations from Fritz Broadcasting, Inc. As discussed in Note 2 to the financial statements, the acquisition was accounted for as a purchase. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 6, 1998 F-351 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined statements of income, of changes in owner's equity and of cash flows present fairly, in all material respects, the results of the operations and the cash flows of WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM (the "Stations") for the period from January 1, 1997 through June 29, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Stations' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Effective June 29, 1997, 62nd Street Broadcasting LLC (62nd Street) acquired the Stations from Fritz Broadcasting, Inc. As discussed in Note 2 to the financial statements, the acquisition was accounted for as a purchase. /s/ PRICE WATERHOUSE LLP Chicago, Illinois February 6, 1998 F-352 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) COMBINED BALANCE SHEET
SUCCESSOR ------------- NOVEMBER 9, 1997 ------------- ASSETS Current assets: Cash............................................................................................. $ 30,137 Accounts receivable, less allowance for doubtful accounts of $45,311............................. 1,368,757 Related party receivable......................................................................... 145,443 Prepaid expenses and other current assets........................................................ 6,638 ------------- Total current assets......................................................................... 1,550,975 Property and equipment, net...................................................................... 2,825,890 Intangible assets, net........................................................................... 26,364,694 ------------- Total assets................................................................................. $ 30,741,559 ------------- ------------- LIABILITIES AND OWNER'S EQUITY Current liabilities: Accounts payable................................................................................. $ 77,786 Accrued expenses and other current liabilities................................................... 199,460 Capital lease obligations........................................................................ 2,632 ------------- Total current liabilities.................................................................... 279,878 ------------- Commitments and contingencies Owner's equity: Owner's capital.................................................................................. 29,922,401 Retained earnings................................................................................ 539,280 ------------- Total owner's equity......................................................................... 30,461,681 ------------- Total liabilities and owner's equity......................................................... $ 30,741,559 ------------- -------------
See Notes to Combined Financial Statements. F-353 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) COMBINED STATEMENTS OF INCOME
SUCCESSOR PREDECESSOR --------------- ----------------- JUNE 30, 1997 JANUARY 1, 1997 TO TO NOVEMBER 9, JUNE 29, 1997 1997 --------------- ----------------- Revenues...................................................................... $ 3,012,950 $ 3,362,862 Less: agency commissions.................................................... (393,697) (440,241) --------------- ----------------- Net revenues............................................................ 2,619,253 2,922,621 Operating expenses: Sales and promotions........................................................ 416,081 519,646 Programming................................................................. 392,442 530,953 Technical................................................................... 35,107 63,138 Sports and news............................................................. 18,557 24,124 General and administrative.................................................. 351,720 461,555 Depreciation and amortization............................................... 830,510 173,248 --------------- ----------------- Total operating expenses................................................ 2,044,417 1,772,664 --------------- ----------------- Income from operations........................................................ 574,836 1,149,957 Interest expense.............................................................. 1,009 143,309 --------------- ----------------- Income before income taxes.................................................... 573,827 1,006,648 Single business tax and other sale and local income taxes..................... 34,547 39,434 --------------- ----------------- Net income.................................................................... $ 539,280 $ 967,214 --------------- ----------------- --------------- -----------------
See Notes to Combined Financial Statements. F-354 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY PREDECESSOR Balance at January 1, 1997..................................................... $2,902,405 Net income..................................................................... 967,214 ---------- Balance at June 29, 1997....................................................... 3,869,619 ---------- ---------- SUCCESSOR Acquisition of the station at June 30, 1997.................................... 29,922,401 Net income..................................................................... 539,280 ---------- Balance at November 9, 1997.................................................... $30,461,681 ---------- ----------
See Notes to Combined Financial Statements. F-355 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) COMBINED STATEMENTS OF CASH FLOWS
SUCCESSOR PREDECESSOR ------------- -------------- JANUARY 1, JUNE 30, 1997 1997 TO TO NOVEMBER 9, JUNE 29, 1997 1997 ------------- -------------- Cash flows from operating activities: Net income....................................................................... $ 539,280 $ 967,214 Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisition: Depreciation and amortization................................................ 830,510 173,248 Increase in accounts receivable.............................................. (1,446,356) (6,830) Increase in related party receivable......................................... (145,443) (472,859) Decrease (increase) in prepaid expenses and other current assets............. (6,638) 18,213 Increase in accounts payable................................................. 77,786 6,482 Increase (decrease) in accrued expenses and other current liabilities........ 196,009 (419,025) ------------- -------------- Net cash provided by operating activities.................................. 45,148 266,443 ------------- -------------- Cash flows from financing activities: Principal payments under capital lease obligations............................... (15,011) (175,908) ------------- -------------- Cash used for financing activities............................................... (15,011) (175,908) ------------- -------------- Increase in cash................................................................... 30,137 90,535 Cash at beginning of period........................................................ -- 61,813 ------------- -------------- Cash at end of period.............................................................. $ 30,137 $ 152,348 ------------- -------------- ------------- --------------
See Notes to Combined Financial Statements. F-356 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS 62nd Street Broadcasting LLC (62nd Street) owns and operates radio stations WKKO-FM, WRQN-FM, WTOD-AM, and WIMX-FM (the "Stations" or the "Company") located in Toledo, Ohio. At the close of business on June 29, 1997, 62nd Street acquired the stations from Fritz Broadcasting, Inc. ("Fritz"). As a result of the change in ownership, the financial position, results of operations and cash flows of the Stations subsequent to the date of the acquisition are labeled "Successor" in the accompanying combined financial statements, and the results of operations and cash flows of the Stations for the period prior to the acquisition are labeled "Predecessor". The significant accounting principles followed by the Successor and Predecessor and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. USE OF ESTIMATES The preparation of financial statements in accordance 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 periods presented. Actual results could differ from these estimates. CASH The Successor and the Predecessor paid approximately $1,009 and $143,309, respectively, in 1997 for interest. RELATED PARTY RECEIVABLE Related party receivable includes cash held by 62nd Street on behalf of the Company in a centralized cash management system. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows:
SUCCESSOR PREDECESSOR --------- ------------- Building........................................................... 39 years 40 years Broadcasting towers and equipment.................................. 5 years 5--20 years Office furniture and equipment..................................... 5 years 5-20 years Vehicles........................................................... 5 years 5 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. F-357 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INTANGIBLE ASSETS Intangible assets include goodwill and FCC licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life or contract term for periods not exceeding 15 years for the Successor and 40 years for the Predecessor. The Company evaluates the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. INCOME TAXES The Company operated as an S Corporation under the provisions of the Internal Revenue Code during the ownership by Fritz and as a Limited Liability Company during the ownership by 62nd Street. Accordingly, no provision for income taxes has been made since income or losses of the Company were allocated to the owner. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. Fees paid pursuant to various time brokerage agreements are amortized to expense, respectively, over the term of the agreement using the straight-line method. TRADE AGREEMENTS The Company enters into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Company uses exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. ACQUISITION: Effective June 29, 1997, 62nd Street acquired selected assets from Fritz which included a building, furniture and fixtures, vehicles, and broadcast licenses of WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM in Toledo, Ohio for $30 million in cash plus various other direct acquisition costs. A substantial portion of the purchase price was allocated to broadcast licenses, intangibles and goodwill. As part of the purchase agreement, 62nd Street will collect accounts receivable related to Fritz's operations of the stations and remit payments to Fritz for such receivables. This agreement expires in March 1998 at which time Fritz will be responsible for collecting any remaining receivables. The acquisition discussed above was accounted for as a purchase business combination by 62nd Street. 62nd Street elected, under generally accepted accounting principles, to pushdown the acquisition basis to the Company level through a non-cash capital contribution to the Company. Accordingly, the accompanying combined financial statements include the results of operations of the Stations from the date of acquisition. The effect of the acquisition on the results of operations is to primarily increase depreciation and amortization expense. F-358 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
SUCCESSOR ------------ NOVEMBER 9, 1997 ------------ Building........................................................................ $ 418,500 Broadcasting towers and equipment............................................... 1,960,000 Office furniture and equipment.................................................. 335,000 Vehicles........................................................................ 40,000 ------------ 2,753,500 Accumulated depreciation........................................................ (174,110) Land............................................................................ 246,500 ------------ Property and equipment, net..................................................... $ 2,825,890 ------------ ------------
Successor depreciation expense for the period ended November 9, 1997 was $174,110, and Predecessor depreciation expense for the period ended June 29, 1997 was $54,902. 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
SUCCESSOR ------------- NOVEMBER 9, 1997 ------------- Goodwill, FCC licenses and call letters........................................ $ 27,000,000 Other.......................................................................... 21,094 ------------- 27,021,094 Accumulated amortization....................................................... (656,400) ------------- Intangible assets, net......................................................... $ 26,364,694 ------------- -------------
Successor amortization expense for the period ended November 9, 1997 was $656,400, and the Predecessor amortization expense for the period ended June 29, 1997 was $118,346. F-359 WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses and other current liabilities consist of the following at November 9, 1997:
SUCCESSOR ---------- Accrued sales commission.......................................................... $ 97,554 Accrued payroll................................................................... 26,089 Accrued license fees.............................................................. 16,441 Accrued taxes..................................................................... 34,547 Other accrued expenses............................................................ 24,829 ---------- $ 199,460 ---------- ----------
6. RELATED PARTY TRANSACTIONS: The Company participates in 62nd Street's centralized cash management system. Accordingly, cash received from the Company's operations is pooled centrally and allocated by 62nd Street based on operational, working capital and capital expenditure requirements. The Company has no available lines of credit or other sources of financing. 7. COMMITMENTS AND CONTINGENCIES: The Company incurred expenses of approximately $6,160 for the period ended November 9, 1997 under operating leases for radio broadcasting facilities. Future minimum annual payments, adjusted based upon formulas related to the Consumer Price Index, under the operating lease for the broadcast tower approximate $7,200. The Company also has a vehicle under a capital lease with a cost of $15,795 and accumulated depreciation of $13,163. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash, accounts receivable and accounts payable approximates fair value due to their short-term nature. 9. EMPLOYEE BENEFIT PLAN: Fritz sponsored a defined contribution 401(k) plan that covered all employees meeting a one-year eligibility period. Contributions to the plan included employee contributions and an employer amount determined on a yearly basis by management. Employer contributions to the plan for the period ended June 29, 1997 amounted to approximately $13,000. 10. SUBSEQUENT EVENTS: Effective November 9, 1997, all of the assets of the Company were sold to Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.). F-360 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Cumulus Media Inc. In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of changes in owner's equity and of cash flows present fairly, in all material respects, the financial position of WWFG-FM and WOSC-FM (the "Stations") at December 31, 1997, and the results of their operations and their cash flows for the period from August 1, 1997 through December 31, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Stations' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Chicago, Illinois March 18, 1998 F-361 WWFG-FM AND WOSC-FM COMBINED BALANCE SHEET
DECEMBER 31, 1997 ------------ ASSETS Current assets: Cash.............................................................................................. $ 1,361 Accounts receivable, less allowance for doubtful accounts of $44,596.............................. 242,570 Due from related party............................................................................ 92,218 Prepaid expenses and other current assets......................................................... 11,782 ------------ Total current assets............................................................................ 347,931 Property and equipment, net......................................................................... 699,679 Intangible assets, net.............................................................................. 6,636,945 ------------ Total assets.................................................................................... $7,684,555 ------------ ------------ LIABILITIES AND OWNER'S EQUITY Current liabilities: Accounts payable.................................................................................. $ 35,633 Accrued expenses and other current liabilities.................................................... 22,434 Capital lease obligation.......................................................................... 11,963 ------------ Total current liabilities....................................................................... 70,030 ------------ Owner's equity: Owner's equity.................................................................................... 7,750,000 Accumulated deficit............................................................................... (135,475) ------------ Total owner's equity............................................................................ 7,614,525 ------------ Total liabilities and owner's equity............................................................ $7,684,555 ------------ ------------
See Notes to Combined Financial Statements. F-362 WWFG-FM AND WOSC-FM COMBINED STATEMENT OF OPERATIONS
AUGUST 1, 1997 TO DECEMBER 31, 1997 --------------- Revenues......................................................................................... $ 639,973 Less: agency commissions....................................................................... (20,556) --------------- Net revenues............................................................................... 619,417 Operating expenses: Sales.......................................................................................... 166,411 Programming.................................................................................... 111,394 Other operating expenses....................................................................... 121,563 General and administrative..................................................................... 204,594 Depreciation and amortization.................................................................. 150,930 --------------- Total operating expenses..................................................................... 754,892 --------------- Net loss......................................................................................... $ (135,475) --------------- ---------------
See Notes to Combined Financial Statements. F-363 WWFG-FM AND WOSC-FM COMBINED STATEMENT OF CHANGES IN OWNER'S EQUITY Acquisition of the station at August 1, 1997.................................... $7,750,000 Net loss for the period from August 1, 1997 to December 31, 1997................ (135,475) --------- Balance at December 31, 1997.................................................... $7,614,525 --------- ---------
See Notes to Combined Financial Statements. F-364 WWFG-FM AND WOSC-FM COMBINED STATEMENT OF CASH FLOWS
AUGUST 1, 1997 TO DECEMBER 31, 1997 --------------- Cash flows from operating activities: Net loss....................................................................................... $ (135,475) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization................................................................ 150,930 Decrease in accounts receivable.............................................................. 85,763 Increase in due to related party............................................................. (85,146) Increase in prepaid expenses and other current assets........................................ 9,594 Decrease in accounts payable................................................................. (218) Decrease in accrued expenses and other current liabilities................................... (8,265) --------------- Net cash provided by operating activities.................................................. 17,324 --------------- Cash flows from investing activities: Purchase of property, plant and equipment...................................................... (1,700) --------------- Net cash used for investing activities..................................................... (1,700) --------------- Cash flows from financing activities: Principal payments under long-term obligations................................................. (14,263) --------------- Net cash used by financing activities...................................................... (14,263) --------------- Increase in cash................................................................................. 1,361 Cash at beginning of period...................................................................... -- --------------- Cash at end of period............................................................................ $ 1,361 --------------- --------------- Supplemental disclosure of cash flow information Cash payments for interest..................................................................... $ -- --------------- --------------- Non-cash operating activities: Trade revenue.................................................................................. $ 52,547 --------------- --------------- Trade expense.................................................................................. $ 74,729 --------------- ---------------
See Notes to Combined Financial Statements. F-365 WWFG-FM AND WOSC-FM NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DESCRIPTION OF BUSINESS Capstar Radio Broadcasting Partners, Inc. ("Capstar") owns and operates radio stations WWFG-FM and WOSC-FM (the "Stations") located in Salisbury, Maryland. Effective August 1, 1997, Capstar acquired the stations from Benchmark Communications Radio Limited Partnership, Inc., L.P. ("Benchmark"). Benchmark was the general partner of Benchmark Radio Acquisition Fund IV Limited Partnership ("BRAF IV") which owned the stations. The accompanying combined financial statements reflect the "carve-out" combined financial position, combined results of operations and combined cash flows of the Stations for the periods presented. The financial information included herein does not necessarily reflect what the financial position and results of operations of the Stations would have been had they operated as a stand alone entity during the periods covered, and may not be indicative of future operations or financial position. The significant accounting principles followed and the methods of applying those principles which materially affect the determination of financial position, results of operations, and cash flows are summarized below. USE OF ESTIMATES The preparation of financial statements in accordance 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 periods presented. Actual results could differ from these estimates. PROPERTY AND EQUIPMENT Purchases of property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated on a straight-line basis over their estimated useful lives as follows: 15-39 Broadcasting towers and equipment............................................... years Office furniture and equipment.................................................. 7 years Music library................................................................... 5 years Vehicles........................................................................ 5 years Leasehold improvements.......................................................... 39 years
Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. INTANGIBLE ASSETS Intangible assets include goodwill and FCC licenses. Intangible assets are stated at cost and are being amortized using the straight-line method over the estimated useful life for periods not exceeding 40 years. The Stations evaluate the carrying value of intangibles periodically in relation to the projected future undiscounted net cash flows of the related businesses. F-366 WWFG-FM AND WOSC-FM NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INCOME TAXES Capstar accounts for income taxes in accordance with the liability method and the stations are included in the consolidated return of the parent. Capstar has not recorded a tax liability since it was not assured it could realize a benefit for its loss in the future. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. TRADE AGREEMENTS The Stations enter into trade agreements which give rise to sales of advertising air time in exchange for products and services. Sales from trade agreements are recognized at the fair market value of products or services received as advertising air time is broadcast. Products and services received are expensed when used in the broadcast operations. If the Stations use exchanged products or services before advertising air time is provided, a trade liability is recognized. 2. ACQUISITIONS: On July 31, 1997, Capstar acquired selected assets from Benchmark which included a building, broadcasting equipment, furniture and fixtures, vehicles, and broadcast licenses of WWFG-FM and WOSG-FM in Salisbury, Maryland for approximately $7.8 million in cash plus various other direct acquisition costs. The allocation of the purchase price included approximately $6.7 million to FCC licenses and goodwill. The acquisition discussed above was accounted for as a purchase business combination by Capstar. Capstar elected under generally accepted accounting principles, to pushdown the acquisition to the Stations level through a non-cash capital contribution to the Stations. Accordingly, the accompanying combined financial statements include the results of operations of the acquired Stations. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, 1997 ------------ Broadcasting equipment.............................................................................. $ 547,008 Office furniture and equipment...................................................................... 94,803 Tower............................................................................................... 79,809 Leasehold improvements.............................................................................. 18,489 Music library....................................................................................... 39,006 Vehicles............................................................................................ 1,632 ------------ Total property and equipment...................................................................... 780,747 Accumulated depreciation............................................................................ (81,068) ------------ Property and equipment, net....................................................................... $ 699,679 ------------ ------------
Depreciation expense was $81,068. F-367 WWFG-FM AND WOSC-FM NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. INTANGIBLE ASSETS: Intangible assets consist of the following:
DECEMBER 31, 1997 ------------ FCC licenses and call letters....................................................................... $6,674,807 Goodwill............................................................................................ 32,000 ------------ Total intangible assets............................................................................. 6,706,807 Accumulated amortization............................................................................ (69,862) ------------ Intangible assets, net.............................................................................. $6,636,945 ------------ ------------
Amortization expense was $69,862. 5. RELATED PARTY TRANSACTIONS: The Stations participate in a Capstar centralized cash management system. Accordingly, cash received from the Station's operations is pooled centrally and allocated by Capstar based on operational, working capital and capital expenditure requirements. The Stations have no available lines of credit or other sources of financing. At December 31, 1997, the Stations had a receivable from Capstar of $92,218. Capstar provides the stations certain corporate, legal and accounting services. No amount is included in the combined financial statements of the Stations as the cost of such services was insignificant. 6. COMMITMENTS AND CONTINGENCIES: Capstar incurred expenses of approximately $31,000 for the period ended December 31, 1997, under operating leases for radio broadcasting facilities, office space, and computers. Future minimum annual payments, adjusted based upon formulas related to the Consumer Price Index, under the operating leases for the broadcast facilities approximate $60,200 through 2002. The Company also has broadcast equipment under capital lease with a cost of $110,000 at December 31, 1997 and accumulated depreciation of $63,000. 7. PROFIT SHARING PLAN: The employees of the Stations were included in a 401(k) profit sharing plan sponsored by Capstar. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. 9. SUBSEQUENT EVENT: On January 22, 1998, the Stations entered into a local management agreement with Cumulus Broadcasting, Inc. ("Cumulus"), a wholly-owned subsidiary of Cumulus Media Inc. In addition, the Company entered into an agreement with Cumulus to sell the assets of the Company, subject to the approval of the federal communications commission, for approximately $7,500,000. F-368 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED 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 ANY OF THE U.S. UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF CLASS A COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary................................ 5 Risk Factors...................................... 17 Use of Proceeds................................... 24 Dividend Policy................................... 24 Capitalization.................................... 25 Dilution.......................................... 26 Unaudited Pro Forma Combined Financial Statements...................................... 27 Selected Historical Financial Data................ 50 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 51 Business.......................................... 58 Pending Acquisitions.............................. 79 Management........................................ 80 Certain Relationships and Related Transactions.... 88 Principal and Selling Stockholders................ 89 Description of Capital Stock...................... 90 Description of Credit Facility and Notes.......... 97 Shares Eligible for Future Sale................... 99 Underwriting...................................... 100 Certain United States Tax Consequences to Non-United States Holders of Class A Common Stock........................................... 104 Legal Matters..................................... 108 Experts........................................... 108 Additional Information............................ 109 Index to Financial Statements..................... F-1
--------------------- UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. SHARES [LOGO] CUMULUS MEDIA INC. CLASS A COMMON STOCK ------------------- PROSPECTUS , 1998 ------------------- LEHMAN BROTHERS BEAR, STEARNS & CO. INC. BT ALEXs BROWN - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. PROSPECTUS [ALTERNATE PAGE FOR INTERNATIONAL COMMON STOCK PROSPECTUS] SUBJECT TO COMPLETION, DATED MAY 18, 1998 [LOGO] Shares CUMULUS MEDIA INC. Class A Common Stock
------------------------ Of the shares of Class A Common Stock, par value $.01 per share (the "Class A Common Stock") offered hereby, shares are being sold by Cumulus Media Inc. (the "Company") and shares are being sold by the Selling Stockholder (as defined herein). Of the shares of Class A Common Stock being offered, shares are being offered outside the U.S. and Canada (the "International Offering") by the International Managers and shares are being offered in a concurrent offering in the U.S. and Canada (the "U.S. Offering") by the U.S. Underwriters (together with the International Managers, the "Underwriters"). The International Offering and the U.S. Offering are collectively referred to as the "Stock Offerings." The offering price and underwriting discounts and commissions for each of the Stock Offerings will be identical. Upon consummation of the Reorganization (as defined herein), the Company's authorized capital stock will include Class A Common Stock, Class B Common Stock, par value $.01 per share (the "Class B Common Stock") and Class C Common Stock, par value $.01 per share (the "Class C Common Stock" and, together with the Class A Common Stock and the Class B Common Stock, the "Common Stock"). Except with respect to voting and conversion, the rights of holders of Class A Common Stock, Class B Common Stock and Class C Common Stock are identical. Except upon the occurrence of certain events, holders of Class B Common Stock are not entitled to vote, whereas each share of Class A Common Stock entitles its holder to one vote and subject to certain exceptions, each share of Class C Common Stock entitles its holder to ten votes. Under certain circumstances and subject to prior governmental approval, shares of Class B Common Stock are convertible into shares of Class A Common Stock and/or shares of Class C Common Stock on a one-for-one basis at the option of the holder, and shares of Class C Common Stock are convertible into shares of Class A Common Stock on a one-for-one basis at the option of the holder. Following the Stock Offerings, existing stockholders of the Company, including the officers and directors of the Company, will continue to own approximately % of the Common Stock (representing % of the voting stock) and will have the ability to control the Company. See "Description of Capital Stock." Concurrently with the Stock Offerings, the Company is offering $ million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009 (the "Series A Preferred Stock") (the "Preferred Stock Offering"), $ million of which are being offered directly by the Company, and not through the Underwriters, to The Northwestern Mutual Life Insurance Company the sole owner of the NML Preferred Stock (as defined herein) which had an accreted value as of May 15, 1998 of $33,989,840, at a purchase price equal to the price to public and $ million of % Senior Subordinated Notes Due 2008 (the "Notes")(the "Debt Offering" and, together with the Stock Offerings and the Preferred Stock Offering, the "Offerings"). Consummation of each Offering is contingent upon consummation of each of the other Offerings. A portion of the proceeds of the Offerings will be used to repay the Credit Facility (as defined herein) for which affiliates of Lehman Brothers, Inc. act as arranger and lender. Prior to the Stock Offerings, there has been no public market for the Class A Common Stock of the Company. It is anticipated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Class A Common Stock of the Company is expected to be approved for inclusion in the Nasdaq National Market under the symbol "CMLS". There can be no assurance that an active public market for the Class A Common Stock will develop or be maintained after consummation of the Stock Offerings. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE CLASS A COMMON STOCK. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PRICE TO DISCOUNTS PROCEEDS TO PUBLIC AND COMMISSIONS(1) COMPANY(2) Per Share.................................. $ $ $ Total(3)................................... $ $ $
(1) The Company has agreed to indemnify the International Managers and the U.S. Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Stock Offerings payable by the Company estimated to be $ . (3) The Company has granted the International Managers a 30-day option to purchase up to an additional shares of Class A Common Stock on the same terms and conditions as set forth above solely to cover over-allotments, if any. The U.S. Underwriters have been granted a similar option to purchase up to additional shares solely to cover over-allotments, if any. If both options are exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Company, will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Class A Common Stock offered by this Prospectus are offered by the International Managers subject to prior sale, to withdrawal, cancellation, or modification of the offer without notice, to delivery to and acceptance by the International Managers and to certain further conditions. It is expected that delivery of the shares will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1998. ------------------------ LEHMAN BROTHERS BEAR, STEARNS INTERNATIONAL LIMITED BT ALEXs BROWN INTERNATIONAL CREDIT LYONNAIS , 1998 [ALTERNATE PAGE FOR INTERNATIONAL COMMON STOCK PROSPECTUS] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED 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 ANY OF THE INTERNATIONAL MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF CLASS A COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary................................ 5 Risk Factors...................................... 17 Use of Proceeds................................... 24 Dividend Policy................................... 24 Capitalization.................................... 25 Dilution.......................................... 26 Unaudited Pro Forma Combined Financial Statements...................................... 27 Selected Historical Financial Data................ 50 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 51 Business.......................................... 58 Pending Acquisitions.............................. 79 Management........................................ 80 Certain Relationships and Related Transactions.... 88 Principal and Selling Stockholders................ 89 Description of Capital Stock...................... 90 Description of Credit Facility and Notes.......... 97 Shares Eligible for Future Sale................... 99 Underwriting...................................... 100 Certain United States Tax Consequences to Non-United States Holders of Class A Common Stock........................................... 104 Legal Matters..................................... 108 Experts........................................... 108 Additional Information............................ 109 Index to Financial Statements..................... F-1
--------------------- UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. SHARES [LOGO] CUMULUS MEDIA INC. CLASS A COMMON STOCK ------------------- PROSPECTUS , 1998 ------------------- LEHMAN BROTHERS BEAR, STEARNS INTERNATIONAL LIMITED BT ALEXs BROWN INTERNATIONAL CREDIT LYONNAIS SECURITIES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. SUBJECT TO COMPLETION, DATED MAY 18, 1998 PRELIMINARY PROSPECTUS [LOGO] $ CUMULUS MEDIA INC. % SENIOR SUBORDINATED NOTES DUE 2008 The % Senior Subordinated Notes due 2008 (the "Notes") are being offered hereby (the "Debt Offering") by Cumulus Media Inc. (the "Company"). Interest on the Notes is payable semi-annually in arrears on and of each year, commencing , 1998. The Notes will mature on , 2008. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2003 at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. In addition, on or before , 2001, the Company may redeem up to 35% of the original aggregate principal amount of the Notes at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, with the net proceeds of one or more Equity Offerings, (as defined herein), PROVIDED, HOWEVER, that at least 65% of the original aggregate principal amount of Notes remains outstanding following such redemption. The Notes will not be subject to any sinking fund requirement. Upon the occurrence of a Change of Control (as defined herein), the Company is required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. There can be no assurance that the Company will have the financial resources necessary to repurchase the Notes upon a change of control. See "Description of Notes." The Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt (as defined herein) of the Company, including all borrowings of the Company under the Credit Facility (as defined herein). On a pro forma basis after giving effect to the Transactions (as defined herein) as if they had occurred on December 31, 1997, the Company would have had outstanding approximately $ million of Senior Debt that would effectively rank senior to the Notes. See "Description of Notes -- Subordination." The Indenture (as defined herein) pursuant to which the Notes will be issued permits the Company and its subsidiaries to incur additional Indebtedness (as defined herein), including Senior Debt, subject to certain limitations. See "Capitalization" and "Description of Notes." Concurrently with the Debt Offering, the Company is offering $ million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009, (the "Series A Preferred Stock" ) $ million of which is being offered directly by the Company, and not through the Underwriters, to The Northwestern Mutual Life Insurance Company, the sole owner of the NML Preferred Stock (as defined herein) which had an accreted value as of May 15, 1998 of $33,989,840, at a purchase price equal to the price to public (the "Preferred Stock Offering") and shares of the Company's Class A Common Stock (the "Stock Offering" and, together with the Debt Offering and the Preferred Stock Offering, the "Offerings"). Consummation of each Offering is contingent upon consummation of each of the other Offerings. A portion of the proceeds of the Offerings will be used to repay the Credit Facility for which affiliates of Lehman Brothers Inc. act as arranger and lender. SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT IN THE NOTES. 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 REPRESENTATIONS TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND THE PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3) Per Note........................................... % % % Total.............................................. $ $ $
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE. (2) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS. (3) BEFORE DEDUCTING EXPENSES OF THE DEBT OFFERING, PAYABLE BY THE COMPANY, ESTIMATED AT $ . -------------------------- THE NOTES ARE OFFERED BY BEAR, STEARNS & CO. INC. AND LEHMAN BROTHERS INC., AS UNDERWRITERS (THE "UNDERWRITERS"), SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS, AND SUBJECT TO CERTAIN OTHER CONDITIONS. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE OFFER AND TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE NOTES WILL BE AVAILABLE FOR DELIVERY IN NEW YORK, NEW YORK, ON OR ABOUT , 1998 IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY. BEAR, STEARNS & CO. INC. LEHMAN BROTHERS THE DATE OF THIS PROSPECTUS IS , 1998. CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING TRANSACTIONS AND THE IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING." A-i THE DEBT OFFERING ISSUER............................ Cumulus Media Inc. SECURITIES OFFERED................ $ million in aggregate principal amount of % Senior Subordinated Notes due 2008. MATURITY.......................... , 2008. INTEREST.......................... The Notes will bear interest at the rate of % per annum, payable semi-annually in arrears on and , commencing , 1998. OPTIONAL REDEMPTION............... The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2003, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. In addition, on or before , 2001, the Company may redeem up to 35% of the original aggregate principal amount of the Notes at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, with the net proceeds of one or more Equity Offerings; PROVIDED, HOWEVER, that at least 65% of the original aggregate principal amount of the Notes remains outstanding following such redemption. See "Description of Notes -- Optional Redemption." CHANGE OF CONTROL OFFER........... Upon the occurrence of a Change of Control, the Company will be required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes -- Repurchase at the Option of Holders -- CHANGE OF CONTROL." RANKING........................... The Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt of the Company, including all obligations of the Company under the Credit Facility. On a pro forma basis, after giving effect to the Transactions as if they had occurred on December 31, 1997, the Company would have had outstanding $ million of Senior Debt. The Notes will be effectively subordinated to all Indebtedness of the Company's subsidiaries ($ million, on a pro forma basis at December 31, 1997). See "Description of Notes -- Subordination." CERTAIN COVENANTS................. The Indenture pursuant to which the Notes will be issued (the "Indenture") will contain certain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, pay dividends or make other distributions, repurchase any capital stock or subordinated Indebtedness, make certain investments, create certain liens, enter into certain transactions with affiliates, sell assets or enter into certain mergers and consolidations. In addition, the Indenture will contain a covenant limiting the lines
A-1 of business of certain Unrestricted Subsidiaries. See "Description of Notes -- Certain Covenants." SECURITY.......................... None. USE OF PROCEEDS................... Approximately $ million of the net proceeds of the Offerings will be used to finance the Pending Acquisitions. The balance of the net proceeds of the Offerings will be used to repay the principal amount of Indebtedness currently outstanding under the Credit Facility for which affiliates of Lehman Brothers Inc. act as arranger and lender. See "Use of Proceeds" and "Description of Credit Facility." CONCURRENT OFFERINGS.............. Concurrently with the Debt Offering, the Company is offering shares of its Class A Common Stock and shares of its % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 (with a liquidation preference of $1,000 per share). Each Offering is conditioned upon consummation of each of the other Offerings. See "Risk Factors -- Significant Capital Requirements; Concurrent Offerings" and "Use of Proceeds."
- ------------------------ RISK FACTORS An investment in the Notes offered hereby involves a high degree of risk. Prospective purchasers of the Notes offered hereby should carefully consider the factors set forth in "Risk Factors", as well as the other information set forth in this Prospectus, before making an investment in the Notes. A-2 RISK FACTORS AN INVESTMENT IN THE NOTES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE NOTES OFFERED HEREBY. RISKS OF ACQUISITION STRATEGY The Company intends to pursue growth through internal expansion and the acquisition of radio broadcasting companies, radio station groups and individual radio stations in mid-size and smaller markets. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisitions would be. The Company is currently evaluating certain acquisitions; however, other than as described in "Pending Acquisitions," the Company currently has no binding commitments to acquire any specific business or other material assets. Consummation of the Pending Acquisitions and any subsequent acquisitions is subject to various conditions, including FCC and other regulatory approvals including, in some cases, expiration or termination of applicable waiting periods and possible review by the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). There can be no assurance that any of these conditions will be satisfied. Consummation of the Pending Acquisitions and any subsequent acquisitions will also be subject to FCC limits on the number of stations a broadcaster may own in a given local market and other FCC rules or policies such as the cross-interest policy, which may limit the Company's ability to acquire stations in certain markets where one or more of the Company's shareholders has other media interests. In addition, in two markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications and certain FCC staff questions have been raised with respect to Pending Acquisitions in several other markets. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the Pending Acquisitions can be consummated. The consummation of the Offerings is not conditioned on the consummation of any of the Pending Acquisitions. No assurances can be given that such transactions will be consummated or that, if completed, they will be successful. The Company's acquisition strategy involves numerous risks, including difficulties in identifying targets and negotiating definitive purchase agreements on satisfactory terms, 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 at acquired stations. See "Business -- Integration of Acquired Businesses." 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. In addition, there can be no assurance that the Company will be able to acquire properties at valuations as favorable as previous acquisitions. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise financing in addition to the financing necessary to consummate the Pending Acquisitions. There can be no assurance that the Credit Facility, the Indenture, the Certificate of Designation (as defined herein) or the Exchange Debenture Indenture (as defined herein) or any other agreements to which the Company may become a party will permit such additional financing or that such additional financing will be available to the Company or, if available, that such financing would be on terms acceptable to its management. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." LIMITED OPERATING HISTORY The Company began operations in May 1997 and, consequently, has a limited operating history and limited historical financial information upon which investors may base their evaluation of the Company's performance. A-3 MANAGEMENT OF RAPID GROWTH The Company has grown very rapidly, through acquisitions, which will place significant demands on its administrative, operational and financial resources. Although the Company has been successful to date in completing the integration of many new properties, future performance and profitability, if any, will depend in part on the Company's continued ability to integrate successfully the operations and systems of acquired radio stations and radio groups, to hire additional personnel, and to implement necessary enhancements to its management systems to respond to changes in its business. The inability of the Company to do any of the foregoing could have a material adverse effect on the Company. See "Business." NET LOSS The Company had a net loss attributable to common stockholders of approximately $6.2 million for the three months ended March 31, 1998 and $3.9 million for the period from inception on May 22, 1997 to December 31, 1997, and additional losses can be expected to continue while the Company pursues its strategy of acquiring and developing radio stations. Pro forma for the Transactions, net loss attributable to common stockholders was approximately $12.9 million for the three months ending March 31, 1998 and $35.6 million for the year ended December 31, 1997. The Company expects to generate net income on a historical basis for the year ending December 31, 1999. However, there can be no assurance that the Company will be profitable in the future. SIGNIFICANT CAPITAL REQUIREMENTS If consummated, the Pending Acquisitions and other acquisitions for which the Company has entered into letters of intent will require substantial capital. The Company estimates that it will have significant capital requirements for the remainder of 1998, including approximately $250.5 million for the consummation of the Pending Acquisitions. The Company expects that the net proceeds from the Offerings, together with internally generated cash flows and borrowings under the Credit Facility, will provide sufficient funds for the Company to complete the Pending Acquisitions. The amount of the Company's future capital requirements will depend upon many factors, however, including the volume of future acquisitions, as well as regulatory, technological and competitive developments in the radio broadcasting industry, and may differ materially from the Company's current estimates. CONCURRENT OFFERINGS The Company is currently offering the Notes, the Series A Preferred Stock and Class A Common Stock pursuant to the Offerings. Consummation of each Offering is contingent upon consummation of each of the other Offerings and there can be no assurance that the Offerings will be consummated and, if so, on what terms. SUBSTANTIAL LEVERAGE After giving effect to the Transactions, the Company will have consolidated Indebtedness that is substantial in relation to its cash flow and stockholders' equity. As of March 31, 1998, on a pro forma basis after giving effect to the Transactions, the Company would have had outstanding, on a consolidated basis, long-term Indebtedness (including current portion) of approximately $192.0 million, preferred stock subject to mandatory redemption of approximately $125.0 million and stockholders' equity of approximately $144.2 million. See "Capitalization." The Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture limit the incurrence of additional indebtedness by the Company and its subsidiaries, in each case subject to certain significant exceptions. The level of the Company's Indebtedness could have several important consequences to the holders of the 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 A-4 Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes may be impaired in the future; (iii) certain of the Company's borrowings will be at variable rates of interest (including any borrowings under the 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 Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture could limit the Company's ability to compete, expand and make capital improvements; (v) the Company's level of Indebtedness could make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions; and (vi) certain restrictive covenants contained in the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture limit the ability of Cumulus to pay dividends and make other distributions to its stockholders. ABILITY TO SERVICE DEBT OBLIGATIONS The Company's ability to satisfy its debt service 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, competitive, legislative and regulatory 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 acquisitions, expansion and capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company's operating results, cash flow and capital resources will be sufficient for payment of its debt service and other obligations in the future. In the absence of such operating results and resources, the Company could face substantial liquidity problems and might be required to sell material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom or that such sales could be effected on terms satisfactory to the Company or at all. As a result of the net loss attributable to common stockholders, earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $3,785 and $3,493 for the period from inception on May 22, 1997 to December 31, 1997 and for the three months ended March 31, 1998. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS AND PREFERRED STOCK The Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture contain certain covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, 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. In addition, the Credit Facility, the Indenture and the Exchange Debenture Indenture also restrict the ability of the Company to incur liens or to consummate certain asset sales. The Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. The Company's ability to meet those financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Credit Facility, the Indenture, the Certificate of Designation and/or the Exchange Debenture Indenture. Upon the occurrence of an event of default under the Credit Facility, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If Cumulus were unable to repay those amounts, the lenders under the Credit Facility could proceed against the collateral granted to them to secure that indebtedness. If the Indebtedness under the Credit Facility were to be accelerated, there can be no assurance that the assets of Cumulus would be sufficient to repay in full such Indebtedness and the other Indebtedness of the Company, including the Notes. The ability of the Company to comply with the restrictions and covenants in the Credit Facility, the Indenture, the Certificate of Designation and the A-5 Exchange Debenture Indenture will be dependent upon the Company's future performance and various other factors, such as legislative, business and regulatory factors, certain of which are beyond its control. If the Company fails to comply with the restrictions and covenants in the Credit Facility, the Indenture, the Certificate of Designation or the Exchange Debenture Indenture, the Company's obligation to repay the Notes, the Exchange Debentures and its Indebtedness under the Credit Facility may be accelerated. RANKING OF THE NOTES The Notes will be unsecured senior subordinated obligations of the Company and, as such, will be subordinated in right of payment to all future Senior Debt of the Company, including Indebtedness under the Credit Facility. The Notes will rank PARI PASSU in right of payment (or equally) with all other senior subordinated indebtedness, if any, of the Company. As of March 31, 1998 on a pro forma basis after giving effect to the Transactions, the Company would have had approximately $42.0 million in aggregate principal amount of Indebtedness outstanding which would have ranked senior in right of payment to the Notes (all of which would have been secured) and no Indebtedness outstanding which would have ranked PARI PASSU in right of payment (or equally) with the Notes. In addition, on such a pro forma basis, at March 31, 1998, the Company would have had over $145 million of borrowing availability under the Credit Facility and, provided certain tests were met, would have been able to borrow additional Senior Debt. By reason of such subordination, in the event of the insolvency, liquidation, reorganization, dissolution or other winding-up of the Company or upon a default in payment with respect to, or the acceleration of, any Senior Debt, the holders of such Senior Debt and any other creditors who are holders of Senior Debt and creditors of subsidiaries must be paid in full before the holders of the Notes may be paid. If the Company incurs additional PARI PASSU debt, the holders of such debt would be entitled to share ratably with the holders of the Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the Company. This will have the effect of reducing the amount of proceeds paid to holders of the Notes. In addition, no payments may be made with respect to the principal of or interest on the Notes if a payment default exists with respect to Designated Senior Debt (as defined herein) and, under certain circumstances, no payments may be made with respect to the principal of or interest on the Notes for certain periods of time if a non-payment default exists with respect to Designated Senior Debt. See "Description of the Notes -- Subordination." STRUCTURAL SUBORDINATION The Company conducts its business through its subsidiaries and has no operations of its own. Consequently, the Company will be dependent on the cash flow of such subsidiaries and distributions thereof from such subsidiaries to the Company in order to meet its debt service obligations. As a result of the structure of the Company, the holders of the Notes will be structurally subordinated to all creditors of those subsidiaries of the Company. The Company's rights, and the rights of its creditors, to participate in the distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization will be subject to the prior claims of such subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subject to the claims of any secured creditor of such subsidiary of any holder of indebtedness of such subsidiary senior to that held by the Company. As of December 31, 1997, on a pro forma basis after giving effect to the Transactions, there would have been $ Indebtedness of the Company's subsidiaries outstanding. ASSET ENCUMBRANCES The Company's obligations under the Credit Facility are secured by security interests in substantially all of the current and future assets of the Company and its domestic subsidiaries (including, to the extent permitted by applicable law, FCC licenses held by such subsidiaries). In the event of a default on secured Indebtedness (whether as a result of the failure to comply with a payment or other covenant, a cross- A-6 default, or otherwise), the parties granted such security interests will have a prior secured claim on the assets securing such indebtedness. Moreover, if such parties should attempt to foreclose on their collateral, it is possible that there may not be sufficient assets remaining after satisfaction in full of all such Indebtedness to satisfy in full or in part the claims of the holders of the Notes and the Company's financial condition and the value of the Notes could be materially adversely affected. See "Description of Credit Facility and Notes." PURCHASE OF NOTES UPON CHANGE OF CONTROL Upon a Change of Control (as defined herein), the Company may be required to offer to purchase all of the outstanding Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. The source of funds for any such purchase would be the Company's available cash or cash generated from other sources. However, there can be no assurance that sufficient funds would be available at the time of any Change of Control to make any required purchases of Notes tendered or, if applicable, that restrictions in the Credit Facility would permit the Company to make such required purchases. The Credit Facility will require that the Company repay all amounts outstanding under the Credit Facility prior to making any payments on the Notes upon a Change of Control. The Indenture may not afford holders of Notes the right to require the Company to repurchase the Notes in the event of certain transactions, such as a highly leveraged transaction, that may adversely affect holders of Notes if such transaction is not a transaction defined as a Change of Control. Certain events involving a Change of Control may result in an event of default under the Credit Facility or other Indebtedness of the Company that may be incurred in the future. The Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture and the Credit Facility, which could have adverse consequences for the Company and the holders of the Notes. The definition of "Change of Control" in the Indenture includes a sale, lease, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole to a person or group of persons. There is little case law interpreting the phrase "all or substantially all" in the context of an indenture. Because there is no precise established definition of this phrase, the ability of a holder of the Notes to require the Company to repurchase such Notes as a result of a sale, lease, conveyance or transfer of all or substantially all of the Company's assets to a person or group of persons may be uncertain. See "Description of the Notes -- Repurchase at the Option of Holders." FRAUDULENT CONVEYANCE RISKS Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court to subordinate or avoid the obligation of, or liens securing, the Notes in favor of other existing or future creditors of the Company. Under applicable provisions of Federal bankruptcy law or comparable provisions of state fraudulent transfer laws and state corporation law statutes, if, among other things, the Company, at the time it incurred the Indebtedness evidenced by the Notes, (i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or (b) was or is engaged or about to become engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital or (c) intended or intends to incur, or believed or believes that it would incur, debts beyond its ability to pay such debts as they mature or (d) was a defendant in an action for money damages or had a judgment for money damages docketed against it (if, in either case, after final judgment, the judgment is unsatisfied), and (ii) the Company received or receives less than reasonably equivalent value or fair consideration for the incurrence of the Indebtedness evidenced by the Notes, any pledge or other security interest securing such Indebtedness could be voided, or claims in respect of the Notes or the other security interest securing such Indebtedness could be voided, or claims in respect of the Notes could be subordinated to all other debts of the Company. The voiding or subordination of any of such pledges or other security interests or of any of such Indebtedness could result in acceleration thereof. In addition, the payment of interest and A-7 principal by the Company pursuant to the Notes could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of the Company. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Company would be considered insolvent if (i) the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets at a fair valuation or if the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature or (ii) it could not pay its debts as they become due. On the basis of the pro forma financial information included in this Prospectus and other factors, the Company believes that after giving effect to the Indebtedness being incurred in connection with the Notes, the Company will be solvent and will continue to be solvent after issuing the Notes, will have sufficient capital for carrying on its business after such issuance and will be able to pay its debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations. ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes will be new securities for which there currently is no established trading market. The Company does not intend to apply for listing of the Notes on any national securities exchange or for quotation of the Notes on any automated dealer quotation system. Although the Underwriters have informed the Company that they currently intend to make a market in the Notes, the Underwriters are not obligated to do so, and any such market making may be discontinued at any time without notice. The liquidity of any market for the Notes will depend upon the number of holders of the Notes, the interest of securities dealers in making a market in the Notes and other factors. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. If an active trading market for the Notes does not develop, the market price and liquidity of the Notes may be adversely affected. If the Notes are traded, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities, the performance of the Company and certain other factors. The liquidity of, and trading markets for, the Notes may also be adversely affected by general declines in the market for non-investment grade debt. Such declines may adversely affect the liquidity of, and trading markets for, the Notes, independent of the financial performance of or prospects for the Company. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Notes. There can be no assurance that the market, if any, for the Notes will not be subject to similar disruptions. Any such disruptions may have an adverse effect on the holders of the Notes. BUSINESS RISKS Future operations of the Company are 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; shifts in audience tastes; 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 laws and governmental regulations and policies and actions of federal regulatory bodies, including the DOJ, 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." Radio broadcasting is also subject to A-8 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 and may sell advertising. 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." COMPETITION 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 and broadcast television, outdoor advertising and direct mail. In addition, certain of the Company's stations compete, and in the future other of the Company's stations may compete, with groups of two or more stations operated by a single operator. Audience ratings and market shares are subject to change and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. While the Company already competes with other stations with comparable programming formats in many of its markets, if another radio station in the market were to convert its programming format to a format similar to one of the Company's stations, or launch aggressive promotional campaigns, or 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, and consequently would have a lower Broadcast Cash Flow. The Telecommunications Act of 1996 (the "Telecom Act") facilitates the consolidation of ownership of other radio broadcasting stations in the markets in which the Company operates or may operate in the future. Some of such competing in-market consolidated owners may be larger and have substantially more financial and other resources than the Company. In addition, increased consolidation in mid-size and smaller markets may result in greater competition for acquisition properties and a corresponding increase in purchase prices for such properties paid by the Company. See "Business--Competition." GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY The broadcasting industry is subject to extensive and changing federal regulation that, among other things, requires approval by the FCC for the issuance, renewal, modification, transfer of control, or assignment of broadcasting station operating licenses, limits the number of broadcasting properties that the Company may acquire in any market, and regulates certain operating practices of radio stations. Additionally, the Communications Act of 1934, as amended (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. The number of radio stations the Company may acquire or operate pursuant to an LMA in any market, overall and in each service (i.e., AM or FM), is limited by the Telecom Act and FCC rules and may vary depending upon whether the interests in other radio stations or certain other media properties of certain individuals or entities affiliated with the Company are attributable to those individuals or entities under FCC rules. 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 5% or greater voting stockholders are generally attributable to the Company. Certain of the Company's officers and directors, and at least one stockholder of the Company, have attributable broadcast interests outside of their involvement with the Company, which will limit the number of radio stations that the Company may acquire or own in any market in which such officers or directors (or stockholders) hold or acquire such outside attributable broadcast interests. Moreover, under the FCC's A-9 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 interest in another media outlet in the same market, thereby prohibiting a particular acquisition by the Company. The markets in which the Company may be subject to restrictions on ownership include Atlanta, GA, Nashville, TN and Rochester, MN. 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." REGULATORY APPROVALS 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. Pending Acquisitions in two markets are being challenged before the FCC by competitors. The FCC staff has also stated that is currently reevaluating its policies and procedures relating to local radio market concentration, even where proposed assignments would comply with the FCC's multiple-ownership rules. The FCC has issued a Notice of Inquiry which, among other things, seeks public comment on these issues. FCC approval of a number of pending radio station acquisitions by various parties has been delayed while this policy review is taking place. The FCC staff has informed the Company that it has delayed action on several of its applications on this basis, including pending applications to acquire stations in Augusta-Waterville, Maine and one additional station in the Toledo, Ohio market. There can be no assurance that the FCC will not prohibit or require the restructuring of future acquisitions by the Company (including the Pending Acquisitions) as a result of this policy review. In addition, the FCC staff has requested additional information relating to whether the Company's Pending Acquisitions in one market would comply with the FCC's cross-interest policy. There can be no assurance that the FCC will approve future acquisitions by the Company (including the Pending Acquisitions). The consummation of 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 and acquisitions that are not required to be reported under the HSR Act may still be investigated by the FTC or the DOJ under the antitrust laws before or after consummation. The DOJ has been active in reviewing radio broadcasting acquisitions and has challenged a number of such transactions, some of which have resulted in consent decrees requiring divestitures of certain stations, terminations of LMAs and other relief. In general, the DOJ has more closely scrutinized radio mergers and acquisitions that result in local market shares in excess of 35% of radio advertising revenues, depending on format, signal strength and other factors, although there is no hard-and-fast numerical rule and certain transactions resulting in more than 35% market share have not been challenged. The DOJ can be expected to continue to enforce the antitrust laws in this manner, and there can be no assurance that one or more of the Pending Acquisitions will not be the subject of an investigation or enforcement action by the DOJ or the FTC. If the DOJ or the FTC investigates or challenges one or more of the Pending Acquisitions or any subsequent acquisitions, the Company may need to restructure such transactions or divest other existing stations in a particular market. The Company is aware that the DOJ has opened an investigation with respect to the Company's Pending Acquisition in two markets which potentially affect the acquisition of up to an additional nine stations in the aggregate. However, the Company believes that its operating practices and sales and demand-driven pricing policies serve to expand advertising volume and increase competition in a market while providing more choice to advertisers and to listeners. A-10 POTENTIAL CONFLICTS OF INTEREST Mr. Weening and Mr. Dickey each have direct interests in entities that have entered into service agreements with the Company. These interests may give rise to certain conflicts of interest with respect to transactions between these entities and the Company. TRANSACTIONS WITH AFFILIATES QUAESTUS, an entity controlled by Mr. Weening, and Stratford Research, an entity controlled by Mr. Dickey, have acted as the Company's financial and strategic advisor and market research and programming advisor, respectively, since the Company's inception. New advisory agreements between each of QUAESTUS and Stratford Research and the Company will be entered into immediately prior to the consummation of the Offerings. See "Certain Relationships and Related Transactions." EFFECTS OF ECONOMIC RECESSION The Company derives substantially all of its revenue from the sale of advertising time on its radio stations. The Company's broadcasting revenue could be adversely affected by a future national recession, although in the most recent national recession, in 1991, radio revenues in small radio markets ranked below 100 were impacted less severely on average than those in the larger markets. In addition, because a substantial portion of the Company's revenue is derived from local advertisers, the Company's ability to generate advertising revenue in specific markets could be adversely affected by local or regional economic downturns. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Advertising Sales." YEAR 2000 RISK The Company has implemented a Year 2000 program to ensure that the Company's computer systems and applications will function properly beyond 1999. The Company believes that it has allocated adequate resources for this purpose and expects its Year 2000 date conversion program to be successfully completed on a timely basis. There can, however, be no assurance that this will be the case. The Company does not expect to incur significant expenditures to address this issue. The ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside of the Company's control. There can be no assurance that the failure of the Company or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. RELIANCE ON KEY PERSONNEL The Company's business is managed by a small number of key management and operating personnel, the loss of certain of whom could have a material adverse effect on the Company. The Company believes that its future success will depend in large part on its ability to attract and retain highly skilled and qualified personnel and to expand, train and manage its employee base. The Company has entered into employment agreements with Messrs. Weening, Dickey, Bungeroth and Bonick which include provisions restricting the ability of Messrs. Weening, Dickey, Bungeroth and Bonick to compete against the Company in certain circumstances. The Company intends to arrange for "key-man" insurance on the lives of Messrs. Weening, Dickey and Bungeroth. See "Management -- Employment Agreements." The Company also employs several on-air personalities with large loyal audiences in their respective markets. The loss of one 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's financial condition or results of operations, taken as a whole. A-11 DESCRIPTION OF THE NOTES GENERAL The Notes will be issued pursuant to an Indenture (the "Indenture") between the Company and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee"). Copies of the Indenture will be made available to prospective purchasers of the Notes upon request to [ ], [ ] of the Company at 330 East Kilbourn Avenue, Milwaukee, Wisconsin 53202, Telephone: (414) 283-4500, Facsimile: (414) 283-4505. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." The Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to Senior Debt. As of March 31, 1998, on a pro forma basis after giving effect to the Transactions, the Company would have had Senior Debt of approximately $42.0 million. The Indenture will permit the incurrence of additional Senior Debt in the future. For purposes of this section, the term "Company" means Cumulus Media Inc. and not its Subsidiaries. As of the date of the Indenture, all of the Company's Subsidiaries will be Restricted Subsidiaries. Under certain circumstances, the Company will be able to designate current and future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture. See "--Certain Covenants." SUBORDINATION The payment of principal of, premium, if any, and interest on the Notes and any other payment obligations of the Company in respect of the Notes (including any obligation to repurchase the Notes) will be subordinated in certain circumstances in right of payment, as set forth in the Indenture, to the prior payment in full in cash of all Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred. Upon any payment or distribution of property or securities to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not a claim for such interest would be allowed in a proceeding) before the Holders of the Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of the Notes would be entitled shall be made to the holders of Senior Debt (other than in each case, subject to certain exceptions, that Holders of the Notes may receive securities that are subordinated at least to the same extent as the Notes are subordinated to Senior Debt (or securities issued in exchange for Senior Debt) and payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment (whether by redemption, purchase, retirement, defeasance or otherwise) upon or in respect of the Notes (except in such subordinated securities or from the trust described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs, (ii) any other default on Senior Debt occurs and the maturity of such Senior Debt is accelerated in accordance with its terms A-12 (together with clause (i), a "payment default") or (iii) any other default occurs and is continuing with respect to Designated Senior Debt that permits, or with the giving of notice or passage of time or both (unless cured or waived) will permit, holders of the Designated Senior Debt as to which such default relates to accelerate its maturity ("nonpayment default") and (solely with respect to this clause (iii)) the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Cash payments on the Notes shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived, the date on which the applicable Payment Blockage Notice is retracted by written notice to the Trustee or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated or a default of the type described in clause (vii) under the caption "Events of Default and Remedies" has occurred and is continuing. No new period of payment blockage may be commenced unless and until 360 days have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior Payment Blockage Notice. No nonpayment default in respect of Designated Senior Debt that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of no less than 181 days. The Indenture will further require that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency of the Company, Holders of the Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. On a pro forma basis, after giving effect to the Transactions, the principal amount of Senior Debt outstanding at March 31, 1998, 1998 would have been approximately $42.0 million, which includes $42.0 million of borrowings under the Credit Facility. See "Description of Credit Facility." In addition, as of March 31, 1998, 1998 on a pro forma basis, the Company will have over $145 million of undrawn availability under the Credit Facility. Although the Indenture contains limitations on the amount of additional Indebtedness, including Senior Debt, that the Company and its Subsidiaries may incur, under certain circumstances the amount of such Indebtedness may be substantial and, in any case, such Indebtedness may be Senior Debt. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." PRINCIPAL, MATURITY AND INTEREST The Notes will be limited in aggregate principal amount to $100.0 million, all of which will be issued on the Issue Date. The Notes will mature on , 2008. Interest on the Notes will accrue at the rate of % per annum and will be payable semi-annually in arrears on and of each year, commencing on , 1998, to Holders of the Notes of record on the immediately preceding and . Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, in the event the Notes do not remain in book entry form, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the applicable register of Holders of the Notes. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be fully registered as to principal and interest in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. A-13 OPTIONAL REDEMPTION Except as otherwise described below, the Notes will not be redeemable at the Company's option prior to , 2003. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below:
YEAR PERCENTAGE - ---------------------------------------------------------------------------------- ------------- 2003.............................................................................. % 2004.............................................................................. % 2005.............................................................................. % 2006 and thereafter............................................................... 100%
Prior to , 2001, the Company may, at its option, on any one or more occasions, redeem up to 35% of the original aggregate principal amount of the Notes at a redemption price equal to % of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with all or a portion of the net proceeds of one or more Equity Offerings (as defined below); PROVIDED that at least 65% of the original aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption; and PROVIDED, FURTHER, that such redemption shall occur within 90 days of the date of the closing of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any public or private sale of common stock of the Company pursuant to which the Company receives net proceeds of at least $25.0 million, other than issuances of common stock of the Company pursuant to employee benefit plans or as compensation to employees. SELECTION AND NOTICE In the case of any partial redemption, selection of the 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, if such Notes are not so listed, on a pro rata basis, by lot or by such method as such Trustee shall deem fair and appropriate; PROVIDED that no Note of $1,000 or less shall be redeemed in part. Notices 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 the 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 thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on the Notes or portions of them called for redemption. MANDATORY REDEMPTION Except as set forth below under "-- Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of the Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in A-14 cash equal to 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will (i) mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offer to repurchase the Notes pursuant to the procedures required by the Indenture and described in such notice on a date no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date") and (ii) (a) offer to repay in full all Obligations under the Credit Facility and to repay in full all Obligations of each lender who has accepted such offer or (b) obtain the requisite consent under agreements evidencing Senior Debt to permit the purchase of the Notes as described herein. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the relevant Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of such Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each tendering Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Except as described above with respect to a Change of Control, the Indenture will not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Company will not be required to make a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes (or portions thereof) validly tendered and not withdrawn under such Change of Control Offer. The Credit Facility will prohibit the Company from repurchasing any Notes pursuant to a Change of Control Offer prior to the repayment in full of the Senior Debt under the Credit Facility. Moreover, the occurrence of certain change of control events identified in the Credit Facility will constitute a default under the Credit Facility. Any future Credit Agreements or other agreements relating to the Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. If a Change of Control were to occur, the Company may not have sufficient available funds to pay the Change of Control Payment for all Notes that might be delivered by Holders of the Notes seeking to accept the Change of Control Offer after first satisfying its obligations under the Credit Facility or other agreements relating to Senior Debt. The failure of the Company to make or consummate the Change of Control Offer or pay the Change of Control Payment when due will constitute a Default under the Indenture and will otherwise give the Trustee and the Holders of the Notes the rights described under "--Events of Default and Remedies." The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of the Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, A-15 conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. ASSET SALES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; PROVIDED that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any non-cash consideration received by the Company or any such Restricted Subsidiary from such transferee that is converted by the Company or such Restricted Subsidiary into cash within 30 days of closing such Asset Sale, shall be deemed to be cash for purposes of this provision (to the extent of the cash received). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at its option, (a) to permanently reduce Senior Debt (and to correspondingly permanently reduce commitments with respect thereto in the case of revolving borrowings), or (b) to an investment in any one or more businesses, capital expenditures or acquisitions of other assets, in each case, used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph will (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of the Notes and, to the extent required by the terms thereof, to all holders or lenders of Pari Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Indenture or the agreements governing the Pari Passu Indebtedness, as applicable. A Holder of the Notes electing to have Notes purchased pursuant to an Asset Sale Offer may only elect to have all of such Notes purchased and may not elect to have only a portion of such Notes purchased. To the extent that the aggregate principal amount of the Notes and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Notes surrendered by Holders thereof and other Pari Passu Indebtedness surrendered by holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and the trustee or other lender representative for the Pari Passu Indebtedness shall select the Pari Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The Credit Facility may prohibit the Company from purchasing any Notes from the Net Proceeds of Asset Sales. Any future Credit Agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event an Asset Sale Offer A-16 occurs at a time when the Company is prohibited from purchasing the Notes, the Company could seek the consent of its lenders to the purchase or could attempt to refinance the Senior Debt that contains such prohibition. If the Company does not obtain such a consent or repay such Senior Debt, the Company may remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Credit Facility and possibly a default under other agreements relating to Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes. CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment to holders of the Company's Equity Interests in connection with any merger or consolidation involving the Company) to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any direct or indirect parent or other Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except at final maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3),(5),(6) and (7) of the next succeeding paragraph), is less than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the Company (or, in the event such Consolidated Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the period beginning on the first day of the Company's fiscal quarter commencing after the Issue Date and ending on the last day of the Company's most recent fiscal quarter for which financial information is available to the Company ending prior to the date of such proposed Restricted Payment, taken as one accounting period, less (B) 1.4 times Consolidated Interest Expense for the same period, PLUS (ii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the date of the Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company, other than Disqualified Stock or debt securities that have been converted into Disqualified Stock and other than the Common Stock issued in the Common Stock Offering), PLUS (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of A-17 (A) the net proceeds of such sale, liquidation or repayment and (B) the amount of such Restricted Investment, PLUS (iv) $5.0 million. The foregoing provisions will not prohibit (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (2) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of subordinated Permitted Refinancing Debt or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the Indenture in connection with the termination of such person's employment for any reason (including by reason of death or disability); PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any twelve-month period; and PROVIDED FURTHER that no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (5) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; (6) (a) the issuance by the Company of shares of Series A Preferred Stock as dividends paid in kind on the Series A Preferred Stock and (b) commencing , 2003, the payment of cash dividends by the Company on the Series A Preferred Stock or on any Preferred Stock issued in exchange for the Series A Preferred Stock, or any dividends on such Preferred Stock to the extent such dividends are made pursuant to the terms of the Certificate of Designation of such Preferred Stock, so long as the Company would be able to Incur, on a pro forma basis, an additional $1.00 of Indebtedness under "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (7) the exchange of Series A Preferred Stock for Exchange Debentures in accordance with the terms of the Certificate of Designation for such Series A Preferred Stock as in effect on the Issue Date; PROVIDED, HOWEVER, that the Company may only effect such exchange so long as the Company would be able to Incur, on a pro forma basis, an additional $1.00 of Indebtedness under " -- Incurrence of Indebtedness and Issuance of Preferred Stock." The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or the applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than five days after the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. DESIGNATION OF UNRESTRICTED SUBSIDIARIES The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time A-18 of such designation and will reduce the amount available for Restricted Payments under clause (c) of the first paragraph of the covenant "Restricted Payments." All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Indenture will provide that the Company will not, and will not permit any of its Restricted 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 (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage Ratio at the time of the incurrence of such Indebtedness, after giving pro-forma effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1.0. Notwithstanding the foregoing, the Indenture will not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Notes; (b) the incurrence by the Company of Indebtedness pursuant to Credit Agreements, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Agreements does not, at any one time, exceed $190 million, less the aggregate amount of all proceeds from all Asset Sales that have been applied since the date of the Indenture to permanently reduce the outstanding amount of such Indebtedness pursuant to the provisions described under the caption "Repurchase at the Option of Holders -- Asset Sales"; (c) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of the Indenture; (d) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (e) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness represented by Capital 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, lease or cost of construction or improvement of property, plant or equipment used in a Permitted Business in an aggregate principal amount not to exceed $15.0 million at any time outstanding; (f) the incurrence by the Company or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred; (g) the incurrence by the Company or its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating or variable rate Indebtedness or for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, in each case in respect of Indebtedness that is permitted by the terms of the Indenture to be outstanding; PROVIDED, HOWEVER, that in the case of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risks with respect to Indebtedness, the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates and in the case of Hedging Obligations incurred for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, such Hedging Obligations do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities A-19 and compensation payable thereunder; (h) Indebtedness incurred solely in respect of performance, surety and similar bonds or completion guarantees, to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money to others; (i) Indebtedness arising out of standby letters of credit covering workers compensation, performance or similar obligations in an aggregate amount not to exceed $500,000 at any time outstanding; (j) any guarantee of the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of the Indenture; (k) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $10.0 million; (l) the issuance of Series A Preferred Stock issued as payment in kind dividends on the Series A Preferred Stock outstanding on the Issue Date or issued subsequent to the Issue Date as dividends permitted pursuant to this clause (l), to the extent such dividends are made pursuant to the terms of the Certificate of Designation for such Series A Preferred Stock as in effect on the Issue Date, on any Series A Preferred Stock issued in exchange for the Series A Preferred Stock, or any dividends on such Series A Preferred Stock to the extent such dividends are made pursuant to the terms of the Certificate of Designation of such Preferred Stock; and (m) the incurrence by the Company of Indebtedness in respect of Exchange Debentures issued as payment in kind interest on Exchange Debentures issued on the exchange of Series A Preferred Stock, to the extent such interest payments are made pursuant to the terms of the Exchange Debenture Indenture. The Indenture will provide that the Company will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Company. ASSET SWAPS The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, in one or a series of related transactions, directly or indirectly, engage in any Asset Swaps, unless: (i) at the time of entering into the agreement to swap assets and immediately after giving effect to the proposed Asset Swap, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would, after giving PRO FORMA effect to the proposed Asset Swap, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Leverage Ratio in the covenant "Incurrence of Indebtedness and Issuance of Preferred Stock"; (iii) the respective fair market values of the assets being purchased and sold by the Company or any of its Restricted Subsidiaries (as determined in good faith by the management of the Company or, if such Asset Swap includes consideration in excess of $ million by the Board of Directors of the Company, as evidenced by a Board Resolution) are substantially the same at the time of entering into the agreement to swap assets; and (iv) at the time of the consummation of the proposed Asset Swap, the percentage of any decline in the fair market value (determined as aforesaid) of the asset or assets being acquired by the Company and its Restricted Subsidiaries shall not be significantly greater than the percentage of any decline in the fair market value (determined as aforesaid) of the assets being disposed of by the Company or its Restricted Subsidiaries, calculated from the time the agreement to swap assets was entered into. NO LAYERING The Indenture will provide that the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes; PROVIDED, HOWEVER, the foregoing limitations will not apply to distinctions between categories of Indebtedness that exist by reason of any Liens arising or created in accordance with the provisions of the Indenture in respect of some but not all such Indebtedness. A-20 LIENS The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any of its property or assets, now owned or hereafter acquired. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to the Company or any of the Restricted Subsidiaries of the Company (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed to the Company or any Restricted Subsidiaries of the Company, (ii) make loans or advances to the Company or any Restricted Subsidiaries of the Company or (iii) transfer any of its properties or assets to the Company or any Restricted Subsidiaries of the Company, except for such encumbrances or restrictions existing under or by reason of (a) the Credit Facility as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof or any other Credit Agreement, PROVIDED that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or other Credit Agreements are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date of the Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except, in the case of Indebtedness, to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired, PROVIDED that, such Indebtedness or Disqualified Stock was permitted by the terms of the Indenture to be incurred, (e) customary non-assignment provisions in leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (g) Permitted Refinancing Debt, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Indenture will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless: (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Entity (if the Company is not the continuing obligor under the Indenture) assumes all 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 before and after A-21 giving effect to such transaction or series of transactions no Default or Event of Default exists; (iv) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company and its Subsidiaries which becomes the obligation of the Company or any of its Subsidiaries as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving Entity (if the Company is not the continuing obligor under the Indenture) is equal to or greater than the Consolidated Net Worth of the Company and its Subsidiaries immediately prior to such transaction or series of transactions; and (v) the Company or the Surviving Entity (if the Company is not the continuing obligor under the Indenture) will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." Notwithstanding the restrictions described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. TRANSACTIONS WITH AFFILIATES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction or series of Affiliated Transactions complies with clause (i) above and that such Affiliate Transaction or series of Affiliated Transactions has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate Transaction or series of Affiliated Transactions, which resolution shall be conclusive evidence of compliance with this provision, and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, the Company delivers an Officer's Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (i) above and that such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or series of related Affiliate Transactions and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an accounting, appraisal, engineering or investment banking firm of national standing (which resolution and fairness opinion shall be conclusive evidence of compliance with this provision); PROVIDED that the foregoing provisions will not apply to the following: (1) transactions contemplated by any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (2) transactions between or among the Company and/or its Restricted Subsidiaries; (3) Restricted Payments and Permitted Investments that are permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments"; (4) indemnification payments made to officers, directors and employees of the Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory A-22 or contractual provisions; and (5) any agreement as in effect as of the Issue Date or any transaction contemplated thereby. ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES The Indenture will provide that the Company (i) will not, and will not permit any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "--Asset Sales," and (ii) will not permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary; PROVIDED that the Company may, and may permit any Wholly Owned Restricted Subsidiary of the Company to, take any of the actions referred to in (i) and (ii) above so long as immediately after giving effect to such action no more than 10% of the Consolidated Net Tangible Assets of the Company and its Subsidiaries is owned by other than Wholly Owned Restricted Subsidiaries of the Company. BUSINESS ACTIVITIES The Company will not, and will not permit any Restricted Subsidiary to, engage in any material respect in any business other than a Permitted Business. PAYMENTS FOR CONSENT The Indenture will provide that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS The Indenture will provide that, whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of such information and report with the Commission for public availability within the time periods set forth in the Commission's rules and regulations (unless the Commission will not accept such a filing). A-23 EVENTS OF DEFAULT AND REMEDIES The Indenture will provide that each of the following constitutes an Event of Default: (i) a default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) a default in payment when due of the principal of or premium, if any, and on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) the failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the caption "Repurchase at the Option of Holders" and "Certain Covenants"; (iv) failure by the Company for 30 days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of $5.0 million, which judgments remain unpaid or discharged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding may declare the principal of and accrued but unpaid interest on such Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within five business days of becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of such outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to such Notes concerning issuing temporary Notes, registration of such Notes, mutilated, A-24 destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the 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 outstanding Notes 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; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that the Holders of the outstanding Notes 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; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. A-25 Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of the Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of the Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (except as provided in the next succeeding sentence), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of such Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of the Notes to receive payments of principal of or premium, if any, or interest on the Notes or (vii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions described under "Repurchase at the Option of Holders" or the provisions of Article 10 of the Indenture (which relate to subordination) will require the consent of the Holders of at least 66 2/3% in principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of such Notes. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or representative thereof authorized to give a consent) consents to such change. Notwithstanding the foregoing, without the consent of any Holder of the Notes the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to secure the Notes or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 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 A-26 respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires 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 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 the Notes, unless such Holder shall have offered to such Trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The Indenture and the Notes provide that they will be governed by the laws of the State of New York. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition (but excluding the creation of a Lien) of any assets including, without limitation, by way of a sale and leaseback (PROVIDED that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and not by the provisions described above under "-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (including the sale by the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned A-27 Restricted Subsidiary of the Company; (iii) the making of a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments"; (iv) a disposition of cash or Cash Equivalents; (v) a disposition of either obsolete equipment or equipment that is damaged, worn out or otherwise no longer useful in the business; (vi) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (vii) any sale and leaseback of an asset within 90 days after the completion of construction or acquisition of such asset; (viii) any surrender or waiver of contract rights or a settlement, release or surrender of contract, tort or other claims of any kind or a grant of any Lien not prohibited by the Indenture; (ix) any transfer of properties or assets that is governed by the provisions of the Indenture described under the caption "-- Certain Covenants -- Asset Swaps"; or (x) a disposition of inventory in the ordinary course of business. "ASSET SWAP" means the execution of a definitive agreement, subject only to regulatory approval 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 assets used or useful in a Permitted Business between the Company or any of its Restricted Subsidiaries and another person or group of affiliated persons; provided that any amendment to or waiver of any closing conditions which individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. "ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having a rating of at least P2 from Moody's Investors Service, Inc. (or its successor) and a rating of at least A2 from Standard & Poor's Ratings Services (or its successor) and (vi) investments in money market or other mutual funds substantially all of whose assets comprise securities of types described in clauses (ii) through (v) above. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" or group of related "persons" (a "Group") (as such terms are used in Section A-28 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) the result of which is that any "person" (as defined above) or Group other than a Principal or a Related Party of a Principal becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 50% of the aggregate voting power of all classes of Capital Stock of the Company having the right to elect directors under ordinary circumstances or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "COMMISSION" means the Securities and Exchange Commission. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the sum of, without duplication, the Consolidated Net Income of such Person for such period plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (ii) Consolidated Interest Expense of such Person for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iii) consolidated depreciation, amortization and other non-cash charges of the Person and its Subsidiaries deducted in computing Consolidated Net Income of such Person for such period, plus (iv) cash payments with respect to any non-cash charges previously added back pursuant to clause (iii). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum, without duplication of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior government approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, A-29 (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, and (v) all other extraordinary gains and extraordinary losses shall be excluded. "CONSOLIDATED NET TANGIBLE ASSETS" of a Person means the consolidated total assets of such Person and its consolidated Subsidiaries determined in accordance with GAAP, less the sum of (i) all current liabilities and current liability items, and (ii) all goodwill, trade names, trademarks, patents, organization expense, unamortized debt discount and expense and other similar intangibles properly classified as intangibles in accordance with GAAP. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock (or, in the case of the preferred stock to be issued on the Issue Date in exchange for the NML Preferred Stock, to the extent of cash received by the Company upon the original issuance of the NML Preferred Stock), less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of original issuance of the Notes or (ii) was nominated for election or elected to such Board of Directors with the approval of (x) two-thirds of the Continuing Directors who were members of such Board at the time of such nomination or election or (y) two-thirds of those Directors who were previously approved by Continuing Directors. "CREDIT AGREEMENTS" means, with respect to the Company, one or more debt facilities (including, without limitation, the Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payments, financings, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Agreements outstanding on the date on which the Notes are first issued and authenticated under the Indenture (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness. "CREDIT FACILITY" means that certain Credit Agreement, dated as of March 2, 1998, by and among the Company, Lehman Brothers Inc., as Arranger, and Lehman Brothers Commercial Paper Inc., as Syndication Agent and Administrative Agent and as a lender, and certain banks, financial institutions and other entities, as lenders, providing for up to $190.0 million of Indebtedness, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents. A-30 "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DESIGNATED SENIOR DEBT" means (i) the Credit Facility and (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "DISQUALIFIED 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 or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is convertible or exchangeable for Indebtedness or Disqualified Stock or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature, PROVIDED HOWEVER, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof (or of any security into which it is convertible or for which it is exchangeable) have the right to require the issuer to repurchase such Capital Stock (or such security into which it is convertible or for which it is exchangeable) upon the occurrence of any of the events constituting an Asset Sale or a Change of Control shall not constitute Disqualified Stock if such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provides that the issuer thereof will not repurchase or redeem any such Capital Stock (or any such security into which it is convertible or for which it is exchangeable) pursuant to such provisions prior to compliance by the Company with the provisions of the Indenture described under the caption "Repurchase at the Option of Holders--Change of Control" or "Repurchase at the Option of Holders--Asset Sales," as the case may be. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by the terms of the Indenture and (ii) other agreements or arrangements designed to protect such Person against fluctuation in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, or (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof (other than letters of credit securing obligations not constituting Indebtedness that are issued in the ordinary course of business by a Person to the extent not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit) or bankers' acceptances, or (iii) representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable for such property or services, or (iv) representing any Hedging Obligations, in each case if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a A-31 balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and extensions of trade credit in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "ISSUE DATE" means the date on which the Notes are originally issued. "LEVERAGE RATIO" means 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 Disqualified Stock of the Company and 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 Cash Flow 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 first day of the Four Quarter Period. In addition to the foregoing, for purposes of this definition, Consolidated Cash Flow 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 acquisition (including, without limitation, any 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 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 acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such preferred stock and also including any Consolidated Cash Flow associated with such A-32 acquisition) occurred on the first day of the Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company consistent with Article 11 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture. Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated Cash Flow," (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 Hedging Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement with respect to a lease not intended as a security agreement). "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and after any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or Asset Swap or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "NET PROCEEDS" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding cash amounts placed in escrow, until such amounts are released to the Company), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and expenses, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under the Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve established for future liabilities. "NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable (as a guarantor or otherwise); (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. A-33 "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PARI PASSU INDEBTEDNESS" means Indebtedness that ranks PARI PASSU in right of payment to the Notes. "PERMITTED BUSINESS" means the broadcasting business or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "PERMITTED INDEBTEDNESS" has the meaning given in the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." "PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment, (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (e) that are at the time outstanding without giving effect to subsequent changes in value or increases or decreases attributable to the accounting for the net income of such Investment, not to exceed $15.0 million; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock); (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (A) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (B) as a result of the transfer of title with respect to any secured investment in default as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to such secured Investment; (h) Hedging Obligations permitted under the "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case, incurred in the ordinary course of business; and (j) any guarantees permitted to be made pursuant to the covenant entitled "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." "PERMITTED LIENS" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Senior Debt that is outstanding on the date of issuance of the Notes and Liens securing Senior Debt that is permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company and Liens on property or assets of a Subsidiary existing at the time it became a Subsidiary, PROVIDED that such Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property; (iv) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date of the Indenture; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) statutory liens of A-34 landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like Liens arising in the ordinary course of business; (viii) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (ix) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (e) of the second paragraph of the covenant entitled "--Certain Covenants-- Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (x) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary; (xi) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred or imposed, as applicable, in the ordinary course of business and consistent with industry practices which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or its Subsidiary) or interfere with the ordinary conduct of the business of the Company or such Subsidiary; provided, however, that any such Liens are not incurred in connection with any borrowing of money or any commitment to loan any money or to extend any credit; and (xii) customary Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance and other types of social security legislation. "PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the Company or any of its Restricted Subsidiaries; PROVIDED that: (i) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Debt has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable taken as a whole to the Holders of the Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PRINCIPAL" means Richard W. Weening and Lewis W. Dickey, Jr.. "RELATED PARTY" with respect to any Principal means (A) any controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate family member (in the case of an individual) of such principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. A-35 "SENIOR DEBT" means (i) Indebtedness of the Company or any Subsidiary of the Company under or in respect of any Credit Agreement, whether for principal, interest (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not the claim for such interest is allowed as a claim in such proceeding), reimbursement obligations, fees, commissions, expenses, indemnities or other amounts, and (ii) any other Indebtedness permitted under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes. Notwithstanding anything to the contrary in the foregoing sentence, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates or (y) any Indebtedness that is incurred in violation of the Indenture (other than Indebtedness under (i) the Credit Facility or (ii) any other Credit Agreement that is incurred on the basis of a representation by the Company to the applicable lenders that it is permitted to incur such Indebtedness under the Indenture). "SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock, entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt; (c) the Company certifies that such designation complies with the "Limitation on Restricted Payments" covenant; (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no Investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an A-36 Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to the first paragraph of the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant on a pro forma basis taking into account such designation. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one--twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. A-37 PRINCIPAL STOCKHOLDERS The following table sets forth as of , 1998 and as adjusted to give effect to the sale of Class A Common Stock offered pursuant to the Stock Offering, certain information regarding beneficial ownership of the Company's Common Stock by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each director, (iii) each of the Named Executive Officers and (iv) all directors and executive officers as a group. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated.
CLASS A COMMON STOCK ------------------------------------------------------------------------- PRIOR TO STOCK AFTER STOCK OFFERINGS OFFERINGS ---------------------------- SHARES BEING ---------------------------- NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE - --------------------------------------------------- ----------- --------------- ------------- ----------- --------------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett CLASS B COMMON STOCK(1) ---------------------------------------------------------- PRIOR TO STOCK AFTER STOCK OFFERINGS OFFERINGS ---------------------------- ---------------------------- NAME NUMBER PERCENTAGE NUMBER PERCENTAGE - --------------------------------------------------- ----------- --------------- ----------- --------------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett
- ------------------------ (1) Except upon the occurrence of certain events, holders of Class B Common Stock are not entitled to vote, whereas each share of Class A Common Stock entitles its holders to one vote. Under certain conditions and subject to prior governmental approval, shares of Class B Common Stock are convertible into shares of Class A Common Stock (2) Less than 1%. A-38 DESCRIPTION OF CREDIT FACILITY THE CREDIT FACILITY GENERAL. In March 1998, the Company entered into a $190.0 million senior credit facility with Lehman Brothers Inc., as Arranger and Lehman Commercial Paper Inc., as Lender, Syndication Agent and Administrative Agent pursuant to which the Company has available a revolving credit line of $110.0 million until March 2, 2006, and an eight-year term loan facility of $80.0 million. The proceeds of the borrowings under the Credit Facility have been used to finance acquisitions and repay the Company's outstanding indebtedness under the Old Credit Facility, and to secure outstanding Letters of Credit issued under the Old Credit Facility in an aggregate amount equal to approximately $10.0 million. As of March 27, 1998 approximately $120.0 million was outstanding under the Credit Facility. See "Use of Proceeds." SECURITY; GUARANTEES. The Company's obligations under the Credit Facility are secured by substantially all of its assets in which a security interest may lawfully be granted, (including to the extent permitted by applicable law, FCC licenses held by the Company's subsidiaries) including, without limitation, intellectual property, real property, and all of the capital stock of the Company's direct and indirect domestic subsidiaries and 65% of the capital stock of any foreign subsidiaries. The obligations under the Credit Facility are also guaranteed by each of the domestic subsidiaries of the Company and are required to be guaranteed by any additional subsidiaries acquired by the Company. INTEREST RATES; FEES; REPAYMENTS. Both revolving credit and term loan borrowings under the Credit Facility bear interest, at the Company's option, at a rate equal to the Base Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 0.50% to 1.75%, or the Eurodollar Rate (as defined under the terms of the Credit Facility) plus a margin ranging between 1.50% to 2.75% (in each case dependent upon the leverage ratio of the Company). A commitment fee calculated at a rate ranging from 0.375% to 0.50% per annum (depending upon the Company's leverage ratio) of the average daily amount available under the revolving line of credit and the amount available under the term loan facility is payable quarterly in arrears fees in respect of letters of credit issued under the Credit Facility equal to the lesser of (i) the interest rate margin then applicable to Eurodollar Rate loans and (ii) 2.50%. In addition, a fronting fee to be agreed to by the Company and the issuing bank of such Letter of Credit calculated at a rate not to exceed 0.0125% per annum on the maximum payable amount of each letter of credit is payable quarterly to the issuing bank. The revolving credit and term loan borrowings are repayable in equal quarterly installments beginning in 2000. The scheduled annual amortization of the term loans is $10.0 million in each of the years 2000 through 2002, $15.0 million in each of the years 2003 through 2005, and $5.0 million at maturity. The scheduled annual reduction in availability under the revolving credit loans is $10.0 million in each of the years 2000 and 2001, $15.0 million in 2002, $20.0 million in year 2003, $25.0 million in each of the years 2004 and 2005, and $5.0 million at maturity in 2006. Certain mandatory prepayments of the term loan facility and the revolving credit line and reductions in the availability of the revolving credit line are required to be made including: (i) subject to certain exceptions (including the issuance of capital stock or the incurrence of senior subordinated indebtedness prior to September 2, 1998) 100% of the net proceeds from any issuance of capital stock in connection with an initial public offering or incurrence of indebtedness; (ii) 100% of the net proceeds from certain asset sales; and (iii) between 50% and 75% (dependent on the leverage ratio of the Company) of the excess cash flow of the Company. COVENANTS. The terms of the Credit Facility contain operating and financial covenants, including, without limitation, requirements to maintain minimum ratios of cash flow to debt service and maximum ratios of total debt to cash flow and senior debt to cash flow. In addition, the terms of the Credit Facility A-39 restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Sources of Liquidity." EVENTS OF DEFAULT. The terms of the Credit Facility contain events of default after expiration of applicable grace periods, including failure to make payments on the Credit Facility, breach of covenants, breach of representations and warranties, invalidity of the agreement governing the Credit Facility and related documents, cross default under other agreements or conditions relating to indebtedness of the Company or its subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement of security, certain litigation or other proceedings, and certain events relating to changes in control. Upon the occurrence of an event of default under the terms of the Credit Facility, the majority of the banks may declare all amounts under the Credit Facility to be due and payable and take certain other actions, including enforcement of rights in respect of the collateral. The majority of the banks extending credit under the term loan facility and the majority of the banks under the revolving credit line may terminate the term loan facility and the revolving credit line, respectively. A-40 UNDERWRITING Subject to the terms and conditions of an Underwriting Agreement dated , 1998 (the "Underwriting Agreement") among the Company and the Underwriters, the Underwriters named below (collectively, the "Underwriters"), acting through their representatives, Bear, Stearns & Co. Inc. and Lehman Brothers Inc. (the "Representatives") have agreed, severally and not jointly, to purchase from the Company and the Company has agreed to sell to the Underwriters the respective principal amounts of Notes set forth opposite their names below.
UNDERWRITERS PRINCIPAL AMOUNT - ------------------------------------------------------------------------------------------------ ---------------- Bear, Stearns & Co. Inc......................................................................... $ Lehman Brothers Inc............................................................................. ---------------- Total........................................................................................... $ ---------------- ----------------
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters are severally committed to take and pay for $ million aggregate principal amount of Notes if any are taken. The Company has agreed to indemnify the Underwriters against certain liabilities in connection with the offer and sale of the Notes, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"), and to contribute to payments that the Underwriters may be required to make in respect thereof. The closing of each Offering is conditioned upon the closing of each of the other Offerings. The Underwriters propose to offer all or part of the Notes directly to the public at the public offering price set forth on the cover page hereof and all or part to certain dealers at a price which represents concessions not to exceed % of the principal amount of the Notes. The Underwriters may allow, and any such dealer may reallow, concessions to certain other dealers not to exceed % of the principal amount of the Notes. After the initial public offering, the public offering price and such concessions may be changed. The Notes will constitute a new class of securities with no established trading market. The Company does not intend to list the Notes on any national securities exchange or to seek the admission thereof to trading in the Nasdaq National Market. The Company has been advised by the Representatives that following the completion of the Debt Offering, the Representatives intend to make a market in the Notes. However, they are not obligated to do so and any market-making activities with respect to the Notes may be discontinued at any time without notice. In order to facilitate the Debt Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Notes during and after the Debt Offering. Specifically, the Underwriters may over-allot or otherwise create a short position in the Notes for their own account by selling more Notes than have been sold to them by the Company. The Underwriters may elect to cover any such short position by purchasing Notes in the open market. In addition, the Underwriters may stabilize or maintain the price of the Notes by bidding for or purchasing Notes in the open market and may impose penalty bids, under which selling concessions allowed to syndicate members or other broker-dealers participating in the Debt Offering are reclaimed if Notes previously distributed in the Debt Offering are repurchased in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price of the Notes at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the Notes to the A-41 extent that it discourages resales thereof. No representation is made as to the magnitude or effect of any such stabilization or other transactions. Such transactions, if commenced may be discontinued at any time. Lehman Brothers Inc. and Lehman Brothers Commercial Paper Inc., an affiliate of Lehman Brothers Inc., act as Arranger, and Syndication Agent and Administrative Agent, respectively, in connection with the Credit Facility and will receive any repayment by the Company of amounts outstanding under the Credit Facility from the proceeds of the Offerings. The Representatives will act as representatives of the underwriters in the concurrent Stock Offering and the concurrent Preferred Stock Offering. Each of the Representatives has engaged from time to time and may in the future engage in general financing and banking transactions with the Company or affiliates thereof. The Debt Offering is being made pursuant to the provisions of Section 2710(c)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc. Bear, Stearns & Co. Inc. ("Bear Stearns") has agreed to act as Qualified Independent Underwriter for the Debt Offering, and as such has assumed responsibilities of conducting due diligence and has reviewed and participated in the preparation of the Registration Statement. The yield on the Notes will not be lower than that recommended by Bear Stearns. A-42 CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS The following summary describes certain United States federal income tax consequences of the acquisition, ownership and disposition of the Notes as of the date hereof by a person who acquires the Notes from the Initial Purchasers. Except where noted, it deals only with Notes held as capital assets and does not deal with special situations, such as those of dealers in securities or currencies, tax exempt organizations, individual retirement accounts and other tax deferred accounts, financial institutions, life insurance companies, persons holding Notes as a part of a hedging or conversion transaction or a straddle, persons subject to the alternative minimum tax or holders of Notes whose "functional currency" is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in federal income tax consequences different from those discussed below. In addition, except as otherwise indicated, the following does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. As used herein, a "United States Holder" of a Note means an initial holder that is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if (i) a U.S. court is able to exercise primary supervision over the administration of the trust and (ii) one or more U.S. trustees or fiduciaries have the authority to control all substantial decisions of the trust. A "Non-United States Holder" is a holder that is not a United States Holder. The Company does not intend to treat the Notes, the Class A Common Stock and the Series A Preferred Stock, all of which are being offered concurrently, as an investment unit for United States federal income tax purposes. STATED INTEREST ON NOTES Except as set forth below, interest on a Note will generally be taxable to a United States Holder as ordinary income at the time it is paid or accrued in accordance with the United States Holder's method of accounting for tax purposes. MARKET DISCOUNT If a United States Holder purchases a Note for an amount that is less than its principal amount, the amount of the difference will be treated as "market discount" for U.S. federal income tax purposes, unless such difference is less than a specified DE MINIMIS amount. Under the market discount rules, a United States Holder will be required to treat any partial principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a Note as ordinary income to the extent of the market discount which has not previously been included in income and is treated as having accrued on such Note at the time of such payment or disposition. In addition, the United States Holder may be required to defer, until the maturity of the Note or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Note. Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Note, unless the United States Holder elects to accrue on a constant interest method. A United States Holder may elect to include market discount in income currently as it accrues (on either a ratable or constant interest method), in which case the rule described above regarding deferral of interest deductions will not apply. This election to include market discount in income currently, once made, applies to all market discount obligations acquired on or after the first taxable year to which A-43 the election applies and may not be revoked without the consent of the Internal Revenue Service (the "IRS"). AMORTIZABLE BOND PREMIUM A United States Holder that purchases a Note for an amount in excess of the principal amount will be considered to have purchased the Note at a "premium." A United States Holder generally may elect to amortize the premium over the remaining term of the Note on a constant yield method. However, if the Note is purchased at a time when the Note may be optionally redeemed for an amount that is in excess of its principal amount, special rules would apply that could result in a deferral of the amortization of bond premium until later in the term of the Note. The amount amortized in any year will be treated as a reduction of the United States Holder's interest income from the Note. Bond premium on a Note held by a United States Holder that does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of the Note. The election to amortize premium on a constant yield method, once made, applies to all debt obligations held or subsequently acquired by the electing United States Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. SALE, EXCHANGE AND RETIREMENT OF NOTES Upon the sale, exchange, redemption, retirement or other disposition of a Note, a United States Holder generally will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange, redemption, retirement or other disposition and such holder's adjusted tax basis of the Note. A United States Holder's adjusted tax basis in a Note will, in general, be the United States Holder's cost therefor, increased by market discount previously included in income by the United States Holder and reduced by any amortized premium previously deducted from income by the United States Holder. Except as described above with respect to market discount or except to the extent the gain or loss is attributable to accrued but unpaid stated interest, such gain or loss will be capital gain or loss. Under recently enacted legislation, an individual United States Holder generally will be subject to tax on the net amount of his or her capital gain realized on the sale or exchange of a Note at a maximum rate of (i) 28% for a note held for more than one year but not more than eighteen months and (ii) 20% for a Note held for more than eighteen months. Special rules (and generally lower maximum rates) apply for individuals whose taxable income is below certain levels. The deductibility of capital losses is subject to limitations. NON-UNITED STATES HOLDERS Under present United States federal income and estate tax law, and subject to the discussion below concerning backup withholding: (i) no United States federal withholding tax will be imposed with respect to the payment by the Company or its paying agent of principal, premium, if any, or interest on a Note owned by a Non-United States Holder (the "Portfolio Interest Exception"), provided (i) that such Non-United States Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote within the meaning of section 871(h)(3) of the Code and the regulations thereunder, (ii) such Non-United States Holder is not a controlled foreign corporation that is related, directly or indirectly, to the Company through stock ownership, (iii) such Non-United States Holder is not a bank whose receipt of interest on a Note is described in section 881(c)(3)(A) of the Code and (iv) such Non-United States Holder satisfies the statement requirement (described generally below) set forth in section 871(h) and section 881(c) of the Code and the regulations thereunder. A-44 (ii) no United States federal withholding tax will be imposed generally with respect to any gain or income realized by a Non-United States Holder upon the sale, exchange, redemption, retirement or other disposition of a Note; and (iii) a Note beneficially owned by an individual who at the time of death is a Non-United States Holder will not be subject to United States federal estate tax as a result of such individual's death, provided that such individual does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote within the meaning of section 871(h)(3) of the Code and provided that the interest payments with respect to such Note would not have been, if received at the time of such individuals death, effectively connected with the conduct of a United States trade or business by such individual. To satisfy the requirement referred to in (a)(iv) above, the beneficial owner of such Note, or a financial institution holding the Note on behalf of such owner, must provide, in accordance with specified procedures, a paying agent of the Company with a statement to the effect that the beneficial owner is not a United States Holder. Pursuant to current temporary U.S. Treasury regulations, these requirements will be met if (1) the beneficial owner provides his name and address, and certifies, under penalties of perjury, that he is not a United States Holder (which certification may be made on an IRS Form W-8 (or substitute form)) or (2) a financial institution holding the Note on behalf of the beneficial owner certifies, under penalties of perjury, that such statement has been received by it and furnishes a paying agent with a copy thereof. United States Treasury Regulations recently issued by the Internal Revenue Service, which will be effective for payments made after December 31, 1999 (subject to certain transition rules), made modifications to the certification procedure applicable to Non-United States Holders. In general, these regulations unify certain certification procedures and forms and clarify and modify reliance standards. A Non-United States Holder should consult its own tax advisor regarding the effect of the new Regulations. If a Non-United States Holder cannot satisfy the requirements of the Portfolio Interest Exception described in (a) above, payments on a Note made to such Non-United States Holder will be subject to a 30% withholding tax unless the beneficial owner of the Note provides the Company or its paying agent, as the case may be, with a properly executed (1) IRS Form 1001 (or substitute form) claiming an exemption from or reduction of withholding under the benefit of a tax treaty or (2) IRS Form 4224 (or substitute form) stating that interest paid on the Note is not subject to withholding tax because is is effectively connected with the beneficial owner's conduct of a trade or business in the United States. Under recently finalized Treasury regulations, for payments made after December 31, 1999, non-United States Holders will generally be required to provide an IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224, although alternative documentation may be applicable in certain situations. If a Non-United States Holder is engaged in a trade or business in the United States and payment on a note is effectively connected with the conduct of such trade or business, the Non-United States Holder, although exempt from United States federal withholding tax as discussed above, will be subject to United States federal income tax on such payment on a net income basis in the same manner as if it were a United States Holder. In addition, if such Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to adjustments. For this purpose, such payment on a Note will be included in such foreign corporation's earnings and profits. Any gain or income realized upon the sale, exchange, retirement or other disposition of a Note generally will not be subject to United States federal income tax unless (i) such gain or income is effectively connected with a trade or business in the United States of the Non-United States Holder or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale, exchange, retirement or other disposition, and certain other conditions are met. A-45 INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to payments on a Note and to the proceeds of the sale of a Note made to United States Holders other than certain exempt recipients (such as corporations). A 31% backup withholding tax will apply to such payments if the United States Holder fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. No information reporting or backup withholding will be required with respect to payments made by the Company or any paying agent to Non-United States Holders if a statement described in (a)(iv) under "-- Non-United States Holders" has been received and the payor does not have actual knowledge that the beneficial owner is a United States person. In addition, backup withholding and information reporting will not apply if payments on a Note are paid or collected by a foreign office of a custodian, nominee or other foreign agent on behalf of the beneficial owner of such Note, or if a foreign office of a broker (as defined in applicable U.S. Treasury regulations) pays the proceeds of the sale of a Note to the owner thereof. If, however, such nominee, custodian agent or broker is, for United States federal income tax purposes, a United States person, a controlled foreign corporation or a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, such payments will be subject to information reporting (but not backup withholding), unless (1) such custodian, nominee, agent or broker has documentary evidence in its records that the beneficial owner is not a United States person and certain other conditions are met or (2) the beneficial owner otherwise establishes an exemption. Temporary U.S. Treasury regulations provide that the U.S. Treasury is considering whether backup withholding will apply with respect to payments of principal, premium, if any, interest or the proceeds of a sale that are subject to backup withholding under the current regulations. Payments on a Note paid to the beneficial owner of a Note by a United States office of a custodian, nominee or agent, or the payment by the United States office of a broker of the proceeds of sale of a Note, will be subject to both backup withholding and information reporting unless the beneficial owner provides the statement referred to in (a)(iv) above and the payor does not have actual knowledge that the beneficial owner is a United States person or otherwise establishes an exemption. In October 1997, United States Treasury Regulations were issued which alter the foregoing rules in certain respects and which generally will apply to any payments in respect of a Note or proceeds from the sale of a Note that are made after December 31, 1999. Among other things, such regulations expand the number of foreign intermediaries that are potentially subject to information reporting and address certain documentary evidence requirements relating to exemption from the general backup withholding requirements. Holders of the Notes should consult their tax advisors concerning the possible application of such regulations to any payments made on or with respect to the Notes. Any amounts withheld under the backup withholding rules will be credited toward such Holder's United States federal income tax liability, if any. To the extent that the amounts withheld exceed the Holder's tax liability, the excess may be refunded to the Holder provided the required information is furnished to the IRS. In addition to providing the necessary information, the Holder must file a United States tax return in order to obtain a refund of the excess withholding. A-46 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CUMULUS MEDIA INC. OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES TO ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary........................ Risk Factors.............................. Use of Proceeds........................... Capitalization............................ Unaudited Pro Forma Combined Financial Statements.............................. Selected Historical Financial Data........ Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. Business.................................. Pending Acquisitions...................... Management................................ Pending Acquisitions...................... Certain Relationships and Related Transactions............................ Principal Stockholders.................... Description of Capital Stock.............. Description of Credit Facility............ Description of Notes...................... Underwriting.............................. Certain Federal Income Tax Considerations.......................... Legal Matters............................. Experts................................... Additional Information.................... Index to Financial Statements............. F-1
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. $ CUMULUS MEDIA INC. % SENIOR SUBORDINATED NOTES DUE 2008 -------------- PROSPECTUS -------------- BEAR, STEARNS & CO. INC. LEHMAN BROTHERS , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. SUBJECT TO COMPLETION, DATED MAY 18, 1998 PRELIMINARY PROSPECTUS [LOGO] $ CUMULUS MEDIA INC. % SERIES A CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK DUE 2009 ------------------ Cumulus Media Inc. is offering $ million of its % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 (the "Series A Preferred Stock"), $ million of which are being offered directly by the Company, and not through the Underwriters (as defined herein), to The Northwestern Mutual Life Insurance Company, the sole owner of the NML Preferred Stock (as defined herein), which had an accreted value as of May 15, 1998 of $33,989,840, at a purchase price equal to the price to public (the "Preferred Stock Offering"). The Company will issue shares of the Series A Preferred Stock. Each share of Series A Preferred Stock will have a liquidation preference of $1,000 per share. All dividends will be cumulative from the date of issuance of the Series A Preferred Stock and will be payable quarterly in arrears on , , and of each year commencing on , 1998. On or before , 2003, the Company may, at its option, pay dividends in cash or in additional fully-paid and non-assessable shares of Series A Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. Thereafter, dividends may be paid in cash only. It is not expected that the Company will pay any dividends in cash for the period ending on or prior to , 2003. On any scheduled dividend payment date, the Company may, at its option, but subject to certain conditions, exchange all but not less than all of the shares of the Series A Preferred Stock for the Company's % Subordinated Exchange Debentures Due 2009 (the "Exchange Debentures"). The Company will be required, subject to certain conditions, to redeem all of the Series A Preferred Stock or the Exchange Debentures, as the case may be, on , 2009. Except as described below, the Company may not redeem the Series A Preferred Stock or the Exchange Debentures prior to , 2003. On or after such date, the Company may, at its option, redeem the Series A Preferred Stock or the Exchange Debentures, in whole or in part, for cash, at the redemption prices set forth herein together with, in the case of the Series A Preferred Stock, all accumulated and unpaid dividends to the date of redemption, or in the case of the Exchange Debentures, all accrued and unpaid interest to the date of redemption. Prior to , 2001, the Company may redeem up to 35% of the original aggregate liquidation preference of the Series A Preferred Stock or the original aggregate principal amount of the Exchange Debentures, as the case may, be with the proceeds of one or more Equity Offerings (as defined herein) at the redemption price set forth herein. Upon the occurrence of a Change of Control (as defined herein), the Company will be required to make an offer to purchase the Series A Preferred Stock or the Exchange Debentures, for cash, at a price equal to 101% of the liquidation preference or aggregate principal amount, as the case may be, thereof, together with, in the case of the Series A Preferred Stock, all accumulated and unpaid dividends to the date of purchase, or in the case of the Exchange Debentures, all accrued and unpaid interest thereon. See "Description of the Series A Preferred Stock and Exchange Debentures." The Exchange Debentures will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Exchange Debenture Senior Debt (as defined herein) of the Company, including all borrowings of the Company under the Company's credit facility (the "Credit Facility") and the Notes (as defined herein). On a pro forma basis after giving effect to the Transactions (as defined herein) as if they had occurred on December 31, 1997, the Company would have had outstanding approximately $ million of Exchange Debenture Senior Debt that would effectively rank senior to the Exchange Debentures. See "Description of Series A Preferred Stock--Subordination." The Exchange Debenture Indenture (as defined herein) permits the Company and its subsidiaries to incur additional indebtedness, including Exchange Debenture Senior Debt, subject to certain limitations. See "Capitalization" and "Description of the Series A Preferred Stock and Exchange Debentures." Concurrently with the Preferred Stock Offering, $ million of % Senior Subordinated Notes Due 2008 (the "Notes") and shares of the Company's Class A Common Stock (the "Class A Common Stock") are being offered to the public by the Company (the "Debt Offering" and the "Stock Offering", respectively, and together with the Preferred Stock Offering, the "Offerings"). Consummation of each Offering is contingent upon the consummation of each of the other Offerings. A portion of the proceeds of the Offerings will be used to repay the Credit Facility for which affiliates of Lehman Brothers Inc. act as arranger and lender. ------------------------------ SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT IN THE SERIES A PREFERRED STOCK. ------------------------ 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 REPRESENTATIONS TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC(1) COMMISSIONS(2) THE COMPANY(1)(3) Per Share of Exchangeable Preferred Stock............ % % % Total................................................ $ $ $
(1) Plus accumulated dividends, if any, from the date of issuance. (2) See "Underwriting" for indemnification arrangements with the Underwriters. (3) Before deducting expenses of the Preferred Stock Offering, payable by the Company, estimated at $ . The Series A Preferred Stock is offered by Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as Underwriters (the "Underwriters"), subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify the offer and to reject orders in whole or in part. It is expected that the Series A Preferred Stock will be available for delivery in New York, New York, on or about , 1998 in book-entry form through the facilities of The Depository Trust Company. BEAR, STEARNS & CO. INC. LEHMAN BROTHERS The date of this Prospectus is , 1998. CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED STOCK, INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING TRANSACTIONS AND THE IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING." B-i THE PREFERRED STOCK OFFERING ISSUER....................................... Cumulus Media Inc. SECURITIES OFFERED........................... shares of % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009. Each share of Series A Preferred Stock will have a liquidation preference of $1,000 per share. MATURITY..................................... , 2009. DIVIDEND..................................... All dividends will be cumulative from the date of issuance of the Series A Preferred Stock and will be payable quarterly in arrears on , , , and of each year, commencing on , 1998. On or before , 2003, the Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. After , 2003, dividends may be paid only in cash. VOTING RIGHTS................................ Holders of Series A Preferred Stock will have no voting rights with respect to general corporate matters except as provided by law or, in certain limited circumstances, as set forth in the Certificate of Designation (as defined herein). See "Description of the Series A Preferred Stock-- Voting Rights." MANDATORY REDEMPTION......................... The Company is required, subject to certain conditions, to redeem all of the Series A Preferred Stock outstanding on , 2009 at a redemption price equal to 100% of the liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the date of redemption. OPTIONAL REDEMPTION.......................... Except as described below, the Company may not redeem the Series A Preferred Stock prior to , 2003. On or after such date, the Company may, at its option redeem the Series A Preferred Stock, in whole or in part, at the redemption prices set forth herein together with accumulated and unpaid dividends, if any, to the date of redemption. Prior to , 2001, the Company, at its option, may redeem up to 35% of the liquidation preference of the Series A Preferred Stock, with the proceeds of one or more Equity Offerings at a redemption price equal to % of the original aggregate liquidation preference thereof, together with accumulated and
B-1 unpaid dividends, if any, to the date of redemption. CHANGE OF CONTROL............................ Upon the occurrence of a Change of Control, the Company will be required to make an offer to purchase the Series A Preferred Stock for cash at a purchase price of 101% of the liquidation preference thereof, together with all accumulated and unpaid dividends to the date of purchase. RANKING...................................... The Series A Preferred Stock will rank (i) senior to all other classes of Capital Stock of the Company established after the issue date of the Series A Preferred Stock which do not expressly provide that such classes rank on a parity with the Series A Preferred Stock as to dividends and distributions upon the liquidation, winding up and dissolution of the Company and (ii) subject to certain conditions, on a parity with any class of Capital Stock established after the date of issuance of the Series A Preferred Stock the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividends and distributions upon the liquidation, winding up and dissolution of the Company. Creditors of the Company will have priority over the Series A Preferred Stock with respect to claims on the assets of the Company. See "Description of the Series A Preferred Stock and Exchange Debentures--Series A Preferred Stock--Rank." CERTAIN COVENANTS............................ The Certificate of Designation for the issuance of the Preferred Stock will limit: (i) the incurrence of additional indebtedness by the Company and its Restricted Subsidiaries; (ii) the redemption or repurchase of Junior Securities (as defined herein) or Parity Securities (as defined herein) and the payment of dividends thereon; (iii) certain investments; (iv) consolidations or mergers; and (v) certain transactions with affiliates. However, all these limitations and prohibitions are subject to a number of important qualifications and exceptions. See "Description of the Series A Preferred Stock and Exchange Debentures-- Series A Preferred Stock--Certain Covenants." SECURITY..................................... None. EXCHANGE FEATURE............................. On any scheduled dividend payment date, subject to provisions of the Company's debt instruments, the Company may, at its option, exchange all but not less than all of the shares of the Series A Preferred Stock then outstanding for the
B-2 Company's Exchange Debentures. See "Description of the Series A Preferred Stock and Exchange Debentures--Series A Preferred Stock--Exchange." THE EXCHANGE DEBENTURES THE EXCHANGE DEBENTURES...................... % Subordinated Exchange Debentures Due 2009. MATURITY..................................... , 2009. INTEREST..................................... Interest on the Exchange Debentures will be payable semi-annually in cash (or on or prior to , 2003, in additional Exchange Debentures, at the option of the Company) in arrears on and of each year, commencing with the first such date after the Exchange Date. OPTIONAL REDEMPTION.......................... Except as described below, the Company may not redeem the Exchange Debentures prior to , 2003. On or after such date, the Company may, at its option, redeem the Exchange Debentures, in whole or in part, at the redemption prices set forth herein together with accrued and unpaid interest, if any, to the date of redemption. Prior to , 2001, the Company may, at its option, redeem up to 35% of the original aggregate principal amount of the Exchange Debentures with the proceeds of one or more Equity Offerings at a redemption price equal to % of the principal amount of the Exchange Debentures to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption. CHANGE OF CONTROL............................ Upon the occurrence of a Change of Control, subject to certain restrictions in the Company's debt instruments, the Company will be required to make an offer to repurchase the Exchange Debentures held by such holder at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. RANKING...................................... The Exchange Debentures will be unsecured and will be subordinated in right of payment to all existing and future Exchange Debenture Senior Debt of the Company, including the Credit Facility and the Notes, and will be effectively subordinated to all obligations of the subsidiaries of the Company. The Exchange Debentures will rank senior to all other Exchange Debenture Subordinated Debt (as defined herein) of the
B-3 Company. The indenture under which the Exchange Debentures will be issued (the "Exchange Debenture Indenture") permits the Company to incur additional indebtedness, including Exchange Debenture Senior Debt, subject to certain limitations. See "Risk Factors" and "Description of the Exchangeable Preferred Stock and Exchange Debentures--Exchange Debentures--Subordination and Ranking." RESTRICTIVE COVENANTS........................ The Exchange Debenture Indenture will limit: (i) the incurrence of additional indebtedness by the Company and its Restricted Subsidiaries (as defined); (ii) the payment of dividends on, and redemption of, capital stock of the Company and its Restricted Subsidiaries and the redemption of certain subordinated obligations of the Company and its Restricted Subsidiaries; (iii) investments; (iv) sales of assets and Restricted Subsidiary stock; (v) certain transactions with affiliates; (vi) the sale or issuance of capital stock of Restricted Subsidiaries; (vii) the creation and existence of liens; and (viii) consolidations, mergers and transfers of all or substantially all of the Company's assets. The Exchange Debenture Indenture will also prohibit certain restrictions on distributions from Restricted Subsidiaries. However, all of these limitations and prohibitions are subject to a number of important qualifications and exceptions. See "Description of the Series A Preferred Stock and Exchange Debentures--Exchange Debentures--Certain Covenants." USE OF PROCEEDS.............................. Approximately $ million of the net proceeds of the Offerings will be used to finance the Pending Acquisitions. The balance of the net proceeds of the Offerings will be used to repay the principal amount of Indebtedness currently outstanding under the Credit Facility for which affiliates of Lehman Brothers Inc. act as arranger and lender. See "Use of Proceeds" and "Description of Credit Facility and Notes." CONCURRENT OFFERINGS......................... Concurrently with the Preferred Stock Offering, the Company is offering shares of its Class A Common Stock and $ million aggregate principal amount of its % Senior Subordinated Notes due 2008. Each Offering is conditioned upon consummation of each of the other Offerings. See "Risk Factors--Concurrent Offerings" and "Use of Proceeds."
B-4 RISK FACTORS An investment in the Series A Preferred Stock offered hereby involves a high degree of risk. Prospective purchasers of the Series A Preferred Stock offered hereby should carefully consider the factors set forth in "Risk Factors", as well as the other information set forth in this Prospectus, before making an investment in the Series A Preferred Stock. B-5 RISK FACTORS AN INVESTMENT IN THE SHARES OF SERIES A PREFERRED STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE SERIES A PREFERRED STOCK OFFERED HEREBY. RISKS OF ACQUISITION STRATEGY The Company intends to pursue growth through internal expansion and the acquisition of radio broadcasting companies, radio station groups and individual radio stations in mid-size and smaller markets. The Company cannot predict whether it will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisitions would be. The Company is currently evaluating certain acquisitions; however, other than as described in "Pending Acquisitions," the Company currently has no binding commitments to acquire any specific business or other material assets. Consummation of the Pending Acquisitions and any subsequent acquisitions is subject to various conditions, including FCC and other regulatory approvals including, in some cases, expiration or termination of applicable waiting periods and possible review by the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). There can be no assurances that any of these conditions will be satisfied. Consummation of the Pending Acquisitions and any subsequent acquisitions will also be subject to FCC limits on the number of stations a broadcaster may own in a given local market and other FCC rules or policies such as the cross-interest policy, which may limit the Company's ability to acquire stations in certain markets where one or more of the Company's shareholders has other media interests. In addition, in two markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal objections have been filed against the Company's FCC assignment applications and certain FCC staff questions have been raised with respect ot Pending Acquisitions in several other markets. All such petitions, objections and FCC staff inquiries must be resolved before FCC approval can be obtained and the Pending Acquisitions can be consummated. The consummation of the Offerings is not conditioned on the consummation of any of the Pending Acquisitions. No assurances can be given that such transactions will be consummated or that, if completed, they will be successful. The Company's acquisition strategy involves numerous risks, including difficulties in identifying targets and negotiating definitive purchase agreements on satisfactory terms, 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 at acquired stations. See "Business -- Integration of Acquired Businesses." 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. In addition, there can be no assurance that the Company will be able to acquire properties at valuations as favorable as previous acquisitions. Depending upon the nature, size and timing of future acquisitions, the Company may be required to raise financing in addition to the financing necessary to consummate the Pending Acquisitions. There can be no assurance that the Credit Facility, the Indenture (as defined herein), the Certificate of Designation or the Exchange Debenture Indenture or any other agreements to which the Company may become a party will permit such additional financing or that such additional financing will be available to the Company or, if available, that such financing would be on terms acceptable to its management. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." LIMITED OPERATING HISTORY The Company began operations in May 1997 and, consequently, has a limited operating history and limited historical financial information upon which investors may base their evaluation of the Company's performance. MANAGEMENT OF RAPID GROWTH The Company has grown very rapidly, through acquisitions, which will place significant demands on its administrative, operational and financial resources. Although the Company has been successful to date in B-6 completing the integration of many new properties, future performance and profitability, if any, will depend in part on the Company's continued ability 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. NET LOSS The Company had a net loss attributable to common stockholders of approximately $6.2 million for the three months ended March 31, 1998 and $3.9 million for the period from inception on May 22, 1997 to December 31, 1997, and additional losses can be expected to continue while the Company pursues its strategy of acquiring and developing radio stations. Pro forma for the Transactions, net loss attributable to common stockholders was approximately $12.9 million for the three months ending March 31, 1998 and $35.6 million for the year ended December 31, 1997. The Company expects to generate net income on a historical basis for the year ending December 31, 1999. However, there can be no assurance that the Company will be profitable in the future. SIGNIFICANT CAPITAL REQUIREMENTS If consummated, the Pending Acquisitions and other acquisitions for which the Company has entered into letters of intent will require substantial capital. The Company estimates that it will have significant capital requirements for the remainder of 1998, including approximately $250.5 million for the consummation of the Pending Acquisitions. The Company expects that the net proceeds from the Offerings, together with internally generated cash flows and borrowings under the Credit Facility, will provide sufficient funds for the Company to complete the Pending Acquisitions. The amount of the Company's future capital requirements will depend upon many factors, however, including the volume of future acquisitions, as well as regulatory, technological and competitive developments in the radio broadcasting industry, and may differ materially from the Company's current estimates. CONCURRENT OFFERINGS The Company is currently offering the Series A Preferred Stock, the Notes and the Class A Common Stock pursuant to the Offerings. Consummation of each Offering is contingent upon consummation of each other Offering and there can be no assurance that the Offerings will be consummated and, if so, on what terms. SUBSTANTIAL LEVERAGE After giving effect to the Transactions, the Company will have consolidated Indebtedness that is substantial in relation to its cash flow and stockholders' equity. As of March 31, 1998, on a pro forma basis after giving effect to the Transactions, the Company would have had outstanding, on a consolidated basis, long-term Indebtedness (including current portion) of approximately $192.0 million, preferred stock subject to mandatory redemption of approximately $125.0 million and stockholders' equity of approximately $144.2 million. See "Capitalization." The Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture limit the incurrence of additional Indebtedness by the Company and its subsidiaries, in each case subject to certain significant exceptions. The level of the Company's Indebtedness could have several important consequences to the holders of the Series A Preferred Stock, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes may be impaired in the future; (iii) certain of the Company's borrowings will be at variable rates of interest (including any borrowings under the 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 Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture could limit the Company's ability to compete, expand and make capital improvements; (v) the Company's level of Indebtedness could make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in B-7 responding to changing business and economic conditions; and (vi) certain restrictive covenants contained in the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture limit the ability of Cumulus to pay dividends and make other distributions to its stockholders. ABILITY TO SERVICE DEBT OBLIGATIONS The Company's ability to satisfy its debt service obligations, including the Exchange Debentures, and pay dividends on the Series A Preferred Stock will depend upon its future financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legislative and regulatory 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 acquisitions, expansion and capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company's operating results, cash flow and capital resources will be sufficient for payment of its debt service and other obligations in the future. In the absence of such operating results and resources, the Company could face substantial liquidity problems and might be required to sell material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom or that such sales could be effected on terms satisfactory to the Company or at all. As a result of the net loss attributable to common stockholders, earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $3,785 and $3,493 for the period from inception on May 22, 1997 to December 31, 1997 and for the three months ended March 31, 1998. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS AND PREFERRED STOCK The Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture contain certain covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional Indebtedness, pay dividends or make certain other restricted payments, 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. In addition, the Credit Facility, the Indenture and the Exchange Debenture Indenture also restrict the ability of the Company to incur liens or to consummate certain asset sales. The Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. The Company's ability to meet those financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Credit Facility, the Indenture, the Certificate of Designation and/or the Exchange Debenture Indenture. Upon the occurrence of an event of default under the Credit Facility, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If Cumulus were unable to repay those amounts, the lenders under the Credit Facility could proceed against the collateral granted to them to secure that Indebtedness. If the Indebtedness under the Credit Facility were to be accelerated, there can be no assurance that the assets of Cumulus would be sufficient to repay in full such Indebtedness and the other Indebtedness of the Company, including the Exchange Debentures. The ability of the Company to comply with the restrictions and covenants in the Credit Facility, the Indenture, the Certificate of Designation and the Exchange Debenture Indenture will be dependent upon the Company's future performance and various other factors, such as legislative, business and regulatory factors, certain of which are beyond its control. If the Company fails to comply with the restrictions and covenants in the Credit Facility, the Indenture, the Certificate of Designation or the Exchange Debenture Indenture, the Company's obligation to repay the Notes, the Exchange Debentures and its Indebtedness under the Credit Facility may be accelerated. B-8 REDEMPTION OF SERIES A PREFERRED STOCK UPON CHANGE OF CONTROL Upon a Change of Control, the Company may be required to offer to purchase all of the outstanding shares of the Series A Preferred Stock or the Exchange Debentures at 101% of the principal amount or liquidation preference thereof, as the case may be, plus accrued and unpaid dividends or interest to the date of purchase. The source of funds for any such purchase would be the Company's available cash or cash generated from other sources. However, there can be no assurance that sufficient funds would be available at the time of any Change of Control to make any required purchases of Series A Preferred Stock tendered or, if applicable, that restrictions in the Credit Facility or the Indenture would permit the Company to make such required purchases. The Credit Facility and the Indenture will require that the Company repay all amounts outstanding under the Credit Facility and the Notes prior to making any payments on the Series A Preferred Stock upon a Change of Control. The Certificate of Designation may not afford holders of Series A Preferred Stock the right to require the Company to repurchase the Series A Preferred Stock in the event of certain transactions, such as a highly leveraged transaction, that may adversely affect holders of Series A Preferred Stock if such transaction is not a transaction defined as a Change of Control. Certain events involving a Change of Control may result in an event of default under the Credit Facility or the Indenture or other Indebtedness of the Company that may be incurred in the future. The Company's failure to purchase tendered Series A Preferred Stock would constitute an Event of Default under the Indenture and the Credit Facility, which could have adverse consequences for the Company and the holders of the Series A Preferred Stock. The definition of "Change of Control" includes a sale, lease, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole to a person or group of persons. There is little case law interpreting the phrase "all or substantially all" in the context of an indenture. Because there is no precise established definition of this phrase, the ability of a holder of the Series A Preferred Stock to require the Company to repurchase such Series A Preferred Stock as a result of a sale, lease, conveyance or transfer of all or substantially all of the Company's assets to a person or group of persons may be uncertain. See "Description of Capital Stock -- Description of the Series A Preferred Stock -- Repurchase at the Option of Holders." SUBORDINATION OF THE EXCHANGE DEBENTURES The Exchange Debentures will be subordinated in right of payment to all Exchange Debenture Senior Debt of the Company. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Exchange Debentures only after all Exchange Debenture Senior Debt has been paid in full and there may not be sufficient assets remaining to pay amounts due on any or all of the Exchange Debentures then outstanding. In addition, Indebtedness outstanding under the Credit Facility is secured by substantially all of the assets of the Company and its subsidiaries in which a security interest may lawfully be granted. Additional Exchange Debenture Senior Debt may be incurred by the Company from time to time subject to certain restrictions contained in the Credit Facility and the Indenture. TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE SERIES A PREFERRED STOCK AND EXCHANGE DEBENTURES; POTENTIAL FOR UNPLANNED DEEMED DIVIDEND INCOME AND ORIGINAL ISSUE DISCOUNT If the redemption price of the Series A Preferred Stock exceeds its issue price by more than a DE MINIMIS (or negligible) amount, such excess may be treated as a constructive distribution with respect to the Series A Preferred Stock of additional stock over the term of the Series A Preferred Stock using a constant interest rate method similar to that used for accruing original issue discount. In addition, because the issue price of the Series A Preferred Stock distribution in lieu of payment of cash dividends (the "Dividend Shares") will be equal to the fair market value of the Series A Preferred Stock at the time of distribution, it is possible depending on its fair market value at the time, that such Dividend Shares will be issued with a redemption premium large enough to be considered a dividend as described above. In such event, holders would be required to include such premium in income as a distribution over some period in B-9 advance of receiving the cash attributable to such income, and such Series A Preferred Stock might trade separately, which might adversely affect the liquidity of the Series A Preferred Stock. The Company may, at its option and under certain circumstances, issue Exchange Debentures in exchange for the Series A Preferred Stock. Any such exchange will be a taxable event to holders of the Series A Preferred Stock. Furthermore, the Exchange Debentures may in certain circumstances be treated as having been issued with original issue discount for U.S. federal income tax purposes. In such event, holders of Exchange Debentures will be required to include such original issue discount (as ordinary income) in income over the life of the Exchange Debentures, in advance of the receipt of cash attributable to such income. HOLDING COMPANY STRUCTURE-; DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES The Company conducts its business through its subsidiaries and has no operations of its own. Consequently, the Company will be dependent upon the cash flow of such subsidiaries and distributions thereof from such subsidiaries to the Company in order to pay the liquidation preference of and dividends when due on the Series A Preferred Stock and interest and principal when due to holders of the Exchange Debentures. The Company's subsidiaries will have no obligation, contingent or otherwise, to make any funds available to the Company for payment of the aggregate liquidation preference and dividends on the Series A Preferred Stock or interest or principal on the Exchange Debentures. Under the Indenture, the Credit Facility, the Certificate of Designation and the Exchange Debenture Indenture, the Company's subsidiaries will be restricted in their ability to incur debt in the future. FRAUDULENT CONVEYANCE RISKS Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court to subordinate or avoid the obligation of, or liens securing, the Exchange Debentures in favor of other existing or future creditors of the Company. Under applicable provisions of Federal bankruptcy law or comparable provisions of state fraudulent transfer laws and state corporation law statutes, if, among other things, the Company, at the time it incurred the Indebtedness evidenced by the Exchange Debentures, (i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or (b) was or is engaged or about to become engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital or (c) intended or intends to incur, or believed or believes that it would incur, debts beyond its ability to pay such debts as they mature or (d) was a defendant in an action for money damages or had a judgment for money damages docketed against it (if, in either case, after final judgment, the judgment is unsatisfied), and (ii) the Company received or receives less than reasonably equivalent value or fair consideration for the incurrence of the Indebtedness evidenced by the Exchange Debentures, any pledge or other security interest securing such Indebtedness could be voided, or claims in respect of the Exchange Debentures or the other security interest securing such Indebtedness could be voided, or claims in respect of the Exchange Debentures could be subordinated to all other debts of the Company. The voiding or subordination of any of such pledges or other security interests or of any of such Indebtedness could result in acceleration thereof. In addition, the payment of interest and principal by the Company pursuant to the Exchange Debentures could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of the Company. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Company would be considered insolvent if (i) the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets at a fair valuation or if the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature or (ii) it could not pay its debts as they become due. On the basis of the pro forma financial information included in this Prospectus and other factors, the Company believes that after giving effect to the Indebtedness being incurred in connection with the Notes, B-10 the Company will be solvent and will continue to be solvent after issuing the Exchange Debentures, will have sufficient capital for carrying on its business after such issuance and will be able to pay its debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations. ABSENCE OF PUBLIC MARKET FOR THE SERIES A PREFERRED STOCK The Series A Preferred Stock will be new securities for which there currently is no established trading market. The Company does not intend to apply for listing of the Series A Preferred Stock on any national securities exchange or for quotation of the Series A Preferred Stock on any automated dealer quotation system. Although the Underwriters have informed the Company that they currently intend to make a market in the Series A Preferred Stock and, if issued, the Exchange Debentures, the Underwriters are not obligated to do so, and any such market making may be discontinued at any time without notice. The liquidity of any market for the Series A Preferred Stock and, if issued, the Exchange Debentures will depend upon the number of holders of the Series A Preferred Stock, the interest of securities dealers in making a market in the Series A Preferred Stock and, if issued, the Exchange Debentures and other factors. Accordingly, there can be no assurance as to the development or liquidity of any market for the Series A Preferred Stock and, if issued, the Exchange Debentures. If an active trading market for the Series A Preferred Stock and, if issued, the Exchange Debentures does not develop, the market price and liquidity of the Series A Preferred Stock and, if issued, the Exchange Debentures may be adversely affected. If the Series A Preferred Stock are traded, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities, the performance of the Company and certain other factors. The liquidity of, and trading markets for, the Series A Preferred Stock and, if issued, the Exchange Debentures may also be adversely affected by general declines in the market for non-investment grade debt. Such declines may adversely affect the liquidity of, and trading markets for, the Series A Preferred Stock, independent of the financial performance of or prospects for the Company. BUSINESS RISKS Future operations of the Company are 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; shifts in audience tastes; 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 laws and governmental regulations and policies and actions of federal regulatory bodies, including the DOJ, 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." 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 and may sell advertising. 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." COMPETITION 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 and broadcast television, outdoor advertising and direct mail. In addition, certain of the Company's stations compete, and in the future other of the Company's stations may compete, with groups of two or more stations operated by a single operator. Audience ratings and market B-11 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, or launch aggressive promotional campaigns, or 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, and consequently would have a lower Broadcast Cash Flow (as defined under "Certain Definitions and Market and Industry Data"). The Telecommunications Act of 1996 (the "Telecom Act") facilitates the consolidation of ownership of other radio broadcasting stations in the markets in which the Company operates or may operate in the future. Some of such competing in-market consolidated owners may be larger and have substantially more financial and other resources than the Company. In addition, increased consolidation in mid-size and smaller markets may result in greater competition for acquisition properties and a corresponding increase in purchase prices for such properties paid by the Company. See "Business-- Competition." GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY The broadcasting industry is subject to extensive and changing federal regulation that, among other things, requires approval by the FCC for the issuance, renewal, modification, transfer of control, or assignment of broadcasting station operating licenses, limits the number of broadcasting properties that the Company may acquire in any market, and regulates certain operating practices of radio stations. Additionally, the Communications Act of 1934, as amended (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. The number of radio stations the Company may acquire or operate pursuant to an LMA in any market, overall and in each service (i.e., AM or FM), is limited by the Telecom Act and FCC rules and may vary depending upon whether the interests in other radio stations or certain other media properties of certain individuals or entities affiliated with the Company are attributable to those individuals or entities under FCC rules. 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 5% or greater voting stockholders are generally attributable to the Company. Certain of the Company's officers and directors, and at least one stockholder of the Company, have attributable broadcast interests outside of their involvement with the Company, which will limit the number of radio stations that the Company may acquire or own in any market in which such officers or directors (or stockholders) hold or acquire such outside attributable broadcast interests. 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 interest in another media outlet in the same market, thereby prohibiting a particular acquisition by the Company. The markets in which the Company may be subject to restricitons on ownership include Atlanta, GA, Nashville, TN and Rochester, MN. 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." REGULATORY APPROVALS 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 B-12 Pending Acquisitions have not yet received FCC approval. Pending Acquisitions in two markets are being challenged before the FCC by competitors. The FCC staff has also stated that it is currently reevaluating its policies and procedures relating to local radio market concentration, even where proposed assignments would comply with the FCC's multiple-ownership rules. The FCC has issued a Notice of Inquiry which, among other things, seeks public comment on these issues. FCC approval of a number of pending radio station acquisitions by various parties has been delayed while this policy review is taking place. The FCC staff has informed the Company that it has delayed action on several of its applications on this basis, including pending applications to acquire stations in Augusta-Waterville, Maine and one additional station in the Toledo, Ohio market. There can be no assurance that the FCC will not prohibit or require the restructuring of future acquisitions by the Company (including the Pending Acquisitions) as a result of this policy review. In addition, the FCC staff has requested additional information relating to whether the Company's Pending Acquisitions in one market would comply with the FCC's cross-interest policy. There can be no assurance that the FCC will approve future acquisitions by the Company (including the Pending Acquisitions). The consummation of 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, and acquisitions that are not required to be reported under the HSR Act may still be investigated by the FTC or the DOJ under the antitrust laws before or after consummation. The DOJ has been active in reviewing radio broadcasting acquisitions and has challenged a number of such transactions, some of which have resulted in consent decrees requiring divestitures of certain stations, terminations of LMAs and other relief. In general, the DOJ has more closely scrutinized radio mergers and acquisitions that result in local market shares in excess of 35% of radio advertising revenues, depending on format, signal strength and other factors, although there is no hard-and-fast numerical rule and certain transactions resulting in more than 35% market share have not been challenged. The DOJ can be expected to continue to enforce the antitrust laws in this manner, and there can be no assurance that one or more of the Pending Acquisitions will not be the subject of an investigation or enforcement action by the DOJ or the FTC. If the DOJ or the FTC investigates or challenges one or more of the Pending Acquisitions or any subsequent acquisitions, the Company may need to restructure such transactions or divest other existing stations in a particular market. The Company is aware that the DOJ has opened an investigation with respect to the Company's Pending Acquisition in two markets which potentially affect the acquisition of up to an additional nine stations in the aggregate. However, the Company believes that its operating and sales practices and demand-driven pricing policies serve to expand advertising volume and increase competition in a market while providing more choice to advertisers and to listeners. POTENTIAL CONFLICTS OF INTEREST Mr. Weening and Mr. Dickey each have direct interests in entities that have entered into service agreements with the Company. These interests may give rise to certain conflicts of interest with respect to transactions between these entities and the Company. TRANSACTIONS WITH AFFILIATES QUSTUS, an entity controlled by Mr. Weening, and Stratford Research, an entity controlled by Mr. Dickey, have acted as the Company's financial and strategic advisor and market research and programming advisor, respectively, since the Company's inception. New advisory agreements between each of QUSTUS and Stratford Research and the Company will be entered into immediately prior to the consummation of the Offerings. See "Certain Relationships and Related Transactions." EFFECTS OF ECONOMIC RECESSION The Company derives substantially all of its revenue from the sale of advertising time on its radio stations. The Company's broadcasting revenue could be adversely affected by a future national recession, although in the most recent national recession, in 1991, radio revenues in small radio markets ranked below 100 were impacted less severely on average than those in the larger markets. In addition, because a B-13 substantial portion of the Company's revenue is derived from local advertisers, the Company's ability to generate advertising revenue in specific markets could be adversely affected by local or regional economic downturns. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Advertising Sales." YEAR 2000 RISK The Company has implemented a Year 2000 program to ensure that the Company's computer systems and applications will function properly beyond 1999. The Company believes that it has allocated adequate resources for this purpose and expects its Year 2000 date conversion program to be successfully completed on a timely basis. There can, however, be no assurance that this will be the case. The Company does not expect to incur significant expenditures to address this issue. The ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside of the Company's control. There can be no assurance that the failure of the Company or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. RELIANCE ON KEY PERSONNEL The Company's business is managed by a small number of key management and operating personnel, the loss of certain of whom could have a material adverse effect on the Company. The Company believes that its future success will depend in large part on its ability to attract and retain highly skilled and qualified personnel and to expand, train and manage its employee base. The Company has entered into employment agreements with Messrs. Weening, Dickey, Bungeroth and Bonick which include provisions restricting the ability of Messrs. Weening, Dickey, Bungeroth and Bonick to compete against the Company in certain circumstances. The Company intends to arrange for "key-man" insurance on the lives of Messrs. Weening, Dickey and Bungeroth. See "Management -- Employment Agreements." The Company also employs several on-air personalities with large loyal audiences in their respective markets. The loss of one 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's financial condition or results of operations, taken as a whole. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Preferred Stock Offering, the Company will have outstanding shares of Series A Preferred Stock. Of these shares, the shares of Series A Preferred Stock offered hereby will be freely transferable without restriction (subject to any FCC consent that might be required) under the Securities Act of 1933, as amended (the "Securities Act") or further registration under the Securities Act, except that shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 promulgated under the Securities Act ("Rule 144"), may generally only be sold subject to certain restrictions as to timing, manner and volume. Future sales of substantial amounts of Preferred Stock, or the perception that such sales could occur, may affect the market price of the Preferred Stock prevailing from time to time. See "Shares Eligible for Future Sale" and "Underwriting." DIVIDEND POLICY The Company does not anticipate paying any dividends except for the payment of scheduled dividends on the Series A Preferred Stock. The Company has never declared or paid any cash dividends on its capital stock and does not anticipate paying cash dividends on the Series A Preferred Stock prior to , 2003. In addition, the Indenture, the Credit Facility, the Certificate of Designation and the Exchange Debenture Indenture will restrict the ability of the Company to pay dividends. See "Dividend Policy." B-14 DESCRIPTION OF THE SERIES A PREFERRED STOCK AND EXCHANGE DEBENTURES SERIES A PREFERRED STOCK The Series A Preferred Stock will be issued by the Company pursuant to a Statement of Resolutions Fixing Terms relating to the Series A Preferred Stock (the "Certificate of Designation"). The summary contained herein of certain provisions of the Series A Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the provisions of the Certificate of Designation. Definitions of certain capitalized terms used in the Certificate of Designation and in the following summary are set forth below under "--Exchange Debentures--Certain Definitions." Notwithstanding the foregoing, with respect to terms used in the Certificate of Designation (i) the words "Voting Rights Triggering Event" shall be substituted for the words "Default or Event of Default" when used in the definition of "Unrestricted Subsidiary", (ii) references to "Asset Sales" in the definition of "Disqualified Capital Stock" and "Permitted Investments" shall be deleted, (iii) the words "asset sale" shall be substituted for the defined term "Asset Sale" in the definition of " Net Income" and (iv) the words "Issue Date" shall be substituted for the words "the date on which the Exchange Debentures are first issued" in the definitions of "Consolidated Net Worth", "Credit Agreements" and "Leverage Ratio." GENERAL The Board of Directors of the Company intends to adopt resolutions creating a maximum of shares of Series A Preferred Stock, which consist of the shares of Series A Preferred Stock to be issued in the Preferred Stock Offering plus additional shares of Series A Preferred Stock which, among other things, may be used to pay certain dividends on the Series A Preferred Stock issued in the Preferred Stock Offering at the election of the Company. The Company will file a Statement of Resolutions Fixing Terms with respect thereto with the Secretary of State of the State of Illinois as required by Illinois law. Subject to certain conditions, the Series A Preferred Stock will be exchangeable for Exchange Debentures at the option of the Company on any dividend payment date. The Series A Preferred Stock, when issued and paid for by the Underwriters in accordance with the terms of the Underwriting Agreement (as defined under "Underwriting"), will be fully paid and non-assessable, and the holders thereof will not have any subscription or preemptive rights related thereto. will be the transfer agent and registrar for the Series A Preferred Stock. RANK The Series A Preferred Stock will, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to all other classes of Capital Stock of the Company established after the date of the Issue Date by the Board of Directors of the Company the terms of which do not expressly provide that it ranks on a parity with the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the Common Stock of the Company as "Junior Securities"); and (ii) subject to certain conditions, on a parity with each series of preferred stock existing on the date of the Prospectus the terms of which do not expressly provide that it ranks junior to any preferred stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, and any class of Capital Stock established after the Issue 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 Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"). Creditors of the Company will have priority over the Series A Preferred Stock with respect to claims on the assets of the Company. In addition, creditors and stockholders of the Company's Subsidiaries will have priority over the Series A Preferred Stock with respect to claims on the assets of such Subsidiaries. The Series A Preferred Stock will be subject to the issuance of new classes of Junior Securities and Parity Securities, PROVIDED that the Company may not issue B-15 any new class of Parity Securities without the approval of the holders of at least 50% of the shares of Series A Preferred Stock then outstanding, voting or consenting, as the case may be, separately as one class, except that without the approval of the holders of Series A Preferred Stock, the Company may issue and have outstanding shares of Parity Securities issued from time to time in exchange for, or the proceeds of which are used to redeem or repurchase, any or all of the shares of Series A Preferred Stock or other Parity Securities. DIVIDENDS Series A Preferred Stock Holders will be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, dividends on the Series A Preferred Stock at a rate per annum equal to % of the liquidation preference per share of the Series A Preferred Stock. All dividends will be cumulative whether or not earned or declared on a daily basis from the Issue Date and will be payable quarterly in arrears on , , and of each year, commencing on , 1998. On or before , 2003 the Company may, at its option, pay dividends in cash or in additional fully paid and non-assessable shares of Series A Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. After , 2003, dividends may be paid only in cash. It is not expected that the Company will pay any dividends in cash for any period ending on or prior to , 2003. The terms of certain debt instruments of the Company, including the Credit Facility and the Notes, restrict the payment of cash dividends by the Company, and future agreements may provide the same. See "Risk Factors--Substantial Leverage," "Risk Factors--Restrictions Imposed by Terms of Indebtedness and Preferred Stock," and "Description of Credit Facility and Notes." No full dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Securities for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid in full or declared and, if payable in cash, a sum in cash sufficient for such payment set apart for such payment on the Series A Preferred Stock. If full dividends are not so paid, the Series A Preferred Stock will share dividends pro rata with the Parity Securities. No dividends may be paid or set apart for such payment on Junior Securities (except dividends on Junior Securities in additional shares of Junior Securities) and no Junior Securities or Parity Securities 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 on the Series A Preferred Stock. OPTIONAL REDEMPTION The Series A Preferred Stock may be redeemed for cash (subject to contractual and other restrictions with respect thereto, the Business Corporation Act of Illinois and to the legal availability of funds therefor) at any time on or after , 2003, in whole or in part, at the option of the Company, at the following redemption prices (expressed as percentages of the liquidation preference thereof) if redeemed during the 12-month period beginning on of each of the years set forth below, in each case together with an amount in cash equal to all accumulated and unpaid dividends (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):
YEAR PERCENTAGE - -------------------------------------------------------------------------------------- ------------- 2003.................................................................................. % 2004.................................................................................. % 2005.................................................................................. % 2006.................................................................................. % 2007 and thereafter................................................................... 100%
B-16 Prior to , 2001, the Company may, at its option, on any one or more occasions, redeem up to 35% of the original aggregate liquidation preference of the Series A Preferred Stock, in whole or in part, at the option of the Company, at a redemption price equal to % of the liquidation preference thereof, plus an amount in cash equal to all accumulated and unpaid dividends thereon (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), with the proceeds of one or more Equity Offerings (as defined below); PROVIDED that at least 65% of the original aggregate liquidation preference of the Series A Preferred Stock remains outstanding immediately after the occurrence of such redemption; and PROVIDED FURTHER that such redemption shall occur within 90 days of the date of the closing of such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any public or private sale of the common stock of the Company pursuant to which the Company receives net proceeds of at least $25.0 million, other than issuances of common stock of the Company pursuant to employee benefit plans or as compensation to employees. No optional redemption may be authorized or made (i) unless prior thereto or contemporaneously therewith full unpaid cumulative dividends shall have been paid or a sum set apart for such payment on the Series A Preferred Stock or (ii) at less than 101% of the liquidation preference of the Series A Preferred Stock at any time when the Company is making an offer to purchase shares of Series A Preferred Stock under a Change of Control Offer (as defined) in accordance with the provisions of "--Repurchase at the Option of Series A Preferred Stock Holders--Change of Control." In the event of partial redemptions of Series A Preferred Stock, the shares to be redeemed will be determined PRO RATA or by lot, as determined by the Company, except that the Company may redeem such shares held by any holders of fewer than 100 shares (or shares held by holders who would hold less than 100 shares as a result of such redemption), without regard to any PRO RATA redemption requirement. The terms of certain debt instruments of the Company, including the Credit Facility and the Notes, restrict, directly or indirectly, the ability of the Company to redeem the Series A Preferred Stock, and future agreements to which the Company or its subsidiaries are parties may provide the same. See "Description of Credit Facility and Notes." MANDATORY REDEMPTION On , 2009, the Company will be required to redeem (subject to the Business Corporation Act of Illinois and the legal availability of funds therefor) all outstanding shares of Series A Preferred Stock at a price equal to the then effective liquidation preference thereof, plus an amount in cash equal to all accumulated and unpaid dividends to the date of redemption. PROCEDURES FOR REDEMPTIONS On and after a redemption date, unless the Company defaults in the payment of the applicable redemption price, dividends will cease to accrue on shares of Series A Preferred Stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price, without interest. The Company will send a written notice of redemption by first class mail to each holder of record of shares of Series A Preferred Stock, not fewer than 30 days nor more than 60 days prior to the date fixed for such redemption. Shares of Series A Preferred Stock issued and reacquired will, upon compliance with the applicable requirements of Illinois law, have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may with any and all other authorized but unissued shares of preferred stock of the Company be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, except that any issuance or reissuance of shares of Series A Preferred Stock must be in compliance with the Certificate of Designation. B-17 REPURCHASE AT THE OPTION OF SERIES A PREFERRED STOCK HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of the Series A Preferred Stock will have the right to require the Company to repurchase all or any part of such Holder's Series A Preferred Stock pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate liquidation preference thereof, plus an amount in cash equal to all accumulated and unpaid dividends per share (including an amount in cash equal to a prorated dividend for the period from the dividend payment date immediately prior to the repurchase date to the repurchase date), if any, to the date of repurchase (subject to the right of Series A Preferred Stock Holders of record on the relevant record date to receive dividends due on the relevant dividend payment date); PROVIDED, HOWEVER, that notwithstanding the occurrence of a Change of Control, the Company shall not be obligated to purchase the Series A Preferred Stock pursuant to this covenant in the event that it has exercised its right to redeem all of the Series A Preferred Stock as described under "--Optional Redemption." In the event that at the time of such Change of Control, the terms of any Credit Agreement restricts or prohibits the repurchase of Series A Preferred Stock pursuant to this covenant, then prior to the mailing of the notice to Series A Preferred Stock Holders provided for in the immediately following paragraph but in any event within 30 days following any Change of Control (unless the Company has exercised its right to redeem all the Series A Preferred Stock as described under "--Optional Redemption"), the Company shall (i) repay in full all Obligations under such Credit Agreements or offer to repay in full all Obligations under such Credit Agreements and repay the Obligations of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing the Exchange Debenture Senior Debt to permit the repurchase of the Series A Preferred Stock as provided for in the immediately following paragraph. The Company shall, within 30 days following any Change of Control (or at the Company's option, prior to such Change of Control but after the public announcement thereof), mail a notice to each Series A Preferred Stock Holder stating: (1) that a Change of Control has occurred or will occur and that such Series A Preferred Stock Holder has (or upon such occurrence will have) the right to require the Company to purchase such Series A Preferred Stock Holder's Series A Preferred Stock at a purchase price in cash equal to 101% of the aggregate liquidation preference thereof, plus an amount in cash equal to all accumulated and unpaid dividends per share (including an amount in cash equal to a prorated dividend for the period from the dividend payment date immediately prior to the repurchase date to the repurchase date), if any, to the date of redemption (subject to the right of Series A Preferred Stock Holders of record on a record date to receive dividends on the relevant dividend payment date); (2) the circumstances and relevant facts and financial information regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); (4) the instructions determined by the Company, consistent with this covenant, that an Series A Preferred Stock Holder must follow in order to have its Series A Preferred Stock repurchased; and (5) that, if such offer is made prior to such Change of Control, payment is conditioned on the occurrence of such Change of Control. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Series A Preferred Stock pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this paragraph by virtue thereof. The occurrence of a Change of Control would constitute a default under the Credit Facility. Future Indebtedness of the Company may contain prohibitions of certain events which would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the B-18 exercise by the Series A Preferred Stock Holders of their right to require the Company to repurchase the Series A Preferred Stock could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the Series A Preferred Stock Holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, holders of Series A Preferred Stock will be entitled to be paid, out of the assets of the Company available for distribution, the liquidation preference 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 Securities, 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 Series A Preferred Stock and all other Parity Securities are not paid in full, the holders of the Series A Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference and accumulated and unpaid dividends to which each is entitled. 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 Series A Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. However, 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 Company nor the consolidation or merger of the Company with or into one or more corporations will be deemed to be a liquidation, dissolution or winding-up of the Company. The Certificate of Designation does not contain any provision requiring funds to be set aside to protect the liquidation preference of the Series A Preferred Stock, although such liquidation preference will be substantially in excess of the par value of such shares of Series A Preferred Stock. In addition, the Company is not aware of any provision of Illinois law or any controlling decision of the courts of the State of Illinois (the state of incorporation of the Company) that requires a restriction upon any surplus of the Company solely because the liquidation preference of the Series A Preferred Stock will exceed its par value. Consequently, there will be no restriction upon any surplus of the Company solely because the liquidation preference of the Series A Preferred Stock will exceed the par value and there will be no remedies available to holders of the Series A Preferred Stock before or after the payment of any dividend, other than in connection with the liquidation of the Company, solely by reason of the fact that such dividend would reduce the surplus of the Company to an amount less than the difference between the liquidation preference of the Series A Preferred Stock and its par value. VOTING RIGHTS Series A Preferred Stock Holders will have no voting rights with respect to general corporate matters except as required by law or as set forth in the Certificate of Designation. The Certificate of Designation will provide that (a) if (i) dividends on the Series A Preferred Stock are in arrears and unpaid (and, in the case of dividends payable after , 2003, are not paid in cash) for four consecutive quarterly periods, (ii) the Company fails to discharge any redemption obligation with respect to the Series A Preferred Stock (whether or not the Company is permitted to do so by the terms of the Credit Facility, the Notes or any other obligation of the Company), (iii) the Company fails to make an offer to purchase all of the outstanding shares of Series A Preferred Stock following a Change of Control (whether or not the Company is permitted to do so by the terms of the Credit Facility, the Notes or any other obligation of the B-19 Company) or fails to purchase shares of Series A Preferred Stock from holders who elect to have such shares repurchased pursuant to the Change of Control Offer, (iv) a breach or violation of the provisions described under the caption "--Certain Covenants" occurs and the breach or violation continues for a period of 60 days or more after the Company receives notice thereof specifying the default from holders of 25% of the Series A Preferred Stock then outstanding, or (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Certificate of Designation, which default (A) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more, then the number of directors constituting the Board of Directors of the Company will be adjusted to permit the holders of the majority of the then outstanding Series A Preferred Stock, voting separately as a class, to elect two directors, and (b) the approval of holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, will be required for (i) any merger, consolidation or sale of all or substantially all of the assets of the Company except as permitted pursuant to the covenant below under "--Certain Covenants--Merger or Consolidation" and (ii) for any modification of the Certificate of Designation or the Exchange Debenture Indenture. Each such event described in clause (a) above is referred to herein as a "Voting Rights Triggering Event." Voting rights arising as a result of a Voting Rights Triggering Event will continue until such time as all dividends in arrears on the Series A Preferred Stock are paid in full (and after , 2003, paid in cash) and any failure, breach or default referred to in clause (a) is remedied. In addition, the Certificate of Designation will provide that the Company will not authorize any class of Parity Securities without the affirmative vote or consent of holders of at least 50% of the shares of Series A Preferred Stock then outstanding, voting or consenting, as the case may be, as one class. The Certificate of Designation will also provide that the Company may not amend the Certificate of Designation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of the Series A Preferred Stock, or authorize the issuance of any additional shares of Series A Preferred Stock, without the affirmative vote or consent of the holders of at least 50% of the then outstanding shares of Series A Preferred Stock, voting or consenting, as the case may be, as one class. The Certificate of Designation will also provide that, except as set forth above, (a) the creation, authorization or issuance of any shares of Junior Securities or Parity Securities, (b) the decrease in the amount of authorized capital stock of any class, including any Series A Preferred Stock or (c) the increase in the amount of authorized capital stock of any class of Junior Securities shall not require the consent of the holders of Series A Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of holders of shares of Series A Preferred Stock. Under Illinois law, holders of Series A Preferred Stock will be entitled to vote as a class upon a proposed amendment to the Articles of Incorporation, whether or not entitled to vote thereon by the Articles of Incorporation, if the amendment would increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares or such class so as to affect them adversely. CERTAIN COVENANTS INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Certificate of Designation will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise B-20 become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage Ratio at the time of the incurrence of such Indebtedness, after giving pro-forma effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1.0. Notwithstanding the foregoing, the Certificate of Designation will not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Notes; (b) the incurrence by the Company of Indebtedness pursuant to Credit Agreements, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Agreements does not, at any one time, exceed $190.0 million, less the aggregate amount of all mandatory prepayments of principal applied since the date of the Certificate of Designation to permanently reduce the outstanding amount of such Indebtedness; (c) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of the Certificate of Designation; (d) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Exchange Debentures and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (e) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness represented by Capital 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, lease or cost of construction or improvement of property, plant or equipment used in a Permitted Business in an aggregate principal amount not to exceed $15.0 million at any time outstanding; (f) the incurrence by the Company or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Certificate of Designation to be incurred; (g) the incurrence by the Company or its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating or variable rate Indebtedness or for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, in each case in respect of Indebtedness that is permitted by the terms of the Certificate of Designation to be outstanding; PROVIDED, HOWEVER, that in the case of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risks with respect to Indebtedness, the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates and in the case of Hedging Obligations incurred for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, such Hedging Obligations do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness incurred solely in respect of performance, surety and similar bonds or completion guarantees, to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money to others; (i) Indebtedness arising out of standby letters of credit covering workers compensation, performance or similar obligations in an aggregate amount not to exceed $500,000 at any time outstanding; (j) any guarantee of the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of the Certificate of Designation; (k) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $10.0 million; and (l) the issuance of Series A Preferred Stock issued as payment in kind dividends on the Series A Preferred Stock outstanding on the Issue Date or issued B-21 subsequent to the Issue Date as dividends permitted pursuant to this clause (l), to the extent such dividends are made pursuant to the terms of the Certificate of Designation for such Series A Preferred Stock as in effect on the Issue Date, on any Preferred Stock issued in exchange for the Series A Preferred Stock, or any dividends on such Preferred Stock to the extent such dividends are made pursuant to the terms of the Certificate of Designation of such Preferred Stock. The Certificate of Designation will provide that the Company will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Company. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Certificate of Designation will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless: (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Series A Preferred Stock shall be converted into or exchanged for and shall become shares of the Surviving Entity, having in respect of such successor, transferee or resulting corporation substantially the same powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon that the Series A Preferred Stock had immediately prior to such transaction; (iii) immediately after such transaction, no Voting Rights Triggering Event, and no event that after the giving of notice or lapse of time or both would become a Voting Rights Triggering Event, shall have occurred and be continuing; and (iv) the Company or the Surviving Entity will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." Notwithstanding the restrictions described in the foregoing clause (iv), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. RESTRICTED PAYMENTS The Certificate of Designation will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make any distribution on account of any Junior Securities (other than dividends or distributions payable in Junior Securities (other than Disqualified Stock)), (ii) purchase, redeem or otherwise acquire or retire for value any Junior Securities or (iii) make any Investment (other than a Permitted Investment) in any Person (all such dividends, distributions, purchases, redemptions, acquisitions, retirements and Investments being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Junior Payment: (a) no Voting Rights Triggering Event shall have occurred and be continuing or would occur as a consequence thereof; B-22 (b) all dividends on the Series A Preferred Stock payable on dividend payment dates after , 2003, have been declared and paid in cash; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Certificate of Designation (excluding Restricted Payments permitted by clause (2) of the next succeeding paragraph), is less than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the Company (or, in the event such Consolidated Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the period beginning on the first day of the Company's fiscal quarter commencing after the Issue Date and ending on the last day of the Company's most recent fiscal quarter for which financial information is available to the Company ending prior to the date of such proposed Restricted Payment, taken as one accounting period, less (B) 1.4 times Consolidated Interest Expense for the same period, PLUS (ii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the Issue Date of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company, other than Disqualified Stock or debt securities that have been converted into Disqualified Stock and other than the Common Stock issued in the Stock Offerings), PLUS (iii) to the extent that any Restricted Investment that was made after the date of the Exchange Debenture Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the net proceeds of such sale, liquidation or repayment and (B) the amount of such Restricted Investment, PLUS (iv) $5.0 million. The foregoing provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Certificate of Designation; (2) the redemption, repurchase, retirement or other acquisition of any Junior Securities or Parity Securities of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Junior Securities or Parity Securities of the Company (other than any Disqualified Stock); (3) the repurchase, redemption or other acquisition or retirement for value of any Junior Securities or Parity Securities of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in connection with the termination of such person's employment for any reason (including by reason of death or disability); PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Junior Securities or Parity Securities shall not exceed $500,000 in any twelve-month period; and PROVIDED FURTHER that no Voting Rights Triggering Event shall have occurred and be continuing immediately after such transaction; and (4) repurchases of Junior Securities or Parity Securities deemed to occur upon exercise of stock options if such Junior Securities or Parity Securities represent a portion of the exercise price of such options. DESIGNATION OF UNRESTRICTED SUBSIDIARIES The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Voting Rights Triggering Event. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under clause (c) of the first paragraph of the covenant "Restricted Payments." All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. B-23 TRANSACTIONS WITH AFFILIATES The Certificate of Designation will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, such Affiliate Transaction or series of Affiliated Transactions has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate Transaction or series of Affiliated Transactions, and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or series of related Affiliate Transactions and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view has been issued to the Company by an accounting, appraisal, engineering or investment banking firm of national standing PROVIDED that the foregoing provisions will not apply to the following: (1) transactions contemplated by any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business, (2) transactions between or among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments and Permitted Investments that are permitted by the provisions of the Certificate of Designation described above under the caption "--Restricted Payments", (4) indemnification payments made to officers, directors and employees of the Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or contractual provisions and (5) any agreement in effect as of the Issue Date or any transaction contemplated thereby. REPORTS. The Certificate of Designation will provide that, whether or not required by the rules and regulations of the Commission, so long as any shares of Series A Preferred Stock are outstanding, the Company will furnish Series A Preferred Stock Holders, (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company was required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of such information and reports with the Commission for public availability within the time periods set forth in the Commission's rules and regulations (unless the Commission will not accept such filing). EXCHANGE The Company may at its option exchange all, but not less than all, of the then outstanding shares of Series A Preferred Stock into Exchange Debentures on any dividend payment date, PROVIDED that on the date of such exchange: (a) there are no contractual impediments to such exchange; (b) such exchange would comply with the Business Corporation Act of Illinois; (c) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Debenture Indenture) would exist under the Exchange Debenture Indenture; and (d) the Company shall have delivered a written B-24 opinion of counsel, dated the date of exchange, regarding the satisfaction of the conditions set forth in clauses (a) and (b) and certain other matters. The Company shall send a written notice of exchange by mail to each holder of record of shares of Series A Preferred Stock, which notice shall state, among other things, (i) that the Company is exercising its option to exchange the Series A Preferred Stock for Exchange Debentures pursuant to the Certificate of Designation and (ii) the date of exchange (the "Exchange Date"), which date shall not be less than 30 days nor more than 60 days following the date on which such notice is mailed. On the Exchange Date, holders of outstanding shares of Series A Preferred Stock will be entitled to receive a principal amount of Exchange Debentures equal to the liquidation preference per share, plus an amount in cash equal to all accrued and unpaid dividends (including an amount in cash equal to a prorated dividend for the period from the dividend payment date immediately prior to the Exchange Date to the Exchange Date), as provided below. The Exchange Debentures will be issued in registered form, without coupons. Exchange Debentures issued in exchange for Series A Preferred Stock will be issued in principal amounts of $1,000 and integral multiples thereof to the extent possible, and will also be issued in principal amounts less than $1,000 so that each holder of Series A Preferred Stock will receive certificates representing the entire amount of Exchange Debentures to which his shares of Series A Preferred Stock entitle him, provided that the Company may, at its option, pay cash in lieu of issuing an Exchange Debenture in a principal amount less than $1,000. On and after the Exchange Date, dividends will cease to accrue on the outstanding shares of Series A Preferred Stock, and all rights of the holders of Series A Preferred Stock (except the right to receive the Exchange Debentures, an amount in cash equal to the accrued and unpaid dividends to the Exchange Date and if the Company so elects, cash in lieu of any Exchange Debenture which is in an amount that is not an integral multiple of $1,000) will terminate. The person entitled to receive the Exchange Debentures issuable upon such exchange will be treated for any purposes as the registered holder of such Exchange Debentures. The Credit Facility contains limitations with respect to the Company's ability to issue the Exchange Debentures, and any future Credit Agreements or other agreements relating to indebtedness to which the Company or any of its Subsidiaries become a party may contain similar limitations. See "Description of Credit Facility and Notes." The Company intends to comply with the provisions of Rule 13e-4 promulgated pursuant to the Exchange Act in connection with any exchange, to the extent applicable. TRANSFER AGENT AND REGISTRAR. Firstar Trust Company is the transfer agent and registrar for the Series A Preferred Stock. EXCHANGE DEBENTURES GENERAL The Exchange Debentures, if issued, will be issued under an indenture (the "Exchange Debenture Indenture") between the Company and U.S. Bank Trust National Association, as trustee (the "Trustee"). The terms of the Exchange Debentures include those stated in the Exchange Debenture Indenture and those made part of the Exchange Debenture Indenture by reference to The Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange Debentures will be subject to all such terms, and prospective holders of the Exchange Debentures are referred to the Exchange Debenture Indenture and the Trust Indenture Act for a statement of such terms. The following summary of certain provisions of the Exchange Debenture Indenture does not purport to be complete and is qualified in its entirety by reference to the Exchange Debenture Indenture, including the definitions therein of certain terms. Definitions of certain capitalized terms used in the Exchange Debenture Indenture and in the following summary are set forth below under "--Certain Definitions." B-25 The Exchange Debentures, if issued, will be general unsecured obligations of the Company, subordinated to all existing and future Exchange Debenture Senior Debt, including the Notes and the Credit Facility. The Exchange Debentures will be issued in fully registered form only in denominations of $1,000 and integral multiples thereof (other than as described in "--Series A Preferred Stock--Exchange" or with respect to additional Exchange Debentures issued in lieu of cash interest as described herein). PRINCIPAL, MATURITY AND INTEREST The Exchange Debentures will mature on , 2009. Interest on the Exchange Debentures will accrue at a rate of % per annum from the Exchange Date or from the most recent interest payment date to which interest has been paid or provided for. Interest will be payable semi-annually in cash (or, on or prior to , 2003, in additional Exchange Debentures, at the option of the Company) in arrears on and of each year, commencing with the first such date after the Exchange Date, to Exchange Debenture Holders of record on the immediately preceding and . Interest on the Exchange Debentures will be computed on the basis of a 360-day year of twelve 30-day months. Principal, premium, if any, and interest on the Exchange Debentures will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Exchange Debenture Holders at their respective addresses set forth in the register of Exchange Debenture Holders. Until otherwise designated by the Company, the Company's office or agency will be the office of the Trustee maintained for such purpose. The Company may change such office without prior notice to holders of the Exchange Debentures, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar. SUBORDINATION The Indebtedness evidenced by the Exchange Debentures will be unsecured and subordinated in right of payment, as set forth in the Exchange Debenture Indenture, to the payment when due of all existing and future Exchange Debenture Senior Debt of the Company, including the Company's obligations under the Credit Facility and the Notes, will rank PARI PASSU (or equal to) in right of payment with all existing and future Exchange Debenture Pari Passu Debt of the Company and will be senior in right of payment to all existing and future Exchange Debenture Subordinated Debt of the Company. Although the Exchange Debenture Indenture contains limitations on the amount of additional Indebtedness which the Company may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Exchange Debenture Indebtedness may be Exchange Debenture Senior Debt. See "--Certain Covenants--Limitation on Indebtedness" below. Only Indebtedness of the Company that is Exchange Debenture Senior Debt will rank senior to the Exchange Debentures in accordance with the provisions of the Indenture. The Exchange Debentures will in all respects rank PARI PASSU (or equal) with all other Exchange Debenture Pari Passu Debt of the Company. Upon any payment or distribution of property or securities to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Exchange Debenture Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Exchange Debenture Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Exchange Debenture Senior Debt, whether or not a claim for such interest would be allowed in a proceeding) before the Holders of the Exchange Debentures will be entitled to receive any payment with respect to the Exchange Debentures, and until all Obligations with respect to Exchange Debenture Senior Debt are paid in full, any distribution to which the Holders of the Exchange Debentures would be entitled shall be made to the holders of Exchange Debenture Senior Debt (except in each case that Holders of the Exchange Debentures may receive securities that are subordinated at least to the same extent as the Exchange Debentures are subordinated to Exchange Debenture Senior Debt (or securities issued in B-26 exchange for Exchange Debenture Senior Debt) and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment (whether by redemption, purchase, retirement, defeasance or otherwise) upon or in respect of the Exchange Debentures (except in such subordinated securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Exchange Debenture Senior Debt occurs, (ii) any other default on Designated Exchange Debenture Senior Debt occurs and the maturity of such Designated Exchange Debenture Senior Debt is accelerated in accordance with its terms (together with clause (i), a "payment default") or (iii) any other default occurs and is continuing with respect to Designated Exchange Debenture Senior Debt that permits, or with the giving of notice or passage of time or both (unless cured or waived) will permit, holders of the Designated Exchange Debenture Senior Debt as to which such default relates to accelerate its maturity ("non-payment default") and (solely with respect to this clause (iii)) the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Exchange Debenture Senior Debt. Cash payments on the Exchange Debentures shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a non-payment default, the earliest of the date on which such non-payment default is cured or waived, the date on which the applicable Payment Blockage Notice is retracted by written notice to the Trustee or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Exchange Debenture Senior Debt has been accelerated or a default of the type described in clause (vii) under the caption "Events of Default and Remedies" has occurred and is continuing. No new period of payment blockage may be commenced unless and until 360 days have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior Payment Blockage Notice. No non-payment default in respect of Designated Exchange Debenture Senior Debt that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of no less than 181 days. The Exchange Debenture Indenture will further require that the Company promptly notify holders of Exchange Debenture Senior Debt if payment of the Exchange Debentures is accelerated because of an Event of Default. By reason of such subordination provisions contained in the Exchange Debenture Indenture, in the event of insolvency, (i) creditors of the Company who are holders of Exchange Debenture Senior Debt may recover more, ratably, than the Exchange Debenture Holders, and (ii) trade creditors of the Company who are not holders of Exchange Debenture Senior Debt or of Exchange Debenture Pari Passu Debt (including the Exchange Debentures) may recover less, ratably, than holders of Exchange Debenture Senior Debt and may recover more, ratably, than the holders of Exchange Debenture Pari Passu Debt. OPTIONAL REDEMPTION Except as set forth below, the Exchange Debentures may not be redeemed at the option of the Company prior to , 2003. Thereafter, the Exchange Debentures will be subject to redemption for cash at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice to each holder of Exchange Debentures to be redeemed, at the following redemption prices (expressed as percentages of principal amount) if redeemed during the twelve-month period beginning on of each of the years indicated below, in each case together with any accrued and unpaid interest thereon to the applicable redemption date:
YEAR PERCENTAGE - -------------------------------------------------------------------------------------- ----------- 2003.................................................................................. % 2004.................................................................................. % 2005.................................................................................. % 2006.................................................................................. % 2007 and thereafter................................................................... 100.00%
B-27 Prior to , 2001, the Company may, at its option, on any one or more occasions redeem up to 35% of the original aggregate principal amount of the Exchange Debentures at a redemption price equal to % of the principal amount thereof, plus an amount in cash equal to all accrued and unpaid interest, if any, thereon to the redemption date, with all or a portion of the net proceeds of one or more Equity Offerings (as defined below); PROVIDED that at least 65% of the original aggregate principal amount of the Exchange Debentures remains outstanding immediately after the occurrence of such redemption; and PROVIDED, FURTHER, that such redemption shall occur within 90 days of the date of the closing of such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any public or private sale of common stock of the Company pursuant to which the Company receives net proceeds of at least $25 million other than issuances of common stock of the Company pursuant to employee benefit plans or as compensation to employees. No optional redemption of Exchange Debentures may be authorized or made at less than 101% of the principal amount thereof at any time when the Company is making or purchasing Exchange Debentures under a Change of Control Offer in accordance with the provisions of "--Repurchase at the Option of Exchange Debenture Holders--Change of Control." If less than all of the Exchange Debentures are to be redeemed at any time, selection of Exchange Debentures for redemption will be made by the Trustee on a PRO RATA basis, by lot or by such method as the Trustee will deem fair and appropriate; provided that no Exchange Debentures of $1,000 or less will be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Exchange Debenture Holder to be redeemed at its registered address. If any Exchange Debenture is to be redeemed in part only, the notice of redemption that relates to such Exchange Debenture will state the portion of the principal amount thereof to be redeemed. A new Exchange Debenture in principal amount equal to the unredeemed portion thereof will be issued in the name of the Exchange Debenture Holder thereof upon cancellation of the original Exchange Debenture. On and after the redemption date, interest will cease to accrue on Exchange Debentures or portions of them called for redemption unless the Company defaults in the payment thereof. MANDATORY REDEMPTION Except as set forth below under "--Repurchase at the Option of Exchange Debenture Holders," the Company is not required to make any mandatory redemption, purchase or sinking fund payments with respect to the Exchange Debentures prior to the maturity date. REPURCHASE AT THE OPTION OF EXCHANGE DEBENTURE HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of the Exchange Debentures will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Exchange Debentures pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount of the Exchange Debentures plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control (unless the Company has exercised its rights to redeem all the Exchange Debentures), the Company will (i) mail a notice to each Exchange Debenture Holder describing the transaction or transactions that constitute the Change of Control and offer to repurchase the Exchange Debentures pursuant to the procedures required by the Exchange Debenture Indenture and described in such notice on a date no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date") and (ii) (a) offer to repay in full all Obligations under the Credit Facility and Obligations in respect of the Notes and to repay in full all Obligations of each lender and each Holder of Notes who has accepted such offer or (b) obtain the B-28 requisite consent under agreements evidencing Exchange Debenture Senior Debt to permit the purchase of the Exchange Debentures as described herein. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Exchange Debentures as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Exchange Debentures or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Exchange Debentures or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the relevant Exchange Debentures so accepted together with an Officers' Certificate stating the aggregate principal amount of such Exchange Debentures or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of the Exchange Debentures so tendered the Change of Control Payment for such Exchange Debentures, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each tendering Holder a new Note equal in principal amount to any unpurchased portion of the Exchange Debentures surrendered, if any; PROVIDED that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Except as described above with respect to a Change of Control, the Exchange Debenture Indenture will not contain provisions that permit the Holders of the Exchange Debentures to require that the Company repurchase or redeem the Exchange Debentures in the event of a takeover, recapitalization or similar transaction. The Company will not be required to make a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Exchange Debenture Indenture applicable to a Change of Control Offer made by the Company and purchases all Exchange Debentures (or portions thereof) validly tendered and not withdrawn under such Change of Control Offer. The Credit Facility will prohibit the Company from repurchasing any Exchange Debentures pursuant to a Change of Control Offer prior to the repayment in full of all Obligations under the Credit Facility. Moreover, the occurrence of certain change of control events identified in the Credit Facility will constitute a default under the Credit Facility. Any future Credit Agreements or other agreements relating to Exchange Debenture Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. If a Change of Control were to occur, the Company may not have sufficient available funds to pay the Change of Control Payment for all Exchange Debentures that might be delivered by Holders of the Exchange Debentures seeking to accept the Change of Control Offer after first satisfying its obligations under the Credit Facility or other agreements relating to Exchange Debenture Senior Debt. The failure of the Company to make or consummate the Change of Control Offer or pay the Change of Control Payment when due will constitute a Default under the Exchange Debenture Indenture and will otherwise give the Trustee and the Holders of the Exchange Debentures the rights described under "--Events of Default and Remedies." The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of the Exchange Debentures to require the Company to repurchase such Exchange Debentures as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. B-29 ASSET SALES The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; PROVIDED that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Exchange Debentures or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any non-cash consideration received by the Company or any such Restricted Subsidiary from such transferee that is converted by the Company or such Restricted Subsidiary into cash within 30 days of closing such Asset Sale, shall be deemed to be cash for purposes of this provision (to the extent of the cash received). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at its option, (a) to permanently reduce Exchange Debenture Senior Debt (and to correspondingly permanently reduce commitments with respect thereto in the case of revolving borrowings), or (b) to an investment in any one or more businesses, capital expenditures or acquisitions of other assets, in each case, used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Exchange Debenture Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Exchange Debenture Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph will (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of the Exchange Debentures and, to the extent required by the terms thereof, to all holders or lenders of Exchange Debenture Pari Passu Debt (an "Asset Sale Offer") to purchase the maximum principal amount of the Exchange Debentures and any such Exchange Debenture Pari Passu Debt to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Exchange Debenture Indenture or the agreements governing the Exchange Debenture Pari Passu Debt, as applicable. To the extent that the aggregate principal amount of the Exchange Debentures and Exchange Debenture Pari Passu Debt tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Exchange Debentures surrendered by Holders thereof and other Exchange Debenture Pari Passu Debt surrendered by holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Exchange Debentures and the trustee or other lender representative for the Exchange Debenture Pari Passu Debt shall select the Exchange Debenture Pari Passu Debt to be purchased on a pro rata basis, based on the aggregate principal amount thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The Credit Facility may prohibit the Company from purchasing any Exchange Debentures from the Net Proceeds of Asset Sales. Any future Credit Agreements or other agreements relating to Exchange Debenture Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event an Asset Sale Offer occurs at a time when the Company is prohibited from purchasing the Exchange Debentures, the Company could seek the consent of its lenders to the purchase B-30 or could attempt to refinance the Exchange Debenture Senior Debt that contains such prohibition. If the Company does not obtain such a consent or repay such Exchange Debenture Senior Debt, the Company may remain prohibited from purchasing the Exchange Debentures. In such case, the Company's failure to purchase tendered Exchange Debentures would constitute an Event of Default under the Exchange Debenture Indenture which would, in turn, constitute a default under the Credit Facility and possibly a default under other agreements relating to Exchange Debenture Senior Debt. In such circumstances, the subordination provisions in the Exchange Debenture Indenture would likely restrict payments to the Holders of the Exchange Debentures. CERTAIN COVENANTS RESTRICTED PAYMENTS The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment to holders of the Company's Equity Interests in connection with any merger or consolidation involving the Company) to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any direct or indirect parent or other Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Exchange Debenture Subordinated Debt, except at final maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Exchange Debenture Indenture (excluding Restricted Payments permitted by clauses (2), (3) and (5) of the next succeeding paragraph), is less than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the Company (or, in the event such Consolidated Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the period beginning on the first day of the Company's fiscal quarter commencing after the Issue Date and ending on the last day of the Company's most recent fiscal quarter for which financial information is available to the Company ending prior to the date of such proposed Restricted Payment, taken as one accounting period, less (B) 1.4 times Consolidated Interest Expense for the same period, PLUS (ii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the date of the Exchange Debenture Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company, other than Disqualified Stock or debt securities that have been converted into Disqualified Stock and other than the Common Stock issued in the Common Stock Offering), PLUS (iii) to the extent that any Restricted Investment that was made after the date of the Exchange Debenture B-31 Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the net proceeds of such sale, liquidation or repayment and (B) the amount of such Restricted Investment, PLUS (iv) $5.0 million. The foregoing provisions will not prohibit (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Exchange Debenture Indenture; (2) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption or repurchase of Exchange Debenture Subordinated Debt with the net cash proceeds from an incurrence of subordinated Permitted Refinancing Debt or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the Exchange Debenture Indenture in connection with the termination of such person's employment for any reason (including by reason of death or disability); PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any twelve-month period; and PROVIDED FURTHER that no Default or Event of Default shall have occurred and be continuing immediately after such transaction; and (5) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or the applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than five days after the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. DESIGNATION OF UNRESTRICTED SUBSIDIARIES The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under clause (c) of the first paragraph of the covenant "Restricted Payments." All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise B-32 become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "Incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage Ratio at the time of the incurrence of such Indebtedness, after giving pro-forma effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1. Notwithstanding the foregoing, the Exchange Debenture Indenture will not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Exchange Debentures; (b) the incurrence by the Company of Indebtedness pursuant to Credit Agreements or the Notes, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Agreements does not, at any one time, exceed $190 million, less the aggregate amount of all proceeds from all Asset Sales that have been applied since the date of the Exchange Debenture Indenture to permanently reduce the outstanding amount of such Indebtedness pursuant to the provisions described under the caption "Repurchase at the Option of Holders--Asset Sales"; (c) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of the Exchange Debenture Indenture; (d) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Exchange Debentures and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (e) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness represented by Capital 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, lease or cost of construction or improvement of property, plant or equipment used in a Permitted Business in an aggregate principal amount not to exceed $15.0 million at any time outstanding; (f) the incurrence by the Company or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Exchange Debenture Indenture to be incurred; (g) the incurrence by the Company or its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating or variable rate Indebtedness or for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, in each case in respect of Indebtedness that is permitted by the terms of the Exchange Debenture Indenture to be outstanding; PROVIDED, HOWEVER, that in the case of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risks with respect to Indebtedness, the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates and in the case of Hedging Obligations incurred for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, such Hedging Obligations do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness incurred solely in respect of performance, surety and similar bonds or completion guarantees, to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money to others; (i) Indebtedness arising out of standby letters of credit covering workers compensation, performance or similar obligations in an aggregate amount not to exceed $500,000 at any time outstanding; (j) any guarantee of the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of the Exchange Debenture Indenture; (k) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at B-33 any time outstanding not to exceed $10.0 million; and (l) the incurrence by the Company of Indebtedness in respect of Exchange Debentures issued as payment in kind interest on Exchange Debentures issued on the exchange of Series A Preferred Stock, to the extent such interest payments are made pursuant to the terms of the Exchange Debenture Indenture. The Exchange Debenture Indenture will provide that the Company will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Company. ASSET SWAPS The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, in one or a series of related transactions, directly or indirectly, engage in any Asset Swaps, unless: (i) at the time of entering into the agreement to swap assets and immediately after giving effect to the proposed Asset Swap, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would, after giving PRO FORMA effect to the proposed Asset Swap, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Leverage Ratio in the covenant "Incurrence of Indebtedness and Issuance of Preferred Stock"; (iii) the respective fair market values of the assets being purchased and sold by the Company or any of its Restricted Subsidiaries (as determined in good faith by the management of the Company or, if such Asset Swap includes consideration in excess of $ million by the Board of Directors of the Company, as evidenced by a Board Resolution) are substantially the same at the time of entering into the agreement to swap assets; and (iv) at the time of the consummation of the proposed Asset Swap, the percentage of any decline in the fair market value (determined as aforesaid) of the asset or assets being acquired by the Company and its Restricted Subsidiaries shall not be significantly greater than the percentage of any decline in the fair market value (determined as aforesaid) of the assets being disposed of by the Company or its Restricted Subsidiaries, calculated from the time the agreement to swap assets was entered into. LIENS The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any of its property or assets, now owned or hereafter acquired. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to the Company or any of the Restricted Subsidiaries of the Company (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed to the Company or any Restricted Subsidiaries of the Company, (ii) make loans or advances to the Company or any Restricted Subsidiaries of the Company or (iii) transfer any of its properties or assets to the Company or any Restricted Subsidiaries of the Company, except for such encumbrances or restrictions existing under or by reason of (a) the Credit Facility as in effect as of the date of the Exchange Debenture Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof or any other Credit Agreements, PROVIDED that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or other Credit Agreements are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date B-34 of the Exchange Debenture Indenture, (b) the Indenture and the Notes; (c) the Exchange Debenture Indenture and the Exchange Debentures, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except, in the case of Indebtedness, to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired, PROVIDED that, such Indebtedness or Disqualified Stock was permitted by the terms of the Exchange Debenture Indenture to be incurred, (f) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (h) Permitted Refinancing Debt, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Exchange Debenture Indenture will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Entity (if the Company is not the continuing obligor under the Exchange Debenture Indenture) assumes all the obligations of the Company under the Exchange Debentures and the Exchange Debenture Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after giving effect to such transaction or series of transactions no Default or Event of Default exists; (iv) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company and its Subsidiaries which becomes the obligation of the Company or any of its Subsidiaries as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving Entity (if the Company is not the continuing obligor under the Exchange Debenture Indenture) is equal to or greater than the Consolidated Net Worth of the Company and its Subsidiaries immediately prior to such transaction or series of transactions; and (v) the Company or the Surviving Entity (if the Company is not the continuing obligor under the Exchange Debenture Indenture) will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." Notwithstanding the restrictions described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. B-35 TRANSACTIONS WITH AFFILIATES The Exchange Debenture Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction or series of Affiliated Transactions complies with clause (i) above and that such Affiliate Transaction or series of Affiliated Transactions has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate Transaction or series of Affiliated Transactions, which resolution shall be conclusive evidence of compliance with this provision, and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, the Company delivers an Officer's Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (i) above and that such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or series of related Affiliate Transactions and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an accounting, appraisal, engineering or investment banking firm of national standing (which resolution and fairness opinion shall be conclusive evidence of compliance with this provision); PROVIDED that the foregoing provisions will not apply to the following: (1) transactions contemplated by any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business, (2) transactions between or among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments and Permitted Investments that are permitted by the provisions of the Indenture described above under the caption "--Restricted Payments," (4) indemnification payments made to officers, directors and employees of the Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or contractual provisions and (5) any agreement as in effect as of the Issue Date or any transaction contemplated thereby. B-36 ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES The Exchange Debenture Indenture will provide that the Company (i) will not, and will not permit any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "--Asset Sales," and (ii) will not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary; provided that the Company may, and may permit any Wholly Owned Subsidiary of the Company to, take any of the actions referred to in (i) and (ii) above so long as immediately after giving effect to such action, no more than 10% of the Consolidated Net Tangible Assets of the Company and its Subsidiaries is owned by other than Wholly Owned Subsidiaries of the Company. BUSINESS ACTIVITIES The Company will not, and will not permit any Restricted Subsidiary to, engage in any material respect in any business other than a Permitted Business. PAYMENTS FOR CONSENT The Exchange Debenture Indenture will provide that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Exchange Debentures for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Exchange Debenture Indenture or the Exchange Debentures unless such consideration is offered to be paid or is paid to all Holders of the Exchange Debentures that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS The Exchange Debenture Indenture will provide that, whether or not required by the rules and regulations of the Commission, so long as any Exchange Debentures are outstanding, the Company will furnish to the Holders of Exchange Debentures (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of such information and report with the Commission for public availability within the time periods set forth in the Commission's rules and regulations (unless the Commission will not accept such a filing). EVENTS OF DEFAULT AND REMEDIES The Exchange Debenture Indenture will provide that each of the following constitutes an Event of Default: (i) a default for 30 days in the payment when due of interest on the Exchange Debentures (whether or not prohibited by the subordination provisions of the Exchange Debenture Indenture); (ii) a default in payment when due of the principal of or premium, if any, on the Exchange Debentures (whether B-37 or not prohibited by the subordination provisions of the Exchange Debenture Indenture); (iii) the failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the caption "Repurchase at the Option of Holders" and "Certain Covenants"; (iv) failure by the Company for 30 days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Exchange Debentures then outstanding to comply with any of its other agreements in the Exchange Debenture Indenture or the Exchange Debentures; (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Exchange Debenture Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of $5.0 million, which judgments remain unpaid or discharged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Exchange Debentures then outstanding may declare the principal of and accrued but unpaid interest on such Exchange Debentures to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Exchange Debentures will become due and payable without further action or notice. Holders of the Exchange Debentures may not enforce the Exchange Debenture Indenture or the Exchange Debentures except as provided in the Exchange Debenture Indenture. Subject to certain limitations, Holders of a majority in principal amount of the Exchange Debentures then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Exchange Debentures notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Exchange Debentures then outstanding by notice to the Trustee may on behalf of the Holders of all of the Exchange Debentures waive any existing Default or Event of Default and its consequences under the Exchange Debenture Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Exchange Debentures. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Exchange Debenture Indenture, and the Company is required, within five business days of becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Exchange Debentures ("Legal Defeasance") except for (i) the rights of Holders of such outstanding Exchange Debentures to receive payments in respect of the principal of, premium, if any, and interest on such Exchange Debentures when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to such Exchange Debentures concerning issuing B-38 temporary Exchange Debentures, registration of such Exchange Debentures, mutilated, destroyed, lost or stolen Exchange Debentures and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Exchange Debenture Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Exchange Debenture Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Exchange Debentures, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Exchange Debentures on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Exchange Debentures are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Exchange Debenture 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 outstanding Exchange Debentures 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; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that the Holders of the outstanding Exchange Debentures 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; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Exchange Debenture Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Exchange Debentures over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Exchange Debentures in accordance with the Exchange Debenture Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish B-39 appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Exchange Debenture Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of the Exchange Debenture to be redeemed. The registered Holder of an Exchange Debenture will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Exchange Debenture Indenture or the Exchange Debentures may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Exchange Debentures then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Exchange Debentures), and any existing default or compliance with any provision of the Exchange Debenture Indenture or the Exchange Debentures may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Exchange Debentures (including consents obtained in connection with a tender offer or exchange offer for the Exchange Debentures). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Exchange Debentures held by a non-consenting Holder): (i) reduce the principal amount of the Exchange Debentures whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Exchange Debenture or alter the provisions with respect to the redemption of the Exchange Debentures (except as provided in the next succeeding sentence), (iii) reduce the rate of or change the time for payment of interest on any Exchange Debenture, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Exchange Debentures (except a rescission of acceleration of the Exchange Debentures by the Holders of at least a majority in principal amount of such Exchange Debentures and a waiver of the payment default that resulted from such acceleration), (v) make any Exchange Debenture payable in money other than that stated in the Exchange Debentures, (vi) make any change in the provisions of the Exchange Debenture Indenture relating to waivers of past Defaults or the rights of Holders of the Exchange Debentures to receive payments of principal of or premium, if any, or interest on the Exchange Debentures or (vii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions described under "Repurchase at the Option of Holders" or the provisions of Article 10 of the Exchange Debenture Indenture (which relate to subordination) will require the consent of the Holders of at least 66 2/3% in principal amount of the Exchange Debentures then outstanding if such amendment would adversely affect the rights of Holders of such Exchange Debentures. However, no amendment may be made to the subordination provisions of the Exchange Debenture Indenture that adversely affects the rights of any holder of Exchange Debenture Senior Debt then outstanding unless the holders of such Exchange Debenture Senior Debt (or any group or representative thereof authorized to give a consent) consents to such change. Notwithstanding the foregoing, without the consent of any Holder of the Exchange Debentures the Company and the Trustee may amend or supplement the Exchange Debenture Indenture or the Exchange Debentures to cure any ambiguity, defect or inconsistency, to provide for uncertificated Exchange Debentures in addition to or in place of certificated Exchange Debentures, to provide for the assumption of the Company's obligations to Holders of the Exchange Debentures in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Exchange Debentures or that does not adversely affect the legal rights under the Exchange Debenture Indenture of any such Holder, to secure the Exchange Debentures or to comply with requirements of the Commission in order to effect or maintain the qualification of the Exchange Debenture Indenture under the Trust Indenture Act. B-40 CONCERNING THE TRUSTEE The Exchange Debenture 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 acquires 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 of the then outstanding Exchange Debentures 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 Exchange Debenture 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 Exchange Debenture Indenture at the request of any Holder of the Exchange Debentures, unless such Holder shall have offered to such Trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The Exchange Debenture Indenture and the Exchange Debentures provide that they will be governed by the laws of the State of New York. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Certificate of Designation and in the Exchange Debenture Indenture. Reference is made to the Certificate of Designation and the Exchange Debenture Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition (but excluding the creation of a Lien) of any assets including, without limitation, by way of a sale and leaseback (PROVIDED that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Exchange Debenture Indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and not by the provisions described above under "-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (including the sale by the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of either clause (i) or (ii), whether B-41 in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (iii) the making of a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments"; (iv) a disposition of cash or Cash Equivalents; (v) a disposition of either obsolete equipment or equipment that is damaged, worn out or otherwise no longer useful in the business; (vi) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (vii) any sale and leaseback of an asset within 90 days after the completion of construction or acquisition of such asset; (viii) any surrender or waiver of contract rights or a settlement, release or surrender of contract, tort or other claims of any kind or a grant of any Lien not prohibited by the Exchange Debenture Indenture; (ix) any transfer of properties or assets that is governed by the provisions of the Exchange Debenture Indenture described under the caption "--Certain Covenants--Asset Swaps"; or (x) a disposition of inventory in the ordinary course of business. "ASSET SWAP" means the execution of a definitive agreement, subject only to regulatory approval 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 assets used or useful in a Permitted Business between the Company or any of its Restricted Subsidiaries and another person or group of affiliated persons; provided that any amendment to or waiver of any closing conditions which individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. "ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having a rating of at least P2 from Moody's Investors Service, Inc. (or its successor) and a rating of at least A2 from Standard & Poor's Ratings Services (or its successor) and B-42 (vi) investments in money market or other mutual funds substantially all of whose assets comprise securities of types described in clauses (ii) through (v) above. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" or group of related "persons" (a "Group") (as such terms are used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) the result of which is that any "person" (as defined above) or Group other than a Principal or a Related Party of a Principal becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 35% of the aggregate voting power of all classes of Capital Stock of the Company having the right to elect directors under ordinary circumstances or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "COMMISSION" means the Securities and Exchange Commission. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the sum of, without duplication, the Consolidated Net Income of such Person for such period plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (ii) Consolidated Interest Expense of such Person for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iii) consolidated depreciation, amortization and other non-cash charges of the Person and its Subsidiaries deducted in computing Consolidated Net Income of such Person for such period plus (iv) cash payments with respect to any non-cash charges previously added back pursuant to clause (iii). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum, without duplication of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to B-43 the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior government approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, and (v) all other extraordinary gains and extraordinary losses shall be excluded. "CONSOLIDATED NET TANGIBLE ASSETS" of a Person means the consolidated total assets of such Person and its consolidated Subsidiaries determined in accordance with GAAP, less the sum of (i) all current liabilities and current liability items, and (ii) all goodwill, trade names, trademarks, patents, organization expense, unamortized debt discount and expense and other similar intangibles properly classified as intangibles in accordance with GAAP. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock (or, in the case of the preferred stock to be issued on the Issue Date in exchange for the NML Preferred Stock, to the extent of cash received by the Company upon the original issuance of the NML Preferred Stock), less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date on which the Exchange Debentures are first issued in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of original issuance of the Exchange Debentures or (ii) was nominated for election or elected to such Board of Directors with the approval of (x) two-thirds of the Continuing Directors who were members of such Board at the time of such nomination or election or (y) two-thirds of those Directors who were previously approved by Continuing Directors. "CREDIT AGREEMENTS" means, with respect to the Company, one or more debt facilities (including, without limitation, the Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payments, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Agreements outstanding on the date on which the Exchange Debentures are first issued and authenticated under the Exchange Debenture Indenture (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness. B-44 "CREDIT FACILITY" means that certain Credit Agreement, dated as of March 2, 1998 by and among the Company, Lehman Brothers Inc., as Arranger, and Lehman Brothers Commercial Paper Inc., as Syndication Agent and Administrative Agent and as a lender, and certain banks, financial institutions and other entities, as lenders, providing for up to $190 million of Indebtedness, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DISQUALIFIED 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 or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is convertible or exchangeable for Indebtedness or Disqualified Stock or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Exchange Debentures mature, PROVIDED HOWEVER, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof (or of any security into which it is convertible or for which it is exchangeable) have the right to require the issuer to repurchase such Capital Stock (or such security into which it is convertible or for which it is exchangeable) upon the occurrence of any of the events constituting an Asset Sale or a Change of Control shall not constitute Disqualified Stock if such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provides that the issuer thereof will not repurchase or redeem any such Capital Stock (or any such security into which it is convertible or for which it is exchangeable) pursuant to such provisions prior to compliance by the Company with the provisions of the Exchange Debenture Indenture described under the caption "Repurchase at the Option of Holders-- Change of Control" or "Repurchase at the Option of Holders--Asset Sales," as the case may be. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE DEBENTURE DESIGNATED SENIOR DEBT" means (i) the Credit Facility, (ii) the Notes and (iii) any other Senior Debt permitted under the Exchange Debenture Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Exchange Debenture Designated Senior Debt." "EXCHANGE DEBENTURE HOLDER" means the Person in whose name an Exchange Debenture is registered. "EXCHANGE DEBENTURE PARI PASSU DEBT" means the Exchange Debentures and any other Indebtedness of the Company that (i) specifically provides that such Indebtedness is to rank PARI PASSU with the Exchange Debentures or is otherwise entitled "Senior Subordinated" Indebtedness and (ii) is not expressly subordinated by its terms in right of payment to any Indebtedness of the Company that is not Exchange Debenture Senior Debt. "EXCHANGE DEBENTURE SENIOR DEBT" means (i) Indebtedness of the Company or any Subsidiary of the Company under or in respect of any Credit Agreement and the Notes, whether for principal, interest (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not the claim for such interest is allowed as a claim in such proceeding), reimbursement obligations, fees, commissions, expenses, indemnities or other amounts, and (ii) any other Indebtedness permitted under the terms of the Exchange Debenture Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Exchange Debentures. Notwithstanding anything to the contrary in the foregoing sentence, Exchange Debenture Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates or (y) any Indebtedness that is incurred in violation of the Exchange Debenture B-45 Indenture (other than Indebtedness under (i) the Credit Facility or (ii) any other Credit Agreement that is incurred on the basis of a representation by the Company to the applicable lenders that it is permitted to incur such Indebtedness under the Exchange Debenture Indenture). "EXCHANGE DEBENTURE SUBORDINATED DEBT" means any Indebtedness of the Company (whether outstanding on the date of the Exchange Debenture Indenture or thereafter Incurred) which is expressly subordinate in right of payment to the Exchange Debentures pursuant to a written agreement. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by the terms of the Exchange Debenture Indenture and (ii) other agreements or arrangements designed to protect such Person against fluctuation in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, or (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof (other than letters of credit securing obligations not constituting Indebtedness that are issued in the ordinary course of business by a Person to the extent not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit) or bankers' acceptances, or (iii) representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable for such property or services, or (iv) representing any Hedging Obligations, in each case if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and extensions of trade credit in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "ISSUE DATE" means the date on which the Series A Preferred Stock was originally issued. B-46 "LEVERAGE RATIO" means 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 Disqualified Stock of the Company and 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 Cash Flow 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 first day of the Four Quarter Period. In addition to the foregoing, for purposes of this definition, Consolidated Cash Flow 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 acquisition (including, without limitation, any 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 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 acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such preferred stock and also including any Consolidated Cash Flow associated with such acquisition) occurred on the first day of the Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company consistent with Article 11 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date on which the Exchange Debentures are first issued. Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated Cash Flow," (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 Hedging Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement with respect to a lease not intended as a security agreement). B-47 "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and after any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or Asset Swap or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "NET PROCEEDS" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding cash amounts placed in escrow, until such amounts are released to the Company), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and expenses, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Credit Agreement) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve established for future liabilities. "NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable (as a guarantor or otherwise); and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PERMITTED BUSINESS" means the broadcasting business or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "PERMITTED INDEBTEDNESS" has the meaning given in the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." "PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment, (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to B-48 this clause (e) that are at the time outstanding without giving effect to subsequent changes in value or increases or decreases attributable to the accounting for the net income of such Investment, not to exceed $15.0 million; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock); (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (A) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (B) as a result of the transfer of title with respect to any secured investment in default as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to such secured Investment; (h) Hedging Obligations permitted under the "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case, incurred in the ordinary course of business; and (j) any guarantees permitted to be made pursuant to the covenant entitled "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." "PERMITTED LIENS" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Exchange Debenture Senior Debt that is outstanding on the date of issuance of the Exchange Debentures and Liens securing Exchange Debenture Senior Debt that is permitted by the terms of the Exchange Debenture Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company and Liens on property or assets of a Subsidiary existing at the time it became a Subsidiary, PROVIDED that such Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property; (iv) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date of the Exchange Debenture Indenture; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) statutory liens of landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like Liens arising in the ordinary course of business; (viii) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (ix) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (e) of the second paragraph of the covenant entitled "--Certain Covenants-- Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (x) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary; (xi) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred or imposed, as applicable, in the ordinary course of business and consistent with industry practices which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or its Subsidiary) or interfere with the ordinary conduct of the business of the Company or such Subsidiary; provided, however, that any such Liens are not incurred in connection with any borrowing of money or any commitment to loan any money or to extend any credit; and (xii) customary Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance and other types of social security legislation. B-49 "PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the Company or any of its Restricted Subsidiaries; PROVIDED that: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is Exchange Debenture Subordinated Debt, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Exchange Debentures on terms at least as favorable taken as a whole to the Holders of the Exchange Debentures as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PRINCIPAL" means Richard W. Weening and Lewis W. Dickey, Jr. "RELATED PARTY" with respect to any Principal means (A) any controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate family member (in the case of an individual) of such principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. "SERIES A PREFERRED STOCK HOLDER" means the Person in whose name a share of Series A Preferred Stock is registered. "SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Exchange Debenture Indenture. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock, entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary B-50 to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt; (c) the Company certifies that such designation complies with the "Limitation on Restricted Payments" covenant; (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Exchange Debenture Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to the first paragraph of the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant on a pro forma basis taking into account such designation. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. B-51 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Preferred Stock Offering, the Company will have outstanding shares of Series A Preferred Stock. Of these shares, the shares of Series A Preferred Stock offered hereby will be freely transferable without restriction (subject to any FCC consent that might be required) or further registration under the Securities Act, except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 may generally only be sold subject to certain restrictions as to timing, manner and volume. In general, under Rule 144 as currently in effect, a shareholder, including an Affiliate, who has beneficially owned his or her restricted securities (as that term is defined in Rule 144) for at least one year from the later of the date such securities were acquired from the Company or (if applicable) the date they were acquired from an Affiliate is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of 1% of the then outstanding shares of Series A Preferred Stock or the average weekly trading volume in the Series A Preferred Stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144, provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted securities were acquired from the Company or (if applicable) the date they were acquired from an Affiliate of the Company, a stockholder who is not an Affiliate of the Company at the time of sale and has not been an Affiliate of the Company for at least three months prior to the sale is entitled to sell the shares immediately without compliance with the foregoing requirements under Rule 144. Prior to the Preferred Stock Offering, there has been no public market for the Series A Preferred Stock. No prediction can be made as to the effect, if any, that market sales of shares of Series A Preferred Stock or the availability of shares for sale will have on the market price of the Series A Preferred Stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of Series A Preferred Stock in the public market could adversely affect the market price of the Series A Preferred Stock and could impair the Company's ability to raise capital through an offering of its equity securities. See "Underwriting." B-52 PRINCIPAL STOCKHOLDERS The following table sets forth as of , 1998 and as adjusted to give effect to the sale of Class A Common Stock offered pursuant to the Stock Offering, certain information regarding beneficial ownership of the Company's Common Stock by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each director, (iii) each of the Named Executive Officers and (iv) all directors and executive officers as a group. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated.
CLASS A COMMON STOCK ------------------------------------------------------------------------------------------- PRIOR TO STOCK AFTER STOCK OFFERINGS OFFERINGS ---------------------------------- SHARES BEING ---------------------------------- NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE - ---------------------------- --------------- ----------------- ------------------- --------------- ----------------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett CLASS B COMMON STOCK(1) ---------------------------------------------------------------------- PRIOR TO STOCK AFTER STOCK OFFERINGS OFFERINGS ---------------------------------- ---------------------------------- NAME NUMBER PERCENTAGE NUMBER PERCENTAGE - ---------------------------- --------------- ----------------- --------------- ----------------- State of Wisconsin Investment Board NationsBanc Capital Corp. Heller Equity Capital Corporation The Northwestern Mutual Life Insurance Company CML Holdings, LLC QUAESTUS Management Corporation DBBC of Georgia, LLC Richard W. Weening Lewis W. Dickey, Jr. William M. Bungeroth Richard J. Bonick, Jr. Robert H. Sheridan, III Ralph B. Everett
- ------------------------ (1) Except upon the occurrence of certain events, holders of Class B Common Stock are not entitled to vote, whereas each share of Class A Common Stock entitles its holder to one vote. Under certain conditions and subject to prior governmental approval, shares of Class B Common Stock are convertible into shares of Class A Common Stock. (2) Less than 1%. B-53 UNDERWRITING Subject to the terms and conditions of an Underwriting Agreement dated , 1998 (the "Underwriting Agreement") among the Company and the Underwriters, the Underwriters named below (collectively, the "Underwriters"), acting through their representatives, Bear, Stearns & Co., Inc. and Lehman Brothers Inc. (the "Representatives") have agreed, severally and not jointly, to purchase from the Company and the Company has agreed to sell to the Underwriters the number of shares of the Series A Preferred Stock set forth opposite their names below.
UNDERWRITERS NUMBER OF SHARES - ----------------------------------------------------------------------------------------------- ----------------- Bear, Stearns & Co. Inc........................................................................ Lehman Brothers Inc............................................................................ ----------------- Total........................................................................................ ----------------- -----------------
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters are severally committed to take and pay for all of the Shares of Series A Preferred Stock if any are taken. The closing of the Stock Offering and the Debt Offering are conditions to the closing of the Preferred Stock Offering. The Company has agreed to indemnify the Underwriters against certain liabilities in connection with the offer and sale of the Series A Preferred Stock, including liabilities under the Securities Act, and to contribute to payments that the Underwriters may be required to make in respect thereof. The Underwriters propose to offer all or part of the Series A Preferred Stock directly to the public at the public offering price set forth on the cover page hereof and all or part to certain dealers at a price which represents concessions not to exceed % of the principal amount of the Series A Preferred Stock. The Underwriters may allow, and any such dealer may reallow, concessions to certain other dealers not to exceed % of the principal amount of the Series A Preferred Stock. After the initial public offering, the public offering price and such concessions may be changed. The Series A Preferred Stock will constitute a new class of securities with no established trading market. The Company does not intend to list the Series A Preferred Stock on any national securities exchange or to seek the admission thereof to trading in the Nasdaq National Market. The Company has been advised by the Representatives that following the completion of the Preferred Stock Offering, the Representatives intend to make a market in the Series A Preferred Stock. However, they are not obligated to do so and any market-making activities with respect to the Series A Preferred Stock may be discontinued at any time without notice. In order to facilitate the Preferred Stock Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Series A Preferred Stock during and after the Preferred Stock Offering. Specifically, the Underwriters may over-allot or otherwise create a short position in the Series A Preferred Stock for their own account by selling more Series A Preferred Stock than have been sold to them by the Company. The Underwriters may elect to cover any such short position by purchasing Series A Preferred Stock in the open market. In addition, the Underwriters may stabilize or maintain the price of the Series A Preferred Stock by bidding for or purchasing shares of the Series A Preferred Stock in the open market and may impose penalty bids, under which selling concessions allowed to syndicate members or other broker-dealers participating in the Preferred Stock Offering are reclaimed B-54 if Series A Preferred Stock previously distributed in the Preferred Stock Offering are repurchased in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price of the Series A Preferred Stock at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the Series A Preferred Stock to the extent that it discourages resales thereof. No representation is made as to the magnitude or effect of any such stabilization or other transactions. Such transactions, if commenced may be discontinued at any time. Lehman Brothers Inc. and Lehman Brothers Commercial Paper Inc., an affiliate of Lehman Brothers Inc., act as Arranger, and Syndication Agent and Administrative Agent, respectively, in connection with the Credit Facility and will receive any repayment by the Company of amounts outstanding under the Credit Facility from the proceeds of the Offerings. Lehman Brothers Inc. and Bear, Stearns & Co. Inc. ("Bear Stearns") will act as representatives of the Underwriters in the concurrent Debt Offering and the concurrent Stock Offering. Each of the Representatives has engaged from time to time and may in the future engage in general financing and banking transactions with the Company or affiliates thereof. The Preferred Stock Offering is being made pursuant to the provisions of Section 2710(c)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc. Bear Stearns has agreed to act as Qualified Independent Underwriter for the Preferred Stock Offering, and as such has assumed responsibilities of conducting due diligence and has reviewed and participated in the preparation of the Registration Statement. The public offering price of the Series A Preferred Stock will not be higher than the price recommended by Bear Stearns. B-55 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain material United States federal income tax consequences generally applicable to purchasers of the Preferred Stock offered hereby. The federal income tax considerations set forth below are based upon currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations ("Treasury Regulations"), judicial authority, and current administrative rulings and pronouncements of the Internal Revenue Service (the "IRS"). There can be no assurance that the IRS will not take a contrary view, and no ruling from the IRS has been, or will be, sought on the issues discussed herein. Legislative, judicial, or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences discussed below. This discussion applies only to a person who is an initial beneficial owner of the Series A Preferred Stock and (i) an individual citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income tax regardless of source, (iv) a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust, or (v) any other person whose income or gain in respect of the Series A Preferred Stock or Exchange Debentures is effectively connected with the conduct of a United States trade or business (or, if applicable, attributable to a permanent establishment situated in the United States (a "Holder"). The summary is not a complete analysis or description of all potential federal tax considerations that may be relevant to, or of the actual tax effect that any of the matters described herein will have on, particular Holders, and does not address foreign, state, local or other tax consequences. This summary does not address the federal income tax consequences to (a) special classes of taxpayers (such as S corporations, mutual funds, insurance companies, financial institutions, small business investment companies, foreign companies, nonresident alien individuals, regulated investment companies, real estate investment trusts, dealers in securities or currencies, broker-dealers and tax-exempt organizations) who are subject to special treatment under the federal income tax laws, (b) Holders that hold the Series A Preferred Stock as part of a position in a "straddle", or as part of a "hedging", "conversion", or other integrated investment transaction for federal income tax purposes, (c) Holders that do not hold the Series A Preferred Stock, and the Exchange Debentures that may be issued in redemption of the Series A Preferred Stock as capital assets within the meaning of section 1221 of the Code or (d) Holders whose functional currency is not the U.S. dollar. Furthermore, estate and gift tax consequences are not discussed herein. The Company does not intend to treat the Series A Preferred Stock, the Notes and the Class A Common Stock, all of which are being offered concurrently, as an investment unit for United States federal income tax purposes. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE PURCHASER OF THE SERIES A PREFERRED STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, HOLDING AND DISPOSITION OF THE SERIES A PREFERRED STOCK OR THE EXCHANGE DEBENTURES. DIVIDENDS ON THE SERIES A PREFERRED STOCK Dividends paid on the Series A Preferred Stock (including dividends paid through the issuance of additional shares of Series A Preferred Stock) will be taxable as ordinary income to the extent of the Company's current or accumulated earnings and profits (as determined for federal income tax purposes). To the extent that the amount of distributions paid on the Series A Preferred Stock exceeds the Company's B-56 current or accumulated earnings and profits, the distributions will be treated as a return of capital, thus reducing the Holder's adjusted tax basis in such Series A Preferred Stock and increasing the amount of gain (or reducing the amount of loss) that may be realized by such Holder upon a sale or exchange of the Series A Preferred Stock. The amount of any distribution which exceeds the Holder's adjusted basis in the Series A Preferred Stock will be taxed as capital gain, and generally will be long-term capital gain if the Holder's holding period for such Series A Preferred Stock exceeds one year. For purposes of the remainder of this discussion, the term "dividend" refers to a distribution paid out of the Company's allocable earnings and profits unless the context indicates otherwise. DIVIDENDS RECEIVED DEDUCTION. Dividends paid to a corporate Holder who owns less than 20 percent of the Company (by vote or value) will be eligible for the 70 percent dividends-received deduction under section 243 of the Code, subject to the limitations contained in sections 246 and 246A of the Code. In general, the dividends-received deduction is available only if the stock in respect of which the dividend is paid is held for at least 46 days during the 90-day period that begins 45 days before the stock becomes ex-dividend with respect to the dividend (91 days during the 180-day period that begins 90 days before the stock becomes ex-dividend with respect to a dividend in the case of a dividend attributable to a period or periods aggregating more than 366 days). Under section 246(c) of the Code, a taxpayer's holding period for these purposes is reduced by periods during which the taxpayer's risk of loss with respect to the stock is considered diminished by reason of the existence of options, contracts to sell and similar transactions. The dividends-received deduction will also not be available if the taxpayer is under an obligation to make related payments with respect to positions in substantially similar or related property. The dividends-received deduction is limited to specified percentages of a corporate Holder's taxable income and may be reduced or eliminated if the corporate Holder has indebtedness "directly attributable" to its investment in the stock. Prospective corporate purchasers of the Series A Preferred Stock should consult their own tax advisors to determine whether these limitations might apply to them. For purposes of computing its alternative minimum tax, dividends eligible for the 70 percent dividends-received deduction are included in a corporate Holder's "adjusted current earnings." If such adjusted current earnings exceed the corporate Holder's alternative minimum taxable income (determined without regard to the adjustments for adjusted current earnings or the alternative tax net operating loss deduction), 75 percent of the excess is added to the Holder's alternative minimum taxable income. EXTRAORDINARY DIVIDENDS. Under section 1059 of the Code, if a corporate Holder receives an "extraordinary dividend" from the Company with respect to the Series A Preferred Stock which it has not held for more than two years on the dividend announcement date, the basis of the Series A Preferred Stock will be reduced (but not below zero) by the non-taxed portion of the dividend. The reduction in basis is treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates. If, because of the limitation on reducing basis below zero, any amount of the non-taxed portion of an extraordinary dividend has not been applied to reduce basis, such amount will be treated as gain from the sale or exchange of the Series A Preferred Stock in the year in which the extraordinary dividend is received. Generally, the non-taxed portion of an extraordinary dividend is the amount excluded from income under section 243 of the Code (relating to the dividends-received deduction). An extraordinary dividend on the Series A Preferred Stock generally would include any dividend that (i) equals or exceeds five percent of the Holder's adjusted tax basis in the Series A Preferred Stock, treating all dividends having ex-dividend dates within an 85-day period as one dividend or (ii) exceeds 20 percent of the Holder's adjusted tax basis in the Series A Preferred Stock, treating all dividends having ex-dividend dates within a 365-day period as one dividend. In determining whether a dividend paid on the Series A Preferred Stock is an extraordinary dividend, a Holder may elect to use the fair market value of such stock rather than its adjusted tax basis for purposes of determining the applicable percentage limitation if the Holder is able to establish to the satisfaction of the IRS the fair market value of the Series A Preferred Stock as of the day before the ex-dividend date. An extraordinary dividend would also include any amount treated as a dividend in the case of a redemption of the Series A Preferred Stock that is either non-pro rata B-57 as to all holders of Company stock or part of a partial liquidation, without regard to the period the Holder held the stock. Corporate Holders should see "Redemption of the Series A Preferred Stock" for a discussion of when a redemption of the Series A Preferred Stock will constitute an extraordinary dividend. Certain "qualified preferred dividends," however, are not considered extraordinary dividends. A qualified preferred dividend is any fixed dividend payable with respect to preferred stock which (i) provides for fixed preferred dividends payable not less frequently than annually and (ii) is not in arrears as to dividends when acquired, provided, however, that the actual rate of return (as determined under section 1059(e)(3) of the Code) on such stock does not exceed 15 percent. If a qualified preferred dividend announced within two years of the date of acquisition of the preferred stock exceeds the five percent (or 20 percent) threshold for extraordinary dividend status described above, (i) section 1059(a) will not apply (and no reduction in basis will be required) if the Holder holds the stock for more than five years and (ii) if the Holder disposes of the stock before it has been held for more than five years, the aggregate reduction in basis under section 1059(a) will not exceed the excess of the qualified preferred dividends paid on such stock during the period held by the Holder over the qualified preferred dividends that would have been paid during such period on the basis of the stated rate of return, as determined under section 1059(e)(3) of the Code. The length of time that a Holder is deemed to have held stock for purposes of section 1059 of the Code is determined under principles similar to those contained in section 246(c) of the Code discussed above. PREFERRED STOCK DISCOUNT The Series A Preferred Stock is subject to mandatory redemption on , 2009 (the "Mandatory Redemption"). In addition, on or after , 2003 and subject to certain restrictions, the Series A Preferred Stock is redeemable at any time at the option of the Company at specified redemption prices (the "Optional Redemption"). See "Preferred Stock--Optional Redemption" and "Mandatory Redemption." Pursuant to section 305(c) of the Code, Holders of Series A Preferred Stock generally may be required to treat a portion of the difference between the Series A Preferred Stock's issue price and its redemption price as constructive distributions of property includible in income on a periodic basis. For purposes of determining whether such constructive distribution treatment applies, the Mandatory Redemption and the Optional Redemption are tested separately. Constructive distribution treatment is required if either (or both) of these tests is satisfied. Section 305(c) of the Code provides that the entire amount of a redemption premium with respect to preferred stock that is subject to mandatory redemption is treated as being distributed to the Holders of such preferred stock on an economic accrual basis. Preferred stock generally is considered to have a redemption premium for this purpose if the price at which it must be redeemed (the "Redemption Price") exceeds its issue price by more than a DE MINIMIS amount. For this purpose, such excess (the "Series A Preferred Stock Discount") will be treated as zero if it is less than 1/4 of 1% of the Redemption Price multiplied by the number of complete years from the date of issuance of the stock until the stock must be redeemed. Series A Preferred Stock Discount is taxable as a constructive distribution to the Holder (treated as a dividend to the extent of the Company's current and accumulated earnings and profits and otherwise subject to the treatment described above for distributions) over the term of the Series A Preferred Stock using a constant interest rate method similar to that employed for accruing original issue discount pursuant to the Code. Series A Preferred Stock Discount will arise due to the Optional Redemption feature only if, based on all of the facts and circumstances as of the date the Series A Preferred Stock is issued, redemption pursuant to the Optional Redemption is more likely than not to occur. Even if redemption were more likely than not to occur, however, constructive distribution treatment would not result if the redemption premium were solely in the nature of a penalty for premature redemption. For this purpose, a penalty for premature redemption is a premium paid as a result of changes in economic or market conditions over which neither the issuer not the Holder has legal or practical control, such as changes in prevailing B-58 dividend rates. The Treasury Regulations provide a safe harbor pursuant to which constructive distribution treatment will not result from an issuer call right if (i) the issuer and the Holder are unrelated, (ii) there are no arrangements that effectively require the issuer to redeem the stock and (iii) exercise of the option to redeem would not reduce the yield of the stock. Although the issue is not free from doubt, the Company believes that the Series A Preferred Stock should not be considered to have been issued with Series A Preferred Stock Discount by reason of the Optional Redemption feature. Any additional shares of Series A Preferred Stock distributed by the Company in lieu of cash dividend payments on the Series A Preferred Stock ("Dividend Shares") received by Holders of the Series A Preferred Stock may bear Series A Preferred Stock Discount depending upon the issue price of such shares (I.E., the fair market value of the Dividend Shares on the date of their issuance). A Holder's initial tax basis in Dividend Shares will equal the fair market value of such Dividend Shares on their date of distribution. Depending on the fair market value of the Series A Preferred Stock on the date of issuance, Holders may be required to include additional Series A Preferred Stock Discount in income based on the difference between (x) the fair market value of such shares on the date of their issuance and (y) the amount payable on redemption of such shares, unless the difference is DE MINIMUS, as described above. If shares of Series A Preferred Stock (including Dividend Shares) bear Series A Preferred Stock Discount, such shares generally will have different tax characteristics from other shares of Series A Preferred Stock (including other Dividend Shares) and might trade separately, which might adversely affect the liquidity of such shares. REDEMPTION OF THE PREFERRED STOCK A redemption of shares of the Series A Preferred Stock for cash or for Exchange Debentures will be a taxable event. A redemption of shares of the Series A Preferred Stock for cash will be treated as a dividend to the extent of the Company's current or accumulated earnings and profits, unless the redemption (i) results in a "complete termination" of the Holder's stock interest in the Company under section 302(b) (3) of the Code, or (ii) is "not essentially equivalent to a dividend" with respect to the Holder under section 302(b)(l) of the Code. In determining whether the redemption is treated as a dividend, the Holder must take into account not only stock he or she actually owns, but also stock constructively owned within the meaning of section 318 of the Code. A distribution to a Holder will be "not essentially equivalent to a dividend" if it results in a "meaningful reduction" in the Holder's stock interest in the company. For these purposes, a redemption of Series A Preferred Stock from a Holder whose actual and constructive ownership of Company Common Stock does not result in such Holder having actual or practical control of the Company should satisfy the "not essentially equivalent to a dividend" test of section 302(b)(l). If the redemption of the Series A Preferred Stock for cash or for Exchange Debentures is not treated as a distribution taxable as a dividend, the redemption would result in capital gain or loss equal to the difference between the amount of cash (or the issue price of the Exchange Debentures (as described under "--Issue Price of Exchange Debentures")) received and the Holder's adjusted tax basis in the Series A Preferred Stock redeemed. This gain or loss would be long-term capital gain or loss. See the discussion under "Disposition of the Series A Preferred Stock," regarding certain rules applicable to such gain or loss. If a redemption of the Series A Preferred Stock is treated as a distribution rather than a sale or exchange, the amount of the distribution will be measured by the amount of cash (or the issue price of the Exchange Debentures) received by a Holder. As described above, the distribution will be taxable as a dividend to the extent of the Company's earnings and profits. The amount of the distribution in excess of the Company's earnings and profits will reduce the Holder's basis in the redeemed Series A Preferred Stock, and, to the extent the amount of the distribution exceeds such basis, will result in capital gain. If a Holder is left with basis in the redeemed Series A Preferred Stock, such basis will be transferred to any remaining stock holdings in the Company. Under section 1059 of the Code, as discussed above, the term extraordinary dividend includes any non-liquidating redemption of stock that is treated as a divided that is (i) non-pro rata as to all holders of B-59 the stock of the Company or (ii) which would not be treated as a dividend if options had not be taken into account, in both cases, irrespective of the holding period. Consequently, to the extent an exchange of the Series A Preferred Stock constitutes a dividend, it will constitute an extraordinary dividend to a corporate Holder. DISPOSITION OF THE PREFERRED STOCK Unless a nonrecognition provision applies, the sale or other disposition of Series A Preferred Stock will be a taxable event for U.S. federal income tax purposes. In such event, in general, a Holder of Series A Preferred Stock will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received and (ii) the Holder's tax basis in the Series A Preferred Stock. A Holder's tax basis in the Series A Preferred Stock will equal the initial tax basis of such stock. A corporate Holder's tax basis may be adjusted by virtue of an extraordinary dividend, as discussed above. Any such gain or loss will generally be capital gain or loss. Recently enacted legislation includes substantial changes to the federal taxation of capital gains recognized by individuals, including a 20% maximum tax rate for certain gains from the sale of capital assets held for more than 18 months. The deduction for capital losses is subject to certain limitations. Prospective investors should consult their tax advisors regarding the treatment of capital gains and losses. INTEREST ON THE EXCHANGE NOTES Except as set forth below, interest on the Exchange Debentures will be taxable to a Holder as ordinary interest income at the time such amounts are accrued or received, in accordance with the Holder's method of accounting for U.S. federal income tax purposes. ORIGINAL ISSUE DISCOUNT. The Exchange Debentures may be issued with original issue discount ("OID") equal to the excess of their "stated redemption price at maturity" over their "issue price" if such excess is greater than a DE MINIMIS amount. Holders of Exchange Debentures will be subject to special tax accounting rules, as described in greater detail below. Holders of Exchange Debentures should be aware that they generally must include OID in gross income for U.S. federal income tax purposes on an annual basis under a constant yield accrual method. As a result, such Holders will include OID in income in advance of the receipt of cash attributable to that income. However, Holders of Exchange Debentures generally will not be required to include separately in income cash payments received on such Exchange Debentures, even if denominated as interest, to the extent such payments do not constitute qualified stated interest (as defined below). The Company will report to Holders of any OID Exchange Debentures on a timely basis the reportable amount of OID and interest income based on its understanding of applicable law. The "stated redemption price at maturity" of a debt instrument is the sum of its principal amount plus all other payments required thereunder, other than payments of "qualified stated interest." For this purpose, "qualified stated interest" means stated interest that is unconditionally payable in cash or in property (other than the debt instruments of the issuer), at least annually at a single fixed rate during the entire term of the debt instrument that appropriately takes into account the length of the intervals between payments). If the Exchange Debentures are issued at a time when the Company has the right to make interest payments with additional Exchange Debentures in lieu of cash, none of the stated interest on such Exchange Debentures will be treated as qualified stated interest. The "issue price" of an Exchange Debenture will be determined as described under "--Issue Price of Exchange Debentures." The amount of OID includible in income by the initial Holder of an Exchange Debenture is the sum of the "daily portions" of OID with respect to the Exchange Debenture for each day during the taxable year or portion of the taxable year in which such Holder held such Exchange Debenture ("accrued OID"). The daily portion is determined by allocating to each day in any "accrual period" a pro rata portion of the OID allocable to that accrual period. The "accrual period" for an Exchange Debenture may be of any B-60 length and may vary in length over the term of the Exchange Debenture, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on the first day or the final day of an accrual period. The amount of OID allocable to any accrual period is an amount equal to the excess, if any, of (a) the product of the Exchange Debenture's adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over (b) the sum of any qualified stated interest allocable to the accrual period. OID allocable to a final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Special rules will apply for calculating OID for an initial short accrual period. The "adjusted issue price" of an Exchange Debenture at the beginning of any accrual period is equal to its issue price increased by the accrued OID for each prior accrual period (determined without regard to the amortization of any bond premium, as described below) and reduced by any payments made on such Exchange Debenture (other than qualified stated interest) on or before the first day of the accrual period. Under these rules, a United States Holder will have to include in income increasingly greater amounts of OID in successive accrual periods. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES OF OWNING EXCHANGE DEBENTURES. ISSUE PRICE OF EXCHANGE DEBENTURES The issue price of an Exchange Debenture would be equal to (i) its fair market value as of the exchange date if the Exchange Debentures are traded on an established securities market on or at any time during a specified period or (ii) the fair market value at the exchange date of the Exchangeable Series A Preferred Stock if such Exchangeable Series A Preferred Stock is traded on an established securities market during a specified period but the Exchange Debentures are not. If neither the Exchangeable Series A Preferred Stock nor the Exchange Debentures are so traded, the issue price of the Exchange Debentures would be determined under Section 1274 of the Code, in which case the issue price would be the stated principal amount of the Exchange Debentures provided that the yield on the Exchange Debentures is equal to or greater than the "applicable federal rate" in effect at the time the Exchange Debentures are issued. If the yield on the Exchange Debentures is less than such applicable federal rate, its issue price under section 1274 of the Code would be equal to the present value as of the issue date of all payments to be made on the Exchange Debentures, discounted at the applicable federal rate. It can not be determined at the present time whether the Series A Preferred Stock or the Exchange Debentures will be, at the relevant time, traded on an established securities market within the meaning of the Regulations or whether the yield on the Exchange Debentures will equal or exceed the applicable federal rate. ELECTION A Holder of Exchange Debentures, subject to certain limitations, may elect to include all interest and discount on the Exchange Debentures in gross income under the constant yield method. For this purpose, interest includes stated and unstated interest, acquisition discount, and OID and DE MINIMIS OID, as adjusted by any amortizable bond premium. AMORTIZABLE BOND PREMIUM If the Series A Preferred Stock is exchanged for Exchange Debentures at a time when the "issue price" of the Exchange Debentures exceeds the amount payable at maturity of the Exchange Debenture, such excess will constitute amortizable bond premium that the Holder may elect to amortize under the constant yield method over the term of the Exchange Debenture. A Holder who elects to amortize bond premium must reduce the tax basis in the Exchange Debenture by the amount of the aggregate amortization allowable for amortizable bond premium. Amortizable bond premium will be treated under the Code as an offset to interest income on the related debt instrument for federal income tax purposes. B-61 DISPOSITION OF THE EXCHANGE DEBENTURES Unless a nonrecognition provision applies, the sale, exchange, redemption (including pursuant to an offer by the Company) or other disposition of an Exchange Debenture, will be a taxable event for U.S. federal income tax purposes. In such event, in general, a Holder of Exchange Debentures will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received (except to the extent attributable to accrued interest on the Exchange Debentures which will be treated as such if not previously included in income) and (ii) the Holders's tax basis in the Exchange Debentures (as increased by any OID previously included in income by the Holder and decreased by any amortizable bond premium, if any, deducted over the term of the Exchange Debentures). Any such gain or loss generally will be long-term capital gain or loss. At the time of sale, exchange, disposition, retirement or redemption, a Holder of the Exchange Debentures must also include in income any previously accrued but unrecognized OID. APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS The Exchange Debentures will be treated as "applicable high yield discount obligations" ("AHYDO"), under section 163(e) of the Code if they have a term of more than five years, have a yield to maturity that equals or exceeds five percentage points over the "applicable federal rate" for the month in which the Exchange Debentures are issued and have "significant" OID. A debt instrument is treated as having "significant" OID if the aggregate amount that would be includible in gross income with respect to such debt instrument for periods before the close of any accrual period ending five years or more after the date of issue exceeds the sum of (i) the aggregate amount of interest to be paid in cash under the debt instrument before the close of such accrual period and (ii) the product of the initial issue price of such debt instrument and its yield to maturity. For purposes of determining whether an Exchange Debenture is an AHYDO, Holders are bound by the issuer's determination of the appropriate accrual period. Under sections 163(e) and 163(i) of the Code, a C corporation that is an issuer of a debt obligation subject to the AHYDO rules may not deduct any portion of OID until such portion is actually paid. In addition, if the Exchange Debentures are AHYDOs and the yield to maturity of the Exchange Debentures exceeds the sum of the AFR plus six percentage points, a portion of the OID under the Exchange Debentures, equal to the product of the total OID under the Exchange Debentures times the ratio of (a) the excess of the yield to maturity over the sum of the AFR plus six percentage points to (b) the yield to maturity, will not be deductible by the issuer and will be treated for some purposes as dividends to the holders of the Exchange Debentures (to the extent that such amounts would have been treated as dividends to the holders of Exchange Debentures if they had been distribution's with respect to the issuer's stock). Amounts treated as dividends will be nondeductible by the issuer, and may qualify for the dividends-received deduction for corporate Holders. Because the amount of OID, if any, attributable to the Exchange Debentures will be determined at such time that the Exchange Debentures are issued and the AFR at such time is not predictable, it is impossible to determine at the present time whether the Exchange Debentures will be treated as AHYDOs. BACKUP WITHHOLDING Under section 3406 of the Code and applicable Treasury Regulations, a noncorporate Holder of the Series A Preferred Stock or the Exchange Debentures may be subject to backup withholding at the rate of 31 percent with respect to "reportable payments," which include interest and dividends paid on or the proceeds of a sale, exchange or redemption of Series A Preferred Stock or the Exchange Debentures, as the case may be. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a Taxpayer identification Number ("TIN") to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a "notified payee B-62 underreporting" described in section 3406(c) of the Code or (iv) there has been a failure of the payee to certify under penalty of perjury that the payee is not subject to withholding under section 3406(a) (l)(C) of the Code. As a result, if any one of the events listed above occurs, the payor will be required to withhold an amount equal to 31 percent from any dividend or interest payment made with respect to the Series A Preferred Stock or the Exchange Debentures or any payment or proceeds of a redemption of the Series A Preferred Stock or the Exchange Debentures to a noncorporate Holder. Amounts paid as backup withholding do not constitute an additional tax and will be credited against the Holder's federal income tax liability, so long as the required information is provided to the IRS. The payor generally will report to the Holders of the Series A Preferred Stock and the Exchange Debentures and to the IRS the amount of any "reportable payments" for each calendar year and the amount of tax withheld, if any, with respect to payment on those securities. B-63 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CUMULUS MEDIA INC. OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES TO ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. -------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. Risk Factors................................... Use of Proceeds................................ Capitalization................................. Unaudited Pro Forma Combined Financial Statements................................... Selected Historical Financial Data............. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... Business....................................... Pending Acquisitions........................... Management..................................... Pending Acquisitions........................... Certain Relationships and Related Transactions................................. Principal Stockholders......................... Description of Capital Stock................... Description of Credit Facility................. Description of Notes........................... Underwriting................................... Certain Federal Income Tax Considerations...... Legal Matters.................................. Experts........................................ Additional Information......................... Index to Financial Statements.................. F-1
Until ____________, 1998, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. $ [LOGO] CUMULUS MEDIA INC. % SERIES A CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK ---------------- PROSPECTUS ---------------- BEAR, STEARNS & CO. INC. LEHMAN BROTHERS , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid in connection with the sale of the Class A Common Stock, the Notes, and the Series A Preferred Stock being registered, all of which will be paid by the Registrant. All amounts are estimates except the registration fee and the NASD filing fee. Registration fee.................................................. $ 102,660 NASD filing fee................................................... 30,500 Nasdaq National Market listing fee................................ * Blue Sky fees and expenses........................................ * Accounting fees and expenses...................................... * Legal fees and expenses........................................... * Transfer agent and registrar fees................................. * Printing and engraving expenses................................... * Miscellaneous expenses * --------- Total........................................................... $ * --------- ---------
- ------------------------ * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The general effect of the provisions in the Company's Articles of Incorporation and Illinois Law is to provide that the Company shall indemnify its directors and officers against all liabilities and expenses actually and reasonably incurred in connection with the defense or settlement of any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) in which they have become involved by reason of their status as corporate directors or officers, if they acted in good faith and in the reasonable belief that their conduct was neither unlawful (in the case of criminal proceedings) nor opposed to the best interests of the Company. With respect to legal proceedings by or in the right of the Company in which a director or officer is adjudged liable for improper performance of his duty to the Company or another enterprise which such person served in a similar capacity at the request of the Company, indemnification is limited by such provisions of that amount which is permitted by the court. The Company will maintain officers' and directors' liability insurance which will insure against liabilities that officers and directors of the Company may incur in such capacities. The company has also entered into indemnification agreements with its directors and officers. The Underwriting Agreements will provide for indemnification of the directors and officers of the Company signing the Registration Statement and certain controlling persons of the Company against certain liabilities, including those arising under the Securities Act in certain instances, of the Underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Upon the initial formation of the Company in April 1997, 1,000 shares of common stock of the Company were issued to Media LLC for nominal consideration. On November 17, 1997, the Company issued 16,250 shares of NML Preferred Stock to NML for $16,250,000. On February 5, 1998, the Company issued an additional 16,250 shares of NML Preferred Stock to NML for $16,250,000. All of the above transactions were exempt from registration pursuant to Section 4(2) of the Securities Act. The transactions did not involve a public offering because of the limited number of offerees, the financial sophistication of such offerees, and the fact that no underwriters or investment bankers participated in such transactions. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1** Form of U.S. Underwriting Agreement between the Registrant and the U.S. Underwriters. 1.2** Form of International Underwriting Agreements between the Registrant and the International Managers 1.3** Form of Underwriting Agreement between the Registrant and the Underwriters ( % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009) 1.4** Form of Underwriting Agreement between the Registrant and the Underwriters ( % Senior Subordinated Notes) 3.1** Articles of Incorporation of the Registrant 3.2** Form of Amended and Restated Articles of Incorporation of the Registrant 3.3** Bylaws of the Registrant 3.4*** Form of Amended and Restated Bylaws of Registrant 3.5** Form of Certificate of Designation with respect to Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009. 4.1*** Form of Class A Common Stock Certificate 4.2*** Form of 12% Class A Cumulative Preferred Stock Certificate 5.1*** Opinion of Paul, Hastings, Janofsky & Walker LLP as to the validity of the Common Stock 10.1** Credit Facility dated March 2, 1998 among the Registrant, Lehman Brothers Inc. and Lehman Commercial Paper Inc. 10.2*** First Amendment, dated , 1998, to the Credit Facility among the Registrant, Lehman Brothers Inc. and Lehman Commercial Paper. 10.3** Form of Indenture dated , 1998, between the Registrant and , as Trustee. 10.4** Form of Exchange Debenture Indenture, dated , 1998, between the Registrant and , as Trustee. 10.5*** Employment Agreement between the Registrant and Richard W. Weening 10.6*** Employment Agreement between the Registrant and Lewis W. Dickey, Jr. 10.7** Employment Agreement between the Registrant and William M. Bungeroth 10.8** Employment Agreement between the Registrant and Richard J. Bonick, Jr. 10.9*** Cumulus Media Inc. 1998 Employee Stock Purchase Plan 10.10* Local Programming and Marketing Agreement dated December 17, 1997 between the Cumulus Broadcasting, Inc. and New Frontier Communications, Inc. 10.11* Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus Broadcasting, Inc. and Westwind Broadcasting, Inc. 10.12* Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting, Inc. and Wiskes/Abaris Communications KQIZ Partnership 10.13* Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting, Inc. and Clearly Superior Radio, L.L.C. 10.14* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Lyle Evans d/b/a Brillion Radio Company 10.15* Program Service and Time Brokerage Agreement dated October 31, 1997 between Cumulus Broadcasting, Inc. and Tallahassee Broadcasting Company 10.16* Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting, Inc. and Savannah Communications, L.P. 10.17* Local Programming and Marketing Agreement dated December 23, 1997, between Cumulus Broadcasting, Inc. and Lewis Broadcasting Corporation 10.18* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Jon A. LeDuc 10.19* Program Services and Time Brokerage Agreement dated February 12, 1998 between Cumulus Broadcasting, Inc. and Pamplico Broadcasting, L.P. 10.20* Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and West Jewell Management, Inc. 10.21* Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and KIKR Inc. 10.22* Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership
II-2 10.23* Asset Purchase Agreement dated January 30, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Pacific Broadcasting of Beaumont, Inc., Beaumont Skyware Inc., and Richard Dames 10.24* Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Sovereign Communications Corporation 10.25* Asset Purchase Agreement dated December 19, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Tryon-Seacoast Communications, Inc., Seacoast Broadcasting, Inc., and Kennebec-Tryon Communications Corp. 10.26* Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and George H. Buck, Jr., d/b/a WHSC Radio 10.27* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Pamplico Broadcasting L.P. 10.28* Asset Purchase Agreement dated October 8, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Connor FM Broadcasting Co., Connor Broadcasting Corp., J. Parker Connor and Susan C. Connor 10.29* Stock Purchase Agreement dated December 17, 1997 among Cumulus Holdings, Inc., Tommy R. Vascocu, Elizabeth L. Young, Michael L. Owens, Alan Owens, Robert Podolsky, Larry Daniels, Sonja Erskine, and Jeffrey D. Erskine 10.30* Stock Purchase Agreement dated February 17, 1998 among Cumulus Holdings, Inc. and John M. Borders, Don L. Turner, Jerry Goos and Kan-D Land, Inc. 10.31* Asset Purchase Agreement dated December 15, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Clearly Superior Radio, L.L.C., 3-D Communications Corporation and Dennis F. Doelitzsch 10.32* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company 10.33* Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Savannah Communications, L.P. 10.34* Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Lewis Broadcasting Corporation 10.35* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Jon A. LeDuc and American Communications Company, Inc. 10.36* Asset Purchase Agreement dated January, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey 10.37* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Big Country Broadcasting, Inc., and Tye Broadcasting, Inc. 10.38* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Arbor Radio, L.P. 10.39* Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcast Acquisitions, Inc. and Cumulus Media, LLC 10.40* Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and M & M Partners 10.41* Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and Philip T. Kelly 10.42* Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and James Maurer 10.43* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown Radio, Inc. 10.44* Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC, Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.45* Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation 10.46* Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Venice Michel and Venice Broadcasting Corporation 10.47* Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Medical College of Georgia Foundation
II-3 10.48* Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus Broadcasting, Inc. and Tally Radio, LLC 10.49* Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.50* Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.51* Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.52* Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund IV Limited Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp. 10.53* WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.54* Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media, LLC 10.55* Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and DLM Communications, Inc. and Cumulus Media, LLC 10.56* Asset Purchase Agreement dated June 24, 1997 among 62nd Street Broadcasting of Toledo, L.L.C., 62nd Street Broadcasting of Toledo License, L.L.C., 62nd Street Broadcasting, L.L.C., Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.57* Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting, Inc., Pacific Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc. 10.58* Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting, Inc. and Sovereign Communications Corporation and Madison Radio Group Inc. 10.59* Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Esprit Communications Corporation. 10.60* Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor Country Broadcasting, Inc. 10.61* Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country Broadcasting, Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc. 10.62* Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Westwind Broadcasting Inc. 10.63* Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and P and T Broadcasting, Inc. 10.64* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Crystal Radio Group, Inc. 10.65* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Ocmulgee Broadcasting Co., Inc. 10.66* Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc. and Phoenix Broadcast Partners, Inc. 10.67* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio Corporation (WVBO-FM/WOSH-FM/WOGB-FM) 10.68* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio Corporation (WUSW-FM/WNAM-AM) 10.69** Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Mustang Broadcasting Company 10.70** Asset Purchase Agreement dated March , 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Robert Brooks d/b/a Brooks Broadcasting Company and K-Country, Inc. 10.71** Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus Broadcasting, Inc., and Cumulus Licensing Corporation 10.72** Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Mountain Wireless, Inc. 10.73** Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Castle Broadcasting Limited Partnership 10.74** Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ Broadcasting, Inc. 10.75** Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Clarendon Country Broadcasting, Co. Inc.
II-4 10.76** Services Agreement dated May 1, 1998 by and between QUAESTUS Management Corporation and Cumulus Media Inc. 12.1* Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements 21.1** Subsidiaries of the Company 23.1** Consent of Price Waterhouse LLP 23.2** Consent of Coopers & Lybrand L.L.P. 23.3** Consent of Coopers & Lybrand L.L.P. 23.4** Consent of Johnson, Miller & Co. 23.5** Consent of McGladrey & Pullen, LLP 23.6** Consent of Plante & Moran, LLP 23.7** Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1) 24.1* Powers of Attorney, included on page II-6 25.1** Statement of Eligibility of the Trustee for the % Senior Subordinated Notes 25.2** Statement of Eligibility of the Trustee for the % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 27.1**** Financial Data Schedule 99.1* Affidavit to dispense with consent of certain directors
- ------------------------ * Previously filed. ** Filed herewith. *** To be filed by amendment. ****All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Financial Statement Schedules ITEM 17. UNDERTAKINGS. (a) The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) 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 against the Registrant 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. (c) The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act (Section 230.424(b)(1) or (4) or Section 230.497(h)) shall be deemed to be part of this Registration Statement as of the time the Commission declared it effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement for the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on May , 1998. CUMULUS MEDIA INC. BY: /S/ RICHARD W. WEENING ----------------------------------------- Richard W. Weening EXECUTIVE CHAIRMAN Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: NAME TITLE DATE - ------------------------------ --------------------------- ------------------- Executive Chairman, /s/ RICHARD W. WEENING Treasurer and Director - ------------------------------ (Principal Executive May , 1998 Richard W. Weening Officer) /s/ RICHARD W. WEENING Executive Vice Chairman and - ------------------------------ Director Richard W. Weening, as May , 1998 Attorney-in-Fact for Lewis W. Dickey, Jr. /s/ RICHARD W. WEENING President and Director - ------------------------------ Richard W. Weening, as May , 1998 Attorney-in-Fact for William M. Bungeroth /s/ RICHARD W. WEENING Vice President and Chief - ------------------------------ Financial Officer Richard W. Weening, as (Principal Accounting May , 1998 Attorney-in-Fact for Richard Officer) J. Bonick, Jr. II-6 EXHIBIT INDEX
PAGE NO. DESCRIPTION NUMBER - --------- --------------------------------------------------------------------------------------------- ------------- 1.1** Form of U.S. Underwriting Agreement between the Registrant and the U.S. Underwriters. 1.2** Form of International Underwriting Agreements between the Registrant and the International Managers 1.3** Form of Underwriting Agreement between the Registrant and the Underwriters ( % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009) 1.4** Form of Underwriting Agreement between the Registrant and the Underwriters ( % Senior Subordinated Notes) 3.1** Articles of Incorporation of the Registrant 3.2** Form of Amended and Restated Articles of Incorporation of the Registrant 3.3** Bylaws of the Registrant 3.4*** Form of Amended and Restated Bylaws of Registrant 3.5** Form of Certificate of Designation with respect to Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009. 4.1*** Form of Class A Common Stock Certificate 4.2*** Form of 12% Class A Cumulative Preferred Stock Certificate 5.1*** Opinion of Paul, Hastings, Janofsky & Walker LLP as to the validity of the Common Stock 10.1** Credit Facility dated March 2, 1998 among the Registrant, Lehman Brothers Inc. and Lehman Commercial Paper Inc. 10.2*** First Amendment, dated , 1998, to the Credit Facility among the Registrant, Lehman Brothers Inc. and Lehman Commercial Paper. 10.3** Form of Indenture dated , 1998, between the Registrant and , as Trustee. 10.4** Form of Exchange Debenture Indenture, dated , 1998, between the Registrant and , as Trustee. 10.5*** Employment Agreement between the Registrant and Richard W. Weening 10.6*** Employment Agreement between the Registrant and Lewis W. Dickey, Jr. 10.7** Employment Agreement between the Registrant and William M. Bungeroth 10.8** Employment Agreement between the Registrant and Richard J. Bonick, Jr. 10.9*** Cumulus Media Inc. 1998 Employee Stock Purchase Plan 10.10* Local Programming and Marketing Agreement dated December 17, 1997 between the Cumulus Broadcasting, Inc. and New Frontier Communications, Inc. 10.11* Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus Broadcasting, Inc. and Westwind Broadcasting, Inc. 10.12* Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting, Inc. and Wiskes/Abaris Communications KQIZ Partnership 10.13* Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting, Inc. and Clearly Superior Radio, L.L.C. 10.14* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Lyle Evans d/b/a Brillion Radio Company 10.15* Program Service and Time Brokerage Agreement dated October 31, 1997 between Cumulus Broadcasting, Inc. and Tallahassee Broadcasting Company 10.16* Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting, Inc. and Savannah Communications, L.P. 10.17* Local Programming and Marketing Agreement dated December 23, 1997, between Cumulus Broadcasting, Inc. and Lewis Broadcasting Corporation 10.18* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Jon A. LeDuc 10.19* Program Services and Time Brokerage Agreement dated February 12, 1998 between Cumulus Broadcasting, Inc. and Pamplico Broadcasting, L.P. 10.20* Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and West Jewell Management, Inc.
PAGE NO. DESCRIPTION NUMBER - --------- --------------------------------------------------------------------------------------------- ------------- 10.21* Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and KIKR Inc. 10.22* Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership 10.23* Asset Purchase Agreement dated January 30, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Pacific Broadcasting of Beaumont, Inc., Beaumont Skyware Inc., and Richard Dames 10.24* Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Sovereign Communications Corporation 10.25* Asset Purchase Agreement dated December 19, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Tryon-Seacoast Communications, Inc., Seacoast Broadcasting, Inc., and Kennebec-Tryon Communications Corp. 10.26* Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and George H. Buck, Jr., d/b/a WHSC Radio 10.27* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, and Pamplico Broadcasting L.P. 10.28* Asset Purchase Agreement dated October 8, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Connor FM Broadcasting Co., Connor Broadcasting Corp., J. Parker Connor and Susan C. Connor 10.29* Stock Purchase Agreement dated December 17, 1997 among Cumulus Holdings, Inc., Tommy R. Vascocu, Elizabeth L. Young, Michael L. Owens, Alan Owens, Robert Podolsky, Larry Daniels, Sonja Erskine, and Jeffrey D. Erskine 10.30* Stock Purchase Agreement dated February 17, 1998 among Cumulus Holdings, Inc. and John M. Borders, Don L. Turner, Jerry Goos and Kan-D Land, Inc. 10.31* Asset Purchase Agreement dated December 15, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Clearly Superior Radio, L.L.C., 3-D Communications Corporation and Dennis F. Doelitzsch 10.32* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company 10.33* Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Savannah Communications, L.P. 10.34* Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Lewis Broadcasting Corporation 10.35* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Jon A. LeDuc and American Communications Company, Inc. 10.36* Asset Purchase Agreement dated January, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey 10.37* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Big Country Broadcasting, Inc., and Tye Broadcasting, Inc. 10.38* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Arbor Radio, L.P. 10.39* Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcast Acquisitions, Inc. and Cumulus Media, LLC 10.40* Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and M & M Partners 10.41* Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and Philip T. Kelly 10.42* Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and James Maurer
PAGE NO. DESCRIPTION NUMBER - --------- --------------------------------------------------------------------------------------------- ------------- 10.43* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown Radio, Inc. 10.44* Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC, Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.45* Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation 10.46* Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Venice Michel and Venice Broadcasting Corporation 10.47* Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Medical College of Georgia Foundation 10.48* Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus Broadcasting, Inc. and Tally Radio, LLC 10.49* Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.50* Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.51* Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.52* Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund IV Limited Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp. 10.53* WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.54* Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media, LLC 10.55* Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and DLM Communications, Inc. and Cumulus Media, LLC 10.56* Asset Purchase Agreement dated June 24, 1997 among 62nd Street Broadcasting of Toledo, L.L.C., 62nd Street Broadcasting of Toledo License, L.L.C., 62nd Street Broadcasting, L.L.C., Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation 10.57* Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting, Inc., Pacific Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc. 10.58* Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting, Inc. and Sovereign Communications Corporation and Madison Radio Group Inc. 10.59* Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Esprit Communications Corporation. 10.60* Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor Country Broadcasting, Inc. 10.61* Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country Broadcasting, Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc. 10.62* Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Westwind Broadcasting Inc. 10.63* Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and P and T Broadcasting, Inc. 10.64* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Crystal Radio Group, Inc. 10.65* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Ocmulgee Broadcasting Co., Inc. 10.66* Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc. and Phoenix Broadcast Partners, Inc. 10.67* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio Corporation (WVBO-FM/WOSH-FM/WOGB-FM)
PAGE NO. DESCRIPTION NUMBER - --------- --------------------------------------------------------------------------------------------- ------------- 10.68* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio Corporation (WUSW-FM/WNAM-AM) 10.69** Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Mustang Broadcasting Company 10.70** Asset Purchase Agreement dated March , 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Robert Brooks d/b/a Brooks Broadcasting Company and K-Country, Inc. 10.71** Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus Broadcasting, Inc., and Cumulus Licensing Corporation 10.72** Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Mountain Wireless, Inc. 10.73** Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Castle Broadcasting Limited Partnership 10.74** Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ Broadcasting, Inc. 10.75** Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing Corporation and Clarendon Country Broadcasting Co., Inc. 10.76** Services Agreement dated May 1, 1998 by and between QUAESTUS Management Corporation and Cumulus Media Inc. 12.1* Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements 21.1** Subsidiaries of the Company 23.1** Consent of Price Waterhouse LLP 23.2** Consent of Coopers & Lybrand L.L.P. 23.3** Consent of Coopers & Lybrand L.L.P. 23.4** Consent of Johnson, Miller & Co. 23.5** Consent of McGladrey & Pullen, LLP 23.6** Consent of Plante & Moran, LLP 23.7** Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1) 24.1* Powers of Attorney, included on page II-6 25.1** Statement of Eligibility of Trustee for % Senior Subordinated Notes 25.2** Statement of Eligibility of Trustee for % Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 27.1** ** Financial Data Schedule 99.1* Affidavit to dispense with consent of certain directors
- ------------------------ * Previously filed. ** Filed herewith. *** To be filed by amendment. ****All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. EX-1.1 2 EXHIBIT 1.1 Exhibit 1.1 STB DRAFT 5/07/98 ________ Shares CUMULUS MEDIA INC. Class A Common Stock U.S. UNDERWRITING AGREEMENT ___, 1998 LEHMAN BROTHERS INC. BEAR, STEARNS & CO. INC. BT ALEX. BROWN INCORPORATED, As Representatives of the several U.S. Underwriters named in Schedule 1, pc/o Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Dear Sirs: Cumulus Media Inc., an Illinois corporation (the "Company"), and the State of Wisconsin Investment Board (the "Selling Stockholder"), propose to sell an aggregate of _______ shares (the "Firm Stock") of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"). Of the ______ shares of the Firm Stock, ________ are being sold by the Company and _______ by the Selling Stockholder. In addition, the Company proposes to grant to the Underwriters named in Schedule 1 hereto (the "U.S. Underwriters") an option to purchase up to an additional _______ shares of the Class A Common Stock on the terms and for the purposes set forth in Section 3 (the "Option Stock"). The Firm Stock and the Option Stock, if purchased, are hereinafter collectively called the "Stock." This is to confirm the agreement concerning the purchase of the Stock from the Company by the U.S. Underwriters and the Selling Stockholder. It is understood by all parties that the Company and the Selling Stockholder are concurrently entering into an agreement dated the date hereof (the "International Underwriting Agreement"), providing for the sale by the Company and the Selling Stockholder of an aggregate of ____________ shares of Class A Common Stock (including the over-allotment option thereunder) (the "International Stock") through arrangements with certain underwriters outside the United States (the "International Managers"), for whom Lehman Brothers International (Europe), Bear Stearns International Limited, BT Alex. Brown International, division of Bankers Trust International PLC and Credit Lyonnais Securities are acting as lead managers. The U.S. Underwriters and the International Managers simultaneously are entering into an agreement between the U.S. and international underwriting syndicates (the "Agreement Between U.S. Underwriters and International Managers") which provides for, among other things, the transfer 2 of shares of Class A Common Stock between the two syndicates. Two forms of prospectus are to be used in connection with the offering and sale of shares of Class A Common Stock contemplated by the foregoing, one relating to the Stock and the other relating to the International Stock. The latter form of prospectus will be identical to the former except for certain substitute pages as included in the registration statement and amendments thereto referred to below. Except as used in Sections 3, 4, 5, 11 and 12 herein, and except as the context may otherwise require, references herein to the Stock shall include all the shares of the Class A Common Stock which may be sold pursuant to either this Agreement or the International Underwriting Agreement, and references herein to any prospectus whether in preliminary or final form, and whether as amended or supplemented, shall include both the U.S. and the international versions thereof. It is additionally understood by all parties that the Company is concurrently entering into an agreement (the "Debt Underwriting Agreement"), dated the date hereof, providing for the sale by the Company of $100,000,000 principal amount of its % Senior Subordinated Notes due 2008 to Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters, as well as an agreement (the "Preferred Stock Underwriting Agreement"), dated the date hereof, providing for the sale by the Company of $100,000,000 aggregate liquidation preference of its __% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 to Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters. 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) A registration statement on Form S-1, and amendments thereto, with respect to the Stock have (i) been prepared by the Company in conformity with the requirements of the United States Securities Act of 1933, as amended, (the "Securities Act") and the rules and regulations (the "Rules and Regulations") of the United States Securities and Exchange Commission (the "Commission") thereunder, (ii) been filed with the Commission under the Securities Act and (iii) become effective under the Securities Act; a second registration statement on Form S-1 with respect to the Stock (i) may also be prepared by the Company in conformity with the requirements of the Securities Act and the Rules and Regulations and (ii) if to be so prepared, will be filed with the Commission under the Securities Act pursuant to Rule 462(b) of the Rules and Regulations on the date hereof. Copies of the first such registration statement and the amendments to such registration statement, together with the form of any such second registration statement, have been delivered by the Company to you as the representatives (the "Representatives") of the U.S. Underwriters. As used in this Agreement, "Effective Time" means (i) with respect to the first such registration statement, the date and the time as of which such registration statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission and (ii) with respect to any second registration statement, the date and time as of which such second registration statement is filed with the Commission, and "Effective Times" is the collective reference to both Effective Times; "Effective Date" means (i) with respect to the first such registration statement, the date of the Effective Time of such registration statement and (ii) 3 with respect to any second registration statement, the date of the Effective Time of such second registration statement, and "Effective Dates" is the collective reference to both Effective Dates; "Preliminary Prospectus" means each prospectus included in any such registration statement, or amendments thereof, before it became effective under the Securities Act and any prospectus filed with the Commission by the Company with the consent of the Representatives pursuant to Rule 424(a) of the Rules and Regulations; "Primary Registration Statement" means the first registration statement referred to in this Section 1(a), as amended at its Effective Time, "Rule 462(b) Registration Statement" means the second registration statement, if any, referred to in this Section 1(a), as filed with the Commission, and "Registration Statements" means both the Primary Registration Statement and any Rule 462(b) Registration Statement, including in each case all information contained in the final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations in accordance with Section 6.(a) hereof and deemed to be a part of the Registration Statements as of the Effective Time of the Primary Registration Statement pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus" means such final prospectus, as first filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. (b) The Primary Registration Statement conforms (and the Rule 462(b) Registration Statement, if any, the Prospectus and any further amendments or supplements to the Registration Statements or the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform) in all respects to the requirements of the Securities Act and the Rules and Regulations and do not and will not, as of the applicable effective date (as to the Registration Statements and any amendment thereto) and as of the applicable filing date (as to the Prospectus and any amendment or supplement thereto) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statements or the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any U.S. Underwriter specifically for inclusion therein. (c) The Company and each of its subsidiaries (as defined in Section 17) have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged; and none of the subsidiaries of the 4 Company is a "significant subsidiary", as such term is defined in Rule 405 of the Rules and Regulations. (d) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. (e) The unissued shares of the Stock to be issued and sold by the Company to the U.S. Underwriters hereunder and under the International Underwriting Agreement have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein and in the International Underwriting Agreement, will be duly and validly issued, fully paid and non-assessable; and the Stock will conform to the description thereof contained in the Prospectus. (f) The execution, delivery and performance of this Agreement and the International Underwriting Agreement will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the United States Securities Exchange Act of 1934, as amended, (the "Exchange Act") and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the U.S. Underwriters and the International Managers, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, or the International Underwriting Agreement, by the Company and the consummation of the transactions contemplated hereby and thereby. (g) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the 5 Company to include such securities in the securities registered pursuant to the Registration Statements or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (h) Except as described in the Prospectus, the Company has not sold or issued any shares of Class A Common Stock during the six-month period preceding the date of the Prospectus, including any sales pursuant to Rule 144A under, or Regulations D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (i) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since such date, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus. (j) The financial statements (including the related notes and supporting schedules) filed as part of the Registration Statements or included in the Prospectus present fairly the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (k) Each of Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP, who have certified certain financial statements of the Company, whose report appears in the Prospectus and who have delivered the initial letter referred to in Section 9.(f) hereof, are independent public accountants as required by the Securities Act and the Rules and Regulations. (l) The Company and each of its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and all real property and buildings held under lease by the Company 6 and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. (m) The Company and each of its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (n) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others. (o) There are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or asset of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, might have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries; and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (p) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to either of the Registration Statements by the Securities Act or by the Rules and Regulations which have not been described in the Prospectus or filed as exhibits to either of the Registration Statements. (q) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company on the other hand, which is required to be described in the Prospectus which is not so described. (r) No labor disturbance by the employees of the Company exists or, to the knowledge of the Company is imminent which might be expected to have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries. (s) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations 7 thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (t) The Company has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries. (u) Since the date as of which information is given in the Prospectus through the date hereof, and except as may otherwise be disclosed in the Prospectus, the Company has not (i) issued or granted any securities, (ii) incurred any liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (v) The Company (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (w) The statistical and market-related data included in the Prospectus are based or derived from sources which the Company and its subsidiaries believe to be reliable and accurate. (x) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition 8 contained in any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) is in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its properties or assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its properties or assets or to the conduct of its business. (y) Each of the radio stations owned, operated, programmed, or to which sales and marketing services are provided, by the Company and its subsidiaries is validly licensed by the Federal Communications Commission (the "FCC") and no administrative or judicial proceedings are pending before or, to the knowledge of the Company or its subsidiaries, threatened by the FCC with respect to such licenses; the Company and its subsidiaries possess adequate certificates, authorizations, consents, orders, approvals, licenses or permits which are in full force and effect issued by other appropriate governmental agencies or bodies necessary to the ownership of their respective properties and the conduct of the businesses now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority, consent, order, approval, license or permit and the Company and its subsidiaries are in compliance in all material respects with the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC. (z) Neither the Company nor any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (aa) There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the properties now or previously owned or leased by the Company or its subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or could not be reasonably likely to have, singularly or in the aggregate with all such violations and remedial actions, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries; there has been no 9 material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and the terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (bb) Neither the Company nor any subsidiary is an "investment company" within the meaning of such term under the United States Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. (cc) The Company has no reason to believe that, after giving effect to the Pending Acquisitions (as defined in the Registration Statement), any of the representations, warranties and agreements contained in this Section 1 would not be true and correct. 2. Representations, Warranties and Agreements of the Selling Stockholder. The Selling Stockholder represents, warrants and agrees that: (a) The Selling Stockholder has, and immediately prior to the First Delivery Date (as defined in Section 5 hereof) the Selling Stockholder will have good and valid title to the shares of Stock to be sold by the Selling Stockholder hereunder and under the International Underwriting Agreement on such date, free and clear of all liens, encumbrances, equities or claims; and upon delivery of such shares and payment therefor pursuant hereto and thereto, good and valid title to such shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters and the International Managers. [(b) The Selling Stockholder has placed in custody under a custody agreement (the "Custody Agreement" and, together with all other similar agreements executed by the other Selling Stockholders, the "Custody Agreements") with [insert name of custodian], as custodian (the "Custodian"), for delivery under this Agreement, certificates in negotiable form (with signature guaranteed by a commercial bank or trust company having an office or correspondent in the United States or a member firm of the New York or American Stock Exchanges) representing the shares of Stock to be sold by the Selling Stockholder hereunder. 10 (c) The Selling Stockholder has duly and irrevocably executed and delivered a power of attorney (the "Power of Attorney" appointing the Custodian and one or more other persons, as attorneys-in-fact, with full power of substitution, and with full authority (exercisable by any one or more of them) to execute and deliver this Agreement and to take such other action as may be necessary or desirable to carry out the provisions hereof on behalf of the Selling Stockholder.] (d) The Selling Stockholder has full right, power and authority to enter into this Agreement and the International Underwriting Agreement, [the Power of Attorney and the Custody Agreement]; the execution, delivery and performance of this Agreement and the International Underwriting Agreement[, the Power of Attorney and the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Selling Stockholder is a party or by which the Selling Stockholder is bound or to which any of the property or assets of the Selling Stockholder is subject, nor will such actions result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Selling Stockholder or the property or assets of the Selling Stockholder; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the Underwriters and the International Managers, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement or the International Underwriting Agreement[, the Power of Attorney or the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby. (e) The Registration Statement and the Prospectus and any further amendments or supplements thereto will, when they become effective or are filed with the Commission, as the case may be, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein. (f) The Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in the stabilization or 11 manipulation of the price of any security of the Company to facilitate the sale or resale of the shares of the Stock. 3. Purchase of the Stock by the U.S. Underwriters. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell _______ shares of the Firm Stock and the Selling Stockholder hereby agrees to sell _____ shares of the Firm Stock to the several U.S. Underwriters and each of the U.S. Underwriters, severally and not jointly, agrees to purchase the number of shares of the Firm Stock set opposite that U.S. Underwriter's name in Schedule 1 hereto. The respective purchase obligations of the U.S. Underwriters with respect to the Firm Stock shall be rounded among the U.S. Underwriters to avoid fractional shares, as the Representatives may determine. In addition, the Company grants to the U.S. Underwriters an option to purchase up to _______ shares of Option Stock. Such option is granted solely for the purpose of covering over-allotments in the sale of Firm Stock and is exercisable as provided in Section 5 hereof. Shares of Option Stock shall be purchased severally for the account of the U.S. Underwriters in proportion to the number of shares of Firm Stock set opposite the name of such U.S. Underwriters in Schedule 1 hereto. The respective purchase obligations of each U.S. Underwriter with respect to the Option Stock shall be adjusted by the Representatives so that no U.S. Underwriter shall be obligated to purchase Option Stock other than in 100 share amounts. The price of both the Firm Stock and any Option Stock shall be $_____ per share. The Company shall not be obligated to deliver any of the Stock to be delivered on the First Delivery Date or the Second Delivery Date (as hereinafter defined), as the case may be, except upon payment for all the Stock to be purchased on such Delivery Date as provided herein. 4. Offering of Stock by the U.S. Underwriters. Upon authorization by the Representatives of the release of the Firm Stock, the several U.S. Underwriters propose to offer the Firm Stock for sale upon the terms and conditions set forth in the Prospectus; provided, however, that no Stock registered pursuant to the Rule 462(b) Registration Statement, if any, shall be offered prior to the Effective Time thereof. 5. Delivery of and Payment for the Stock. Delivery of and payment for the Firm Stock shall be made at the office of Lehman Brothers Inc. at Three World Financial Center, New York, New York 10285, at 10:00 A.M., New York City time, on the [third][fourth] full business day following the date of this Agreement or at such other date or place as shall be determined by agreement between the Representatives and the Company. This date and time are sometimes referred to as the "First Delivery Date." On the First Delivery Date, the Company shall deliver or cause to be delivered certificates representing the Firm Stock to the Representatives for the account of each U.S. Underwriter against payment to or upon the order of the Company of the purchase price by certified or official bank check or checks payable in New York Clearing House 12 (next-day) funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each U.S. Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in such names and in such denominations as the Representatives shall request in writing not less than two full business days prior to the First Delivery Date. For the purpose of expediting the checking and packaging of the certificates for the Firm Stock, the Company shall make the certificates representing the Firm Stock available for inspection by the Representatives in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the First Delivery Date. At any time on or before the thirtieth day after the date of this Agreement the option granted in Section 3 may be exercised by written notice being given to the Company by the Representatives. Such notice shall set forth the aggregate number of shares of Option Stock as to which the option is being exercised, the names in which the shares of Option Stock are to be registered, the denominations in which the shares of Option Stock are to be issued and the date and time, as determined by the Representatives, when the shares of Option Stock are to be delivered; provided, however, that this date and time shall not be earlier than the First Delivery Date nor earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised. The date and time the shares of Option Stock are delivered are sometimes referred to as the "Second Delivery Date" and the First Delivery Date and the Second Delivery Date are sometimes each referred to as a "Delivery Date". Delivery of and payment for the Option Stock shall be made at the place specified in the first sentence of the first paragraph of this Section 5 (or at such other place as shall be determined by agreement between the Representatives and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date. On the Second Delivery Date, the Company shall deliver or cause to be delivered the certificates representing the Option Stock to the Representatives for the account of each U.S. Underwriter against payment to or upon the order of the Company and the Selling Stockholder of the purchase price by certified or official bank check or checks payable in New York Clearing House (next-day) funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each U.S. Underwriter hereunder. Upon delivery, the Option Stock shall be registered in such names and in such denominations as the Representatives shall request in the aforesaid written notice. For the purpose of expediting the checking and packaging of the certificates for the Option Stock, the Company and the Selling Stockholder shall make the certificates representing the Option Stock available for inspection by the Representatives in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the Second Delivery Date. 6. Further Agreements of the Company. The Company agrees: (a) To prepare the Rule 462(b) Registration Statement, if necessary, in a form approved by the Representatives and to file such Rule 462(b) Registration Statement with the Commission on the date hereof; to prepare the Prospectus in a form approved by the Representatives and to file such Prospectus pursuant to Rule 424(b) under the Securities Act not later than 10:00 A.M., New York City 13 time, on the day following the execution and delivery of this Agreement; to make no further amendment or any supplement to the Registration Statements or to the Prospectus prior to the Second Delivery Date except as permitted herein; to advise the Representatives, promptly after it receives notice thereof, of the time when any amendment to either Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Representatives with copies thereof; to advise the Representatives, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the suspension of the qualification of the Stock for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statements or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) To furnish promptly to each of the Representatives and to counsel for the U.S. Underwriters a signed copy of each of the Registration Statements as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith; (c) To deliver promptly to the Representatives in New York City such number of the following documents as the Representatives shall request: (i) conformed copies of the Registration Statements as originally filed with the Commission and each amendment thereto (in each case excluding exhibits other than this Agreement and the computation of per share earnings) and (ii) each Preliminary Prospectus, the Prospectus (not later than 10:00 A.M., New York City time, of the day following the execution and delivery of this Agreement) and any amended or supplemented Prospectus (not later than 10:00 A.M., New York City time, on the day following the date of such amendment or supplement); and, if the delivery of a prospectus is required at any time after the Effective Time of the Primary Registration Statement in connection with the offering or sale of the Stock (or any other securities relating thereto) and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Securities Act, to notify the Representatives and, upon their request, to prepare and furnish without charge to each U.S. Underwriter and to any dealer in securities as many copies as the Representatives may from time to time request of an amended or supplemented Prospectus which will correct such statement or omission or effect such compliance; 14 (d) To file promptly with the Commission any amendment to the Registration Statements or the Prospectus or any supplement to the Prospectus that may, in the judgment of the Company or the Representatives, be required by the Securities Act or requested by the Commission; (e) Prior to filing with the Commission (i) any Preliminary Prospectus, (ii) any amendment to either of the Registration Statements or supplement to the Prospectus or (iii) any Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a copy thereof to the Representatives and counsel for the U.S. Underwriters and obtain the consent of the Representatives to the filing; (f) As soon as practicable after the Effective Date of the Primary Registration Statement, to make generally available to the Company's security holders and to deliver to the Representatives an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158); (g) For a period of five years following the Effective Date of the Primary Registration Statement, to furnish to the Representatives copies of all materials furnished by the Company to its shareholders and all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange or automatic quotation system upon which the Class A Common Stock may be listed or quoted pursuant to requirements of or agreements with such exchange or system or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder; (h) Promptly from time to time to take such action as the Representatives may reasonably request to qualify the Stock for offering and sale under the securities laws of such jurisdictions as the Representatives may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Stock; (i) For a period of 180 days from the date of the Prospectus, not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition or purchase by any person at any time in the future of) any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock (other than the shares of Class A Common Stock and shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans existing on the date hereof or pursuant to currently outstanding options, warrants or rights), or sell or grant options, rights or warrants with respect to any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock (other than the grant of options pursuant to option plans existing on the date 15 hereof), or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Class A Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, in each case without the prior written consent of the Representatives; and to cause each officer, director and stockholder of the Company to furnish to the Representatives, prior to the First Delivery Date, a letter or letters, in form and substance satisfactory to counsel for the U.S. Underwriters, pursuant to which each such person shall agree not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition or purchase by any person at any time in the future of) any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks or ownership of such shares of Class A Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, in each case for a period of 180 days from the date of the Prospectus, without the prior written consent of the Representatives; (j) Prior to filing with the Commission any reports pursuant to Rule 463 of the Rules and Regulations, to furnish a copy thereof to the counsel for the U.S. Underwriters and receive and consider its comments thereon, and to deliver promptly to the Representatives a signed copy of each such report filed by it with the Commission; (k) To apply the net proceeds from the sale of the Stock being sold by the Company as set forth in the Prospectus; (l) To take such steps as shall be necessary to ensure that neither the Company nor any subsidiary shall become an "investment company" within the meaning of such term under the United States Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. 7. Further Agreements of the Selling Stockholder. The Selling Stockholder agrees: (a) For a period of 180 days from the date of the Prospectus, not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designated to, or could be expected to, result in the disposition or purchase by any person at any time in the future of) any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock (other than the Stock), or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Class A Common Stock, whether any such transaction described in clause (1) or (2) 16 above is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, in each case without the prior written consent of the Representatives. (b) That the Stock to be sold by the Selling Stockholder hereunder, [which is represented by the certificates held in custody for the Selling Stockholder], is subject to the interest of the Underwriters, [that the arrangements made by the Selling Stockholder for such custody are to that extent irrevocable,] and that the obligations of the Selling Stockholder hereunder shall not be terminated by any act of the Selling Stockholder, by operation of law or the occurrence of any other event. (c) To deliver to the Representative prior to the First Delivery Date a properly contemplated and executed United States Treasury Department or Form W-9. 8. Expenses. The Company agrees to pay (a) the costs incident to the authorization, issuance, sale and delivery of the Stock and any taxes payable in that connection; (b) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statements and any amendments and exhibits thereto; (c) the costs of distributing the Registration Statements as originally filed and each amendment thereto and any post-effective amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, all as provided in this Agreement; (d) the costs of reproducing and distributing this Agreement and the Agreement Between U.S. Underwriters and International Managers; (e) the costs of distributing the terms of agreement relating to the organization of the domestic underwriting syndicate and selling group to the members thereof by mail, telex or other means of communication; (f) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of sale of the Stock; (g) any applicable listing or other fees; (h) the fees and expenses of qualifying the Stock under the securities laws of the several jurisdictions as provided in Section 6.(h) and of preparing, printing and distributing a Blue Sky Memorandum (including related fees and expenses of counsel to the U.S. Underwriters); and (i) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement; provided that, except as provided in this Section 8 and in Section 13, the U.S. Underwriters shall pay their own costs and expenses, including the costs and expenses of their counsel, any transfer taxes on the Stock which they may sell and the expenses of advertising any offering of the Stock made by the U.S. Underwriters. 9. Conditions of U.S. Underwriters' Obligations. The respective obligations of the U.S. Underwriters hereunder are subject to the accuracy, when made and on each Delivery Date, of the representations and warranties of the Company contained herein, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) The Rule 462(b) Registration Statement, if any, and the Prospectus shall have been timely filed with the Commission in accordance with Section 17 6.(a); no stop order suspending the effectiveness of either of the Registration Statements or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in either of the Registration Statements or the Prospectus or otherwise shall have been complied with. (b) No U.S. Underwriter shall have discovered and disclosed to the Company on or prior to such Delivery Date that either of the Registration Statements or the Prospectus or any amendment or supplement thereto contains any untrue statement of a fact which, in the opinion of Simpson Thacher & Bartlett, counsel for the U.S. Underwriters, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to made the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the International Underwriting Agreement, the Stock, the Registration Statements and the Prospectus, and all other legal matters relating to this Agreement and the International Underwriting Agreements, and the transactions contemplated hereby and thereby shall be satisfactory in all respects to counsel for the U.S. Underwriters, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (d) Paul, Hastings, Janofsky & Walker LLP shall have furnished to the Representatives its written opinion, as counsel to the Company, addressed to the U.S. Underwriters and dated such Delivery Date, in form and substance satisfactory to the Representatives, to the effect that: (i) The Company and each of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification and have all power and authority necessary to own or hold their respective properties and conduct the businesses in which they are engaged; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the shares of Stock being delivered on such Delivery Date) have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are 18 fully paid, non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (iii) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of the Stock pursuant to the Company's charter or by-laws or any agreement or other instrument known to such counsel; (iv) The Company and each of its subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and all real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (v) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or asset of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, might have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vi) The Primary Registration Statement was declared effective under the Securities Act as of the date and time specified in such opinion, the Rule 462(b) Registration Statement, if any, was filed with the Commission on the date specified therein, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) of the Rules and Regulations specified in such opinion on the date specified therein and no stop order suspending the effectiveness of either of the Registration Statements has been issued and, to the knowledge of such counsel, no proceeding for that purpose is pending or threatened by the Commission; (vii) The Registration Statements, as of their respective Effective Dates, and the Prospectus, as of its date, and any further amendments or supplements thereto, as of their respective dates, made by the Company 19 prior to such Delivery Date (other than the financial statements and other financial data contained therein, as to which such counsel need express no opinion) complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; (viii) The statements contained in the Prospectus under the captions "Risk Factors - Governmental Regulation of Broadcast Industry," "Business - Federal Regulation of Radio Broadcasting" and "Certain Federal Income Tax Consequences", insofar as they describe federal statutes, rules and regulations, constitute a fair summary thereof; (ix) To the best of such counsel's knowledge, there are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statements by the Securities Act or by the Rules and Regulations which have not been described or filed as exhibits to the Registration Statements; (x) This Agreement and the International Underwriting Agreement have each been duly authorized, executed and delivered by the Company; (xi) The issue and sale of the shares of Stock being delivered on such Delivery Date by the Company and the compliance by the Company with all of the provisions of this Agreement and the International Underwriting Agreement and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the U.S. Underwriters and the International Managers, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement and the International Underwriting Agreement by the 20 Company and the consummation of the transactions contemplated hereby and thereby; and (xii) To the best of such counsel's knowledge, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statements or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (xiii) Each of the radio stations owned, operated, programmed or marketed by the Company and its subsidiaries is validly licensed by the FCC and no administrative or judicial proceedings are pending before or, to the knowledge of such counsel, threatened by the FCC with respect to such licenses; the Company and its subsidiaries possess adequate certificates, authorizations, consents, orders, approvals, licenses or permits which are in full force and effect issued by other appropriate governmental agencies or bodies necessary to the ownership of their respective properties and the conduct of the businesses now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit. In rendering such opinion, such counsel may (i) state that its opinion is limited to matters governed by the Federal laws of the United States of America, the laws of the State of New York and the Illinois Business Corporation Act and that such counsel is not admitted in the State of Illinois; (ii) rely (to the extent such counsel deems proper and specifies in its opinion), as to matters involving the application of the laws of the State of Illinois upon the opinion of other counsel of good standing, provided that such other counsel is satisfactory to counsel for the U.S. Underwriters and furnishes a copy of its opinion to the Representatives; and (iii) in giving the opinion referred to in Section 9.(d)(iv), state that no examination of record titles for the purpose of such opinion has been made, and that it is relying upon a general review of the titles of the Company and its subsidiaries, upon opinions of local counsel and abstracts, reports and policies of title companies rendered or issued at or subsequent to the time of acquisition of such property by the Company or its subsidiaries, upon opinions of counsel to the lessors of such property and, in respect of matters of fact, upon certificates of officers of the Company or its subsidiaries, provided that such counsel shall state that it believes that both the U.S. Underwriters and it are justified in relying upon such opinions, abstracts, reports, policies and certificates. Such counsel shall also have furnished to the Representatives a written statement, addressed to the U.S. Underwriters and dated such Delivery Date, in form and substance satisfactory to the Representatives, to the effect that (x) such counsel has acted as counsel to the 21 Company in connection with the preparation of the Registration Statements, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that the Registration Statements, as of their respective Effective Dates, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may be qualified by a statement to the effect that such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statements or the Prospectus except for the statements made in the Prospectus under the captions "Description of Capital Stock," "Risk Factors - Governmental Regulation of Broadcasting Industry," "Business - Federal Regulation of Broadcasting Industry" and "Certain Federal Income Tax Consequences", insofar as such statements relate to the Stock and concern legal matters. (e) The counsel for Selling Stockholder shall have furnished to the Representatives its written opinion, as counsel to the Selling Stockholder, addressed to the Underwriters and dated the First Delivery Date, in form and substance satisfactory to the Representatives, to the effect that: (i) The Selling Stockholder has full right, power and authority to enter into this Agreement and the International Underwriting Agreement, [the Power of Attorney and the Custody Agreement,] the execution, delivery and performance of this Agreement and the International Underwriting Agreement [, the Power of Attorney and the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby will not conflict with or result in a breach of violation of any of the terms or provisions of, or constitute a default under, any statute, any indenture, mortgage deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Selling Stockholder is a party or by which the Selling Stockholder is bound or to which any of the property or assets of the Selling Stockholder is subject, nor will such actions result in any violation of any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Selling Stockholder or the property or assets of the Selling Stockholder; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the Underwriters and the International Managers, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is 22 required for the execution, delivery and performance of this Agreement or the International Underwriting Agreement[, the Power of Attorney or the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby; (ii) This Agreement and the International Underwriting Agreement have been duly executed and delivered by or on behalf of the Selling Stockholder; [(iii) A Power of Attorney and a Custody Agreement have been duly authorized, executed and delivered by the Selling Stockholder and constitute valid and binding agreements of the Selling Stockholder;] and (iv) Upon payment for, and delivery of, the shares of Stock to be sold by the Selling Stockholder under this Agreement and the International Underwriting Agreement in accordance with the terms hereof and thereof, the Underwriters and the International Managers will acquire all of the rights of the Selling Stockholder in such Shares free of any adverse claim (within the meaning of the Uniform Commercial Code). In rendering such opinion, such counsel may (i) state that its opinion is limited to matters governed by the Federal laws of the United States of America, the laws of the State of New York and the General Corporation Law of the State of Wisconsin and (ii) rendering the opinion in Section above, rely upon a certificate of the Selling Stockholder in respect of matters of fact as to ownership of, and the absence of adverse claims regarding, the shares of Stock sold by the Selling Stockholder, provided that such counsel shall furnish copies thereof to the Representatives and state that it believes that both the Underwriters and it are justified in relying upon such certificate. Such counsel shall also have furnished to the Representatives a written statement, addressed to the Underwriters and dated the First Delivery Date, in form and substance satisfactory to the Representatives, to the effect that (x) such counsel has acted as counsel to the Selling Stockholder on a regular basis and has acted as counsel to the Selling Stockholder in connection with the preparation of the Registration Statement and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that the Registration Statement, as of the Effective Date contained any untrue statement of a material fact relating to the Selling Stockholder or omitted to state such a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus contains any untrue statement of a material fact relating to the Selling Stockholder or omits to state such a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may be qualified by a statement to the effect that such counsel does not assume any responsibility for 23 the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. (f) With respect to the letter of each of Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP and Plant & Moran, LLP delivered to the Representatives concurrently with the execution of this Agreement (each, an "initial letter"), the Company shall have furnished to the Representatives a letter (each, a "bring-down letter") of such accountants, addressed to the U.S. Underwriters and dated such Delivery Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (g) The Company shall have furnished to the Representatives a certificate, dated such Delivery Date, of its Chairman of the Board, its President or a Vice President and its chief financial officer stating that: (i) The representations, warranties and agreements of the Company in Section 1 are true and correct as of such Delivery Date; the Company has complied with all its agreements contained herein; and the conditions set forth in Section 7(a) have been fulfilled; (ii) (A) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (B) since such date there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; and (iii) They have carefully examined the Registration Statements and the Prospectus and, in their opinion (A) the Registration Statements, as of their respective Effective Dates, and the Prospectus, as of each of the Effective Dates, did not include any untrue statement of a material fact and 24 did not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) since the Effective Date of the Primary Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to either of the Registration Statements or the Prospectus. (h) The Selling Stockholder [(or the Custodian or one or more attorneys in fact on behalf of the Selling Stockholders)] shall have furnished to the Representatives on the First Delivery Date a certificate, dated the First Delivery Date, signed by, or on behalf of, the Selling Stockholder [(or the Custodian or one or more attorneys in fact)] stating that the representations, warranties and agreements of the Selling Stockholder contained herein are true and correct as of the First Delivery Date and that the Selling Stockholder has complied with all agreements contained herein to be performed by the Selling Stockholder at or prior to the First Delivery Date. (i) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Stock being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus. (j) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Company's debt securities or preferred stock by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities or preferred stock. (k) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange or the American Stock Exchange or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or minimum prices shall 25 have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of a majority in interest of the several U.S. Underwriters, impracticable or inadvisable to proceed with the public offering or delivery of the Stock being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus. (l) The Stock has been duly authorized for quotation on the National Association of Securities Dealers Automated Quotation ("Nasdaq") National Market System, subject only to official notice of issuance. (m) The closing under the International Underwriting Agreement shall have occurred concurrently with the closing hereunder on the First Delivery Date. (n) The closing under the Debt Underwriting Agreement shall have occurred concurrently with the closing hereunder on the First Delivery Date. (o) The closing under the Preferred Stock Underwriting Agreement shall have occurred concurrently with the closing hereunder on the First Delivery Date. (p) The Reorganization (as defined in the Registration Statement) shall have been consummated prior to the First Delivery Date. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to counsel for the U.S. Underwriters. 10. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each U.S. Underwriter, its officers and employees and each person, if any, who controls any U.S. Underwriter within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Stock), to which that U.S. Underwriter, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or (B) in any blue sky application or other document prepared 26 or executed by the Company (or based upon any written information furnished by the Company) specifically for the purpose of qualifying any or all of the Stock under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a "Blue Sky Application"), (ii) the omission or alleged omission to state in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or failure to act, or any alleged act or failure to act, by any U.S. Underwriter in connection with, or relating in any manner to, the Stock or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company shall not be liable in the case of any matter covered by this clause (iii) to the extent that it is determined in a final judgement by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such act or failure to act undertaken or omitted to be taken by such U.S. Underwriter through its gross negligence or wilful misconduct), and shall reimburse each U.S. Underwriter and each such officer, employee and controlling person promptly upon demand for any legal or other expenses reasonably incurred by that U.S. Underwriter, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any such amendment or supplement, or in any Blue Sky Application in reliance upon and in conformity with the written information furnished to the Company through the Representatives by or on behalf of any U.S. Underwriter specifically for inclusion therein and described in Section 10.(f). The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any U.S. Underwriter or to any officer, employee or controlling person of that U.S. Underwriter. (b) The Selling Stockholder shall indemnify and hold harmless each Underwriter, its officers and employees and each person, if any, who controls any Underwriter within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any actin in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of stock), to which that Underwriter, officer, employee or controlling person may become subject, under the Securities act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, any material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Underwriter, its officers and employees and each such controlling person for any legal or other expenses reasonably incurred by that Underwriter, its officers, employees or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Selling Stockholder shall not be liable in any such case to 27 the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein. The foregoing indemnity agreement is in addition to any liability which the Selling Stockholder may otherwise have to any Underwriter or any officer, employee or controlling person of that Underwriter. (c) Each U.S. Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged omission to state in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with the written information furnished to the Company through the Representatives by or on behalf of that U.S. Underwriter specifically for inclusion therein and described in Section 10.(f), and shall reimburse the Company and any such director, officer or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any U.S. Underwriter may otherwise have to the Company or any such director, officer or controlling person. (d) Promptly after receipt by an indemnified party under this Section 10 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 10, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 10 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 10. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under 28 this Section 10 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Representatives shall have the right to employ counsel to represent jointly the Representatives and those other U.S. Underwriters and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the U.S. Underwriters against the Company. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment. (e) If the indemnification provided for in this Section 10 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 10.(a) or 10.(b), 10.(c) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Selling Stockholder on the one hand and the U.S. Underwriters on the other from the offering of the Stock or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the U.S. Underwriters on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholder on the one hand and the U.S. Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Stock purchased under this Agreement (before deducting expenses) received by the Company and the Selling Stockholder, on the one hand, and the total underwriting discounts and commissions received by the U.S. Underwriters with respect to the shares of the Stock purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the shares of the Stock under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholder or the U.S. Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the U.S. Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 10.(e) were to be determined by pro rata allocation (even if the U.S. Underwriters were treated as one entity for such purpose) or by 29 any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10.(e) shall be deemed to include, for purposes of this Section 10.(e), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 10.(e), no U.S. Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Stock underwritten by it and distributed to the public was offered to the public exceeds the amount of any damages which such U.S. Underwriter has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The U.S. Underwriters' obligations to contribute as provided in this Section 10.(e) are several in proportion to their respective underwriting obligations and not joint. (f) The U.S. Underwriters severally confirm that the statements with respect to the public offering of the Stock set forth on the cover page of, and under the caption "Underwriting" in, the Prospectus are correct and constitute the only information furnished in writing to the Company by or on behalf of the U.S. Underwriters specifically for inclusion in the Registration Statements and the Prospectus. 11. Defaulting U.S. Underwriters. If, on either Delivery Date, any U.S. Underwriter defaults in the performance of its obligations under this Agreement, the remaining non-defaulting U.S. Underwriters shall be obligated to purchase the Stock which the defaulting U.S. Underwriter agreed but failed to purchase on such Delivery Date in the respective proportions which the number of shares of the Firm Stock set opposite the name of each remaining non-defaulting U.S. Underwriter in Schedule 1 hereto bears to the total number of shares of the Firm Stock set opposite the names of all the remaining non-defaulting U.S. Underwriters in Schedule 1 hereto; provided, however, that the remaining non-defaulting U.S. Underwriters shall not be obligated to purchase any of the Stock on such Delivery Date if the total number of shares of the Stock which the defaulting U.S. Underwriter or U.S. Underwriters agreed but failed to purchase on such date exceeds 9.09% of the total number of shares of the Stock to be purchased on such Delivery Date, and any remaining non-defaulting U.S. Underwriter shall not be obligated to purchase more than 110% of the number of shares of the Stock which it agreed to purchase on such Delivery Date pursuant to the terms of Section 4. If the foregoing maximums are exceeded, the remaining non-defaulting U.S. Underwriters, or those other underwriters satisfactory to the Representatives who so agree, shall have the right, but shall not be obligated, to purchase, in such proportion as may be agreed upon among them, all the Stock to be purchased on such Delivery Date. If the remaining U.S. Underwriters or other underwriters satisfactory to the Representatives do not elect to purchase the shares which the defaulting U.S. Underwriter or U.S. Underwriters agreed but failed to purchase on such Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the obligation of the U.S. Underwriters to purchase, and of the Company to sell, the Option Stock) shall terminate without liability on the part of any non-defaulting U.S. Underwriter or the Company, except that the Company will continue to be liable for the payment of expenses to the 30 extent set forth in Sections 8 and 13. As used in this Agreement, the term "U.S. Underwriter" includes, for all purposes of this Agreement unless the context requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a defaulting U.S. Underwriter agreed but failed to purchase. Nothing contained herein shall relieve a defaulting U.S. Underwriter of any liability it may have to the Company and the Selling Stockholder for damages caused by its default. If other underwriters are obligated or agree to purchase the Stock of a defaulting or withdrawing U.S. Underwriter, either the Representatives or the Company may postpone the First Delivery Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the U.S. Underwriters may be necessary in the Registration Statement, the Prospectus or in any other document or arrangement. 12. Effective Date and Termination. (a) This Agreement shall become effective at 11:00 A.M., New York City time, on the first full business day following the Effective Date, or at such earlier time after the Registration Statement becomes effective as the Representatives shall release the Firm Stock for initial public offering. The Representatives shall notify the Company immediately after they have taken any action which causes this Agreement to become effective. Until this Agreement is effective, it may be terminated by the Company by notice to the Representatives or by the Representatives by notice to the Company. For purposes of this Agreement, the release of the initial public offering of the Stock shall be deemed to have been made when the Representatives release, by telegram or otherwise, firm offers of the Stock to securities dealers or release for publication a newspaper advertisement relating to the Stock, whichever occurs first. (b) The obligations of the Underwriters hereunder may be terminated by the Representatives by notice given to and received by the Company and the Selling Stockholder prior to delivery of and payment for the Firm Stock if, prior to that time, any of the events described in Sections 9.(i), 9.(j) or 9.(k) shall have occurred or if the Underwriters shall decline to purchase the Stock for any reason permitted under this Agreement. 13. Reimbursement of U.S. Underwriters' Expenses. If (a) the Company shall fail to tender the Stock for delivery to the U.S. Underwriters for any reason permitted under this Agreement, or (b) the U.S. Underwriters shall decline to purchase the Stock for any reason permitted under this Agreement (including the termination of this Agreement pursuant to Section 10), the Company shall reimburse the U.S. Underwriters for the fees and expenses of their counsel and for such other out-of-pocket expenses as shall have been incurred by them in connection with this Agreement and the proposed purchase of the Stock, and upon demand the Company and the Selling Stockholder shall pay the full amount thereof to the Representatives. If this Agreement is terminated pursuant to Section 11 by reason of the default of one or more U.S. Underwriters, neither the Company nor the Selling Stockholder shall be obligated to reimburse any defaulting U.S. Underwriter on account of those expenses. 14. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: 31 (a) if to the U.S. Underwriters, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., Three World Financial Center, New York, New York 10285, Attention: Syndicate Department (Fax: 212-528-8822); (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Primary Registration Statement, Attention: Richard Weening (Fax: (414-283-4505); (c) if to the Selling Stockholder, shall be delivered or sent by mail, telex or facsimile transmission to the Selling Stockholder at [____________, Attention: ______ (Fax:_________); provided, however, that any notice to U.S. Underwriter pursuant to Section 10.(d) shall be delivered or sent by mail, telex or facsimile transmission to such U.S. Underwriter at its address set forth in its acceptance telex to the Representatives, which address will be supplied to any other party hereto by the Representatives upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company and the Selling Stockholder shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the U.S. Underwriters by Lehman Brothers Inc. 15. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the U.S. Underwriters, the Company, the Selling Stockholder and their respective personal representative and successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company, and the Selling Stockholder, contained in this Agreement shall also be deemed to be for the benefit of the officers and employees of each U.S. Underwriter and the person or persons, if any, who control each U.S. Underwriter within the meaning of Section 15 of the Securities Act and for the benefit of each International Manager (and controlling persons thereof) who offers or sells any shares of Class A Common Stock in accordance with the terms of the Agreement Between U.S. Underwriters and International Managers and (B) the indemnity agreement of the U.S. Underwriters contained in Section 10.(b), 10.(c) of this Agreement shall be deemed to be for the benefit of directors, officers and employees of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 15, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 16. Survival. The respective indemnities, representations, warranties and agreements of the Company, the Principal Subsidiary, the Selling Stockholder and the U.S. Underwriters contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Stock and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 32 17. Definition of the Terms "Business Day" and "Subsidiary". For purposes of this Agreement, (a) "business day" means any day on which the New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of New York. 19. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 20. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 33 If the foregoing correctly sets forth the agreement between the Company and the U.S. Underwriters, please indicate your acceptance in the space provided for that purpose below. Very truly yours, CUMULUS MEDIA INC. By: -------------------------------- STATE OF WISCONSIN INVESTMENT BOARD Accepted: LEHMAN BROTHERS INC. By: BEAR, STEARNS & CO. INC. -------------------------------- BT ALEX. BROWN INC. For themselves and as Representatives of the several U.S. Underwriters named in Schedule 1 hereto By LEHMAN BROTHERS INC. By: ---------------------------- Authorized Representative 34 SCHEDULE 1 Number of U.S. Underwriters Shares Lehman Brothers Inc.......................................... Bear, Stearns & Co. Inc...................................... BT Alex. Brown Inc........................................... -------- Total................................................... ======== EX-1.2 3 EXHIBIT 1.2 Exhibit 1.2 STB DRAFT 5/08/98 ________ Shares CUMULUS MEDIA INC. Class A Common Stock INTERNATIONAL UNDERWRITING AGREEMENT ___, 1998 LEHMAN BROTHERS INTERNATIONAL (EUROPE) BEAR, STEARNS INTERNATIONAL LIMITED BT ALEX. BROWN INTERNATIONAL, DIVISION OF BANKERS TRUST INTERNATIONAL PLC CREDIT LYONNAIS SECURITIES As Lead Managers of the several International Managers named in Schedule 1, c/o Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Dear Sirs: Cumulus Media Inc., an Illinois corporation (the "Company"), and the State of Wisconsin Investment Board (the "Selling Stockholder"), propose to sell an aggregate of _______ shares (the "Firm Stock") of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"). Of the ______ shares of the Firm Stock, ________ are being sold by the Company and _______ by the Selling Stockholder. In addition, the Company proposes to grant to the International Managers named in Schedule 1 hereto (the "International Managers") an option to purchase up to an additional _______ shares of the Class A Common Stock on the terms and for the purposes set forth in Section 3 (the "Option Stock"). The Firm Stock and the Option Stock, if purchased, are hereinafter collectively called the "Stock." This is to confirm the agreement concerning the purchase of the Stock from the Company and the Selling Stockholder by the International Managers. It is understood by all parties that the Company and the Selling Stockholder are concurrently entering into an agreement dated the date hereof (the "U.S. Underwriting Agreement"), providing for the sale by the Company and the Selling Stockholder of an aggregate of ____________ shares of Class A Common Stock (including the over-allotment option thereunder) (the "U.S. Stock") through arrangements with certain underwriters in the United States and Canada (the "U.S. Underwriters"), for whom Lehman Brothers Inc., Bear Stearns & Co., Inc. and BT Alex. Brown Incorporated are acting as representatives. The U.S. Underwriters and the International Managers simultaneously are entering into an agreement between the U.S. and international underwriting syndicates (the "Agreement Between U.S. Underwriters and 2 International Managers") which provides for, among other things, the transfer of shares of Class A Common Stock between the two syndicates. Two forms of prospectus are to be used in connection with the offering and sale of shares of Class A Common Stock contemplated by the foregoing, one relating to the Stock and the other relating to the U.S. Stock. The latter form of prospectus will be identical to the former except for certain substitute pages as included in the registration statement and amendments thereto referred to below. Except as used in Sections 3, 4, 5, 11 and 12 herein, and except as the context may otherwise require, references herein to the Stock shall include all the shares of the Class A Common Stock which may be sold pursuant to either this Agreement or the U.S. Underwriting Agreement, and references herein to any prospectus whether in preliminary or final form, and whether as amended or supplemented, shall include both the international and the U.S. versions thereof. It is additionally understood by all parties that the Company is concurrently entering into an agreement (the "Debt Underwriting Agreement"), dated the date hereof, providing for the sale by the Company of $100,000,000 principal amount of its % Senior Subordinated Notes due 2008 to Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters, as well as an agreement (the "Preferred Stock Underwriting Agreement"), dated the date hereof, providing for the sale by the Company of $100,000,000 aggregate liquidation preference of its __% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 to Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters. 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) A registration statement on Form S-1, and amendments thereto, with respect to the Stock have (i) been prepared by the Company in conformity with the requirements of the United States Securities Act of 1933, as amended, (the "Securities Act") and the rules and regulations (the "Rules and Regulations") of the United States Securities and Exchange Commission (the "Commission") thereunder, (ii) been filed with the Commission under the Securities Act and (iii) become effective under the Securities Act; a second registration statement on Form S-1 with respect to the Stock (i) may also be prepared by the Company in conformity with the requirements of the Securities Act and the Rules and Regulations and (ii) if to be so prepared, will be filed with the Commission under the Securities Act pursuant to Rule 462(b) of the Rules and Regulations on the date hereof. Copies of the first such registration statement and the amendments to such registration statement, together with the form of any such second registration statement, have been delivered by the Company to you as the Lead Managers of the International Managers (the "Lead Managers"). As used in this Agreement, "Effective Time" means (i) with respect to the first such registration statement, the date and the time as of which such registration statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission and (ii) with respect to any second registration statement, the date and time as of which such second registration statement is filed with the Commission, and "Effective Times" is the collective reference to both Effective Times; "Effective Date" means (i) with respect to the first such registration 3 statement, the date of the Effective Time of such registration statement and (ii) with respect to any second registration statement, the date of the Effective Time of such second registration statement, and "Effective Dates" is the collective reference to both Effective Dates; "Preliminary Prospectus" means each prospectus included in any such registration statement, or amendments thereof, before it became effective under the Securities Act and any prospectus filed with the Commission by the Company with the consent of the Lead Managers pursuant to Rule 424(a) of the Rules and Regulations; "Primary Registration Statement" means the first registration statement referred to in this Section 1(a), as amended at its Effective Time, "Rule 462(b) Registration Statement" means the second registration statement, if any, referred to in this Section 1(a), as filed with the Commission, and "Registration Statements" means both the Primary Registration Statement and any Rule 462(b) Registration Statement, including in each case all information contained in the final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations in accordance with Section 6.(a) hereof and deemed to be a part of the Registration Statements as of the Effective Time of the Primary Registration Statement pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus" means such final prospectus, as first filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. (b) The Primary Registration Statement conforms (and the Rule 462(b) Registration Statement, if any, the Prospectus and any further amendments or supplements to the Registration Statements or the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform) in all respects to the requirements of the Securities Act and the Rules and Regulations and do not and will not, as of the applicable effective date (as to the Registration Statements and any amendment thereto) and as of the applicable filing date (as to the Prospectus and any amendment or supplement thereto) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statements or the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Lead Managers by or on behalf of any International Manager specifically for inclusion therein. (c) The Company and each of its subsidiaries (as defined in Section 17) have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged; and none of the subsidiaries of the 4 Company is a "significant subsidiary", as such term is defined in Rule 405 of the Rules and Regulations. (d) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. (e) The unissued shares of the Stock to be issued and sold by the Company to the International Managers hereunder and under the U.S. Underwriting Agreement have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein and in the U.S. Underwriting Agreement, will be duly and validly issued, fully paid and non-assessable; and the Stock will conform to the description thereof contained in the Prospectus. (f) The execution, delivery and performance of this Agreement and the U.S. Underwriting Agreement will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the United States Securities Exchange Act of 1934, as amended, (the "Exchange Act") and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the International Managers and the U.S. Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, or the U.S. Underwriting Agreement, by the Company and the consummation of the transactions contemplated hereby and thereby. (g) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the 5 Company to include such securities in the securities registered pursuant to the Registration Statements or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (h) Except as described in the Prospectus, the Company has not sold or issued any shares of Class A Common Stock during the six-month period preceding the date of the Prospectus, including any sales pursuant to Rule 144A under, or Regulations D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (i) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since such date, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus. (j) The financial statements (including the related notes and supporting schedules) filed as part of the Registration Statements or included in the Prospectus present fairly the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (k) Each of Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP, who have certified certain financial statements of the Company, whose report appears in the Prospectus and who have delivered the initial letter referred to in Section 9.(f) hereof, are independent public accountants as required by the Securities Act and the Rules and Regulations. (l) The Company and each of its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and all real property and buildings held under lease by the Company 6 and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. (m) The Company and each of its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (n) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others. (o) There are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or asset of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, might have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries; and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (p) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to either of the Registration Statements by the Securities Act or by the Rules and Regulations which have not been described in the Prospectus or filed as exhibits to either of the Registration Statements. (q) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company on the other hand, which is required to be described in the Prospectus which is not so described. (r) No labor disturbance by the employees of the Company exists or, to the knowledge of the Company is imminent which might be expected to have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries. (s) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations 7 thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (t) The Company has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries. (u) Since the date as of which information is given in the Prospectus through the date hereof, and except as may otherwise be disclosed in the Prospectus, the Company has not (i) issued or granted any securities, (ii) incurred any liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (v) The Company (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (w) The statistical and market-related data included in the Prospectus are based or derived from sources which the Company and its subsidiaries believe to be reliable and accurate. (x) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition 8 contained in any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) is in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its properties or assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its properties or assets or to the conduct of its business. (y) Each of the radio stations owned, operated, programmed, or to which sales and marketing services are provided, by the Company and its subsidiaries is validly licensed by the Federal Communications Commission (the "FCC") and no administrative or judicial proceedings are pending before or, to the knowledge of the Company or its subsidiaries, threatened by the FCC with respect to such licenses; the Company and its subsidiaries possess adequate certificates, authorizations, consents, orders, approvals, licenses or permits which are in full force and effect issued by other appropriate governmental agencies or bodies necessary to the ownership of their respective properties and the conduct of the businesses now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority, consent, order, approval, license or permit and the Company and its subsidiaries are in compliance in all material respects with the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC. (z) Neither the Company nor any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (aa) There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the properties now or previously owned or leased by the Company or its subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or could not be reasonably likely to have, singularly or in the aggregate with all such violations and remedial actions, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries; there has been no 9 material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and the terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (bb) Neither the Company nor any subsidiary is an "investment company" within the meaning of such term under the United States Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. (cc) The Company has no reason to believe that, after giving effect to the Pending Acquisitions (as defined in the Registration Statement), any of the representations, warranties and agreements contained in this Section 1 would not be true and correct. 2. Representations, Warranties and Agreements of the Selling Stockholder. The Selling Stockholder represents, warrants and agrees that: (a) The Selling Stockholder has, and immediately prior to the First Delivery Date (as defined in Section 5 hereof) the Selling Stockholder will have good and valid title to the shares of Stock to be sold by the Selling Stockholder hereunder and under the U.S. Underwriting Agreement on such date, free and clear of all liens, encumbrances, equities or claims; and upon delivery of such shares and payment therefor pursuant hereto and thereto, good and valid title to such shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several International Managers and the Underwriters. [(b) The Selling Stockholder has placed in custody under a custody agreement (the "Custody Agreement" and, together with all other similar agreements executed by the other Selling Stockholders, the "Custody Agreements") with [insert name of custodian], as custodian (the "Custodian"), for delivery under this Agreement, certificates in negotiable form (with signature guaranteed by a commercial bank or trust company having an office or correspondent in the United States or a member firm of the New York or American Stock Exchanges) representing the shares of Stock to be sold by the Selling Stockholder hereunder. 10 (c) The Selling Stockholder has duly and irrevocably executed and delivered a power of attorney (the "Power of Attorney" appointing the Custodian and one or more other persons, as attorneys-in-fact, with full power of substitution, and with full authority (exercisable by any one or more of them) to execute and deliver this Agreement and to take such other action as may be necessary or desirable to carry out the provisions hereof on behalf of the Selling Stockholder.] (d) The Selling Stockholder has full right, power and authority to enter into this Agreement and the U.S. Underwriting Agreement, [the Power of Attorney and the Custody Agreement]; the execution, delivery and performance of this Agreement and the U.S. Underwriting Agreement[, the Power of Attorney and the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Selling Stockholder is a party or by which the Selling Stockholder is bound or to which any of the property or assets of the Selling Stockholder is subject, nor will such actions result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Selling Stockholder or the property or assets of the Selling Stockholder; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the International Managers and the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement or the U.S. Underwriting Agreement[, the Power of Attorney or the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby. (e) The Registration Statement and the Prospectus and any further amendments or supplements thereto will, when they become effective or are filed with the Commission, as the case may be, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Lead Managers by or on behalf of any International Manager specifically for inclusion therein. (f) The Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in the stabilization or 11 manipulation of the price of any security of the Company to facilitate the sale or resale of the shares of the Stock. 3. Purchase of the Stock by the International Managers On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell _______ shares of the Firm Stock and the Selling Stockholder hereby agrees to sell _____ shares of the Firm Stock to the several International Managers and each of the International Managers, severally and not jointly, agrees to purchase the number of shares of the Firm Stock set opposite that International Manager's name in Schedule 1 hereto. The respective purchase obligations of the International Managers with respect to the Firm Stock shall be rounded among the International Managers to avoid fractional shares, as the Lead Managers may determine. In addition, the Company grants to the International Managers an option to purchase up to _______ shares of Option Stock. Such option is granted solely for the purpose of covering over-allotments in the sale of Firm Stock and is exercisable as provided in Section 5 hereof. Shares of Option Stock shall be purchased severally for the account of the International Managers in proportion to the number of shares of Firm Stock set opposite the name of such International Managers in Schedule 1 hereto. The respective purchase obligations of each International Managers with respect to the Option Stock shall be adjusted by the Lead Managers so that no International Managers shall be obligated to purchase Option Stock other than in 100 share amounts. The price of both the Firm Stock and any Option Stock shall be $_____ per share. The Company shall not be obligated to deliver any of the Stock to be delivered on the First Delivery Date or the Second Delivery Date (as hereinafter defined), as the case may be, except upon payment for all the Stock to be purchased on such Delivery Date as provided herein. 4. Offering of Stock by the International Managers. Upon authorization by the Lead Managers of the release of the Firm Stock, the several International Managers propose to offer the Firm Stock for sale upon the terms and conditions set forth in the Prospectus; provided, however, that no Stock registered pursuant to the Rule 462(b) Registration Statement, if any, shall be offered prior to the Effective Time thereof. 5. Delivery of and Payment for the Stock. Delivery of and payment for the Firm Stock shall be made at the office of Lehman Brothers Inc. at Three World Financial Center, New York, New York 10285, at 10:00 A.M., New York City time, on the [third][fourth] full business day following the date of this Agreement or at such other date or place as shall be determined by agreement between the Lead Managers and the Company. This date and time are sometimes referred to as the "First Delivery Date." On the First Delivery Date, the Company shall deliver or cause to be delivered certificates representing the Firm Stock to the Lead Managers for the account of each International Manager against payment to or upon the order of the Company of 12 the purchase price by certified or official bank check or checks payable in New York Clearing House (next-day) funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each International Manager hereunder. Upon delivery, the Firm Stock shall be registered in such names and in such denominations as the Lead Managers shall request in writing not less than two full business days prior to the First Delivery Date. For the purpose of expediting the checking and packaging of the certificates for the Firm Stock, the Company shall make the certificates representing the Firm Stock available for inspection by the Lead Managers in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the First Delivery Date. At any time on or before the thirtieth day after the date of this Agreement the option granted in Section 3 may be exercised by written notice being given to the Company by the Lead Managers. Such notice shall set forth the aggregate number of shares of Option Stock as to which the option is being exercised, the names in which the shares of Option Stock are to be registered, the denominations in which the shares of Option Stock are to be issued and the date and time, as determined by the Lead Managers, when the shares of Option Stock are to be delivered; provided, however, that this date and time shall not be earlier than the First Delivery Date nor earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised. The date and time the shares of Option Stock are delivered are sometimes referred to as the "Second Delivery Date" and the First Delivery Date and the Second Delivery Date are sometimes each referred to as a "Delivery Date". Delivery of and payment for the Option Stock shall be made at the place specified in the first sentence of the first paragraph of this Section 5 (or at such other place as shall be determined by agreement between the Lead Managers and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date. On the Second Delivery Date, the Company shall deliver or cause to be delivered the certificates representing the Option Stock to the Lead Managers for the account of each International Manager against payment to or upon the order of the Company and the Selling Stockholder of the purchase price by certified or official bank check or checks payable in New York Clearing House (next-day) funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each International Manager hereunder. Upon delivery, the Option Stock shall be registered in such names and in such denominations as the Lead Managers shall request in the aforesaid written notice. For the purpose of expediting the checking and packaging of the certificates for the Option Stock, the Company and the Selling Stockholder shall make the certificates representing the Option Stock available for inspection by the Lead Managers in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the Second Delivery Date. 6. Further Agreements of the Company. The Company agrees: (a) To prepare the Rule 462(b) Registration Statement, if necessary, in a form approved by the Lead Managers and to file such Rule 462(b) Registration Statement with the Commission on the date hereof; to prepare the Prospectus in a form approved by the Lead Managers and to file such Prospectus pursuant to 13 Rule 424(b) under the Securities Act not later than 10:00 A.M., New York City time, on the day following the execution and delivery of this Agreement; to make no further amendment or any supplement to the Registration Statements or to the Prospectus prior to the Second Delivery Date except as permitted herein; to advise the Lead Managers, promptly after it receives notice thereof, of the time when any amendment to either Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Lead Managers with copies thereof; to advise the Lead Managers, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the suspension of the qualification of the Stock for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statements or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) To furnish promptly to each of the Lead Managers and to counsel for the International Managers a signed copy of each of the Registration Statements as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith; (c) To deliver promptly to the Lead Managers in New York City such number of the following documents as the Lead Managers shall request: conformed copies of the Registration Statements as originally filed with the Commission and each amendment thereto (in each case excluding exhibits other than this Agreement and the computation of per share earnings) and each Preliminary Prospectus, the Prospectus (not later than 10:00 A.M., New York City time, of the day following the execution and delivery of this Agreement) and any amended or supplemented Prospectus (not later than 10:00 A.M., New York City time, on the day following the date of such amendment or supplement); and, if the delivery of a prospectus is required at any time after the Effective Time of the Primary Registration Statement in connection with the offering or sale of the Stock (or any other securities relating thereto) and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Securities Act, to notify the Lead Managers and, upon their request, to prepare and furnish without charge to each International Manager and to any dealer in securities as many copies as the Lead Managers may from time to time request of an amended 14 or supplemented Prospectus which will correct such statement or omission or effect such compliance; (d) To file promptly with the Commission any amendment to the Registration Statements or the Prospectus or any supplement to the Prospectus that may, in the judgment of the Company or the Lead Managers, be required by the Securities Act or requested by the Commission; (e) Prior to filing with the Commission any Preliminary Prospectus, any amendment to either of the Registration Statements or supplement to the Prospectus or any Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a copy thereof to the Lead Managers and counsel for the International Managers and obtain the consent of the Lead Managers to the filing; (f) As soon as practicable after the Effective Date of the Primary Registration Statement, to make generally available to the Company's security holders and to deliver to the Lead Managers an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158); (g) For a period of five years following the Effective Date of the Primary Registration Statement, to furnish to the Lead Managers copies of all materials furnished by the Company to its shareholders and all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange or automatic quotation system upon which the Class A Common Stock may be listed or quoted pursuant to requirements of or agreements with such exchange or system or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder; (h) Promptly from time to time to take such action as the Lead Managers may reasonably request to qualify the Stock for offering and sale under the securities laws of such jurisdictions as the Lead Managers may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Stock; (i) For a period of 180 days from the date of the Prospectus, not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition or purchase by any person at any time in the future of) any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock (other than the shares of Class A Common Stock and shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans existing on the date hereof or pursuant to currently outstanding options, warrants or rights), or sell or 15 grant options, rights or warrants with respect to any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock (other than the grant of options pursuant to option plans existing on the date hereof), or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Class A Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, in each case without the prior written consent of the Lead Managers; and to cause each officer, director and stockholder of the Company to furnish to the Lead Managers, prior to the First Delivery Date, a letter or letters, in form and substance satisfactory to counsel for the International Managers pursuant to which each such person shall agree not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition or purchase by any person at any time in the future of) any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks or ownership of such shares of Class A Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, in each case for a period of 180 days from the date of the Prospectus, without the prior written consent of the Lead Managers; (j) Prior to filing with the Commission any reports pursuant to Rule 463 of the Rules and Regulations, to furnish a copy thereof to the counsel for the International Managers and receive and consider its comments thereon, and to deliver promptly to the Lead Managers a signed copy of each such report filed by it with the Commission; (k) To apply the net proceeds from the sale of the Stock being sold by the Company as set forth in the Prospectus; (l) To take such steps as shall be necessary to ensure that neither the Company nor any subsidiary shall become an "investment company" within the meaning of such term under the United States Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. 7. Further Agreements of the Selling Stockholder. The Selling Stockholder agrees: (a) For a period of 180 days from the date of the Prospectus, not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designated to, or could be expected to, result in the disposition or purchase by any person at any time in the future of) any shares of Class A Common Stock or securities convertible into or exchangeable for Class A Common Stock (other than the Stock), or (2) enter into 16 any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Class A Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, in each case without the prior written consent of the Lead Managers. (b) That the Stock to be sold by the Selling Stockholder hereunder, [which is represented by the certificates held in custody for the Selling Stockholder], is subject to the interest of the International Managers, [that the arrangements made by the Selling Stockholder for such custody are to that extent irrevocable,] and that the obligations of the Selling Stockholder hereunder shall not be terminated by any act of the Selling Stockholder, by operation of law or the occurrence of any other event. (c) To deliver to the Lead Managers prior to the First Delivery Date a properly contemplated and executed United States Treasury Department or Form W-9. (8) Expenses. The Company agrees to pay the costs incident to the authorization, issuance, sale and delivery of the Stock and any taxes payable in that connection; the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statements and any amendments and exhibits thereto; the costs of distributing the Registration Statements as originally filed and each amendment thereto and any post-effective amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, all as provided in this Agreement; the costs of reproducing and distributing this Agreement and the Agreement Between U.S. Underwriters and International Managers; the costs of distributing the terms of agreement relating to the organization of the domestic underwriting syndicate and selling group to the members thereof by mail, telex or other means of communication; the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of sale of the Stock; any applicable listing or other fees; the fees and expenses of qualifying the Stock under the securities laws of the several jurisdictions as provided in Section 6.(h) and of preparing, printing and distributing a Blue Sky Memorandum (including related fees and expenses of counsel to the International Managers); and all other costs and expenses incident to the performance of the obligations of the Company under this Agreement; provided that, except as provided in this Section 8 and in Section 13, the International Managers shall pay their own costs and expenses, including the costs and expenses of their counsel, any transfer taxes on the Stock which they may sell and the expenses of advertising any offering of the Stock made by the International Managers. 9. Conditions of International Managers' Obligations. The respective obligations of the International Managers hereunder are subject to the accuracy, when made and on each Delivery Date, of the representations and warranties of the Company contained herein, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: 17 (a) The Rule 462(b) Registration Statement, if any, and the Prospectus shall have been timely filed with the Commission in accordance with Section 6.(a); no stop order suspending the effectiveness of either of the Registration Statements or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in either of the Registration Statements or the Prospectus or otherwise shall have been complied with. (b) No International Manager shall have discovered and disclosed to the Company on or prior to such Delivery Date that either of the Registration Statements or the Prospectus or any amendment or supplement thereto contains any untrue statement of a fact which, in the opinion of Simpson Thacher & Bartlett, counsel for the International Managers, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to made the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the U.S. Underwriting Agreement, the Stock, the Registration Statements and the Prospectus, and all other legal matters relating to this Agreement and the U.S. Underwriting Agreements, and the transactions contemplated hereby and thereby shall be satisfactory in all respects to counsel for the International Managers, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (d) Paul, Hastings, Janofsky & Walker LLP shall have furnished to the Lead Managers its written opinion, as counsel to the Company, addressed to the International Managers and dated such Delivery Date, in form and substance satisfactory to the Lead Managers, to the effect that: (i) The Company and each of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification and have all power and authority necessary to own or hold their respective properties and conduct the businesses in which they are engaged; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the shares of Stock being delivered on such Delivery Date) have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the 18 Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid, non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (iii) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of the Stock pursuant to the Company's charter or by-laws or any agreement or other instrument known to such counsel; (iv) The Company and each of its subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and all real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (v) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or asset of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, might have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vi) The Primary Registration Statement was declared effective under the Securities Act as of the date and time specified in such opinion, the Rule 462(b) Registration Statement, if any, was filed with the Commission on the date specified therein, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) of the Rules and Regulations specified in such opinion on the date specified therein and no stop order suspending the effectiveness of either of the Registration Statements has been issued and, to the knowledge of such counsel, no proceeding for that purpose is pending or threatened by the Commission; 19 (vii) The Registration Statements, as of their respective Effective Dates, and the Prospectus, as of its date, and any further amendments or supplements thereto, as of their respective dates, made by the Company prior to such Delivery Date (other than the financial statements and other financial data contained therein, as to which such counsel need express no opinion) complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; (viii) The statements contained in the Prospectus under the captions "Risk Factors Governmental Regulation of Broadcast Industry," "Business Federal Regulation of Radio Broadcasting" and "Certain Federal Income Tax Consequences", insofar as they describe federal statutes, rules and regulations, constitute a fair summary thereof; (ix) To the best of such counsel's knowledge, there are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statements by the Securities Act or by the Rules and Regulations which have not been described or filed as exhibits to the Registration Statements; (x) This Agreement and the U.S. Underwriting Agreement have each been duly authorized, executed and delivered by the Company; (xi) The issue and sale of the shares of Stock being delivered on such Delivery Date by the Company and the compliance by the Company with all of the provisions of this Agreement and the U.S. Underwriting Agreement and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the International Managers and the U.S. Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement and the U.S. 20 Underwriting Agreement by the Company and the consummation of the transactions contemplated hereby and thereby; and (xii) To the best of such counsel's knowledge, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statements or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (xiii) Each of the radio stations owned, operated, programmed or marketed by the Company and its subsidiaries is validly licensed by the FCC and no administrative or judicial proceedings are pending before or, to the knowledge of such counsel, threatened by the FCC with respect to such licenses; the Company and its subsidiaries possess adequate certificates, authorizations, consents, orders, approvals, licenses or permits which are in full force and effect issued by other appropriate governmental agencies or bodies necessary to the ownership of their respective properties and the conduct of the businesses now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit. In rendering such opinion, such counsel may (i) state that its opinion is limited to matters governed by the Federal laws of the United States of America, the laws of the State of New York and the Illinois Business Corporation Act and that such counsel is not admitted in the State of Illinois; (ii) rely (to the extent such counsel deems proper and specifies in its opinion), as to matters involving the application of the laws of the State of Illinois upon the opinion of other counsel of good standing, provided that such other counsel is satisfactory to counsel for the International Managers and furnishes a copy of its opinion to the Lead Managers; and (iii) in giving the opinion referred to in Section 9.(d)(iv), state that no examination of record titles for the purpose of such opinion has been made, and that it is relying upon a general review of the titles of the Company and its subsidiaries, upon opinions of local counsel and abstracts, reports and policies of title companies rendered or issued at or subsequent to the time of acquisition of such property by the Company or its subsidiaries, upon opinions of counsel to the lessors of such property and, in respect of matters of fact, upon certificates of officers of the Company or its subsidiaries, provided that such counsel shall state that it believes that both the International Managers and it are justified in relying upon such opinions, abstracts, reports, policies and certificates. Such counsel shall also have furnished to the Lead Managers a written statement, addressed to the International Managers and dated such Delivery Date, in form and substance satisfactory to the Lead Managers, to the effect that (x) such counsel has acted as 21 counsel to the Company in connection with the preparation of the Registration Statements, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that the Registration Statements, as of their respective Effective Dates, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may be qualified by a statement to the effect that such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statements or the Prospectus except for the statements made in the Prospectus under the captions "Description of Capital Stock," "Risk Factors - Governmental Regulation of Broadcasting Industry," "Business - Federal Regulation of Broadcasting Industry" and "Certain Federal Income Tax Consequences", insofar as such statements relate to the Stock and concern legal matters. (e) The counsel for Selling Stockholder shall have furnished to the Lead Managers its written opinion, as counsel to the Selling Stockholder, addressed to the International Managers and dated the First Delivery Date, in form and substance satisfactory to the Lead Managers, to the effect that: (i) The Selling Stockholder has full right, power and authority to enter into this Agreement and the U.S. Underwriting Agreement, [the Power of Attorney and the Custody Agreement,] the execution, delivery and performance of this Agreement and the U.S. Underwriting Agreement [, the Power of Attorney and the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby will not conflict with or result in a breach of violation of any of the terms or provisions of, or constitute a default under, any statute, any indenture, mortgage deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Selling Stockholder is a party or by which the Selling Stockholder is bound or to which any of the property or assets of the Selling Stockholder is subject, nor will such actions result in any violation of any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Selling Stockholder or the property or assets of the Selling Stockholder; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Stock by the International Managers and the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, 22 delivery and performance of this Agreement or the U.S. Underwriting Agreement[, the Power of Attorney or the Custody Agreement] by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby; (ii) This Agreement and the U.S. Underwriting Agreement have been duly executed and delivered by or on behalf of the Selling Stockholder; [(iii) A Power of Attorney and a Custody Agreement have been duly authorized, executed and delivered by the Selling Stockholder and constitute valid and binding agreements of the Selling Stockholder;] and (iv) Upon payment for, and delivery of, the shares of Stock to be sold by the Selling Stockholder under this Agreement and the U.S. Underwriting Agreement in accordance with the terms hereof and thereof, the International Managers and the Underwriters will acquire all of the rights of the Selling Stockholder in such Shares free of any adverse claim (within the meaning of the Uniform Commercial Code). In rendering such opinion, such counsel may (i) state that its opinion is limited to matters governed by the Federal laws of the United States of America, the laws of the State of New York and the General Corporation Law of the State of Wisconsin and (ii) rendering the opinion in Section above, rely upon a certificate of the Selling Stockholder in respect of matters of fact as to ownership of, and the absence of adverse claims regarding, the shares of Stock sold by the Selling Stockholder, provided that such counsel shall furnish copies thereof to the Lead Managers and state that it believes that both the International Managers and it are justified in relying upon such certificate. Such counsel shall also have furnished to the Lead Managers a written statement, addressed to the International Managers and dated the First Delivery Date, in form and substance satisfactory to the Lead Managers, to the effect that (x) such counsel has acted as counsel to the Selling Stockholder on a regular basis and has acted as counsel to the Selling Stockholder in connection with the preparation of the Registration Statement and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that the Registration Statement, as of the Effective Date contained any untrue statement of a material fact relating to the Selling Stockholder or omitted to state such a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus contains any untrue statement of a material fact relating to the Selling Stockholder or omits to state such a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may be qualified by a statement to the effect that such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. 23 (f) With respect to the letter of each of Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP and Plant & Moran, LLP delivered to the Lead Managers concurrently with the execution of this Agreement (each, an "initial letter"), the Company shall have furnished to the Lead Managers a letter (each, a "bring-down letter") of such accountants, addressed to the International Managers and dated such Delivery Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (g) The Company shall have furnished to the Lead Managers a certificate, dated such Delivery Date, of its Chairman of the Board, its President or a Vice President and its chief financial officer stating that: (i) The representations, warranties and agreements of the Company in Section 1 are true and correct as of such Delivery Date; the Company has complied with all its agreements contained herein; and the conditions set forth in Section 7(a) have been fulfilled; (ii) (A) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (B) since such date there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus; and (iii) They have carefully examined the Registration Statements and the Prospectus and, in their opinion (A) the Registration Statements, as of their respective Effective Dates, and the Prospectus, as of each of the Effective Dates, did not include any untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) since the Effective Date of the Primary Registration Statement, no event has 24 occurred which should have been set forth in a supplement or amendment to either of the Registration Statements or the Prospectus. (h) The Selling Stockholder [(or the Custodian or one or more attorneys in fact on behalf of the Selling Stockholders)] shall have furnished to the Lead Managers on the First Delivery Date a certificate, dated the First Delivery Date, signed by, or on behalf of, the Selling Stockholder [(or the Custodian or one or more attorneys in fact)] stating that the representations, warranties and agreements of the Selling Stockholder contained herein are true and correct as of the First Delivery Date and that the Selling Stockholder has complied with all agreements contained herein to be performed by the Selling Stockholder at or prior to the First Delivery Date. (i) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or since such date there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Lead Managers, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Stock being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus. (j) Subsequent to the execution and delivery of this Agreement no downgrading shall have occurred in the rating accorded the Company's debt securities or preferred stock by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations and no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities or preferred stock. (k) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: trading in securities generally on the New York Stock Exchange or the American Stock Exchange or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, a banking moratorium shall have been declared by Federal 25 or state authorities, the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of a majority in interest of the several International Managers, impracticable or inadvisable to proceed with the public offering or delivery of the Stock being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus. (l) The Stock has been duly authorized for quotation on the National Association of Securities Dealers Automated Quotation ("Nasdaq") National Market System, subject only to official notice of issuance. (m) The closing under the U.S. Underwriting Agreement shall have occurred concurrently with the closing hereunder on the First Delivery Date. (n) The closing under the Debt Underwriting Agreement shall have occurred concurrently with the closing hereunder on the First Delivery Date. (o) The closing under the Preferred Stock Underwriting Agreement shall have occurred concurrently with the closing hereunder on the First Delivery Date. (p) The Reorganization (as defined in the Registration Statement) shall have been consummated prior to the First Delivery Date. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to counsel for the International Managers. 10. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each International Manager, its officers and employees and each person, if any, who controls any International Manager within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Stock), to which that International Manager, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or (B) in any blue sky application or other document prepared or executed by the Company (or based upon any written information furnished by the Company) specifically for the purpose of qualifying any or all of the Stock under the securities laws of any state or other jurisdiction (any such application, document or information being 26 hereinafter called a "Blue Sky Application"), the omission or alleged omission to state in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or failure to act, or any alleged act or failure to act, by any International Manager in connection with, or relating in any manner to, the Stock or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company shall not be liable in the case of any matter covered by this clause (iii) to the extent that it is determined in a final judgement by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such act or failure to act undertaken or omitted to be taken by such International Manager through its gross negligence or wilful misconduct), and shall reimburse each International Manager and each such officer, employee and controlling person promptly upon demand for any legal or other expenses reasonably incurred by that International Manager, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any such amendment or supplement, or in any Blue Sky Application in reliance upon and in conformity with the written information furnished to the Company through the Lead Managers by or on behalf of any International Manager specifically for inclusion therein and described in Section 10.(f). The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any International Manager or to any officer, employee or controlling person of that International Manager. (b) The Selling Stockholder shall indemnify and hold harmless each International Manager, its officers and employees and each person, if any, who controls any International Manager within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any actin in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of stock), to which that International Manager, officer, employee or controlling person may become subject, under the Securities act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, any material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each International Manager, its officers and employees and each such controlling person for any legal or other expenses reasonably incurred by that International Manager, its officers, employees or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or 27 alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company through the Lead Manager by or on behalf of any International Manager, specifically for inclusion therein. The foregoing indemnity agreement is in addition to any liability which the Selling Stockholder may otherwise have to any International Manager or any officer, employee or controlling person of that International Manager. (c) Each International Manager, severally and not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or (B) in any Blue Sky Application or the omission or alleged omission to state in any Preliminary Prospectus, either of the Registration Statements or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with the written information furnished to the Company through the Lead Managers by or on behalf of that International Manager specifically for inclusion therein and described in Section 10.(f), and shall reimburse the Company and any such director, officer or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any International Manager may otherwise have to the Company or any such director, officer or controlling person. (d) Promptly after receipt by an indemnified party under this Section 10 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 10, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 10 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 10. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 10 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, 28 however, that the Lead Managers shall have the right to employ counsel to represent jointly the Lead Managers and those other International Managers and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the International Managers against the Company. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment. (e) If the indemnification provided for in this Section 10 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 10.(a) or 10.(b), 10.(c) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Selling Stockholder on the one hand and the International Managers on the other from the offering of the Stock or if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the International Managers on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholder on the one hand and the International Managers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Stock purchased under this Agreement (before deducting expenses) received by the Company and the Selling Stockholder, on the one hand, and the total underwriting discounts and commissions received by the International Managers with respect to the shares of the Stock purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the shares of the Stock under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholder or the International Managers, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the International Managers agree that it would not be just and equitable if contributions pursuant to this Section 10.(e) were to be determined by pro rata allocation (even if the International Managers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party 29 as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10.(e) shall be deemed to include, for purposes of this Section 10.(e), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 10.(e), no International Manager shall be required to contribute any amount in excess of the amount by which the total price at which the Stock underwritten by it and distributed to the public was offered to the public exceeds the amount of any damages which such International Manager has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The International Managers' obligations to contribute as provided in this Section 10.(e) are several in proportion to their respective underwriting obligations and not joint. (f) The International Managers severally confirm that the statements with respect to the public offering of the Stock set forth on the cover page of, and under the caption "Underwriting" in, the Prospectus are correct and constitute the only information furnished in writing to the Company by or on behalf of the International Managers specifically for inclusion in the Registration Statements and the Prospectus. 11. Defaulting International Managers. If, on either Delivery Date, any International Manager defaults in the performance of its obligations under this Agreement, the remaining non-defaulting International Managers shall be obligated to purchase the Stock which the defaulting International Manager agreed but failed to purchase on such Delivery Date in the respective proportions which the number of shares of the Firm Stock set opposite the name of each remaining non-defaulting International Manager in Schedule 1 hereto bears to the total number of shares of the Firm Stock set opposite the names of all the remaining non-defaulting International Managers in Schedule 1 hereto; provided, however, that the remaining non-defaulting International Managers shall not be obligated to purchase any of the Stock on such Delivery Date if the total number of shares of the Stock which the defaulting International Manager or International Managers agreed but failed to purchase on such date exceeds 9.09% of the total number of shares of the Stock to be purchased on such Delivery Date, and any remaining non-defaulting International Manager shall not be obligated to purchase more than 110% of the number of shares of the Stock which it agreed to purchase on such Delivery Date pursuant to the terms of Section 4. If the foregoing maximums are exceeded, the remaining non-defaulting International Managers, or those other underwriters satisfactory to the Lead Managers who so agree, shall have the right, but shall not be obligated, to purchase, in such proportion as may be agreed upon among them, all the Stock to be purchased on such Delivery Date. If the remaining International Managers or other underwriters satisfactory to the Lead Managers do not elect to purchase the shares which the defaulting International Manager or International Managers agreed but failed to purchase on such Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the obligation of the International Managers to purchase, and of the Company to sell, the Option Stock) shall terminate without liability on the part of any non-defaulting International Manager or the Company, except that the Company will continue to be liable for the payment of expenses to the extent set forth 30 in Sections 8 and 13. As used in this Agreement, the term "International Manager" includes, for all purposes of this Agreement unless the context requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a defaulting International Manager agreed but failed to purchase. Nothing contained herein shall relieve a defaulting International Manager of any liability it may have to the Company and the Selling Stockholder for damages caused by its default. If other underwriters are obligated or agree to purchase the Stock of a defaulting or withdrawing International Manager, either the Lead Managers or the Company may postpone the First Delivery Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the International Managers may be necessary in the Registration Statement, the Prospectus or in any other document or arrangement. 12. Effective Date and Termination. (a) This Agreement shall become effective at 11:00 A.M., New York City time, on the first full business day following the Effective Date, or at such earlier time after the Registration Statement becomes effective as the Lead Managers shall release the Firm Stock for initial public offering. The Lead Managers shall notify the Company immediately after they have taken any action which causes this Agreement to become effective. Until this Agreement is effective, it may be terminated by the Company by notice to the Lead Managers or by the Lead Managers by notice to the Company. For purposes of this Agreement, the release of the initial public offering of the Stock shall be deemed to have been made when the Lead Managers release, by telegram or otherwise, firm offers of the Stock to securities dealers or release for publication a newspaper advertisement relating to the Stock, whichever occurs first. (b) The obligations of the International Managers hereunder may be terminated by the Lead Managers by notice given to and received by the Company and the Selling Stockholder prior to delivery of and payment for the Firm Stock if, prior to that time, any of the events described in Sections 9.(i), 9.(j) or 9.(k), or shall have occurred or if the International Managers shall decline to purchase the Stock for any reason permitted under this Agreement. 13. Reimbursement of International Managers' Expenses. If the Company shall fail to tender the Stock for delivery to the International Managers for any reason permitted under this Agreement, or the International Managers shall decline to purchase the Stock for any reason permitted under this Agreement (including the termination of this Agreement pursuant to Section 10), the Company shall reimburse the International Managers for the fees and expenses of their counsel and for such other out-of-pocket expenses as shall have been incurred by them in connection with this Agreement and the proposed purchase of the Stock, and upon demand the Company and the Selling Stockholder shall pay the full amount thereof to the Lead Managers. If this Agreement is terminated pursuant to Section 11 by reason of the default of one or more International Managers, neither the Company nor the Selling Stockholder shall be obligated to reimburse any defaulting International Manager on account of those expenses. 14. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: 31 (a) if to the International Managers, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers International (Europe), Three World Financial Center, New York, New York 10285, Attention: Syndicate Department (Fax: 212-528-8822); (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Primary Registration Statement, Attention: Richard Weening (Fax: (414-283-4505); (c) if to the Selling Stockholder, shall be delivered or sent by mail, telex or facsimile transmission to the Selling Stockholder at [____________, Attention: ______ (Fax:_________); provided, however, that any notice to any International Manager pursuant to Section 10.(d) shall be delivered or sent by mail, telex or facsimile transmission to such International Manager at its address set forth in its acceptance telex to the Lead Managers, which address will be supplied to any other party hereto by the Lead Managers upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company and the Selling Stockholder shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the International Managers by Lehman Brothers Inc. 15. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the International Managers, the Company, the Selling Stockholder and their respective personal representative and successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that the representations, warranties, indemnities and agreements of the Company, and the Selling Stockholder, contained in this Agreement shall also be deemed to be for the benefit of the officers and employees of each International Manager and the person or persons, if any, who control each International Manager within the meaning of Section 15 of the Securities Act and for the benefit of each U.S. Underwriter (and controlling persons thereof) who offers or sells any shares of Class A Common Stock in accordance with the terms of the Agreement Between International Managers and International Managers and the indemnity agreement of the International Managers contained in Section 10.(b), 10.(c) of this Agreement shall be deemed to be for the benefit of directors, officers and employees of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 15, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 16. Survival. The respective indemnities, representations, warranties and agreements of the Company, the Principal Subsidiary, the Selling Stockholder and the International Managers contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Stock and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 32 17. Definition of the Terms "Business Day" and "Subsidiary". For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange, Inc. is open for trading and "subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of New York. 19. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 20. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 33 If the foregoing correctly sets forth the agreement between the Company and the International Managers, please indicate your acceptance in the space provided for that purpose below. Very truly yours, CUMULUS MEDIA INC. By: ________________________________ STATE OF WISCONSIN INVESTMENT BOARD Accepted: LEHMAN BROTHERS INTERNATIONAL (EUROPE) BEAR, STEARNS INTERNATIONAL LIMITED BT ALEX. BROWN INTERNATIONAL, DIVISION OF BANKERS TRUST INTERNATIONAL PLC CREDIT LYONNAIS SECURITIES For themselves and as Lead Managers of the several International Managers named in Schedule 1 hereto By LEHMAN BROTHERS INTERNATIONAL (EUROPE) By: _________________________________________ Authorized Representative SCHEDULE 1 Number of International Managers Shares - ---------------------- ---------- Lehman Brothers International(Europe)....................... Bear, Stearns International Limited......................... BT Alex. Brown International, division of Bankers Trust International PLC.......................................... Credit Lyonnais Securities.................................. ---------- Total............................................ ========== EX-1.3 4 EXHIBIT 1.3 Exhibit 1.3 DRAFT 05/07/98 CUMULUS MEDIA INC. $100,000,000 ___% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 UNDERWRITING AGREEMENT ___________, 1998 BEAR, STEARNS & CO. INC. LEHMAN BROTHERS, INC. as Representatives of the several Underwriters named in Schedule I attached hereto c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Dear Sirs: Cumulus Media Inc., a corporation organized and existing under the laws of Illinois (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") 100,000 shares of its ___% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009, liquidation preference $1,000 per share (the "Series A Preferred Stock"), to be issued under a certificate of designation (the "Certificate of Designation") dated , 1998. Under certain circumstances set forth in the Certificate of Designation, the Series A Preferred Stock may be exchanged for the Company's __% Subordinated Exchange Debentures due 2009 (the "Exchange Debentures"). It is understood by all parties that the Company is concurrently entering into agreements dated the date hereof, providing for the sale by the Company of an aggregate of ____ Shares of its Class A Common Stock (including the over-allotment options thereunder) (the "Equity Underwriting Agreements") through arrangements with certain underwriters for whom Lehman Brothers Inc., Bear, Stearns & Co. and BT Alex. Brown Incorporated (or affiliates thereof) are acting as representatives and with certain international managers for whom Lehman Brothers International (Europe), Bear, Stearns International Limited, BT Alex Brown International, division of Bankers Trust International PLC and Credit Lyonnais 2 Securities are acting as lead managers. It is additionally understood by all parties that the Company is also entering into an agreement (the "Debt Underwriting Agreement"), dated the date hereof, providing for the sale by the Company of an aggregate of $100,000,000 principal amount of its __% Senior Subordinated Notes due 2008 to Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters. 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and may have filed an amendment or amendments thereto, on Form S-1 (No. 333-48849), for the registration of the Series A Preferred Stock under the Securities Act of 1933, as amended (the "Act"). Such registration statement, including the prospectus, financial statements and schedules, exhibits and all other documents filed as a part thereof, as amended at the time of effectiveness of the registration statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations of the Commission under the Act (the "Regulations"), is herein called the "Registration Statement" and the prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) or Rule 434 filing is required, is herein called the "Prospectus". The term "preliminary prospectus" as used herein means a preliminary prospectus as described in Rule 430 of the Regulations. (b) At the time of the effectiveness of the Registration Statement or the effectiveness of any post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to Rule 424(b) or Rule 434 of the Regulations, when any supplement to or amendment of the Prospectus is filed with the Commission and at the Closing Date (as hereinafter defined), the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Act and the Regulations and does not or will not contain an untrue statement of a material fact and does not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in light of the circumstances under which they were made, not misleading. When any related preliminary prospectus was first filed with the Commission (whether filed as part of the registration statement for the registration of the Series A Preferred Stock or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, such preliminary prospectus and any amendments thereof and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations and did not contain an untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related preliminary 3 prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you as herein stated expressly for use in connection with the preparation thereof. If Rule 434 is used, the Company will comply with the requirements of Rule 434. (c) All of the issued and outstanding shares of capital stock of the Company and its subsidiaries have been duly authorized, validly issued and are fully paid and nonassessable, were issued in compliance with federal and state laws and were not issued in violation of any preemptive or similar rights. All shares of capital stock of the Company's subsidiaries are owned, directly or indirectly, by the Company free and clear of any material lien, encumbrance, claim, security interest, restriction on transfer, stockholders' agreement, voting trust or other restrictions. The Company's equity capitalization is as set forth in the Prospectus and any amendment or supplement thereto and on December 31, 1997, after giving pro forma effect to the issuance and sale of the Series A Preferred Stock pursuant hereto and the other transactions described therein, the Company would have had an authorized and outstanding capitalization as set forth in the Prospectus under the caption "Capitalization," subject to the notes and assumptions included therein. (d) Except as set forth in the Prospectus, there are not currently any outstanding material subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, capital stock or other equity interests of the Company or any of its subsidiaries. (e) Each of Price Waterhouse, LLP, Johnson & Miller, LLP, MgGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP who have certified the financial statements and supporting schedules included in the Registration Statement, are independent public accountants as required by the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Regulations. (f) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth in the Registration Statement and the Prospectus, there has been no material adverse change or any development involving a prospective material adverse change in the business, prospects, properties, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet presented in the Registration Statement and the Prospectus, neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which are reflected in the Registration Statement and the Prospectus. (g) This Agreement and the transactions contemplated herein have been duly and validly authorized by the Company and this Agreement has been duly and validly executed and delivered by the Company. 4 (h) The execution, delivery, and performance of this Agreement, the Certificate of Designation and the indenture pursuant to which the Exchange Debentures will be issued (the "Exchange Debenture Indenture") and the consummation of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement, the Certificate of Designation or the Exchange Debenture Indenture or the consummation of the transactions contemplated hereby and thereby, including the issuance, sale and delivery of the Series A Preferred Stock to be issued, sold and delivered by the Company hereunder, except the registration under the Act of the Series A Preferred Stock and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Series A Preferred Stock by the Underwriters. (i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction not adequately disclosed in the Registration Statement and the Prospectus. (j) The Certificate of Designation has been duly authorized by all necessary corporate and stockholder action and, on the Closing Date will have been duly executed by the Company and filed with the Secretary of State of the state of Illinois. 5 (k) The shares of Series A Preferred Stock have been duly authorized and, when executed and issued in accordance with the provisions of the Certificate of Designation and delivered to and paid for by the purchasers thereof, will be entitled to the benefits of the Certificate of Designation and will be validly issued and free and clear of all liens and restrictions on transfer and will constitute binding obligations of the Company, enforceable in accordance with their respective terms except as (i) enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (l) The Exchange Debenture Indenture has been duly authorized by the Company and, if and when duly executed and delivered by the Company, will be a valid and binding agreement of the Company, enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor's rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. The Exchange Debenture Indenture conforms to the requirements of the Trust Indenture Act of 1939, as amended. (m) The Exchange Debentures have been duly authorized by the Company and, if and when executed, authenticated and issued in accordance with the provisions of the Exchange Debenture Indenture, will be entitled to the benefits of the Exchange Debenture Indenture and will be validly issued and free and clear of all liens and restrictions on transfer and will constitute binding obligations of the Company, enforceable in accordance with their respective terms except as (i) enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (n) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is subject or which is pending or, to the knowledge of the Company, contemplated against the Company or any of its subsidiaries which might result in any material adverse change or any development involving a material adverse change in the business, prospects, properties, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole or which is required to be disclosed in the Registration Statement and the Prospectus. (o) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in, or which constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Series A Preferred Stock to facilitate the sale or resale of the Series A Preferred Stock. (p) The financial statements, including the notes thereto, and supporting schedules included in the Registration Statement and the Prospectus present fairly the 6 financial position of the Company as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement and Prospectus present fairly the information required to be stated therein. (q) Neither the Company, nor any of its subsidiaries, are, nor upon consummation of the transactions contemplated hereby will be, subject to registration as an "investment company" under the Investment Company Act of 1940, as amended. (r) Neither the Company nor any of its subsidiaries nor, to the Company's knowledge, any other party, is now, or is reasonably expected by the Company or any of its subsidiaries to be, in violation or breach of, or default (disregarding any grace or notice provision) with respect to any material provision of any contract, agreement, instrument, lease, license, policy, arrangement, or understanding to which the Company or any of its subsidiaries is a party, which violation, breach or default or violations, breaches or defaults, singly or in the aggregate has, or can reasonably be expected in the future to have, a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole; and each such contract, agreement, instrument, lease, license, policy, arrangement and understanding is in full force and is the legal, valid and binding obligation of the Company or its subsidiaries, as the case may be, and, to the Company's knowledge, the other parties thereto, and is enforceable as to the Company or its subsidiaries, as the case may be, and, to the Company's knowledge, the other parties thereto in accordance with its terms subject, as to enforceability, to applicable bankruptcy, reorganization, moratorium or other similar laws of general application affecting the rights of creditors generally, except where such failure to be in full force or to be a legal, valid and binding obligation or to be enforceable, as the case may be, has not had, or would not reasonably be expected in the future to have, a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (s) The Company and its subsidiaries have good and marketable title to all real property and material assets disclosed in the Registration Statement and Prospectus as being owned by them, free and clear of all liens, mortgages, claims, security interests or other encumbrances, except such as are disclosed in the Registration Statement and Prospectus and except for liens incurred in the ordinary course of business which do not materially affect the use or value thereof; property held under lease by the Company or its subsidiaries is held by them under valid, subsisting and binding leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company and its subsidiaries taken as a whole or as do not materially affect the value of such property as used by the Company or are not material in amount and do not interfere in any material respect with the use of the property or the conduct of the business of the Company and its subsidiaries taken as a whole. 7 (t) The Company and its subsidiaries have filed all necessary federal, state, local and foreign income, franchise and sales tax returns and have paid all taxes shown thereon as due, and the Company has no knowledge of any tax deficiency which has been asserted against the Company or any of its subsidiaries which would materially and adversely affect the business or properties of the Company and its subsidiaries, taken as whole. To the Company's knowledge, tax liabilities in the aggregate are adequately provided for on the consolidated books of the Company. The Company has not received notice of any material proposed additional tax assessments against it or any of its subsidiaries. (u) Neither the Company nor any of its subsidiaries is in violation of any law, ordinance, governmental rule or regulation including, without limitation, federal, state and local rules and regulations relating to the protection of the environment or concerning the handling, storage, disposal or discharge of toxic materials (collectively, "Environmental Laws") or court decree or order to which it or any of its property is subject, except for such violations which (individually or in the aggregate) do not or will not have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has obtained any permits, consents and authorizations required to be obtained by it under applicable laws, rules, ordinances or regulations including, without limitation, Environmental Laws and any such permits, consents and authorizations remain in full force and effect, except as to any of the foregoing the absence of which (individually or in the aggregate) will not have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. There is no pending or, to the Company's or any of its subsidiaries' knowledge, threatened, action or proceeding against the Company or any of its subsidiaries alleging violations of any applicable laws, rules, ordinances or regulations including, without limitation, any Environmental Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, is not reasonably likely to have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (v) No default or event of default with respect to any Indebtedness (as such term is defined in the Certificate of Designation) entitling the holders thereof to accelerate the maturity thereof exists or will exist as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby and each of the Company and its subsidiaries has duly performed or observed all material obligations, agreements, covenants or conditions contained in any contract, indenture, mortgage, agreement or instrument relating to any Indebtedness. (w) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; 8 and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (x) Each of the Company and its subsidiaries maintains insurance of the types and in amounts generally deemed adequate for its business, including but not limited to, general liability insurance and insurance covering real and personal property owned or leased by the Company or any of its subsidiaries against theft, destruction, damage, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. (y) Each of the Company and its subsidiaries owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by it as described in the Prospectus, and none of the Company or its subsidiaries has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which, if such assertion of infringement or conflict were sustained, would, individually or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (z) Each of the radio stations owned, operated, programmed, or to which sales and marketing services are provided, by the Company and its subsidiaries is validly licensed by the Federal Communications Commission (the "FCC") and no administrative or judicial proceedings are pending before or, to the knowledge of the Company or its subsidiaries, threatened by the FCC with respect to such licenses; each of the Company and its subsidiaries are in compliance in all material respects with the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC; each of the Company and its subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made or will have made all declarations and filings with, all other federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Prospectus ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole; each of the Company and its subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit; and none of the Company or its subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Prospectus and except where such revocation or modification would not, individually, or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or 9 other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (aa) The statistical and market-related data included in the Prospectus are based or derived from sources which the Company and its subsidiaries believe to be reliable and accurate. (bb) None of the Company or its subsidiaries, or any agent acting on their behalf, has taken or will take any action that might cause this Agreement or the sale of the Series A Preferred Stock to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date. (cc) There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of its subsidiaries which is pending or, to the knowledge of the Company or any of its subsidiaries, threatened. (dd) None of the Company or its subsidiaries has any liability for any prohibited transactions or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or any of its subsidiaries makes or ever has made a contribution and in which any employee of the Company or any of its subsidiaries is or has ever been a participant. With respect to such plans, the Company and each of its subsidiaries are in compliance in all material respects with all applicable provisions of ERISA. (ee) The Series A Preferred Stock, the Certificate of Designation, the Exchange Debentures and the Exchange Debenture Indenture will conform, in all material respects, to the descriptions thereof in the Prospectus. (ff) The Company has no reason to believe that, after giving effect to the Pending Acquisitions (as defined in the Registration Statement), any of the representations and warranties contained in this Section 1 would not be true and correct. (gg) Immediately after the consummation of the transactions contemplated by this Agreement, the fair value and present fair saleable value of the assets of the Company will exceed the sum of its stated liabilities and identified contingent liabilities; the Company is not, nor will the Company be, after giving effect to the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts (contingent and otherwise) as they mature or (iii) otherwise insolvent. 10 2. Purchase, Sale and Delivery of the Series A Preferred Stock. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters and the Underwriters, severally and not jointly, agree to purchase from the Company, at the appropriate purchase price set forth in Schedule I hereto, the number of shares of Series A Preferred Stock set forth opposite the respective names of the Underwriters in Schedule I hereto. (b) Payment of the purchase price for, and delivery of the Series A Preferred Stock shall be made at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017 or at such other place as shall be agreed upon by you and the Company, at 10:00 A.M. on the third or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in accordance with the provisions of Section 9 hereof) following the date of the effectiveness of the Registration Statement (or, if the Company has elected to rely upon Rule 430A of the Regulations, the third or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act) after the determination of the public offering price of the Series A Preferred Stock), or such other time not later than ten business days after such date as shall be agreed upon by you and the Company (such time and date of payment and delivery being herein called the "Closing Date"). Payment shall be made to the Company by wire transfer in same day funds, against delivery to you for the respective accounts of the Underwriters of certificates for the Series A Preferred Stock to be purchased by them. Certificates for the Series A Preferred Stock shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Closing Date. 3. Offering. Upon your authorization of the release of the Series A Preferred Stock, the Underwriters propose to offer the Series A Preferred Stock for sale to the public upon the terms set forth in the Prospectus. 4. Covenants of the Company. The Company covenants and agrees with the Underwriters that: (a) If the Registration Statement has not yet been declared effective the Company will use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as possible, and if Rule 430A is used or the filing of the Prospectus is otherwise required under Rule 424(b) or Rule 434, the Company will file the Prospectus (properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule 434 within the prescribed time period and will provide evidence satisfactory to you of such timely filing. If the Company elects to rely on Rule 434, the Company will prepare and file a term sheet that complies with the requirements of Rule 434. The Company will notify you immediately (and, if requested by you, will confirm such notice in writing) (i) when the Registration Statement and any amendments 11 thereto become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the mailing or the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Prospectus, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of the initiation, or the threatening, of any proceedings therefor, (v) of the receipt of any comments from the Commission, and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Series A Preferred Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Company will make every reasonable effort to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible. The Company will not file any amendment to the Registration Statement or any amendment of or supplement to the Prospectus (including the prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that differs from the prospectus on file at the time of the effectiveness of the Registration Statement before or after the effective date of the Registration Statement to which you shall reasonably object in writing after being timely furnished in advance a copy thereof. (b) If at any time when a prospectus relating to the Series A Preferred Stock is required to be delivered under the Act any event shall have occurred as a result of which the Prospectus as then amended or supplemented would, in the judgment of the Underwriters or the Company include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Act or the Regulations, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to you) which will correct such statement or omission and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. (c) The Company will promptly deliver to you two signed copies of the Registration Statement, including exhibits and all amendments thereto, and the Company will promptly deliver to each of the Underwriters such number of copies of any preliminary prospectus, the Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, as you may reasonably request. (d) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of effectiveness of the Registration Statement, to qualify the Series A Preferred Stock for offering and sale under the securities laws relating to the offering or sale of the Series A Preferred Stock of such jurisdictions as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process. 12 (e) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, but not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earning statement (in form complying with the provisions of Rule 158 of the Regulations) covering a period of at least twelve consecutive months beginning after the effective date of the Registration Statement. (f) During the period of 180 days from the date of the Prospectus, the Company will not, without your prior written consent, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Series A Preferred Stock to be traded or distributed in the public or private securities markets, and the Company will obtain the undertaking of each of its officers, directors and noteholders not to engage in any of the aforementioned transactions on their own behalf, other than the Company's sale of Series A Preferred Stock hereunder. (g) During a period of three years from the effective date of the Registration Statement, the Company will furnish to you copies of (i) all reports to its shareholders; and (ii) all reports, financial statements and proxy or information statements filed by the Company with the Commission or any national securities exchange. (h) The Company will apply the proceeds from the sale of the Series A Preferred Stock as set forth under "Use of Proceeds" in the Prospectus. (i) If the Exchange Debentures are issued, not to claim voluntarily, and to resist actively any attempts to claim, the benefit of any usury laws against the holders of any Exchange Debentures. 5. Payment of Expenses. Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including those in connection with (i) preparing, printing, duplicating, filing and distributing the Registration Statement, as originally filed and all amendments thereof (including all exhibits thereto), any preliminary prospectus, the Prospectus and any amendments or supplements thereto (including, without limitation, fees and expenses of the Company's accountants and counsel), the underwriting documents (including this Agreement, the Agreement Among Underwriters and the Selling Agreement) and all other documents related to the public offering of the Series A Preferred Stock (including those supplied to the Underwriters in quantities as hereinabove stated), (ii) the issuance, transfer and delivery of the Series A Preferred Stock to the Underwriters, including any transfer or other taxes payable thereon, (iii) the qualification of the Series A Preferred Stock under state or foreign securities or Blue Sky laws, including the costs of printing and mailing a preliminary and final "Blue Sky Survey" and the fees of counsel for the Underwriters and such counsel's disbursements in relation thereto, (iv) filing fees of the Commission and the National Association of Securities Dealers, Inc., (v) the cost of printing certificates representing the Series A Preferred Stock and (vi) the cost and charges of any transfer agent or registrar. 13 6. Conditions of Underwriters' Obligations. The obligations of the Underwriters to purchase and pay for the Series A Preferred Stock as provided herein, shall be subject to the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date, to the absence from any certificates, opinions, written statements or letters furnished to you or to Simpson Thacher & Bartlett ("Underwriters' Counsel") pursuant to this Section 6 of any misstatement or omission, to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York time, on the date of this Agreement, or at such later time and date as shall have been consented to in writing by you; if the Company shall have elected to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus shall have been filed with the Commission in a timely fashion in accordance with Section 4(a) hereof; and, at or prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission. (b) At the Closing Date you shall have received the opinion of Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, dated the Closing Date addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite corporate authority to own, lease and license its respective properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus. All of the issued and outstanding capital stock of each subsidiary of the Company has been duly and validly issued and is fully paid and nonassessable and were not issued in violation of preemptive rights and, is owned directly or indirectly by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, shareholders' agreement, voting trust or other defect of title whatsoever. (ii) The Company has authorized capital stock as set forth in the Registration Statement and the Prospectus. All of the outstanding shares of capital stock are duly and validly authorized and issued, are fully paid and nonassessable and were not issued in violation of or subject to any preemptive rights. 14 (iii) The shares of Series A Preferred Stock to be delivered on the Closing Date have been duly and validly authorized and, when delivered by the Company in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, will not have been issued in violation of or subject to any preemptive rights and will constitute the valid and legally binding obligations of the Company in accordance with their terms, except as (i) enforceability thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (iv) The shares of Series A Preferred Stock conform to the descriptions thereof contained in the Registration Statement, the Prospectus and the Certificate of Designation. The Certificate of Designation conforms to the description thereof in the Registration Statement and the Prospectus. (v) This Agreement has been duly and validly authorized, executed and delivered by the Company and the Company has all the requisite power to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. (vi) The Certificate of Designation has been duly authorized by all necessary corporate and stockholder action and has been duly executed by the Company and filed with the Secretary of State of the state of Illinois. (vii) There is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or to the best of such counsel's knowledge, threatened against, or involving the properties or business of, the Company or any of its subsidiaries, which is of a character required to be disclosed in the Registration Statement and the Prospectus which has not been properly disclosed therein. (viii) The execution, delivery, and performance of this Agreement and the Certificate of Designation and the consummation of the transactions contemplated hereby and thereby by the Company do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit known to such counsel to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the certificate of incorporation or by-laws of the Company or any of its subsidiaries, or, to the best knowledge of such counsel, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, 15 filing, qualification, license or permit of or with any court or any public, governmental, or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the Certificate of Designation or the consummation of the transactions contemplated hereby and thereby, except for (1) such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Series A Preferred Stock by the Underwriters (as to which such counsel need express no opinion) and (2) such as have been made or obtained under the Act. (ix) The Registration Statement and the Prospectus and any amendments thereof or supplements thereto (other than the financial statements and schedules and other financial data included or incorporated by reference therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Regulations. (x) The Registration Statement is effective under the Act, and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission and all filings required by Rule 424(b) of the Regulations have been made. (xi) In addition, such opinion shall also contain a statement that such counsel has participated in conferences with officers and representatives of the Company, representatives of the independent public accountants for the Company and the Underwriters at which the contents and the Prospectus and related matters were discussed and, no facts have come to the attention of such counsel which would lead such counsel to believe that either the Registration Statement at the time it became effective (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any amendment thereof made prior to the Closing Date as of the date of such amendment, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date (or any amendment thereof or supplement thereto made prior to the Closing Date as of the date of such amendment or supplement) and as of the Closing Date contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial data included therein). In rendering such opinion, such counsel may rely (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory 16 to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; (ii) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and its subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (c) All proceedings taken in connection with the sale of the Series A Preferred Stock as herein contemplated shall be satisfactory in form and substance to you and to Underwriters' Counsel, and the Underwriters shall have received from said Underwriters' Counsel a favorable opinion, dated as of the Closing Date with respect to the issuance and sale of the Series A Preferred Stock, the Registration Statement and the Prospectus and such other related matters as you may reasonably require, and the Company shall have furnished to Underwriters' Counsel such documents as they request for the purpose of enabling them to pass upon such matters. (d) At the Closing Date you shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date to the effect that (i) the condition set forth in subsection (a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of the Closing Date the representations and warranties of the Company set forth in Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of the Company to be performed hereunder on or prior thereto have been duly performed and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change, or any development involving a material adverse change, in the business prospects, properties, operations, condition (financial or otherwise), net worth or results of operations of the Company and its subsidiaries taken as a whole, except in each case as described in or contemplated by the Prospectus. (e) At the time this Agreement is executed and at the Closing Date, you shall have received a letter, from Price Waterhouse, LLP, Johnson & Miller, LLP, MgGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP, independent public accountants for the Company, dated, respectively, as of the date of this Agreement and as of the Closing Date addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) stating that, in their opinion, the financial statements and schedules of the Company included in the Registration Statement and the Prospectus and covered by their opinion therein comply as to form in all material respects with the applicable accounting requirements of the Act and the 17 applicable published rules and regulations of the Commission thereunder. The letter from Price Waterhouse, LLP shall additionally state that (i) on the basis of procedures consisting of a reading of the latest available unaudited interim consolidated financial statements of the Company, and its subsidiaries, a reading of the minutes of meetings and consents of the shareholders and boards of directors of the Company and its subsidiaries and the committees of such boards subsequent to December 31, 1997, inquiries of officers and other employees of the Company and its subsidiaries who have responsibility for financial and accounting matters of the Company and its subsidiaries with respect to transactions and events subsequent to December 31, 1997 and other specified procedures and inquiries to a date not more than five days prior to the date of such letter, nothing has come to their attention that would cause them to believe that: (A) the unaudited consolidated financial statements and schedules of the Company presented in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and, if applicable, the Exchange Act and the applicable published rules and regulations of the Commission thereunder or that such unaudited consolidated financial statements are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements included in the Registration Statement and the Prospectus; (B) with respect to the period subsequent to March 31, 1998 there were, as of the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and as of a specified date not more than five days prior to the date of such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet presented in the Registration Statement and the Prospectus, except for changes or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter or (C) that during the period from April 1, 1998, to the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period in the prior fiscal year, in total revenues, or total or per share net income, except for decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; and (ii) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, and other financial information pertaining to the Company and its subsidiaries set forth in the Registration Statement and the Prospectus, which have been specified by you prior to the date of this Agreement, to the extent that such amounts, numbers, percentages, and information may be derived from the general accounting and financial records of the Company and its subsidiaries or from schedules furnished by the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures specified by you set forth in such letter, and found them to be in agreement. (f) Prior to the Closing Date the Company shall have furnished to you such further information, certificates and documents as you may reasonably request. 18 (g) You shall have received from each person who is a director, officer or noteholder of the Company an agreement to the effect that such person will not, directly or indirectly, without your prior written consent, offer, sell, offer or agree to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of an option to purchase or other disposition) of any Series A Preferred Stock for a period of 180 days after the date of the Prospectus. (h) The Reorganization (as defined in the Registration Statement) shall have been consummated prior to the Closing Date. (i) The closings under the Equity Underwriting Agreements and the Debt Underwriting Agreement shall have occurred concurrently with the closing hereunder on the Closing Date. If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Underwriters' Counsel pursuant to this Section 6 shall not be in all material respects reasonably satisfactory in form and substance to you and to Underwriters' Counsel, all obligations of the Underwriters hereunder may be canceled by you at, or at any time prior to, the Closing Date. Notice of such cancellation shall be given to the Company in writing, or by telephone, telex or telegraph, confirmed in writing. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Series A Preferred Stock, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent but only to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have including under this Agreement. 19 (b) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), jointly or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Series A Preferred Stock, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein; provided, however, that in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the shares of Series A Preferred Stock purchased by such Underwriter hereunder. This indemnity will be in addition to any liability which any Underwriter may otherwise have including under this Agreement. The Company acknowledges that the statements set forth in the last paragraph of the cover page and in the third, fourth and fifth paragraphs under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing by or on behalf of any Underwriter expressly for use in the registration statement relating to the shares of Series A Preferred Stock as originally filed or in any amendment thereof, any related preliminary prospectus or the Prospectus or in any amendment thereof or supplement thereto, as the case may be. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying 20 parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. 8. Contribution. In order to provide for contribution in circumstances in which the indemnification provided for in Section 7 hereof is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company) as incurred to which the Company and one or more of the Underwriters may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Series A Preferred Stock or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 7 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. 21 Notwithstanding the provisions of this Section 8, (i) in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 8 and the preceding sentence, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Series A Preferred Stock underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 8. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its consent; provided, however, that such consent was not unreasonably withheld. 9. Default by an Underwriter. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase the shares of Series A Preferred Stock hereunder, and if the shares of Series A Preferred Stock with respect to which such default relates do not (after giving effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the aggregate number of shares of the Series A Preferred Stock, the shares of Series A Preferred Stock to which the default relates shall be purchased by the non-defaulting Underwriters as their respective proportions, set forth opposite their respective names in Schedule I hereto, bear to the aggregate number of shares of Series A Preferred Stock. (b) In the event that such default relates to more than 10% of the aggregate number of shares of Series A Preferred Stock, you may in your discretion arrange for yourself or for another party or parties (including any non-defaulting Underwriter or Underwriters who so agree) to purchase such Series A Preferred Stock to which such default relates on the terms contained herein. In the event that within 5 calendar days after such a default you do not arrange for the purchase of the Series A Preferred Stock to which such default relates as provided in this Section 9, this Agreement shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a defaulting 22 Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder. (c) In the event that the shares of Series A Preferred Stock to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date for a period, not exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may thereby be made necessary or advisable. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 9 with like effect as if it had originally been a party to this Agreement with respect to such Series A Preferred Stock. 10. Survival of Representations and Agreements. All representations and warranties, covenants and agreements of the Underwriters and the Company contained in this Agreement, including the agreements contained in Section 5, the indemnity agreements contained in Section 7 and the contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof or by or on behalf of the Company, any of its officers and directors or any controlling person thereof, and shall survive delivery of and payment for the Series A Preferred Stock to and by the Underwriters. The representations contained in Section 1 and the agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement, including termination pursuant to Section 9 or 11 hereof. 11. Effective Date of Agreement; Termination. (a) This Agreement shall become effective, upon the later of when (i) you and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement. If either the initial public offering price or the purchase price has not been agreed upon prior to 5:00 P.M., New York time, on the fifth full business day after the Registration Statement shall have become effective, this Agreement shall thereupon terminate without liability to the Company or the Underwriters except as herein expressly provided. Until this Agreement becomes effective as aforesaid, it may be terminated by the Company by notifying you or by you notifying the Company. Notwithstanding the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full force and effect. (b) You shall have the right to terminate this Agreement at any time prior to the Closing Date if (A) any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, the market for the Company's securities or securities in general; or (B) if trading on the New York or American Stock Exchanges shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall 23 have been required, on the New York or American Stock Exchanges by the New York or American Stock Exchanges or by order of the Commission or any other governmental authority having jurisdiction; or (C) if a banking moratorium has been declared by a state or federal authority or if any new restriction materially adversely affecting the distribution of the Series A Preferred Stock shall have become effective; (D) if any downgrading in the rating of the Company's debt securities or preferred stock by any "nationally recognized statistical rating-organization" (as defined for purposes of Rule 436(g) under the Act; or (E) (i) if the United States becomes engaged in hostilities or there is an escalation of hostilities involving the United States or there is a declaration of a national emergency or war by the United States or (ii) if there shall have been such change in political, financial or economic conditions, if the effect of any such event in (i) or (ii) as in your judgment makes it impracticable or inadvisable to proceed with the offering, sale and delivery of the Series A Preferred Stock on the terms contemplated by the Prospectus. (c) Any notice of termination pursuant to this Section 11 shall be by telephone, telex, or telegraph, confirmed in writing by letter. (d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to (i) notification by you as provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if the sale of the Series A Preferred Stock provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by you, reimburse the Underwriters for all out-of-pocket expenses (including the fees and expenses of their counsel), incurred by the Underwriters in connection herewith. 12. Notice. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and, if sent to any Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, N.Y. 10167, Attention: Ofer Warshavsky; if sent to the Company, shall be mailed, delivered, or telegraphed and confirmed in writing to the Company, 330 E. Kilbourn Avenue, Suite 250, Milwaukee, WI 53202, Attention: Richard Weening. 13. Parties. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Underwriters and the Company and the controlling persons, directors, officers, employees and agents referred to in Section 7 and 8, and their respective successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of Series A Preferred Stock from any of the Underwriters. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, but without regard to principles of conflicts of law. 24 If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, CUMULUS MEDIA INC. By_______________________ Accepted as of the date first above written BEAR, STEARNS & CO. INC. LEHMAN BROTHERS, INC. By: BEAR, STEARNS & CO. INC. By_______________________________ On behalf of themselves and the other Underwriters named in Schedule I hereto. 25 SCHEDULE I Name of Underwriter Number of Shares - ------------------- ---------------- Bear, Stearns & Co. Inc. Lehman Brothers Inc. Total........................................................_________________ 100,000 ------- EX-1.4 5 EXHIBIT 1.4 Exhibit 1.4 DRAFT 05/07/98 CUMULUS MEDIA INC. $100,000,000 ___% Senior Subordinated Notes due 2008 UNDERWRITING AGREEMENT _________, 1998 BEAR, STEARNS & CO. INC. LEHMAN BROTHERS, INC. as Representatives of the several Underwriters named in Schedule I attached hereto c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Dear Sirs: Cumulus Media Inc., a corporation organized and existing under the laws of Illinois (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") an aggregate of $100,000,000 principal amount of ___% Senior Subordinated Notes due 2008 (the "Notes"), to be issued under an indenture (the "Indenture") dated , between the Company and ______, as trustee (the "Trustee"). It is understood by all parties that the Company is concurrently entering into agreements dated the date hereof, providing for the sale by the Company of an aggregate of ____ Shares of its Class A Common Stock (including the over-allotment options thereunder) (the "Equity Underwriting Agreements") through arrangements with certain underwriters for whom Lehman Brothers Inc., Bear, Stearns & Co. and BT Alex. Brown Incorporated are acting as representatives and with certain international managers for whom Lehman Brothers International (Europe), Bear, Stearns International Limited, BT Alex Brown International, division of Bankers Trust International PLC and Credit Lyonnais Securities are acting as lead managers. It is additionally understood by all parties that the Company is also entering into an agreement (the "Preferred Stock Underwriting Agreement"), dated the date hereof, providing for the sale by the Company of $100,000,000 aggregate liquidation preference of its 2 __% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 to Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters. 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and may have filed an amendment or amendments thereto, on Form S-1 (No. 333-48849), for the registration of the Notes under the Securities Act of 1933, as amended (the "Act"). Such registration statement, including the prospectus, financial statements and schedules, exhibits and all other documents filed as a part thereof, as amended at the time of effectiveness of the registration statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations of the Commission under the Act (the "Regulations"), is herein called the "Registration Statement" and the prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) or Rule 434 filing is required, is herein called the "Prospectus". The term "preliminary prospectus" as used herein means a preliminary prospectus as described in Rule 430 of the Regulations. (b) At the time of the effectiveness of the Registration Statement or the effectiveness of any post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to Rule 424(b) or Rule 434 of the Regulations, when any supplement to or amendment of the Prospectus is filed with the Commission and at the Closing Date (as hereinafter defined), the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Act and the Regulations and does not or will not contain an untrue statement of a material fact and does not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in light of the circumstances under which they were made, not misleading. When any related preliminary prospectus was first filed with the Commission (whether filed as part of the registration statement for the registration of the Notes or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, such preliminary prospectus and any amendments thereof and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations and did not contain an untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related preliminary prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any 3 Underwriter through you as herein stated expressly for use in connection with the preparation thereof. If Rule 434 is used, the Company will comply with the requirements of Rule 434. (c) All of the issued and outstanding shares of capital stock of the Company and its subsidiaries have been duly authorized, validly issued and are fully paid and nonassessable, were issued in compliance with federal and state laws and were not issued in violation of any preemptive or similar rights. All shares of capital stock of the Company's subsidiaries are owned, directly or indirectly, by the Company free and clear of any material lien, encumbrance, claim, security interest, restriction on transfer, stockholders' agreement, voting trust or other restrictions. The Company's equity capitalization is as set forth in the Prospectus and any amendment or supplement thereto and on December 31, 1997, after giving pro forma effect to the issuance and sale of the Notes pursuant hereto and the other transactions described therein, the Company would have had an authorized and outstanding capitalization as set forth in the Prospectus under the caption "Capitalization," subject to the notes and assumptions included therein. (d) Except as set forth in the Prospectus, there are not currently any outstanding material subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, capital stock or other equity interests of the Company or any of its subsidiaries. (e) Each of Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP who have certified the financial statements and supporting schedules included in the Registration Statement, are independent public accountants as required by the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Regulations. (f) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth in the Registration Statement and the Prospectus, there has been no material adverse change or any development involving a prospective material adverse change in the business, prospects, properties, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet presented in the Registration Statement and the Prospectus, neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which are reflected in the Registration Statement and the Prospectus. (g) This Agreement and the transactions contemplated herein have been duly and validly authorized by the Company and this Agreement has been duly and validly executed and delivered by the Company. (h) The execution, delivery, and performance of this Agreement, the Indenture and the Notes and the consummation of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, 4 or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement, the Indenture or the Notes or the consummation of the transactions contemplated hereby or thereby, including the issuance, sale and delivery of the Notes to be issued, sold and delivered by the Company hereunder, except the registration under the Act of the Notes and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Notes by the Underwriters. (i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction not adequately disclosed in the Registration Statement and the Prospectus. (j) The Indenture between the Company and the Trustee has been duly qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor's rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (k) The Notes have been duly authorized and, when executed, authenticated and issued in accordance with the provisions of the Indenture and delivered to and paid for by 5 the purchasers thereof, will be entitled to the benefits of the Indenture and will be validly issued and free and clear of all liens and restrictions on transfer and will constitute binding obligations of the Company, enforceable in accordance with their respective terms except as (i) enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (l) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is subject or which is pending or, to the knowledge of the Company, contemplated against the Company or any of its subsidiaries which might result in any material adverse change or any development involving a material adverse change in the business, prospects, properties, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole or which is required to be disclosed in the Registration Statement and the Prospectus. (m) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in, or which constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Notes to facilitate the sale or resale of the Notes. (n) The financial statements, including the notes thereto, and supporting schedules included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement and Prospectus present fairly the information required to be stated therein. (o) Immediately after the sale of the Notes by the Company hereunder, the aggregate amount of Notes which shall have been issued and sold by the Company hereunder and of any debt securities of the Company (other than the Notes) that shall have been issued and sold pursuant to the Registration Statement will not exceed the amount of debt securities registered under the Registration Statement. (p) Neither the Company, nor any of its subsidiaries, are, nor upon consummation of the transactions contemplated hereby will be, subject to registration as an "investment company" under the Investment Company Act of 1940, as amended. (q) Neither the Company nor any of its subsidiaries nor, to the Company's knowledge, any other party, is now, or is reasonably expected by the Company or any of its subsidiaries to be, in violation or breach of, or default (disregarding any grace or notice provision) with respect to any material provision of any contract, agreement, instrument, lease, license, policy, arrangement, or understanding to which the Company or any of its subsidiaries is a party, which violation, breach or default or violations, breaches or defaults, 6 singly or in the aggregate has, or can reasonably be expected in the future to have, a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole; and each such contract, agreement, instrument, lease, license, policy, arrangement and understanding is in full force and is the legal, valid and binding obligation of the Company or its subsidiaries, as the case may be, and, to the Company's knowledge, the other parties thereto, and is enforceable as to the Company or its subsidiaries, as the case may be, and, to the Company's knowledge, the other parties thereto in accordance with its terms subject, as to enforceability, to applicable bankruptcy, reorganization, moratorium or other similar laws of general application affecting the rights of creditors generally, except where such failure to be in full force or to be a legal, valid and binding obligation or to be enforceable, as the case may be, has not had, or would not reasonably be expected in the future to have, a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (r) The Company and its subsidiaries have good and marketable title to all real property and material assets disclosed in the Registration Statement and Prospectus as being owned by them, free and clear of all liens, mortgages, claims, security interests or other encumbrances, except such as are disclosed in the Registration Statement and Prospectus and except for liens incurred in the ordinary course of business which do not materially affect the use or value thereof; property held under lease by the Company or its subsidiaries is held by them under valid, subsisting and binding leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company and its subsidiaries taken as a whole or as do not materially affect the value of such property as used by the Company or are not material in amount and do not interfere in any material respect with the use of the property or the conduct of the business of the Company and its subsidiaries taken as a whole. (s) The Company and its subsidiaries have filed all necessary federal, state, local and foreign income, franchise and sales tax returns and have paid all taxes shown thereon as due, and the Company has no knowledge of any tax deficiency which has been asserted against the Company or any of its subsidiaries which would materially and adversely affect the business or properties of the Company and its subsidiaries, taken as whole. To the Company's knowledge, tax liabilities in the aggregate are adequately provided for on the consolidated books of the Company. The Company has not received notice of any material proposed additional tax assessments against it or any of its subsidiaries. (t) Neither the Company nor any of its subsidiaries is in violation of any law, ordinance, governmental rule or regulation including, without limitation, federal, state and local rules and regulations relating to the protection of the environment or concerning the handling, storage, disposal or discharge of toxic materials (collectively, "Environmental Laws") or court decree or order to which it or any of its property is subject, except for such violations which (individually or in the aggregate) do not or will not have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. Each 7 of the Company and its subsidiaries has obtained any permits, consents and authorizations required to be obtained by it under applicable laws, rules, ordinances or regulations including, without limitation, Environmental Laws and any such permits, consents and authorizations remain in full force and effect, except as to any of the foregoing the absence of which (individually or in the aggregate) will not have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. There is no pending or, to the Company's or any of its subsidiaries' knowledge, threatened, action or proceeding against the Company or any of its subsidiaries alleging violations of any applicable laws, rules, ordinances or regulations including, without limitation, any Environmental Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, is not reasonably likely to have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (u) No default or event of default with respect to any Indebtedness (as such term is defined in the Indenture) entitling the holders thereof to accelerate the maturity thereof exists or will exist as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby and each of the Company and its subsidiaries has duly performed or observed all material obligations, agreements, covenants or conditions contained in any contract, indenture, mortgage, agreement or instrument relating to any Indebtedness. (v) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) Each of the Company and its subsidiaries maintains insurance of the types and in amounts generally deemed adequate for its business, including but not limited to, general liability insurance and insurance covering real and personal property owned or leased by the Company or any of its subsidiaries against theft, destruction, damage, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. (x) Each of the Company and its subsidiaries owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by it as described in the Prospectus, and none of the Company or its subsidiaries has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which, if such assertion of infringement or conflict were 8 sustained, would, individually or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (y) Each of the radio stations owned, operated, programmed, or to which sales and marketing services are provided, by the Company and its subsidiaries is validly licensed by the Federal Communications Commission (the "FCC") and no administrative or judicial proceedings are pending before or, to the knowledge of the Company or its subsidiaries, threatened by the FCC with respect to such licenses; each of the Company and its subsidiaries are in compliance in all material respects with the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC; each of the Company and its subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made or will have made all declarations and filings with, all other federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Prospectus ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole; each of the Company and its subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit; and none of the Company or its subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Prospectus and except where such revocation or modification would not, individually, or in the aggregate, have a material adverse effect on the business, prospects, properties, assets, operations, condition (financial or other), net worth or results of operations of the Company and its subsidiaries taken as a whole. (z) The statistical and market-related data included in the Prospectus are based or derived from sources which the Company and its subsidiaries believe to be reliable and accurate. (aa) None of the Company or its subsidiaries, or any agent acting on their behalf, has taken or will take any action that might cause this Agreement or the sale of the Notes to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date. (bb) There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of its subsidiaries which is pending or, to the knowledge of the Company or any of its subsidiaries, threatened. 9 (cc) None of the Company or its subsidiaries has any liability for any prohibited transactions or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or any of its subsidiaries makes or ever has made a contribution and in which any employee of the Company or any of its subsidiaries is or has ever been a participant. With respect to such plans, the Company and each of its subsidiaries are in compliance in all material respects with all applicable provisions of ERISA. (dd) The Notes and the Indenture will conform, in all material respects, to the descriptions thereof in the Prospectus. (ee) Immediately after the consummation of the transactions contemplated by this Agreement, the fair value and present fair saleable value of the assets of the Company will exceed the sum of its stated liabilities and identified contingent liabilities; the Company is not, nor will the Company be, after giving effect to the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts (contingent and otherwise) as they mature or (iii) otherwise insolvent. (ff) The Company has no reason to believe that, after giving effect to the Pending Acquisitions (as defined in the Registration Statement), any of the representations and warranties contained in this Section 1 would not be true and correct. 2. Purchase, Sale and Delivery of the Notes. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters and the Underwriters, severally and not jointly, agree to purchase from the Company, at the appropriate purchase price set forth in Schedule I hereto, the principal amount of Notes set forth opposite the respective names of the Underwriters in Schedule I hereto. (b) Payment of the purchase price for, and delivery of the Notes shall be made at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017 or at such other place as shall be agreed upon by you and the Company, at 10:00 A.M. on the third or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in accordance with the provisions of Section 9 hereof) following the date of the effectiveness of the Registration Statement (or, if the Company has elected to rely upon Rule 430A of the Regulations, the third or fourth business day (as permitted under Rule 15c6-1 under the Exchange Act) after the determination of the public offering price of the Notes), or such other time not later than ten business days after such date as shall be agreed upon by you and the Company (such time and date of payment and delivery being herein called the "Closing Date"). Payment shall be made to the Company by wire transfer in same day funds, against delivery to you for the respective accounts of the Underwriters of 10 certificates for the Notes to be purchased by them. Certificates for the Notes shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (c) On the Closing Date, one or more of the Notes in definitive form, registered in such names and in such denominations as specified by the Underwriters at least two business days prior to such date, having an aggregate principal amount of $100,000,000 shall be delivered by the Company to the Underwriters (or as the Underwriters direct), against payment by the Underwriters of the purchase price therefor by wire transfer of same day funds to an account or accounts designated by the Company, provided that the Company shall give at least two business days' prior written notice to the Underwriters of the information required to effect such wire transfer. The Notes shall be made available to the Underwriters for inspection not later than 9:30 a.m. New York City time on the business day immediately preceding the Closing Date. 3. Offering. Upon your authorization of the release of the Notes, the Underwriters propose to offer the Notes for sale to the public upon the terms set forth in the Prospectus. 4. Covenants of the Company. The Company covenants and agrees with the Underwriters that: (a) If the Registration Statement has not yet been declared effective the Company will use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as possible, and if Rule 430A is used or the filing of the Prospectus is otherwise required under Rule 424(b) or Rule 434, the Company will file the Prospectus (properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule 434 within the prescribed time period and will provide evidence satisfactory to you of such timely filing. If the Company elects to rely on Rule 434, the Company will prepare and file a term sheet that complies with the requirements of Rule 434. The Company will notify you immediately (and, if requested by you, will confirm such notice in writing) (i) when the Registration Statement and any amendments thereto become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the mailing or the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Prospectus, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of the initiation, or the threatening, of any proceedings therefor, (v) of the receipt of any comments from the Commission, and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Company will make every reasonable effort to prevent the issuance of any such stop 11 order and, if issued, to obtain the lifting of such order as soon as possible. The Company will not file any amendment to the Registration Statement or any amendment of or supplement to the Prospectus (including the prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that differs from the prospectus on file at the time of the effectiveness of the Registration Statement before or after the effective date of the Registration Statement to which you shall reasonably object in writing after being timely furnished in advance a copy thereof. (b) If at any time when a prospectus relating to the Notes is required to be delivered under the Act any event shall have occurred as a result of which the Prospectus as then amended or supplemented would, in the judgment of the Underwriters or the Company include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Act or the Regulations, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to you) which will correct such statement or omission and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. (c) The Company will promptly deliver to you two signed copies of the Registration Statement, including exhibits and all amendments thereto, and the Company will promptly deliver to each of the Underwriters such number of copies of any preliminary prospectus, the Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, as you may reasonably request. (d) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of effectiveness of the Registration Statement, to qualify the Notes for offering and sale under the securities laws relating to the offering or sale of the Notes of such jurisdictions as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process. (e) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, but not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earning statement (in form complying with the provisions of Rule 158 of the Regulations) covering a period of at least twelve consecutive months beginning after the effective date of the Registration Statement. (f) During the period of 180 days from the date of the Prospectus, the Company will not, without your prior written consent, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Notes or any other debt security issued by the Company (other than a private loan, credit or financing agreement with a bank or similar financing institution) to be traded or distributed in the 12 public or private securities markets, and the Company will obtain the undertaking of each of its officers, directors and noteholders not to engage in any of the aforementioned transactions on their own behalf, other than the Company's sale of Notes hereunder. (g) During a period of three years from the effective date of the Registration Statement, the Company will furnish to you copies of (i) all reports to its shareholders; and (ii) all reports, financial statements and proxy or information statements filed by the Company with the Commission or any national securities exchange. (h) The Company will apply the proceeds from the sale of the Notes as set forth under "Use of Proceeds" in the Prospectus. (i) Not to claim voluntarily, and to resist actively any attempts to claim, the benefit of any usury laws against the holders of any Notes. 5. Payment of Expenses. Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including those in connection with (i) preparing, printing, duplicating, filing and distributing the Registration Statement, as originally filed and all amendments thereof (including all exhibits thereto), any preliminary prospectus, the Prospectus and any amendments or supplements thereto (including, without limitation, fees and expenses of the Company's accountants and counsel), the underwriting documents (including this Agreement, the Agreement Among Underwriters and the Selling Agreement) and all other documents related to the public offering of the Notes (including those supplied to the Underwriters in quantities as hereinabove stated), (ii) the issuance, transfer and delivery of the Notes to the Underwriters, including any transfer or other taxes payable thereon, (iii) the qualification of the Notes under state or foreign securities or Blue Sky laws, including the costs of printing and mailing a preliminary and final "Blue Sky Survey" and the fees of counsel for the Underwriters and such counsel's disbursements in relation thereto, (iv) filing fees of the Commission and the National Association of Securities Dealers, Inc.; (v) the cost of printing certificates representing the Notes and (vi) the cost and charges of any transfer agent or registrar. 6. Conditions of Underwriters' Obligations. The obligations of the Underwriters to purchase and pay for the Notes as provided herein, shall be subject to the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date, to the absence from any certificates, opinions, written statements or letters furnished to you or to Simpson Thacher & Bartlett ("Underwriters' Counsel") pursuant to this Section 6 of any misstatement or omission, to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York time, on the date of this Agreement, or at such later time and date as shall have been consented to in writing by you; if the Company shall have elected to rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus shall have been filed with the 13 Commission in a timely fashion in accordance with Section 4(a) hereof; and, at or prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission. (b) At the Closing Date you shall have received the opinion of Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, dated the Closing Date addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite corporate authority to own, lease and license its respective properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus. All of the issued and outstanding capital stock of each subsidiary of the Company has been duly and validly issued and is fully paid and nonassessable and were not issued in violation of preemptive rights and, is owned directly or indirectly by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, shareholders' agreement, voting trust or other defect of title whatsoever. (ii) The Company has authorized capital stock as set forth in the Registration Statement and the Prospectus. All of the outstanding shares of capital stock are duly and validly authorized and issued, are fully paid and nonassessable and were not issued in violation of or subject to any preemptive rights. (iii) The Notes to be delivered on the Closing Date have been duly and validly authorized and, when delivered by the Company in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, will not have been issued in violation of or subject to any preemptive rights and will constitute the valid and legally binding obligations of the Company in accordance with their terms, except as (i) enforceability thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (iv) The Notes conform to the descriptions thereof contained in the Registration Statement, the Prospectus and the Indenture. The Indenture conforms to the description thereof in the Registration Statement and the Prospectus. 14 (v) This Agreement has been duly and validly authorized, executed and delivered by the Company and the Company has all the requisite power to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. (vi) The Indenture has been duly and validly authorized, executed and delivered by the Company and the Trustee and duly qualified under the Trust Indenture Act and the Company has all the requisite power to execute, deliver and perform its obligations under the Indenture and to consummate the transactions contemplated thereby. (vii) There is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or to the best of such counsel's knowledge, threatened against, or involving the properties or business of, the Company or any of its subsidiaries, which is of a character required to be disclosed in the Registration Statement and the Prospectus which has not been properly disclosed therein. (viii) The execution, delivery, and performance of this Agreement, the Indenture and the Notes and the consummation of the transactions contemplated hereby and thereby by the Company do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit known to such counsel to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the certificate of incorporation or by-laws of the Company or any of its subsidiaries, or, to the best knowledge of such counsel, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental, or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement, the Indenture or the Notes or the consummation of the transactions contemplated hereby and thereby, except for (1) such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Notes by the Underwriters (as to which such counsel need express no opinion) and (2) such as have been made or obtained under the Act. (ix) The Registration Statement and the Prospectus and any amendments thereof or supplements thereto (other than the financial statements and schedules and other financial data included or incorporated by reference therein, as to which no 15 opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Regulations. (x) The Registration Statement is effective under the Act, and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission and all filings required by Rule 424(b) of the Regulations have been made. (xi) In addition, such opinion shall also contain a statement that such counsel has participated in conferences with officers and representatives of the Company, representatives of the independent public accountants for the Company and the Underwriters at which the contents and the Prospectus and related matters were discussed and, no facts have come to the attention of such counsel which would lead such counsel to believe that either the Registration Statement at the time it became effective (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any amendment thereof made prior to the Closing Date as of the date of such amendment, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date (or any amendment thereof or supplement thereto made prior to the Closing Date as of the date of such amendment or supplement) and as of the Closing Date contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial data included therein). In rendering such opinion, such counsel may rely (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; (ii) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and its subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (c) All proceedings taken in connection with the sale of the Notes as herein contemplated shall be satisfactory in form and substance to you and to Underwriters' Counsel, and the Underwriters shall have received from said Underwriters' Counsel a favorable 16 opinion, dated as of the Closing Date with respect to the issuance and sale of the Notes, the Registration Statement and the Prospectus and such other related matters as you may reasonably require, and the Company shall have furnished to Underwriters' Counsel such documents as they request for the purpose of enabling them to pass upon such matters. (d) At the Closing Date you shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date to the effect that (i) the condition set forth in subsection (a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of the Closing Date the representations and warranties of the Company set forth in Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of the Company to be performed hereunder on or prior thereto have been duly performed and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change, or any development involving a material adverse change, in the business prospects, properties, operations, condition (financial or otherwise), net worth or results of operations of the Company and its subsidiaries taken as a whole, except in each case as described in or contemplated by the Prospectus. (e) At the time this Agreement is executed and at the Closing Date, you shall have received a letter, from Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP, independent public accountants for the Company, dated, respectively, as of the date of this Agreement and as of the Closing Date addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) stating that, in their opinion, the financial statements and schedules of the Company included in the Registration Statement and the Prospectus and covered by their opinion therein comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable published rules and regulations of the Commission thereunder. The letter from Price Waterhouse, LLP shall additionally state that (i) on the basis of procedures consisting of a reading of the latest available unaudited interim consolidated financial statements of the Company, and its subsidiaries, a reading of the minutes of meetings and consents of the shareholders and boards of directors of the Company and its subsidiaries and the committees of such boards subsequent to December 31, 1997, inquiries of officers and other employees of the Company and its subsidiaries who have responsibility for financial and accounting matters of the Company and its subsidiaries with respect to transactions and events subsequent to December 31, 1997 and other specified procedures and inquiries to a date not more than five days prior to the date of such letter, nothing has come to their attention that would cause them to believe that: (A) the unaudited consolidated financial statements and schedules of the Company presented in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and, if applicable, the Exchange Act and the applicable published rules and regulations of the 17 Commission thereunder or that such unaudited consolidated financial statements are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements included in the Registration Statement and the Prospectus; (B) with respect to the period subsequent to March 31, 1998 there were, as of the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and as of a specified date not more than five days prior to the date of such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet presented in the Registration Statement and the Prospectus, except for changes or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter or (C) that during the period from April 1, 1998, to the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period in the prior fiscal year, in total revenues, or total or per share net income, or EBITDA (as defined in the Registration Statement) except for decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; and (ii) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, and other financial information pertaining to the Company and its subsidiaries set forth in the Registration Statement and the Prospectus, which have been specified by you prior to the date of this Agreement, to the extent that such amounts, numbers, percentages, and information may be derived from the general accounting and financial records of the Company and its subsidiaries or from schedules furnished by the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures specified by you set forth in such letter, and found them to be in agreement. (f) Prior to the Closing Date the Company shall have furnished to you such further information, certificates and documents as you may reasonably request. (g) You shall have received from each person who is a director, officer or noteholder of the Company an agreement to the effect that such person will not, directly or indirectly, without your prior written consent, offer, sell, offer or agree to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of an option to purchase or other disposition) of any Notes or any other debt security issued by the Company (other than a private loan, credit or financing agreement with a bank or similar financing institution) or any security convertible into or exchangeable or exercisable for any such debt security for a period of 180 days after the date of the Prospectus. (h) The closings under the Equity Underwriting Agreements and the Preferred Stock Underwriting Agreement shall have occurred concurrently with the closing hereunder on the Closing Date. 18 (i) The Reorganization (as defined in the Registration Statement) shall have been consummated prior to the Closing Date. If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Underwriters' Counsel pursuant to this Section 6 shall not be in all material respects reasonably satisfactory in form and substance to you and to Underwriters' Counsel, all obligations of the Underwriters hereunder may be canceled by you at, or at any time prior to, the Closing Date. Notice of such cancellation shall be given to the Company in writing, or by telephone, telex or telegraph, confirmed in writing. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Shares, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent but only to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have including under this Agreement. (b) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), jointly or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or 19 alleged untrue statement of a material fact contained in the registration statement for the registration of the Notes, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein; provided, however, that in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder. This indemnity will be in addition to any liability which any Underwriter may otherwise have including under this Agreement. The Company acknowledges that the statements set forth in the last paragraph of the cover page and in the third, fourth and fifth paragraphs under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing by or on behalf of any Underwriter expressly for use in the registration statement relating to the Shares as originally filed or in any amendment thereof, any related preliminary prospectus or the Prospectus or in any amendment thereof or supplement thereto, as the case may be. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. 20 8. Contribution. In order to provide for contribution in circumstances in which the indemnification provided for in Section 7 hereof is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company) as incurred to which the Company and one or more of the Underwriters may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Notes or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 7 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8, (i) in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 8 and the preceding sentence, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Notes underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same 21 rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 8. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its consent; provided, however, that such consent was not unreasonably withheld. 9. Default by an Underwriter. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Notes hereunder, and if the Notes with respect to which such default relates do not (after giving effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the aggregate principal amount of the Notes, the Notes to which the default relates shall be purchased by the non-defaulting Underwriters as their respective proportions, set forth opposite their respective names in Schedule I hereto, bear to the aggregate principal amount of Notes. (b) In the event that such default relates to more than 10% of the aggregate principal amount of Notes, you may in your discretion arrange for yourself or for another party or parties (including any non-defaulting Underwriter or Underwriters who so agree) to purchase such Notes to which such default relates on the terms contained herein. In the event that within 5 calendar days after such a default you do not arrange for the purchase of the Notes to which such default relates as provided in this Section 9, this Agreement shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder. (c) In the event that the principal amount of Notes to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date for a period, not exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may thereby be made necessary or advisable. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 9 with like effect as if it had originally been a party to this Agreement with respect to such Notes. 22 10. Survival of Representations and Agreements. All representations and warranties, covenants and agreements of the Underwriters and the Company contained in this Agreement, including the agreements contained in Section 5, the indemnity agreements contained in Section 7 and the contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof or by or on behalf of the Company, any of its officers and directors or any controlling person thereof, and shall survive delivery of and payment for the Notes to and by the Underwriters. The representations contained in Section 1 and the agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement, including termination pursuant to Section 9 or 11 hereof. 11. Effective Date of Agreement; Termination. (a) This Agreement shall become effective, upon the later of when (i) you and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement. If either the initial public offering price or the purchase price has not been agreed upon prior to 5:00 P.M., New York time, on the fifth full business day after the Registration Statement shall have become effective, this Agreement shall thereupon terminate without liability to the Company or the Underwriters except as herein expressly provided. Until this Agreement becomes effective as aforesaid, it may be terminated by the Company by notifying you or by you notifying the Company. Notwithstanding the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full force and effect. (b) You shall have the right to terminate this Agreement at any time prior to the Closing Date if (A) any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, the market for the Company's securities or securities in general; or (B) if trading on the New York or American Stock Exchanges shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the New York or American Stock Exchanges by the New York or American Stock Exchanges or by order of the Commission or any other governmental authority having jurisdiction; or (C) if a banking moratorium has been declared by a state or federal authority or if any new restriction materially adversely affecting the distribution of the Notes shall have become effective; (D) if any downgrading in the rating of the Company's debt securities or preferred stock by any "nationally recognized statistical rating-organization" (as defined for purposes of Rule 436(g) under the Act; or (E) (i) if the United States becomes engaged in hostilities or there is an escalation of hostilities involving the United States or there is a declaration of a national emergency or war by the United States or (ii) if there shall have been such change in political, financial or economic conditions, if the effect of any such event in (i) or (ii) as in your judgment makes it impracticable or inadvisable to proceed with the offering, sale and delivery of the Notes on the terms contemplated by the Prospectus. (c) Any notice of termination pursuant to this Section 11 shall be by telephone, telex, or telegraph, confirmed in writing by letter. 23 (d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to (i) notification by you as provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if the sale of the Notes provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by you, reimburse the Underwriters for all out-of-pocket expenses (including the fees and expenses of their counsel), incurred by the Underwriters in connection herewith. 12. Notice. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and, if sent to any Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, N.Y. 10167, Attention: Ofer Warshavsky; if sent to the Company, shall be mailed, delivered, or telegraphed and confirmed in writing to the Company, 330 E. Kilbourn Avenue, Suite 250, Milwaukee, WI 53202, Attention: Richard Weening. 13. Parties. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Underwriters and the Company and the controlling persons, directors, officers, employees and agents referred to in Section 7 and 8, and their respective successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of Notes from any of the Underwriters. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, but without regard to principles of conflicts of law. 24 If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, CUMULUS MEDIA INC. By_______________________ Accepted as of the date first above written BEAR, STEARNS & CO. INC. LEHMAN BROTHERS, INC. By: BEAR, STEARNS & CO. INC. By_______________________________ On behalf of themselves and the other Underwriters named in Schedule I hereto. 25 SCHEDULE I Principal Amount of Name of Underwriter Notes to be Purchased - ------------------- --------------------- Bear, Stearns & Co. Inc. Lehman Brothers Inc. Aggregate Principal Amount..................................._________________ $100,000,000 ------------ EX-3.1 6 EXHIBIT 3.1
Form BCA - 2.10 ARTICLES OF INCORPORATION EXHIBIT 3.1 - ---------------------------------------- ------------------------------------------- ------------------------------------------- (Rev. Jan. 1995) This space for use by Secretary of State SUBMIT IN DUPLICATE George H. Ryan ------------------------------------------- Secretary of State This space for use by Secretary of State Department of Business Services Springfield, IL 62756 - ---------------------------------------- ------------------------------------------- Payment must be made be certified Date: 5-22-97 check, cashier's check, Illinois attorney's check, Illinois C.P.A.'s Franchise Tax $25.00 check or money order, payable to Filing Fee $75.00 "Secretary of State." ------ 100.00 Approved: /s/ ER - ---------------------------------------- ------------------------------------------- -------------------------------------------
1. CORPORATE NAME: Cumulus Holdings, Inc. --------------------------------------------------------- - -------------------------------------------------------------------------------- (The corporate name must contain the word "corporation," "company", "incorporated "limited" or an abbreviation thereof.) 2. Initial Registered Agent: William Bungeroth ------------------------------------------------ FIRST NAME MIDDLE INITIAL LAST NAME Initial Registered Office 875 North Michigan Avenue, Suite 3650 ----------------------------------------------- NUMBER STREET SUITE # Chicago, IL 60611 Cook County ----------------------------------------------- CITY ZIP CODE COUNTY - -------------------------------------------------------------------------------- 3. Purpose or purposes for which the corporation and organized: (if not sufficient space to cover this point, add one of more sheets of this size.) The transaction of any or all lawful business for which corporations may be incorporated under the Illinois Business Corporation Act and of any successor provisions. - -------------------------------------------------------------------------------- 4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
Class Par Value Number or Shares Number of Shares Consideration to be Per Share Authorized Proposed to be Issued Received Therefor - ---------------- --------------- ---------------------- ---------------------------- ------------------------ Common $ .01 10,000 1,000 $ 10.00 - ---------------- --------------- ---------------------- ---------------------------- ------------------------ - ---------------- --------------- ---------------------- ---------------------------- ------------------------ - ---------------- --------------- ---------------------- ---------------------------- ------------------------ - ---------------- --------------- ---------------------- ---------------------------- ------------------------ TOTAL = 10.00 - ---------------- --------------- ---------------------- ---------------------------- ------------------------
Paragraph 2: The preferences, qualifications, limitations, restrictions and special or relative rights in respect of the shares of each class are: (If not sufficient space to cover this point, add one or more sheets of this size.) 5. OPTIONAL: (a) Number of directors constituting the initial board of directors of the corporation:_______ (b) Names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors are elected and qualify: Name Residential Address City, State, Zip - ------------------ -------------------------- --------------------------------- - ------------------ -------------------------- --------------------------------- - ------------------ -------------------------- --------------------------------- - ------------------ -------------------------- --------------------------------- - ------------------------------------------------------------------------------- 6. OPTIONAL: (a) It is estimated that the value of all property to be owned by the corporation for the following year wherever located will be: $______________________ (b) It is estimated that the value of all property to be located within the Sate of Illinois during the following year will be: $______________________ (c) It is estimated that the gross amount of business that will be transacted by the corporation during the following year will be: $______________________ (d) It is estimated that the gross amount of business that will be transacted from places of business in the Sate of Illinois during the following year will be: $______________________
- -------------------------------------------------------------------------------- 7. OPTIONAL: OTHER PROVISIONS Attach a separate sheet of this size for any other provision to be included in the Articles of Incorporation, e.g., authorizing preemptive rights, denying cumulative voting, regulating internal affairs, voting majority requirements, fixing a during other than perpetual, etc. - -------------------------------------------------------------------------------- 8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S) The undersigned incorporator(s) hereby declare(s), under penalties of perjury, that the statements made in the foregoing Articles of Incorporation are true. Dated MAY 21 , 1997. --------------------------------------------- ----
SIGNATURE AND NAME ADDRESS 1. /s/ Patricia Leiker 1. 780 North Walter Street ------------------------------------------ ----------------------------------------------------- SIGNATURE STREET Patricia Leiker Milwaukee, WI 53202 ------------------------------------------ ----------------------------------------------------- (TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE 2. 2. ------------------------------------------ ----------------------------------------------------- SIGNATURE STREET ------------------------------------------ ----------------------------------------------------- (TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE 3. 3. ------------------------------------------ ----------------------------------------------------- SIGNATURE STREET ------------------------------------------ ----------------------------------------------------- (TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
(Signatures must be in BLACK INK on original document. Carbon copy, photocopy or rubber stamp signatures may only be used on conformed copies.) NOTE: If a corporation acts as incorporator, the name of the corporation and the state of incorporation shall be shown and the execution shall be by its president or vice president or verified by him, and attested by its secretary or assistant secretary. - -------------------------------------------------------------------------------- FEE SCHEDULE o The initial franchise tax is assessed at the rate of 15/100 of 1 percent ($1.50 per $1,000) on the paid-in capital represented in this state , with a minimum of $25. o The filing fee is $75. o The minimum total due (franchise tax & filing fee) is $100. (Applies when the Consideration to be Received as set forth in Item 4 does not exceed $16,667) o The Department of Business Services in Springfield will provide assistance in calculating the total fees if necessary. Illinois Secretary of State Springfield, IL 62756 Department of Business Services Telephone (217) 782-9522 OR 782-9523 STATE OF ILLINOIS [SEAL STATE OF ILLINOIS] WHEREAS, ARTICLES OF MERGER OF CUMULUS HOLDINGS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE OFFICE OF THE SECRETARY OF THE STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984. Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois, by virtue of the powers vested in me by law, do hereby issue this certificate and attach hereto a copy of the Application of the aforesaid corporation. IN TESTIMONY WHEREOF, I hereto set my hand and cause to be affixed the Great Seal of the State of Illinois, at the City of Springfield, this 13th day of JUNE A.D. 1997 and of the Independence of the United States the two hundred and 21st. /s/ George M. Ryan Secretary of State
ARTICLES OF MERGER Form BCA - 11.25 CONSOLIDATION OR EXCHANGE File # 5942-956-6 - ---------------------------------------- ------------------------------------------- ------------------------------------------- (Rev. Jan. 1995) This space for use by Secretary of State SUBMIT IN DUPLICATE George H. Ryan ------------------------------------------- Secretary of State EFFECTIVE 6/16/97 This space for use by Secretary of State Department of Business Services Springfield, IL 62756 Telephone (217) 782-6961 http://www.sos.sate.il.us - ---------------------------------------- ------------------------------------------- Remit payment in check or money order, Date: 6/1397 payable to "Secretary of State." Filing Fee is $100, but if merger or consolidation of more than 2 corporations, $50 for each Filing Fee $100.00 additional corporation. Approved: - ---------------------------------------- ------------------------------------------- -------------------------------------------
1. Names of the corporations proposing to merge, and the sate or country of their corporation Name of Corporation State or Country Corporation Of Incorporation File No. Cumulus Broadcasting, Inc. Wisconsin 5939-707-9 - -------------------------------------- ------------------ --------------- Cumulus Holdings, Inc. Illinois 5942-956-6 - -------------------------------------- ------------------ --------------- - -------------------------------------- ------------------ --------------- - -------------------------------------- ------------------ --------------- - -------------------------------------- ------------------ --------------- - -------------------------------------------------------------------------------- 2. The laws of the state or country under which each corporation is incorporated permit such merger, consolidation or exchange. - -------------------------------------------------------------------------------- 3. (a) Name of the surviving Corporation Cumulus Holdings, Inc. -------------------------------------- (b) it shall be governed by the laws of: Illinois ------------------------------------ - -------------------------------------------------------------------------------- 4. Plan of merger is as follows: (See attached Agreement and Plan of Reorganization and Merger) If not sufficient space to cover this point, add one or more sheets of this size. 7. (COMPLETE THIS ITEM IF REPORTING A MERGER UNDER < W039 > 11.30-90% OWNED SUBSIDIARY PROVISIONS.) a. The number of outstanding shares of each class of each merging subsidiary corporation and the number of such shares of each class owned immediately prior to the adoption of the plan of merger by the parent corporation, are: Total Number of Number of Shares of Each Class Name of Corporation Shares Outstanding of Owned Immediately prior Each Class to Merger by the Parent Corporation - -------------------- ----------------------- ----------------------------------- - -------------------- ----------------------- ----------------------------------- - -------------------- ----------------------- ----------------------------------- - -------------------- ----------------------- ----------------------------------- b. (Not applicable to 100% owned subsidiaries) The date of mailing a copy of the plan of merger and notice of the right to dissent to the shareholders of each merging subsidiary corporation was _______________, 19_______ Was written consent for the merger or written waiver of the 30-day period by the holders of all the outstanding shares of all subsidiary corporation received? Yes / / No / / (IF THE ANSWER IS "NO," THE DUPLICATE COPIES OF THE ARTICLES OF MERGER MAY NOT BE DELIVERED TO THE SECRETARY OF STATE UNTIL AFTER 30 DAYS FOLLOWING THE MAILING OF A COPY OF THE PLAN OF MERGER AND OF THE NOTICE OF THE RIGHT TO DISSENT TO THE SHAREHOLDERS OF EACH MERGING SUBSIDIARY CORPORATION.) 8. The undersigned corporations have caused these articles to be signed by their duly authorized officer, each of whom affirms, under penalties of perjury, that the facts stated herein are true. (All signatures must be in BLACK INK.) Dated June 9 , 1997 Cumulus Holdings, Inc. ----------------------------------- ---- ----------------------------------------------- (EXACT NAME OF CORPORATION) attested by /s/ Richard Bonick by /s/ William Bungeroth ------------------------------------------------ -------------------------------------------- (SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT Richard Bonick, Vice President and William Bungeroth, President and CEO (Type or Print Name and Title) (Type or Print Name and Title) Dated June 9 , 19 97 Cumulus Broadcasting, Inc. ----------------------------------- ---- ----------------------------------------------- (EXACT NAME OF CORPORATION) attested by /s/ Richard Bonick by /s/ William Bungeroth ------------------------------------------------ -------------------------------------------- (SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT Richard Bonick, Vice President and William Bungeroth, President and CEO (Type or Print Name and Title) (Type or Print Name and Title) Dated , 19 ----------------------------------- ---- ----------------------------------------------- (EXACT NAME OF CORPORATION) attested by by ------------------------------------------------ -------------------------------------------- (SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT (Type or Print Name and Title) (Type or Print Name and Title)
EX-3.2 7 EXHIBIT 3.2 Exhibit 3.2
Form BCA - 10.30 ARTICLES OF AMENDMENT File # 5942 -956 -6 - --------------------------------------- --------------------- ---------------------------------------- (Rev. Jan. 1995) George H. Ryan This space for use by Secretary of State Secretary of State Department of Business Services Date: 11-13-97 - --------------------------------------- Remit payment in check or money order, payable to "Secretary of State". Franchise Tax Filing Fee $25.00 * The filing fee for articles of Penalty amendment - $25.00 Approved: - --------------------------------------- --------------------- ----------------------------------------
1. CORPORATE NAME: Cumulus Holdings, Inc. -------------------------------------------------------------- (Note 1) 2. MANNER OF ADOPTION OF AMENDMENT The following amendment of the Articles of Incorporation was adopted on November 3, 1997 -------------------------------------------------------------------------- in the manner indicated below. ("X" one box only) / / By a majority of the incorporators, provided no directors were named the articles or incorporation and no directors have been elected; (Note 2) / / By a majority of the board of directors, in accordance with Section 10.10 the corporation having issued no shares as of the time of adoption of this amendment; (Note 2) / / By a majority of the board of directors, in accordance with Section 10.15 shares having been issued but shareholder action not being required for the adoption of the amendment; (Note 3) / / By the shareholders, in accordance with Section 10.20 a resolution of the board of directors having been duly adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of votes required by statute and by the articles of incorporation were voted in favor of the amendment; (Note 4) / / By the shareholders, in accordance with Section 10.20 and 7.10 a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by the shareholders having not less than the minimum number of votes required by statute and by the articles of incorporation. Shareholders who have not consented in writing have been given notice in accordance with Section 7.10; (Note 4&5) / / By the shareholders, in accordance with Section 10.20 and 7.10 a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders entitled to vote on this amendment. (Note 5) 3. TEXT OF AMENDMENT a. When amendment effects a name change, insert the new corporate name below. Use Page 2 for all other amendments. Article I: The name of the corporation is: - -------------------------------------------------------------------------------- (New Name) All changes other than name, include on page 2 (over) TEXT OF AMENDMENT B. (IF AMENDMENT AFFECTS THE CORPORATE PURPOSE, THE AMENDED PURPOSE IS REQUIRED TO BE SET FORTH IN ITS ENTIRETY. IF THERE IS NOT SUFFICIENT SPACE TO DO SO, ADD ONE OR MORE SHEETS OF THIS SIZE.) The Articles of Incorporation of Cumulus Holdings, Inc., be, and they hereby are, amended by deleting Article 4 thereof and inserting in its place the amendment attached hereto as Exhibit A. Page 2 4. The manner, if not set forth in Article 3b, in which any exchange, reclassification or cancellation of issued shares, or a reduction of the number off authorized shares of any class below the number of issued shares of that class, provided for or effected by this amendment, is as follows: (IF NOT APPLICABLE, INSERT "NO CHANGE") No change 5. (a) The manner, if not set forth in Article 3b, in which said amendment effects a change in the amount of paid-in capital (Paid-in capital replaces the terms Stated Capital and Paid-in Surplus and is equal to the total of these accounts) is as follows: (IF NOT APPLICABLE, INSERT "NO CHANGE") No change (b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated Capital and Paid-in Surplus and is equal to the total of these accounts) as changed by this amendment is as follows: (IF NOT APPLICABLE, INSERT "NO CHANGE") No change Before Amendment After Amendment Paid-in Capital $_______________ $_______________ (COMPLETE EITHER ITEM 6 OR 7 BELOW. ALL SIGNATURES MUST IN BLACK INK.) 6. The undersigned corporation has caused this statement to be singed by its duly authorized officers, each of whom affirms, under penalties of perjury, that the facts stated herein are true. Dated November 5 , 1997 Cumulus Holdings, Inc. ---------------------- ------- ------------------------------------------------ (Exact Name of Corporation at date of execution) attested by /s/ Terrence J. Leahy by: /s/ William Bungeroth --------------------------------------------- --------------------------------------------- (SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT) Terrence J. Leahy, Secretary William Bungeroth, President --------------------------------------------- --------------------------------------------- (TYPE OR PRINT NAME AND TITLE) (TYPE OR PRINT NAME AND TITLE)
7. If amendment is authorized pursuant to Section 10.10 by the incorporators, the incorporators must sign below, and type or print name and title. OR If amendment is authorized by the directors pursuant to Section 10.10 and there are no officers, then a majority of the directors or such directors as may be designate by the board, must sign below, and type or print name and title. The undersigned affirms, under the penalties of perjury, that the facts stated herein are true. Dated ______________________, 19 _____ - --------------------------------------- ---------------------------------------- - --------------------------------------- ---------------------------------------- - --------------------------------------- ---------------------------------------- - --------------------------------------- ---------------------------------------- EXHIBIT A TO ARTICLES OF AMENDMENT OF CUMULUS HOLDINGS, INC. ARTICLE 4 Paragraph 1: The aggregate number of shares which the Corporation is authorized to issue is 22,000, divided into two classes consisting of 12,000 shares designated as Class A Cumulative Preferred Stock, $0.01 par value (hereinafter referred to as the "Class A Preferred Stock"), and 10,000 shares designated as Common Stock, $.01 par value (hereinafter referred to as the "Common Stock"). Paragraph 2: The preferences, qualifications, limitations, restrictions, and the special or relative rights in respect of the shares of each class hereinabove designated shall be as follows: PART I. CLASS A PREFERRED STOCK Section 1. Dividends. (a) The holders of the shares of Class A Preferred Stock shall be entitled to receive, if and when declared payable from time to time by the Board of Directors from funds legally available therefor, cumulative dividends at the annual rate of 12% (the "Dividend Rate") of $10,000.00 per share per annum, subject to adjustment as provided in paragraphs (b) and (c) of this Section 1 and subject to the Corporation's right to pay any dividend by issuing PIK Shares (as defined below). Such dividends shall compound quarterly and accrue and be payable quarterly, in arrears, on each February 14, May 14, August 14 and November 14 of each year (each such date being referred to herein as a "Dividend Payment Date") commencing February 14, 1998, the initial dividend to be calculated from the date of issuance to the first Dividend Payment Date and any accrued but unpaid dividends upon redemption to be pro rated from the most recent Dividend Payment Date until the date of redemption. Such dividends (whether payable in cash or stock) shall accrue, without interest, from the date of issuance and, if not paid, shall compound quarterly, shall be cumulative, whether or not such dividends have been declared, so that if the full amount payable as aforesaid on any Dividend Payment Date shall not have been declared or paid and a sum sufficient for the payment thereof set apart or paid by issuing shares of Class A Preferred Stock as provided below and in Section 1(d) of the Part I, the deficiency shall be fully paid, but without interest, as and when funds shall become lawfully available therefor or paid by issuing shares of Class A Preferred Stock as provided below and in Section 1(d) of this Part I as and when funds shall become lawfully available therefor. In the event any dividends on the Class A Preferred Stock are not paid, whether in cash or in PIK Shares (as hereinafter defined), at the times provided in this Section 1 for any reason, including by reason of any limitation imposed by applicable law, then the holders of the shares of Class A Preferred Stock shall be entitled to receive cumulative dividends at the annual Dividend Rate (compounded quarterly) in respect of the amount of such accrued and unpaid cumulative dividends from the date that such accrued and unpaid cumulative dividends were to have been paid in accordance with this Section 1 until the date of payment of such accrued and unpaid cumulative dividends, and all such dividends shall for all purposes be treated as accrued and unpaid cumulative dividends until paid. Any dividend payments made with respect to the Class A Preferred Stock may be made in cash or, in the sole discretion of the Board of Directors, by issuing additional fully paid and nonassessable shares of Class A Preferred Stock ("PIK Shares") at a value of $10,000.00 per share and the issuance of such additional shares shall constitute full payment of such dividend, with each such additional share to accrue dividends at the annual Dividend Rate (compounded quarterly) from and after the Dividend Payment Date on which such share has been issued. Each fractional share of Class A Preferred Stock outstanding shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of Class A Preferred Stock pursuant to this Section 1(a), and all such dividends with respect to such outstanding fractional shares shall compound quarterly and shall be fully cumulative and shall accrue (whether or not declared), without interest, and shall be payable in the same amount and at such times as provided for in this Section 1(a) with respect to dividends on each outstanding share of Class A Preferred Stock. (b) Dividend Rate Adjustment Following Default. The Dividend Rate shall be adjusted from 12% of $10,000.00 per share per annum to 14.00% of $10,000.00 per share per annum on the first day (the "Date") next following the occurrence of an event of default under or breach of Section 4.03, Section 4.04 or Section 4.05 of the Purchase Agreement (each a "Specified Event of Default") and shall continue to accrue at such adjusted per annum rate through and including the one hundred eightieth (180th) day following the date on which such event of default or breach has been cured or waived in writing by the holders of not less than two-thirds (2/3) of the aggregate number of shares of Class A Preferred Stock outstanding (such period being herein referred to as the "Covenant Default Period"). Such adjusted Dividend Rate shall automatically be readjusted from the default rate applicable during the Covenant Default Period as provided above to 12% of $10,000.00 per share per annum on the one hundred eighty-first (181st) day following the date on which such event of default or breach is cured as provided in Section 4.12 of the Purchase Agreement or waived in writing by the holders of not less than two-thirds (2/3) of the aggregate number of shares of Class A Preferred Stock outstanding. (c) Dividend Rate Adjustment Following Share Adjustment. The Dividend Rate, the redemption prices set forth in Section 2 and 3 of this Part I below, the minimum number of shares subject to optional redemption pursuant to Section 3 of this Part I below and the liquidation preference set forth in Section 6 of this Part I shall be appropriately adjusted by the Board of Directors in the event of any stock split, dividend, combination, subdivision, recapitalization or reclassification with respect to the Class A Preferred Shares. (d) Delivery of PIK Class A Preferred Shares. Subject to this Section 1, within twenty (20) business days following the date of each Dividend Payment Date, the Corporation shall if the Board of Directors has elected on any Dividend Payment Date to make any dividend payment with PIK Shares, deliver to each holder of the shares of Class A Preferred Stock PIK Shares as provided in Section 1(a) above. 2 (e) Dividends on and Redemptions of Parity Stock or Junior Stock. While any shares of Class A Preferred Stock are outstanding, the Corporation shall not declare or pay any dividend or make any other distribution on any shares of Parity Stock or Junior Stock (other than dividends payable in the same class or series of Parity Stock or Junior Stock, as the case may be, to holders thereof) or purchase, redeem or otherwise acquire for consideration any shares of Parity Stock or Junior Stock. Section 2. Mandatory Redemption. On November 14, 2007 (the "Mandatory Redemption Date"), the Corporation shall, if any of the shares of Class A Preferred Stock remain outstanding, set apart out of its funds lawfully available for such purpose (or to the extent that the same are lawfully available therefor) for the redemption of the Class A Preferred Stock, that sum in cash which shall be sufficient to redeem, at a price per share equal to $10,000.00 plus any and all accrued and unpaid cumulative dividends thereon (whether or not declared or earned) to the date fixed for such redemption, the total number of shares of the Class A Preferred Stock at the time outstanding. If the full number of shares required to be redeemed as aforesaid shall not be so redeemed, the deficiency shall be made good thereafter as soon as funds shall become lawfully available therefor. If the Corporation shall fail to discharge its obligation to redeem shares of Class A Preferred Stock pursuant to this Section 2 (the "Mandatory Redemption Obligation"), the Mandatory Redemption Obligation shall be discharged as soon as the Corporation is permitted by law or by its applicable contracts, agreements, indentures, bonds, notes, debentures or similar instruments to discharge such Mandatory Redemption Obligation. If and so long as the Mandatory Redemption Obligation with respect to Class A Preferred Stock shall not fully be discharged, the Corporation shall not, directly or indirectly, declare or pay any dividend or make any distributions on, or purchase, redeem or retire, or satisfy any mandatory or optional redemption, sinking fund or other similar obligation in respect of, any Parity Stock or Junior Stock, excepting only that the Corporation may pay dividends by issuing, but only by issuing, shares of the class of such Parity Stock or Junior Stock, as the case may be, or warrants, rights, opinions or other Securities convertible into or exercisable for any such Junior Stock or Parity Stock, as the case may be. Section 3. Optional Redemptions. (a) Optional Redemption at a Premium. In addition to the mandatory redemption required by Section 2 above, the shares of Class A Preferred Stock shall, at any time and from time to time after the first anniversary of the First Issuance Date, be redeemable, in whole or in part on a pro rata basis (but if in part, then the minimum number of shares to be redeemed shall be not less than 10% of the aggregate number of shares of Class A Preferred Stock outstanding) at the option of the Corporation (upon the notice and otherwise in the manner set forth in Section 4 of this Part I) at the following redemption prices per share redeemed: 3 If Redeemed During Optional the 12-Month Period Redemption Price Ending on: Second Anniversary of First Issuance Date $10,500.00 Third Anniversary of First Issuance Date $10,400.00 Fourth Anniversary of First Issuance Date $10,300.00 Fifth Anniversary of First Issuance Date $10,200.00 Sixth Anniversary of First Issuance Date $10,100.00 Seventh Anniversary of First Issuance Date and Thereafter $10,000.00 plus, in each case, any and all accrued and unpaid cumulative dividends thereon (whether or not declared) to the date of redemption. (b) Required Redemption of Class A Preferred Stock upon Change of Control. In the event that any Change of Control shall occur, the Corporation will give written notice (the "Change of Control Corporation Notice") of such fact to the holders of record of the shares of the Class A Preferred Stock. The Changes of Control Corporation Notice shall be sent promptly upon receipt of knowledge by the Corporation of any Change of Control. The Change of Control Corporation Notice shall (i) describe the facts and circumstances of such Change of Control in reasonable detail, (ii) make reference to this Section 3(b) and the right of the holders of the shares of Class A Preferred Stock to require the mandatory redemption of the Class A Preferred Stock on the terms and conditions provided for in this Section 3(b), and (iii) offer in writing to redeem the outstanding shares of Class A Preferred Stock at a redemption price per share (the "Change of Control Redemption Price") equal to $10,000.00. Unless and until each holder of the shares of Class A Preferred Stock has declined such offer of redemption in writing, such offer shall remain outstanding, binding and effective as against the Corporation. Each holder of the outstanding shares of Class A Preferred Stock shall have the right to accept such offer of redemption and require redemption of the shares of Class A Preferred Stock held by such holder in full by written notice to the Corporation (a "Change of Control Stockholder Notice"). If such Change of Control shall in fact occur, the Corporation shall, out of funds legally available for such purpose, redeem all, but not less than all, of the Class A Preferred Stock held by each holder which has so accepted such offer of redemption in each such case 4 on the date specified in the Change of Control Stockholder Notice delivered by such holder. The redemption price per share of Class A Preferred Stock payable upon the occurrence of any Change of Control shall be an amount equal to the Change of Control Redemption Price plus any and all accrued and unpaid cumulative dividends thereon (whether or not declared) to the date of redemption. (c) Optional Redemption of Class A Preferred Stock upon Occurrence of Designated Event. In the event that any Designated Event shall occur, the Corporation may give written notice (the "Designated Event Exercise Notice") of such fact to the holders of record of the shares of the Class A Preferred Stock, which notice shall be separate and distinct from the informational notice required by Section 5.01(a)(ix) of the Purchase Agreement. The Designated Event Exercise Notice shall (i) describe the facts and circumstances of such Designated Event in reasonable detail, (ii) make reference to this Section 3(c) and the right and option of the Corporation to redeem all, but not less than all, of the shares of Class A Preferred Stock on the terms and conditions provided for in this Section 3(c), (iii) specify the redemption price per share (the "Designated Event Redemption Price"), which redemption price per share shall be equal to $10,000.00 and (iv) specify a date and place for such redemption (the "Designated Event Redemption Date"), which Designated Event Redemption Date shall be not more than 90 days nor less than 45 days following the date of such Designated Event Exercise Notice. If such Designated Event shall in fact occur, and the Corporation shall, at its option, have given the Designated Event Exercise Notice, then the Corporation shall on the Designated Event Redemption Date redeem all, but not less than all, of the shares of Class A Preferred Stock then outstanding. The redemption price per share of Class A Preferred Stock payable upon the occurrence of any Designated Event shall be an amount equal to the Designated Event Redemption Price plus any and all accrued and unpaid cumulative dividends thereon (whether or not declared), to the date of redemption. Section 4. Manner and Effect of Redemptions. Notice of any proposed redemption of shares of Class A Preferred Stock pursuant to Section 3(a) above shall be given by the Corporation by mailing a copy of such notice not less than 30 and more than 60 days prior to the date fixed for such redemption to the holders of record of the shares of Class A Preferred Stock to be redeemed at their respective addresses appearing on the books of the Corporation. Said notice shall state the number of the shares which are being called for redemption and shall specify the redemption price and place at which and the date on which the shares of Class A Preferred Stock will be redeemed. From and after the date fixed in any such notice (or any Change of Control Corporation Notice or Designated Event Exercise Notice, as the case may be) as the date of redemption of shares of Class A Preferred Stock, unless default shall be made by the Corporation in providing monies at the time and place specified for the payment of the redemption price pursuant to such notice (or any Change of Control Corporation Notice or Designated Event Exercise Notice, as the case may be), any and all dividends payable in accordance with Section 1(a) above of the Class A Preferred Stock thereby called for redemption shall cease to accrue and all rights of the holders thereof as shareholders of the Corporation, except the right to receive the redemption price, shall cease and terminate. 5 All shares of Class A Preferred Stock which shall have been redeemed, purchased or otherwise acquired by the Corporation, shall be cancelled and shall not be reissued as shares of Class A Preferred Stock. Section 5. Voting Rights. (a) Except as otherwise required by law or as provided in this Section 5, the holders of shares of the Class A Preferred Stock shall not be entitled to vote with respect to any matter voted on by the shareholders of the Corporation. (b) If and whenever at any time or from time to time a Specified Event of Default shall have occurred: (i) Promptly upon the commencement of any Specified Event of Default, the Corporation will give written or facsimile notice thereof to each holder of the then outstanding shares of Class A Preferred Stock, at the address of each such holder as it appears on the books of the Corporation; (ii) During the continuance of each and every Covenant Default Period, the holders of the shares of Class A Preferred Stock shall be entitled, voting separately as a class, to elect one member of the Board of Directors. The right of the holders of the Class A Preferred Stock to elect one member of the Board of Directors during a Covenant Default Period may be exercised initially either at a special meeting of shareholders called as provided below or at the Corporation's next annual meeting of shareholders, and thereafter at each subsequent annual meeting of shareholders, until the expiration of such Covenant Default Period on the one hundred eightieth (180th) day following the date on which such Specified Event of Default shall have been cured as provided in Section 4.12 of the Purchase Agreement, at which time such right shall terminate, except as herein or by law expressly provided, subject to the revesting of such rights to such holders in the event of the subsequent commencement of a Covenant Default Period. Upon any termination of the right of the holders of shares of Class A Preferred Stock as a class to vote for a director as herein provided, the term of office of the director then in office elected by the holders of shares of Class A Preferred Stock shall terminate immediately and the number of directors constituting the Board of Directors shall, without further action, be reduced by the number so elected by the holders of Class A Preferred Stock, subject always to increase following occurrence of any other Specified Event of Default. In case of any vacancy occurring with respect to the director elected by the holders of shares of Class A Preferred Stock, such vacancy may be filled only by the affirmative vote of the holders of a majority of the then outstanding shares of Class A Preferred Stock. At elections for such director, each holder of shares of Class A Preferred Stock shall be entitled to one vote for each share; (iii) At any time when such special voting rights shall have vested in the holders of outstanding shares of Class A Preferred Stock as provided in this Section 5(b), a proper officer of the Corporation shall, upon the written request of the holders of record of a least a majority of the then outstanding number of shares of Class A Preferred Stock, addressed to the Secretary of the Corporation, call a special meeting of the holders of outstanding shares of Class A Preferred Stock for the purpose of electing such additional director. Such meeting shall be held at the earliest practicable date at the principal office of 6 the Corporation. If such meeting shall not be called by a proper officer of the Corporation within 15 days after receipt of written request upon the Secretary of the Corporation (or the Assistant Secretary if the Secretary is absent) sent by first class mail, postage prepaid, or by prepaid overnight air courier, or within 15 days after mailing the same within the United States of America by registered mail addressed to the Secretary of the Corporation at its principal office, then holders of record of at least a majority of the then outstanding number of shares of Class A Preferred Stock at the time outstanding may designate in writing one of the holders to call such meeting at the expense of the Corporation, and such meeting may be called by such Person so designated upon the notice required for annual meetings of shareholders of the Corporation and shall be held at such principal office. In such circumstances, any holder of outstanding shares of Class A Preferred Stock so designated shall have access to the stock books of the Corporation relating to the holders of Class A Preferred Stock for the purpose of causing meetings of shareholders to be called pursuant to these provisions; and (iv) At any meeting held for the purpose of electing a director at which the holders of outstanding shares of Class A Preferred Stock shall have the special right, voting together as one class to elect a director as provided in this Section 5(b), the presence, in person or by proxy, of the holders of a majority of the shares of Class A Preferred Stock at the time outstanding shall be required to constitute a quorum of such class for the election of directors pursuant to this Section 5(b), and the affirmative vote of the holders of a majority of the shares of Class A Preferred Stock present in person or by proxy at such meeting shall constitute the act of such holders of shares of Class A Preferred Stock. At any such meeting or adjournment thereof, in the absence of a quorum, holders of a majority of the shares of Class A Preferred Stock present in person or by proxy shall have the power to adjourn the meeting for the election of the director that they are entitled to elect, without notice other than announcement at the meeting, until such a quorum shall be present. (c) If and whenever at any time or from time to time the Corporation shall be in default, in whole or in part, in redeeming shares of Class A Preferred Stock pursuant to the provisions of Section 2 above, such default shall mark the beginning of a period (herein called a "Mandatory Redemption Default Period"), which Mandatory Redemption Default Period shall extend until the Mandatory Redemption Obligation under Section 2 above shall have been set aside and made: (i) from and after the commencement of which the Corporation shall give written or facsimile notice thereof to each holder of the then outstanding shares of Class A Preferred Stock, at the address of each such holder as it appears on the books of the Corporation; and (ii) during the continuance of the Mandatory Redemption Default Period, the holders of the shares of Class A Preferred Stock shall be entitled, voting separately as a class, to elect two members of the Board of Directors. The right of the holders of the Class A Preferred Stock to elect two members of the Board of Directors during a Mandatory Redemption Default Period may be exercised initially either at a special meeting of shareholders called as provided below or at the Corporation's next annual meeting of 7 shareholders, and thereafter at each subsequent annual meeting of shareholders, until such Mandatory Redemption Obligation shall have been satisfied, at which time such right shall terminate, except as herein or by law expressly provided. Upon any termination of the right of the holders of shares of Class A Preferred Stock as a class to vote for two directors as herein provided, the terms of office of the directors then in office elected by the holders of shares of Class A referred Stock shall terminate immediately and the number of directors constituting the Board of Directors shall, without further action, be reduced by the number so elected by the holders of Class A Preferred Stock, subject always to increase during any future Mandatory Redemption Default Period. In case of any vacancy occurring among the directors elected by the holders of shares of Class A Preferred Stock, such vacancy may be filled only by the affirmative vote of the holders of a majority of the then outstanding shares of Class A Preferred Stock. At elections for such directors, each holder of shares of Class A Preferred Stock shall be entitled to one vote for each share; (iii) at any time when such such special voting rights shall have vested in the holders of outstanding shares of Class A Preferred Stock as provided in this Section 5(c), a proper officer of the Corporation shall, upon the written request of the holders of record of at least a majority of the then outstanding number of shares of Class A Preferred Stock, addressed to the Secretary of the Corporation, call a special meeting of the holders of outstanding shares of Class A Preferred Stock for the purpose of electing such additional directors. Such meeting shall be held at the earliest practicable date at the principal office of the Corporation. If such meeting shall not be called by a proper officer of the Corporation within 15 days after receipt of written request upon the Secretary of the Corporation (or the Assistant Secretary if the Secretary is absent) sent by first class mail, postage prepaid, or by prepaid overnight air courier, or within 15 days after mailing the same within the United States of America by registered mail addressed to the Secretary of the Corporation at its principal office, then holders of record of at least a majority of the then outstanding number of shares of Class A Preferred Stock at the time outstanding may designate in writing one of the holders to call such meeting at the expense of the Corporation, and such meeting may be called by such Person so designated upon the notice required for annual meetings of shareholders and shall be held at such principal office. Any holder of outstanding shares of Class A Preferred Stock so designated shall have access to the stock books of the Corporation relating to the holders of Class A Preferred Stock for the purpose of causing meetings of shareholders to be called pursuant to these provisions; and (iv) at any meeting held for the purpose of electing directors at which the holders of outstanding shares of Class A Preferred Stock shall have the special right, voting together as one class to elect directors as provided in this Section 5(c), the presence, in person or by proxy, of the holders of a majority of the shares of Class A Preferred Stock at the time outstanding shall be required to constitute a quorum of such class for the election of directors pursuant to this Section 5(c), and the affirmative vote of the holders of a majority of the shares of Class A Preferred Stock present in person or by proxy at such meeting shall constitute the act of such Class A Preferred Stock. At any such meeting or adjournment thereof, in the absence of a quorum, holders of a majority of the shares of Class A Preferred Stock present in person or by proxy shall have the power to adjourn the 8 meeting for the election of the directors that they are entitled to elect from time to time, without notice other than announcement at the meeting, until such a quorum shall be present. (d) So long as any shares of Class A Preferred Stock remain outstanding, the consent of the holders of at least two thirds (2/3) of the shares of the Class A Preferred Stock outstanding at the time shall be necessary to permit, effect or validate any one or more of the following: (i) the creation, authorization or issuance of any shares of any class of Prior Stock, including the issuance of any indebtedness, stock or other Security convertible into any class or series of Prior Stock or increase in the number of authorized shares of Class A Preferred Stock; or (ii) the declaration or payment of any dividend or the making of any other distribution on any shares of Parity Stock or Junior Stock (other than dividends payable solely in shares of the same class or series of Parity Stock or Junior Stock, as the case may be, to holders thereof) or the purchase, redemption or other acquisition for consideration of any shares of Parity Stock or Junior Stock; or (iii) the amendment, alteration or repeal, of any of the provisions of the Articles of Incorporation, if such amendment, alteration or repeal would adversely affect any privilege, preference, right or power of the Class A Preferred Stock or the holders thereof; or (iv) the merger, consolidation or amalgamation of the Corporation with or into any other Person if such merger, consolidation or amalgamation would adversely effect any privilege, preference, right or power of the Class A Preferred Stock, unless any such merger, consolidation or amalgamation would result in a Change of Control in which event Section 3(b) above shall be applicable. (e) In addition to any other vote or consent of shareholders required by the Articles of Incorporation or the By-laws of the Corporation or by law, the affirmative vote of all the holders of the outstanding Class A Preferred Stock, voting separately as one class, shall be necessary (i) to amend the Articles of Incorporation in any way to change (1) the rate or time of payment of any dividends on the Class A Preferred Stock, (2) the time or amount of any mandatory or optional redemption of any shares of Class A Preferred Stock, (3) the redemption price of any optional redemption under Section 3 above, (4) the amount of any payments upon liquidation of the Corporation with respect to the Class A Preferred Stock, and (5) the priorities afforded by the provisions of Sections 1(e) above and Section 6 of this Part I for the benefit of the Class A Preferred Stock, or (ii) to amend Section 2 above or this Section 5(e). Section 6. Preference on Liquidation, Dissolution or Winding-Up. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders of the Class A Preferred Stock shall be entitled, before any distribution is made to any shares of Junior Stock, to be paid for each share thereof, out of assets of the 9 Corporation available for distribution to shareholders the sum in cash of $10,000 per share plus an amount equal to any and all accrued and unpaid cumulative dividends thereon (whether or not declared) to the date full payment of such specified preferential amount is made available to the holders thereof. The voluntary sale, lease, exchange or transfer (for cash, shares of stock, Securities or other consideration) of all or substantially all of its property or assets to, or a consolidation or merger of the Corporation with, any other Person shall not be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 6. If upon any liquidation, dissolution or winding up of the affairs of the Corporation (whether voluntary or involuntary) the assets of the Corporation available for distribution shall be insufficient to pay the holders of all outstanding shares of Class A Preferred Stock the full amounts to which they shall be entitled, the holders of shares of Class A Preferred Stock shall share ratably in any such distribution of assets in accordance with the amounts which would be payable if all such amounts were paid in full. Section 7. Definitions. In addition to terms defined elsewhere in this Article 4, as used herein: "Acquiring Person" shall mean a "person" within the meaning of Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor provision to either of the foregoing, including any "group" acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5 under the Exchange Act. "Affiliate" shall mean, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 5% or more of any class of voting or equity interests of the Corporation or Cumulus Media or any Subsidiary of either such Person or any corporation of which the Corporation or Cumulus Media or any Subsidiary of either such Person beneficially owns or holds, in the aggregate, directly or indirectly, 5% or more of any class of voting or equity interests. As used in this definition, "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. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Corporation of Cumulus Media. "Change of Control" shall: (a) for purposes of Section 3(b) above mean the earliest to occur of: (i) the date on which Cumulus Media fails to beneficially own, within the meaning of Rule 13d-3 of the Exchange Act ("Beneficially Own"), at least 66-2/3% of the Common Stock of the Corporation, except and unless Cumulus Media and/or the Cumulus Media Ownership Group Beneficially owns at least 35% of the Common Stock of the 10 Corporation and a number of shares equal to at least 51% of the shares of the Common Stock of the Corporation not Beneficially Owned by Cumulus Media and/or the Cumulus Media Ownership Group are listed and traded on a national securities exchange or quoted on the NASDAQ National Market System and no Acquiring Person Beneficially Owns more than 30% of the Common Stock of the Corporation not Beneficially Owned by Cumulus Media and/or the Cumulus Media Ownership Group; or (ii) the date on which the Corporation fails to Beneficially Own at least 75% of the Equity Capital of Cumulus Broadcasting; or (iii) the date on which an Acquiring Person (other than the Cumulus Media Ownership Group) becomes, directly or indirectly, the Beneficial Owner of 50% or more of the Equity Capital of Cumulus Media; or (iv) the date of a merger or statutory share exchange between the Corporation or Cumulus Media, on the one hand, and any other Person, on the other hand, a consolidation of the Corporation or Cumulus Media with any other Person or an acquisition of any other Person by the Corporation or Cumulus Media or the acquisition in one or a series of related transactions of all or a substantial part of the assets of the Corporation or Cumulus Media by any other Person, if immediately after such event, an Acquiring Person (other than Cumulus Media or the Cumulus Media Ownership Group) shall Beneficially Own 50% or more of the Common Stock of the Corporation or 50% or more of the Equity Capital of Cumulus Media outstanding immediately after giving effect to such merger, statutory share exchange, consolidation or acquisition; or (v) the date on which DBBC of Georgia and QUAESTUS Management Corp. collectively cease to Beneficially Own the Equity Capital of Cumulus Media which such entities owned on November 14, 1997 as more fully described in Annex I attached to Exhibit D-2 to the Purchase Agreement; or (vi) the date on which either DBBC of Georgia or QUAESTUS Management Corp. shall cease to be a Manager of Cumulus Media, unless such Manager is removed for Cause (as defined in the Operating Agreement), and a replacement therefor is approved by the Investment Committee of Cumulus Media, pursuant to the Operating Agreement, and (b) for purposes of Section 3(c) above mean the earliest to occur of: (i) the date on which Cumulus Media fails to Beneficially Own at least 50% of the Common Stock of the Corporation; or (ii) the date on which the Corporation fails to Beneficially Own at least 50% of the Equity Capital of Cumulus Broadcasting; or (iii) the date on which Acquiring Person (other than the Cumulus Media Ownership Group) becomes, directly or indirectly, the Beneficial Owner of 50% and more of the Equity Capital of Cumulus Media; or (iv) the date of a merger or statutory share exchange between the Corporation or Cumulus Media, on the one hand, and any other Person, on the other hand, a consolidation of the Corporation or Cumulus Media with any other Person or an acquisition in one or a series of related transactions of any other Person by the Corporation or Cumulus Media or the acquisition of all or a substantial part of the assets of the Corporation or Cumulus Media by any other Person, if immediately after such event, an Acquiring Person (other than Cumulus Media or the Cumulus Media Ownership Group) shall Beneficially Own 50% or more of the Common Stock of the Corporation or 50% or more of the Equity Capital of Cumulus Media outstanding immediately after giving effect to such merger, statutory share exchange, consolidation or acquisition. "Change of Control Corporation Notice" shall have the meaning specified in Section 3(b) above. 11 "Change of Control Stockholder Notice" shall have the meaning specified in Section 3(b) above. "Change of Control Redemption Price" shall have the meaning specified in Section 3(b) above. "Class A Preferred Stock" shall have the meaning set forth in Paragraph 1 of this Article 4. "Common Stock" shall have the meaning set forth in Paragraph I of this Article 4. "Covenant Default Period" shall have the meaning set forth in Section 1(b) above. "Cumulus Broadcasting" shall mean Cumulus Broadcasting, Inc., a Nevada corporation. "Cumulus Media" shall mean Cumulus Media, LLC, a Wisconsin limited liability company. "Cumulus Media Ownership Group" shall mean the State of Wisconsin Investment Board, NationsBanc Capital Corp., Heller Capital Equity Corporation, CML Holdings, LLC and The Northwestern Mutual Life Insurance Company or any Person which is owned or controlled by any of the foregoing Persons or owns or controls any of the foregoing Persons or is under common control with any of the foregoing Persons. For purposes of this definition, "control" means the possession of the power to direct or cause the direction of management and policies of a Person through the ownership of voting securities. "Date" shall have the meaning set forth in Section 1(b) above. "DBBC of Georgia" shall mean DBBC of Georgia, LLC, a Georgia limited liability company. "Designated Event" shall mean either a Change of Control or an Initial Public Offering. "Designated Event Exercise Notice" shall have the meaning specified in Section 3(c) above. "Designated Event Redemption Date" shall have the meaning specified in Section 3(c) above. "Designated Event Redemption Price" shall have the meaning specified in Section 3(c) above. "Dividend Payment Date" shall have the meaning set forth in Section 1(a) above. 12 "Dividend Rate" shall have the meaning set forth in Section 1(a) above. "Equity Capital" shall mean, as to any Person, equity interests in such Person, including, without limitation, the shares of each class of capital stock of any Person that is a corporation, each class of partnership interests (including, without limitation, general, limited and preference units), in any Person that is a partnership, and membership interests in any Person that is a limited liability company. "First Issuance Date" shall mean the first date on which a share of Class A Preferred Stock is issued. "GEM" shall mean Carribean Communications Company Limited, d/b/a GEM Radio Network, a Montserrat corporation and a wholly-owned Subsidiary of the Corporation. "Illinois Corporation Law" shall mean the Illinois Business Corporation Act, as amended from time to time. "Initial Public Offering" shall mean the issuance of shares of Common Stock by the Corporation or the first issuance of shares of equity capital by Cumulus Media in which the Corporation or Cumulus Media, as the case may be, receives no less than $50,000,000 of net proceeds pursuant to a public distribution in which the Common Stock of the Corporation or the equity capital of Cumulus Media, as the case may be, shall be listed and traded on a national exchange or on the NASDAQ National Market System. "Investment Committee" shall have the meaning assigned thereto in the Operating Agreement. "Junior Stock" shall mean all Common Stock and all other shares of stock of any other class of the Corporation, whether or not presently authorized, ranking as to either payment of dividends or distribution of assets junior to the Class A Preferred Stock with respect to either payment of dividends or distribution of assets upon liquidation, dissolution or winding-up of the Corporation. "Manager" shall have the meaning assigned thereto in the Operating Agreement. "Mandatory Redemption Date" shall have the meaning set forth in Section 2 above. "Mandatory Redemption Default Period" shall have the meaning specified in Section 5(c) above. "Mandatory Redemption Obligation" shall have the meaning set forth in Section 2 above. "Operating Agreement" shall mean the Amended and Restated Operating Agreement dated as of November 14, 1997 of Cumulus Media, as the same may from time to time be supplemented or amended in accordance therewith. 13 "Parity Stock" shall mean all preferred stock of the Corporation, whether or not presently authorized, ranking, either as to payment of dividends or distribution of assets, on a parity with the Class A Preferred Stock. "Person" shall mean an individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, Tribunal, association, corporation, institution, entity, limited liability company or government (whether national, Federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "PIK Shares" shall have the meaning set forth in Section 1(a) above. "Prior Stock" shall mean all Equity Capital ranking, either as to payment of dividends, distribution of assets, or in any other respect, prior to the Class A Preferred Stock. "Purchase Agreement" shall mean that certain Securities Purchase Agreement dated as of November 14, 1997 between the Corporation, Cumulus Media and the Northwestern Mutual Life Insurance Corporation, as the same may from time to time be supplemented or amended. "QUAESTUS Management Corp." shall mean QUAESTUS Management Corporation, a Delaware corporation. "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Specified Event of Default" shall have the meaning set forth in Section 1(b) above. "Subsidiary" shall mean any corporation more than 50% of the shares of Equity Capital of which having ordinary voting power for the election of directors is owned, directly or indirectly, by the Corporation and/or any other Subsidiary of the Corporation or by Cumulus Media and/or any other Subsidiary of Cumulus Media. "Tribunal" shall mean any state, commonwealth, federal, foreign, territorial or other court or government body, subdivision, agency, department, commission, board, bureau or instrumentality of a governmental body. Part II. Common Stock Section 1. Dividends. Subject to the foregoing provisions of this Article 4, such dividends as may be determined by the Board of Directors may be declared and paid out of any funds lawfully available therefore upon the Common Stock of the Corporation from time to time. 14 Section 2. Voting Rights. The holders of the Common Stock shall be entitled to one (1) vote for each share held on any matter submitted to a vote of the shareholders of the Corporation. No holder of Common Stock shall be entitled to any cumulative voting rights. Section 3. Liquidation, Dissolution or Winding-Up. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment to the holders of the Class A Preferred Stock of the amounts to which they are entitled as hereinbefore provided, the holders of the Common Stock shall be entitled to share ratably in all assets then remaining subject to distribution to the shareholders. The voluntary sale, lease, exchange or transfer (for cash, shares of stock, Securities or other consideration) of all or substantially all of its property or assets to, or a consolidation or merger of the Corporation with, any other Person shall not be deemed to be a liquidation, dissolution or winding-up of the affairs of the Corporation within the meaning of this Section 3. 15 EX-3.3 8 EXHIBIT 3.3 Exhibit 3.3 BY-LAWS OF CUMULUS HOLDINGS, INC. ARTICLE I. OFFICES SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation in the State of Illinois shall be located at 875 North Michigan Avenue, Suite 3650, Chicago, Illinois. The Corporation may also have offices at such other places, either within or without the State of Illinois, where the Corporation is qualified to do business, as the Board of Directors may designate or as the business of the Corporation may require. SECTION 2. REGISTERED OFFICE. The registered office of the Corporation which is required by The Business Corporation Act to be maintained in the State of Illinois may be, but need not be, identical with the principal office of the Corporation in the State of Illinois, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II. SHAREHOLDERS' MEETINGS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of the Corporation shall be held within seventy-five (75) days after the close of the preceding fiscal year, for the purpose of electing Directors and transacting such other business as may properly come before the meeting. If the election of Directors is not held on the day designated herein for the annual meeting of the shareholders, or at any adjournment of such meeting, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as may be convenient. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called by the President, the Board of Directors, or the holder or holders of not less than one-fifth (1/5) of all of the outstanding shares of the Corporation. SECTION 3. PLACE OF MEETING. The annual meeting of the shareholders, and any special meeting of the shareholders called by the Board of Directors, shall be held at such place, either within or without the State of Illinois, as the Board of Directors may designate. If no designation is made, or if a special meeting of the shareholders is otherwise called, the place of meeting shall be the principal office of the Corporation in the State of Illinois; but any meeting of the shareholders may be adjourned to reconvene at the place designated by vote of a majority of the shares represented at such meeting. SECTION 4. NOTICE OF MEETINGS. Written or printed notice of all meetings of the shareholders shall be delivered to each shareholder of record, either personally or by mail to the shareholder at his address as it appears on the stock transfer books of the Corporation, by or at the direction of the President, the Secretary, or the person or persons calling such meeting. If notice is delivered by mail, the notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid. SECTION 5. TIME AND CONTENTS OF NOTICE. Notice of any meeting of the shareholders shall be delivered not less than 10 nor more than 40 days prior to the date of the meeting, or in the case of a merger or consolidation, not less than 20 nor more than 40 days prior to the date of the meeting. The notice shall state the place, date, and time of the meeting and, if it is a special meeting, the notice shall also state the purpose or purposes for which the meeting is called. If the purpose of the meeting, or one of its purposes, is to consider a proposed reduction of stated capital without amendment to the Articles of Incorporation, or voluntary dissolution or revocation of a voluntary dissolution by act of the Corporation, or a proposed disposition of all (or substantially all) of the assets of the Corporation outside of the ordinary course of business, the notice of the meeting shall state such purpose. If the purpose of the meeting, or one of its purposes, is to consider a proposed amendment to the Articles of Incorporation, the notice shall set forth the proposed amendment or a summary of the changes to be effected thereby; and if the purpose of the meeting, or one of its purposes, is to consider a proposed merger or consolidation, a copy or a summary of the plan of merger or plan of consolidation, as the case may be, shall be included in or enclosed with the notice of the meeting. SECTION 6. QUORUM. A majority of the outstanding shares of the corporation, represented in person or by proxy, shall constitute a quorum at any meeting of the shareholders; provided, however, that if less than a majority of the outstanding shares of each class are represented at the meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. If a quorum is present, the affirmative vote of a majority of the shares of each class represented at the meeting shall be the act of the shareholders, unless the vote of a greater number is required by The Business Corporation Act, the Articles of Incorporation, or these By-Laws. SECTION 7. CLOSING OF STOCK TRANSFER BOOK OR FIXING OF RECORD DATE. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of the shareholders, or the shareholders entitled to receive payment of any dividend, or in order to make a determination of the shareholders for any other purpose, the Board of Directors may provide that the stock transfer books of the Corporation shall be closed for a stated period not exceeding 60 days. If the stock transfer books are closed for the purpose of determining the shareholders entitled to notice of or to vote at any meeting of the shareholders, such books shall be closed not less than 10 days, or in the case of a merger or consolidation, not less than 20 days, prior to the date of the meeting. In lieu of closing the stock transfer books, the Board of Directors may fix a date in advance as the record date for any such determination of shareholders, provided that such date is not more than 60 days and, in the case of a meeting of the shareholders, not less than 10 days (or in the case of a merger or consolidation, not less than 20 days), prior to the date of the meeting. If the stock transfer books of the Corporation are not closed and no record date is fixed by the Board of Directors for a determination of the shareholders entitled to notice of or to vote 2 at any meeting of the shareholders, or for a determination of the shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. SECTION 8. VOTING LISTS. Not less than ten (10) days prior to the date of each meeting of the shareholders, the officer having charge of the stock transfer books of the Corporation shall make a complete list of the shareholders entitled to vote at the meeting, which shall be arranged in alphabetical order, with the address and number of shares held by each shareholder, and shall be kept on file at the principal office of the Corporation for inspection by any shareholder at any time during usual business hours. The voting list shall also be produced and kept open at the meeting of the shareholders and shall be subject to inspection by any shareholder at any time during the meeting. The stock transfer books of the Corporation shall be prima facie evidence of the shareholders entitled to examine the voting list, or the stock transfer books, or to vote at the meeting of the shareholders. Notwithstanding anything to the contrary contained herein, the failure to prepare or to make available a list of shareholders as provided in this Section shall not affect the validity of any action otherwise properly taken at the meeting of the shareholders. SECTION 9. VOTING OF SHARES. Subject to Section 11 of this Article, each outstanding share of the Corporation, regardless of class, shall be entitled to one (1) vote upon each matter submitted to a vote at any meeting of the shareholders. SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Corporation standing in the name of another corporation, whether domestic or foreign, may be voted by such officer, agent, or proxy as the by-laws of such corporation may provide or, in the absence of any such provision, as the board of directors of such corporation may determine; and any shares voted by an officer, agent, or proxy of such corporation shall be presumed to be voted with due authority in the absence of express notice to the contrary given in writing to the Secretary or other officer of the Corporation. Shares of the Corporation standing in the name of a deceased person, a minor, or an incompetent, may be voted by such person's administrator, executor, guardian, or conservator, as the case may be, either in person or by proxy, without the necessity to transfer such shares into the name of such fiduciary, provided that such fiduciary files proper evidence of his incumbency or office with the Secretary of the Corporation. Shares standing in the name of a trustee may be voted by him either in person or by proxy. Shares of the Corporation which have been pledged by a shareholder shall continue to be voted by him until such shares have been transferred into the name of the pledgee. Shares of the Corporation belonging to the Corporation itself shall not be voted, directly or indirectly, at any meeting of the shareholders and shall not be considered in determining the total number of outstanding shares at any given time. 3 SECTION 11. CUMULATIVE VOTING. In all elections for Directors, every shareholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected, or he may cumulate his shares and give one candidate as many votes as the number of Directors to be elected multiplied by the number of his shares shall equal, or he may distribute his shares on the same principle among as many candidates as he may determine. SECTION 12. PROXIES. A shareholder may vote at any meeting of the shareholders by a proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact, which shall be filed with the Secretary of the Corporation prior to or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. SECTION 13. WAIVER OF NOTICE. Whenever any notice is required to be given to any shareholder under The Business Corporation Act, the Articles of Incorporation, or these By-Laws, a waiver thereof in writing by the shareholder entitled to such notice, signed at any time before or after the time of the meeting, shall be deemed equivalent to the giving of such notice. SECTION 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required by The Business Corporation Act, the Articles of Incorporation, or these By-Laws to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent shall have the same force and effect as a unanimous vote of shareholders, and may be stated as such in any document filed with the Secretary of State under The Business Corporation Act. ARTICLE III. BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. Subject to any limitations imposed by The Business Corporation Act, the Articles of Incorporation, or these By-Laws, the business and affairs of the Corporation shall be managed by its Board of Directors. SECTION 2. NUMBER, TENURE, AND QUALIFICATIONS. The number of Directors of the Corporation shall be five (5). The number of Directors may be increased or decreased from time to time by amendment to these By-Laws, but no decrease shall have the effect of reducing the term of any incumbent Director. Each Director shall hold office until the next succeeding annual meeting of the shareholders or until his successor has been elected and qualified. Directors need not be residents of the State of Illinois or shareholders of the Corporation. SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held, without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of the shareholders. The Board of Directors may provide by resolution for the 4 holding of additional regular meetings of the Board of Directors, either within or without the State of Illinois, without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the President of the Corporation or any two Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Illinois, as the place for holding any special meeting of the Board of Directors called by them. SECTION 5. NOTICE. Notice of any special meeting of the Board of Directors shall be given orally, in writing, or by telegram not less than seventy-two (72) hours prior to the time of such meeting. If written notice is given, such notice shall be deemed to be given upon the personal delivery of such notice or upon the deposit of such notice in the United States mail, postage prepaid, addressed to the Director at his business address. If notice by telegram is given, such notice shall be deemed to be given when delivered to the telegraph company for transmission to the Director at his business address. Whenever any notice is required to be given to any Director of the Corporation under The Business Corporation Act, the Articles of Incorporation, or these By-Laws, a waiver thereof in writing by the Director entitled to such notice, signed at any time before or after the time of meeting, shall be deemed equivalent to the giving of such notice. The attendance of a Director at any meeting of the Board of Directors shall constitute a waiver of notice of the meeting, except where a Director attends for the express purpose of objecting to the transaction of any business at the meeting on the grounds that the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of the meeting. SECTION 6. QUORUM. A majority of the number of Directors fixed by these By-Laws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors; provided, however, that if less than a majority of such number of Directors are present, a majority of the Directors present may adjourn the meeting from time to time without further notice. SECTION 7. MAJORITY ACTION. The act of a majority of the Directors present at a meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors (unless the act of a greater number of Directors is required by the Articles of Incorporation or by these By-Laws). A Director of the Corporation who is present at a meeting of the Board of Directors at which action is taken shall be conclusively presumed to have assented to the action so taken unless his dissent to such action is entered in the minutes of the meeting, or he files a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or he forwards his dissent, by registered or certified mail, to the Secretary of the Corporation not later than two (2) days after the adjournment of the meeting. This right to dissent may not be exercised by any Director who voted in favor of such action. 5 SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors, and any directorship to be filled by reason of an increase in the number of Directors, shall be filled by election at the annual meeting of the shareholders or at a special meeting of the shareholders called for such purpose. A Director elected to fill a vacancy shall serve for the unexpired term of his predecessor in office and until his successor is elected and qualified. SECTION 9. COMPENSATION. By resolution adopted by the affirmative vote of a majority of the Directors then in office, and regardless of the personal interest of any Director, the Board of Directors may establish reasonable compensation of all Directors for services rendered to the Corporation as Directors, officers, or otherwise. By a like resolution, the Board of Directors may authorize the payment to all Directors of their respective expenses, if any, reasonably incurred in attending any regular or special meeting of the Board of Directors. SECTION 10. COMMITTEES. By resolution adopted by the affirmative vote of a majority of Directors then in office, the Board of Directors may designate one or more committees, each committee to consist of two or more Directors elected by the Board of Directors, which, to the extent provided in such resolution (as initially adopted and as thereafter supplemented or amended by further resolution adopted by a like vote) shall have and may exercise (when the Board of Directors is not in session) all of the authority and powers of the Board of Directors in the management of the business and affairs of the Corporation (provided, however, that no such committee shall have or exercise the authority or powers of the Board of Directors with respect to the following: amending the articles of incorporation; adopting a plan of merger or adopting a plan of consolidation with another corporation or corporations; recommending to the shareholders the sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the assets of the Corporation if not made in the usual and regular course of its business; recommending to the shareholders a voluntary of dissolution of the Corporation or a revocation thereof; amending, altering, or repealing these By-Laws; electing or removing officers of the Corporation or members of any committee created pursuant to this Section; declaring dividends; or amending, altering, or repealing any resolution of the Board of Directors which by its terms provides that it shall not be amended, altered, or repealed by any committee created pursuant to this Section). The Board of Directors may elect one or more of its members as alternate members of any such committee, who may take the place of any absent member or members at any meeting of such committee upon request by the President of the Corporation or the chairman of such meeting. Each such committee shall fix its own rules governing the conduct of its activities and shall make such reports of its activities to the Board of Directors as the Board of Directors may request. SECTION 11. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The Corporation may indemnify any person who was or is, or is threatened to be made, a party to any threatened, pending, or completed action, suit, or proceeding (whether civil, criminal, administrative, or investigative) by reason of the fact that he is or was a Director, officer, or employee of the Corporation, against any costs or expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action, suit, or proceeding, if (i) he acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, 6 the best interests of the Corporation and if (ii) with respect to any criminal action or proceeding, he did not have reasonable cause to believe that his conduct was unlawful; provided, however, that no indemnification shall be made with respect to any claim, issue, or matter arising from any action by or in the name of the Corporation with respect to which the person is adjudged liable for negligence or misconduct in the performance of his duty to the Corporation (unless, and only to the extent that, the court in which such action was brought determines, upon application, that despite the adjudication of liability, but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs and expenses which the court shall deem proper). The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, did have reasonable cause to believe that his conduct was unlawful. To the extent that a Director, officer, or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding to which this Section is applicable, or in defense of any claim, issue, or matter therein, he shall be indemnified against the costs and expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. Unless ordered by a court, any indemnification under this Section shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, or employee is proper under the circumstances because he has met the applicable standard of conduct set forth herein. This determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit, or proceeding, or (ii) if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion to the Board of Directors, or (iii) by the shareholders of the Corporation. SECTION 12. INFORMAL ACTION BY DIRECTORS. Any action required by The Business Corporation Act, the Articles of Incorporation, or these By-Laws to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors entitled to vote with respect to the subject matter thereof. Such consent shall have the same force and effect as a unanimous vote of all of the members of the Board of Directors, and may be stated as such in any document filed with the Secretary of State under The Business Corporation Act. ARTICLE IV. OFFICERS SECTION 1. PRINCIPAL OFFICERS. The principal officers of the Corporation may include a Chairman of the Board, a Vice Chairman, a President, one or more Vice-Presidents (the number of which shall be determined by the Board of Directors), a Secretary, and a Treasurer, each of 7 whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint such other officers and assistant officers as may be deemed necessary or desirable. One person may hold any two or more offices, with the exception that the same person shall not hold the offices of President and Secretary. SECTION 2. ELECTION AND TERM OF OFFICE. Subject to Section 4, below, the officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after the annual meeting of the shareholders; and each officer shall hold office until his successor is elected and qualified or until his death or his resignation or removal in the manner provided in Section III, below. If the election of officers is not held at such regular meeting of the Board of Directors, the election shall be held as soon thereafter as may be convenient. Election or appointment of an officer shall not of itself create any contract rights. SECTION 3. REMOVAL. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, or the person so removed. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or Secretary of the Corporation. The resignation shall take effect on the date of receipt of the notice of resignation or at any later time specified therein; and unless the notice of resignation specifies otherwise, the resignation shall become effective without the necessity of acceptance by the Board of Directors. SECTION 4. VACANCIES. If any office becomes vacant by reason of the death, resignation, or removal of the incumbent, the Board of Directors shall elect a successor who shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified. SECTION 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. He shall, when present, preside at all meetings of the shareholders and of the Board of Directors. He may sign certificates for shares of the Corporation's capital stock and deeds, mortgages, bonds, contracts, or other instruments necessary or proper to be executed in the course of the Corporation's regular business or which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of chairman of the board and such other duties as may be prescribed by the Board of Directors from time to time. Except as otherwise provided by the The Business Corporation Act or the Board of Directors, the Chairman of the Board may authorize any President, Vice-President or other officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his place and stead. SECTION 6. THE VICE CHAIRMAN. The Vice Chairman shall, in the absence of the Chairman of the Board, preside at all meetings of the shareholders and of the Board of Directors. 8 In the absence of the Chairman of the Board or in the event of his death, inability or refusal to act, the Vice Chairman shall perform the duties of the Chairman of the Board, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board. He shall perform such other duties as may be prescribed from time to time by the Chairman of the Board or the Board of Directors. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the Corporation. The President may sign certificates for shares of the Corporation's capital stock and deeds, mortgages, bonds, contracts, or other instruments necessary or proper to be executed in the course of the Corporation's regular business or which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time. Except as otherwise provided by the The Business Corporation Act or the Board of Directors, the President may authorize any Vice-President or other officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his place and stead. SECTION 8. THE VICE-PRESIDENTS. In the absence of the President or in the event of his death, inability or refusal to act, the Vice-President, if one has been elected (or in the event that there is more than one Vice-President, the Vice-Presidents in the order designated at the time of their appointment, or in the absence of any designation, then in the order of their appointment), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice-President may sign certificates for shares of the Corporation's capital stock, the issuance of which have been authorized by resolution of the Board of Directors; and shall perform such other duties as from time to time may be assigned to him by the Chairman of the Board or by the Board of Directors. SECTION 9. THE SECRETARY. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by the The Business Corporation Act; (c) be custodian of the corporate records and of any seal of the Corporation and, if there is a seal of the Corporation, see that it is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) when requested or required, authenticate any records of the Corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder or delegate that responsibility to a stock transfer agent approved by the Board of Directors; (f) sign, with the Chairman of the Board, the President or a Vice-President, certificates for shares of the Corporation's capital stock, the issuance of which has been authorized by resolution of the Board of Directors; (g) have general charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the Chairman of the Board or by the Board of Directors. 9 SECTION 10. THE CHIEF FINANCIAL OFFICER AND TREASURER. The Chief Financial Officer and Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies, or other depositaries as shall be selected by the Board of Directors; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the Chairman of the Board or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall require. SECTION 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the Chairman of the Board, the President or a Vice-President certificates for shares of the Corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the Chairman of the Board or the Board of Directors. SECTION 12. SALARIES. The salaries of officers of the Corporation shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V. CONTRACTS, LOANS, CHECKS, AND DEPOSITS SECTION 1. CONTRACTS AND INSTRUMENTS. The Board of Directors may authorize any officer or officers of the Corporation to enter into any contract or agreement, and to execute and deliver any agreement, document, or instrument, in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. SECTION 2. LOANS. No loan shall be made on behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by resolution of the Board of Directors; and such authorization may be general or confined to specific instances. SECTION 3. CHECKS AND DRAFTS. All checks, drafts, and other orders for the payment of money, and all promissory notes and other evidence of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers and in such manner as shall be determined by resolution of the Board of Directors. 10 SECTION 4. DEPOSITS. All funds and monies of the Corporation shall be deposited in the name of the Corporation in such banks, trust companies, or other depositories as the Board of Directors may select or as the Board of Directors may authorize any officer or officers to select. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the Corporation shall be in such form as may be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice-President, and by the Secretary or Assistant Secretary, and shall be sealed with the seal of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name and post office address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificates shall be issued until the former certificate for a like number of shares has been surrendered and cancelled, except that in the case of a lost, destroyed, or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfers of shares of the Corporation shall be made on the stock transfer books of the Corporation only by the holder of record thereof, or by his legal representative or his attorney so authorized by a duly executed power-of-attorney filed with the Secretary of the Corporation, upon surrender for cancellation of the certificate for such shares. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications, and otherwise to exercise all of the rights and powers of the owner of such shares. Where a certificate for shares is presented to the Corporation with a request to register for transfer, the Corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if there were on or with the certificate the necessary endorsements and if the Corporation had no duty to inquire into adverse claims or had discharged any such duty. The Corporation may require reasonable assurance that the endorsements are genuine and effective and in compliance with such other regulations as may be prescribed by the Board of Directors. ARTICLE VII. AMENDMENTS SECTION 1. AMENDMENT BY DIRECTORS. These By-Laws may be altered, amended, or repealed, and new By-Laws may be adopted in whole or in part by the Board of Directors, notwithstanding the fact that these By-Laws may have been adopted by the subscribers or by the shareholders of the Corporation. SECTION 2. IMPLIED AMENDMENTS. Any action taken or authorized by the shareholders of the Corporation by the affirmative vote of the holders of the majority of the outstanding shares of each class of the Corporation, or by the Board of Directors, shall be given the same effect as 11 though these By-Laws had been temporarily amended so far as is necessary to permit the specific action so taken or authorized. 12 EX-3.5 9 EXHIBIT 3.5 Exhibit 3.5 STATEMENT OF RESOLUTIONS FIXING TERMS OF VOTING POWER, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF [__]% SERIES A CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK DUE 2009 OF CUMULUS MEDIA INC.(1) ------------------ Pursuant to Section [____] of the Business Corporation Act of Illinois ------------------ Cumulus Media Inc., an Illinois corporation (the "Company") certifies that pursuant to the authority contained in ARTICLE [ ] of its Articles of Incorporation, as amended (the "Articles of Incorporation"), and in accordance with the provisions of Section [___] of the Business Corporation Act of Illinois, the Board of Directors of the Company (the "Board of Directors") by unanimous written consent, duly approved and adopted the following resolution which resolution remains in full force and effect on the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors by the Articles of Incorporation, the Board of Directors does hereby designate, create, authorize and provide for the issue of preferred stock having a par value of $.01 per share, which shall be designated as [__]% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 (the "Series A Preferred Stock") consisting of [________] shares to be issued pursuant to the Prospectus and an additional [ ] shares reserved for issuance - ---------- (1) Appropriateness of general form of Certificate is subject to review by Illinois counsel. from time to time and shall have the voting powers, preferences and relative participating, optional and other special rights, and qualifications, limitations and restrictions thereon as follows: 1. Certain Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Applicable Redemption Price" means, for each share of Series A Preferred Stock, the price equal to the redemption prices set forth below (expressed as percentages of the then effective Liquidation Preference thereof), plus, without duplication, all accumulated and unpaid dividends, if any, to but excluding the Redemption Date (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to but excluding the Redemption Date), if redeemed during the 12-month period commencing on [_________] of the years set forth below: 2003...................................................[__]% 2004...................................................[__]% 2005...................................................[__]% 2006...................................................[__]% 2007 and thereafter.....................................100% "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such 2 transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "BCAI" has the meaning set forth in Section 5(a) "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, to be in full force and effect on the date of such certification and delivered to the Transfer Agent. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City or the State of Illinois are authorized or obligated by law or executive order to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued, or directly and fully guaranteed, or insured by, the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having a rating of at least P-2 from Moody's Investors Service, Inc. (or its successor) and a rating of at least A-2 from Standard & Poor's Ratings Services (or its successor) and (vi) investments in money 3 market or other mutual funds substantially all of whose assets comprise securities of types described in clauses (ii) through (v) above. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole, to any "person" or group of related "persons" (a "Group") (as such terms are used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) the result of which is that any "person" (as defined above) or Group becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 35% of the aggregate voting power of all classes of Capital Stock of the Company having the right to elect directors under ordinary circumstances or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Change of Control Offer" has the meaning set forth in Section 8(a). "Change of Control Payment" has the meaning set forth in Section 8(a). "Change of Control Payment Date" has the meaning set forth in Section 8(d). "Commission" means the Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any Person for any period, the sum of, without duplication, the Consolidated Net Income of such Person for such period plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (ii) Consolidated Interest Expense of such Person for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iii) the product of (a) all cash dividend payments, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local effective tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP, plus (iv) consolidated depreciation, amortization and other non-cash charges of the Person and its Subsidiaries deducted in computing Consolidated Net Income of such Person for such period (v) cash payments with respect to any non-cash charges previously added back pursuant to clause (iv). Notwithstanding the 4 foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior government approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, and (v) all other extraordinary gains and extraordinary losses shall be excluded. 5 "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Issue Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of original issuance of the Exchange Debentures or (ii) was nominated for election or elected to such Board of Directors with the approval of (x) two-thirds of the Continuing Directors who were members of such Board at the time of such nomination or election or (y) two-thirds of those Directors who were previously approved by Continuing Directors. "Credit Agreements" means, with respect to the Company, one or more debt facilities (including, without limitation, the Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payments, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Agreements outstanding on the Issue Date (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness. "Credit Facility" means that certain Credit Agreement, dated as of March 2, 1998, as amended by and among the Company, Lehman Brothers Inc., as Arranger and Lehman Brothers Commercial Paper Inc., as syndication agent and administrative agent and as a lender, and certain banks, financial institutions and other entities, as lenders, providing for up to $190.0 million of Indebtedness, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents. 6 "Debentures Trustee" has the meaning set forth in Section 6(a). "Disqualified 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 or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is convertible or exchangeable for Indebtedness or Disqualified Stock or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Exchange Debentures mature, provided however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof (or of any security into which it is convertible or for which it is exchangeable) have the right to require the issuer to repurchase such Capital Stock (or such security into which it is convertible or for which it is exchangeable) upon the occurrence of any of the events constituting a Change of Control shall not constitute Disqualified Stock if such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provides that the issuer thereof will not repurchase or redeem any such Capital Stock (or any such security into which it is convertible or for which it is exchangeable) pursuant to such provisions prior to compliance by the Company with the provisions of Section 8. "Dividend Payment Date" has the meaning set forth in Section 3(a). "Dividend Shares" means shares of Series A Preferred Stock paid by the Company to Holders of then outstanding shares of Series A Preferred Stock as dividends on such outstanding shares in accordance with this Statement of Resolutions Fixing Terms. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any public or private sale of the Common Stock of the Company pursuant to which the Company receives net proceeds of at least $25.0 million, other than issuances of Common Stock of the Company pursuant to employee benefit plans or as compensation to employees. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Date" has the meaning set forth in Section 6(c). "Exchange Debentures" means the Company's [__]% Subordinated Debentures due 2009, issuable in exchange for the Series A Preferred Stock in accordance with the terms hereof. 7 "Exchange Indenture" has the meaning set forth in Section 6(a). "Exchange Notice" has the meaning set forth in Section 6(c). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by Section 9(a) and (ii) other agreements or arrangements designed to protect such Person against fluctuation in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business. "Holder" means a Person in whose name a share of Series A Preferred Stock is registered. "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, incur, issue, assume, guarantee or otherwise become liable contingently or otherwise (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the foregoing). "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, or (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof (other than letters of credit securing obligations not constituting Indebtedness that are issued in the ordinary course of business by a Person to the extent not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit) or bankers' acceptances, or (iii) representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable, or (iv) representing any Hedging Obligations, in each case if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a 8 balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Issue Date" means the date on which the Series A Preferred Stock are originally issued. "Junior Securities" has the meaning set for in Section 2. "Leverage Ratio" means 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 Disqualified Stock of the Company and 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 Cash Flow 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 9 Indebtedness is being incurred or preferred stock is being issued had occurred, on the first day of the Four Quarter Period. In addition to the foregoing, for purposes of this definition, Consolidated Cash Flow 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 acquisition (including, without limitation, any 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 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 acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such preferred stock and also including any Consolidated Cash Flow associated with such acquisition) occurred on the first day of the Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company consistent with Article 11 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Issue Date. Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated Cash Flow," (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 Hedging Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement with respect to a lease not intended as a security agreement). 10 "Liquidation Preference" means $1,000 per share of Series A Preferred Stock. "Mandatory Redemption Date" has the meaning set forth in Section 5(a). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any asset sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable (as a guarantor or otherwise); (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. "Notes Indenture" means the Indenture dated the Issue Date between the Company and [ ] pursuant to which the Senior Subordinated Notes were issued. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers' Certificate" means a certificate signed by two officers at least one of whom shall be the principal executive officer, principal accounting officer or principal financial officer of the Company and delivered to the Transfer Agent. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be reasonably acceptable to the Transfer Agent, delivered to the Transfer Agent. "Parity Securities" has the meaning set forth in Section 2. 11 "Paying Agent" means [____________________]. "Permitted Business" means the broadcasting business or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "Permitted Indebtedness" means (a) Indebtedness evidenced by the Senior Subordinated Notes; (b) Indebtedness pursuant to Credit Agreements, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Agreements do not, at any one time, exceed $190.0 million, less the aggregate amount of all mandatory prepayments of principal applied since the date of this Statement of Resolutions Fixing Terms to permanently reduce the outstanding amount of such Indebtedness; (c) Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of this Statement of Resolutions Fixing Terms; (d) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (e) Indebtedness represented by Capital 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, lease or cost of construction or improvement of property, plant or equipment used in a Permitted Business in an aggregate principal amount not to exceed $15.0 million at any time outstanding; (f) the incurrence by the Company or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that is permitted by this Statement of Resolutions Fixing Terms to be incurred; (g) the incurrence by the Company or its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating or variable rate Indebtedness or for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, in each case in respect of Indebtedness that is permitted by the terms of this Statement of Resolutions Fixing Terms to be outstanding; provided, however, that in the case of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risks with respect to Indebtedness, the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates and in the case of Hedging Obligations incurred for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, such Hedging Obligations do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness incurred 12 solely in respect of performance, surety and similar bonds or completion guarantees, to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money to others; (i) Indebtedness arising out of standby letters of credit covering workers compensation, performance or similar obligations in an aggregate amount not to exceed $500,000 at any time outstanding; (j) any guarantee of the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of this Statement of Resolutions Fixing Terms; (k) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $10.0 million; and (l) the issuance of Dividend Shares issued on the Series A Preferred Stock outstanding on the Issue Date or issued subsequent to the Issue Date as dividends permitted pursuant to this clause (l), to the extent such dividends are made pursuant to the terms of this Statement of Resolutions Fixing Terms for such Series A Preferred Stock as in effect on the Issue Date, on any Preferred Stock issued in exchange for the Series A Preferred Stock, or any dividends on such Preferred Stock to the extent such dividends are made pursuant to the terms of this Statement of Resolutions Fixing Terms of such Preferred Stock. "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment, (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an asset sale; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (e) that are at the time outstanding without giving effect to subsequent changes in value or increases or decreases attributable to the accounting for the net income of such Investment, not to exceed $15.0 million; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock); (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (i) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (ii) as a result of the transfer of title with respect to any secured investment in default as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to such secured Investment; (h) Hedging Obligations permitted under Section 9(a); 13 (i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case, incurred in the ordinary course of business; and (j) any guarantees permitted to be made pursuant to Section 9(a). "Permitted Refinancing Debt" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iii) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means, with respect to any Person, and any and all shares of Capital Stock of such Person that have preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Principal" means Richard W. Weening and Lewis W. Dickey, Jr. "Prospectus" means the Prospectus dated June, 1998 with respect of the offering of the Series A Preferred Stock. "Record Date" has the meaning set forth in Section 3(a). "Redemption Date" has the meaning set forth in Section 5(d). "Related Party" with respect to any Principal means (i) any controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate family member (in the case of an individual) of such principal or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (i). 14 "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payment" means (i) the declaration or payment of any dividend or the making of any distribution on account of any Junior Securities (other than dividends or distributions payable in Junior Securities (other than Disqualified Stock)), (ii) the purchase, redemption or other acquisition or the retirement of, for value, any Junior Securities or (iii) the making of any Investment (other than a Permitted Investment) in any Person. "Restricted Subsidiary" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. "Securities Act" means the Securities Act of 1933, as amended. "Senior Subordinated Notes" means the [ ]% Senior Subordinated Notes Due 2008 of the Company. "Series A Preferred Stock" has the meaning designated in the second paragraph of the recitals of the Company. "Statement of Resolutions Fixing Terms" means this Statement of Resolutions Fixing Terms of Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of [__]% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 of the Company. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock, entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Transfer Agent" means [ ], a [_______________]. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Undesignated Shares" means the undesignated shares of the capital stock of the Company which are authorized under its Articles of Incorporation. 15 "Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt; (c) the Company certifies that such designation complies with Section 9(c); (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced by a resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Statement of Resolutions Fixing Terms and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to such designation, no Voting Rights Triggering Event shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to Section 9(a)(i) on a pro forma basis taking into account such designation. "Voting Rights Amendment" means an amendment to the Bylaws of the Company providing for an increase in the size of the Board of Directors of the Company to, at all times, accommodate the appointment of a sufficient number of directors designated by the Holders of Series A Preferred Stock in compliance with clauses (a) and (b) of Section 7(b). 16 "Voting Rights Triggering Event" has the meaning set forth in Section 7(b). "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. 2. Ranking. (a) The Series A Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to all classes of common stock of the Company and to each other class of Capital Stock of the Company established after the Issue Date by the Board of Directors of the Company the terms of which do not expressly provide that it ranks on a parity with the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to, together with all classes of common stock of the Company, as "Junior Securities"); (ii) subject to certain conditions, described below, on a parity with each series of preferred stock existing on the date of the Prospectus the terms of which do not expressly provide that it ranks junior to any Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, and any class of Capital Stock established after the Issue 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 Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"). (b) The Company shall not authorize or issue any new class of Parity Securities without the affirmative vote or consent (voting or consenting as one class) of the holders of at least 50% of the shares of Series A Preferred Stock then outstanding; provided, that, without the approval of Holders of the Series A Preferred Stock, the Company may issue shares of Parity Securities in exchange for, or the proceeds of which are used to redeem or purchase, any or all of the shares of the Series A Preferred Stock or other Parity Securities then outstanding. 17 3. Dividends. (a) The Holders of the outstanding shares of the Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, dividends on the Series A Preferred Stock, which shall accrue at a rate per annum equal to [__]% of the Liquidation Preference. If at any time dividends on the Series A Preferred Stock are in arrears and unpaid for four consecutive quarterly dividend periods, holders of Series A Preferred Stock will be entitled to the voting rights specified in Section 7 of this Statement of Resolutions Fixing Terms. All dividends will be cumulative, whether or not earned or declared on a daily basis, from [__________] and will be payable quarterly in arrears on [__________], [__________], [________], and [__________] of each year, commencing on [__________], 1998, or, if any such date is not a Business Day, on the next succeeding Business Day (each a "Dividend Payment Date") to the Holders on the [__________], [__________], [________] or [__________] immediately preceding the relevant Dividend Payment Date (each, a "Record Date"). On or before [__________], 2003, the Company may, at its option, pay dividends in cash or in Dividend Shares (including fractional shares, provided, that the Company may, at its option, pay cash in lieu of issuing fractional shares) having an aggregate Liquidation Preference equal to the amount of such dividends. After [__________], 2003, dividends shall be paid only in cash. The issuance of such Dividend Shares shall constitute "payment" of the related dividend for all purposes of this Statement of Resolutions Fixing Terms. Dividends payable on the Series A Preferred Stock will be computed on the basis of a 360-day year consisting of twelve 30- day months and the number of days actually elapsed and will be deemed to accrue on a daily basis. (b) No full dividends shall be declared or paid or funds set apart for the payment of dividends on any Parity Securities 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 set apart for such payment on the Series A Preferred Stock. If full dividends are not so paid, the Series A Preferred Stock will share dividends pro rata with the Parity Securities. Unless full cumulative dividends on all outstanding shares of Series A Preferred Stock for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, then: (i) no dividend (other than a dividend on Junior Securities payable solely in shares of any Junior Securities) shall be declared or paid upon (or deemed paid), or any sum set apart for the payment of dividends upon, any shares of Junior Securities; (ii) no shares of Junior Securities or Parity Securities shall be repurchased, redeemed or otherwise acquired or retired by the Company or any of its Subsidiaries; and (iii) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities or Parity Securities by the Company or any of its Subsidiaries. Dividends on account of arrears for any past dividend period and dividends in connection 18 with any optional redemption may be declared and paid at any time, without reference to any regular Dividend Payment Date, to holders of record of the Series A Preferred Stock on such date, not more than 45 days prior to the payment thereof, as may be fixed by the Board of Directors of the Company. 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, Holders of Series A Preferred Stock shall be entitled to payment, out of the assets of the Company available for distribution to stockholders, the Liquidation Preference per share of Series A Preferred Stock, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends thereon to but excluding 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 Securities, 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 Series A Preferred Stock and all other Parity Securities are not paid in full, the Holders of the Series A Preferred Stock and the Parity Securities shall share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. 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 Series A Preferred Stock shall not be entitled to any further participation in any distribution of assets of the Company. However, 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 Company nor the consolidation or merger of the Company with or into one or more Persons shall be deemed to be a liquidation, dissolution or winding-up of the Company, unless such sale, conveyance, exchange or transfer shall be in connection with a liquidation, dissolution or winding-up of the business of the Company. 5. Redemption by the Company. (a) On [_________], 2009 (the "Mandatory Redemption Date"), the Company shall be required to redeem (subject to the legal availability of funds therefor [and to Sections [______] and [_____] of the Business Corporation Act of Illinois (the "BCAI")] all outstanding shares of Series A Preferred Stock at a price equal to 100% of the aggregate Liquidation Preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends, if any, to but excluding 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). The Company shall not be required to make sinking fund payments to protect the Liquidation Preference with respect to the Series A Preferred Stock. 19 (b) The Series A Preferred Stock shall not be redeemed for cash at the option of the Company prior to [_________], 2003. The Series A Preferred Stock may be redeemed (subject to contractual and other restrictions with respect thereto, to the legal availability of funds therefor and to Sections [______] and [_____] of the BCAI) at any time, in whole or from time to time in part, at the option of the Company after [_______], 2003, at the Applicable Redemption Price. In addition, at any time prior to [________], 2001, the Company may, at its option, redeem shares of Series A Preferred Stock in whole or from time to time in part having an aggregate Liquidation Preference of up to 35% of the original aggregate Liquidation Preference of the Series A Preferred Stock from the proceeds of one or more Equity Offerings at a price equal to [____]% of the Liquidation Preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends, if any, to but excluding 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), subject to the right of Holders of record on the relevant Record Date to receive dividends due on a Dividend Payment Date; provided, that at least 65% of the original aggregate Liquidation Preference of the Series A Preferred Stock remains outstanding immediately following such redemption. Any such redemption must be made within 90 days after the date of the closing Equity Offerings. (c) In the event of partial redemptions of Series A Preferred Stock, the shares to be redeemed will be determined pro rata or by lot, as determined by the Company, provided that the Company may redeem such shares held by any holders of fewer than 100 shares (or shares held by Holders who would hold less than 100 shares as a result of such redemption), without regard to any pro rata redemption requirement. (d) Notice of any redemption shall be sent by or on behalf of the Company not less than 30 nor more than 60 days prior to the date specified for redemption in such notice (including the Mandatory Redemption Date, the "Redemption Date"), by first class mail, postage prepaid, to all Holders of record of the Series A Preferred Stock at their registered address. In addition to any information required by law or by the applicable rules of any exchange upon which Series A Preferred Stock may be listed or admitted to trading, such notice shall state: (i) whether such redemption is being made pursuant to the optional or the mandatory redemption provisions hereof; (ii) the Redemption Date; (iii) the redemption price; (iv) if less than all the outstanding shares of Series A Preferred Stock are to be redeemed, the Liquidation Preference of, and the accrued and unpaid dividends on, the shares of Series A Preferred Stock to be redeemed; (v) that on the Redemption Date the redemption price shall become due and payable upon each share of Series A Preferred Stock to be redeemed; and (vii) the place or places where shares are to be surrendered for payment of the redemption price. Upon the mailing of any such notice of redemption, the Company shall become obligated to redeem at the time of redemption specified thereon all shares called for redemption. 20 (e) If notice has been mailed in accordance with Section 5(d) above and, provided that on or before the Redemption Date specified in such notice, all funds necessary for such redemption shall have been set aside by the Company, separate and apart from its other funds in trust for the pro rata benefit of the holders of the shares so called for redemption, so as to be, and to continue to be available therefor, then, on and after the Redemption Date, unless the Company defaults in the payment of the applicable redemption price, dividends on the shares of the Series A Preferred Stock so called for redemption shall cease to accumulate and all rights of the Holders of such shares shall terminate except for the right to receive from the Company the redemption price, without interest; provided, however, that if a notice of redemption shall have been given and the funds necessary for redemption (including an amount in respect of all dividends that will accrue to the Redemption Date) shall have been segregated and irrevocably set apart by the Company, in trust for the benefit of the Holders of the shares called for redemption, dividends shall cease to accumulate on the Redemption Date on the shares to be redeemed and, 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 Company and shall be entitled only to receive the redemption price for such shares. New certificates of Series A Preferred Stock having an aggregate Liquidation Preference equal to the unredeemed portion of the Series A Preferred Stock shall be issued in the name of the Holder thereof upon cancellation of the original shares of Series A Preferred Stock without cost to the Holder thereof. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Company shall so require and the notice shall so state), such shares shall be redeemed by the Company at the applicable redemption price. Shares of Series A Preferred Stock issued and reacquired by the Company shall, upon compliance with the applicable requirements of Illinois law, have the status of authorized but unissued Undesignated Shares of the Company, and may, with any and all other authorized but unissued Undesignated Shares of the Company, be designated or redesignated, and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, except that any issuance or reissuance of shares of Series A Preferred Stock must be in compliance with this Statement of Resolutions Fixing Terms. (f) Any deposit of funds with a bank or trust company for the purpose of redeeming Series A Preferred Stock shall be irrevocable except that: (i) the Company shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust, and the Holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Company and unclaimed by the Holders of the Series A Preferred Stock entitled thereto at the expiration of two years from the applicable Redemption Date shall be repaid, together with any 21 interest or other earnings earned thereon, to the Company, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Company shall look only to the Company for payment without interest or other earnings. (g) No Series A Preferred Stock may be redeemed except with funds legally available for the purpose. The Company shall take all actions required or permitted under the BCAI to permit any redemption which is required pursuant to clause (a) above or which the Company elects pursuant to clause (b) above. (h) No optional redemption may be authorized or made (i) unless prior thereto or contemporaneously therewith full unpaid cumulative dividends shall have been paid or a sum set apart for such payment on the Series A Preferred Stock or (ii) at less than 101% of the liquidation preference of the Series A Preferred Stock at any time when the Company is making an offer to purchase shares of Series A Preferred Stock under a Change of Control Offer in accordance with Section 8. 6. Exchange of Series A Preferred Stock for Exchange Debentures. (a) The Company may at its option, on any scheduled Dividend Payment Date, exchange, in whole, but not in part, the then outstanding shares of Series A Preferred Stock for the Exchange Debentures to be issued under an indenture (the "Exchange Indenture") in the form attached hereto as Annex A to be entered into between the Company and a trustee to be selected by the Company (the "Debentures Trustee"); provided, that on the date of such exchange: (i) there are no contractual impediments to such exchange; (ii) such exchange would comply with the BCAI; (iii) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Indenture) would exist under the Exchange Indenture; and (iv) the Company shall have delivered a written opinion of counsel, dated the date of exchange, regarding the satisfaction of the conditions set forth in clauses (i) and (ii) and certain other matters. (b) Upon any exchange of Series A Preferred Stock for Exchange Debentures on the Exchange Date pursuant to clause (a) of this Section 6, Holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, subject to the second succeeding sentence, $1.00 of principal amount of Exchange Debentures for each $1.00 of the Liquidation Preference of Series A Preferred Stock held by them. The Exchange Debentures shall be issued in registered form, without coupons. Exchange Debentures issued in exchange for Series A Preferred Stock shall be issued in principal amounts of $1,000 and integral multiples thereof, and the Company may, at its option, pay cash in lieu of issuing an Exchange Debenture in any other principal amount. On and after the Exchange Date, dividends will cease to accumulate on the outstanding shares of Series A Preferred Stock, and all rights of the Holders of Series A Preferred Stock (except the right to receive the Exchange Debentures, an amount in cash, to the extent applicable, equal to the accumulated 22 and unpaid dividends to the Exchange Date and if the Company so elects, cash in lieu of any Exchange Debenture that is in a principal amount less than $1,000) shall terminate. The person entitled to receive the Exchange Debentures issuable upon such exchange shall be treated for all purposes as the registered holder of such Exchange Debentures. (c) The Company shall send a written notice (the "Exchange Notice") of exchange by mail to each Holder of record of Series A Preferred Stock, which notice shall state: (i) that the Company is exercising its option to exchange the Series A Preferred Stock for Exchange Debentures pursuant to this Statement of Resolutions Fixing Terms; (ii) the date fixed for exchange (the "Exchange Date"), which date shall not be less than 30 days nor more than 60 days following the date on which the Exchange Notice is mailed; (iii) that the Holder is to surrender to the Company, at the place or places where shares of Series A Preferred Stock are to be surrendered for exchange in the manner designated in the Exchange Notice, the shares of Series A Preferred Stock to be exchanged; (iv) that dividends on the shares of Series A Preferred Stock to be exchanged shall cease to accrue on the Exchange Date whether or not the shares of Series A Preferred Stock are surrendered for exchange on the Exchange Date unless the Company shall default in the delivery of Exchange Debentures; and (v) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not the shares of Series A Preferred Stock are surrendered for exchange on the Exchange Date. On the Exchange Date, if the conditions set forth in Sections 6(a)(i) through 6(a)(iv) above and Section 6(f) below are satisfied, the Company shall issue Exchange Debentures in exchange for the Series A Preferred Stock as provided in this Section 6. (d) A Holder delivering Series A Preferred Stock for exchange shall not be required to pay any taxes or duties in respect of the issue or delivery of Exchange Debentures on exchange but shall be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue or delivery of the Exchange Debentures in a name other than that of the Holder of the Series A Preferred Stock. Certificates representing Exchange Debentures shall not be issued or delivered unless all taxes and duties, if any, payable by the Holder have been paid. (e) On or before the Exchange Date, each Holder of Series A Preferred Stock shall surrender the shares of Series A Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Company shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender, in accordance with the Exchange Notice, of the shares of Series A Preferred Stock so exchanged (properly endorsed or assigned for transfer, if the notice shall so state), such shares shall be exchanged by the Company for Exchange Debentures. The Company shall pay dividends, if any, on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (f) If the Exchange Notice has been mailed in accordance with Section 6(c), the conditions set forth in Section 6(a)(i) through 6(a)(iv) have been satisfied, and before the 23 Exchange Date (i) the Exchange Indenture shall have been duly executed and delivered by the Company and the Debentures Trustee; (ii) all Exchange Debentures necessary for such exchange shall have been duly executed and authenticated by the Company and delivered to the Debentures Trustee with irrevocable instructions to authenticate the Exchange Debentures necessary for such exchange; and (iii) an amount in cash, set aside by the Company, separate and apart from its other funds in trust, or additional Series A Preferred Stock (as applicable) equal to all accumulated and unpaid dividends thereon to the Exchange Date shall have been deposited with the Debentures Trustee, then on and after the close of business on the Exchange Date, dividends on the shares of Series A Preferred Stock so exchanged shall cease to accumulate and all rights of the Holders of such shares shall terminate except for the right to receive from the Company the Exchange Debentures, cash, if any, and all accrued interest, if any, thereon to the Exchange Date. Shares of Series A Preferred Stock issued and reacquired by the Company shall, upon compliance with the applicable requirements of Illinois law, have the status of authorized but unissued Undesignated Shares of the Company, and may, with any and all other authorized but unissued Undesignated Shares of the Company, be designated or redesignated, and issued or reissued, as the case may be, as part of any series of capital stock of the Company, but not as Series A Preferred Stock. (g) The Company shall comply with the provisions of Rule 13e-4 promulgated pursuant to the Exchange Act in connection with any exchange, to the extent applicable. 7. Voting Rights. (a) The Holders of shares of the Series A Preferred Stock shall have no voting rights, except as required by Illinois law and as hereinafter provided in this Section 7. (b) If: (i) at any time, dividends on the outstanding Series A Preferred Stock are in arrears and unpaid (and in the case of dividends payable after [ ], 2003, are not paid in cash) for four (4) consecutive quarterly dividend periods; (ii) the Company fails to discharge any redemption obligation with respect to the Series A Preferred Stock (whether or not the Company is permitted to do so by the terms of the Credit Facility, the Senior Subordinated Notes or any other obligation of the Company); (iii) the Company fails to make a Change of Control Offer on the terms and in accordance with the provisions described below in Section 8 hereof (whether or not the Company is permitted to do so by the terms of the Credit Facility, the Senior Subordinated Notes or any other obligation of the Company) or fails to 24 purchase shares of Series A Preferred Stock from Holders who elect to have such shares purchased pursuant to the Change of Control Offer; (iv) the Company breaches or violates any of the other covenants or agreements set forth in Section 9 and such breach or violation continues for a period of 60 days or more after the Company receives notice thereof specifying the default from the Holders of at least 25% of the shares of Series A Preferred Stock then outstanding; or (v) the Company or any Restricted Subsidiary defaults under the terms of any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Statement of Resolutions Fixing Terms, which default (A) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more (each of the events described in clauses (i), (ii), (iii), (iv) and (v) being referred to herein as a "Voting Rights Triggering Event"); then, the number of directors constituting the Board of Directors of the Company will be adjusted to permit the holders of the majority of the then outstanding Series A Preferred Stock, voting separately as a class, to elect two directors. Voting rights arising as a result of a Voting Rights Triggering Event will continue until such time as all dividends in arrears on the Series A Preferred Stock are paid in full (and in the case of dividends payable after [ ], 2003, paid in cash) and any failure, breach or default referred to in clause (b) is remedied. (c) Whenever the foregoing voting rights shall have vested, such rights may be exercised initially either at a special meeting of the Holders of Series A Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by the written consent of the Holders of Series A Preferred Stock. Such right of the Holders of Series A Preferred Stock to elect directors may be exercised until (i) all dividends in arrears shall have been paid in full (and in the case of dividends payable after [____________,] 2003, paid in cash) and (ii) all other failures, breaches or defaults giving rise to such Voting Rights Triggering Event are remedied or waived by the Holders of at least a majority of the shares of Series A 25 Preferred Stock then outstanding, at which time the term of such directors previously elected pursuant to the provisions of this Section 7(b) shall thereupon terminate, and such directors shall be deemed to have resigned. (d) At any time when the foregoing voting rights shall have vested in the Holders of Series A Preferred Stock and if such rights shall not already have been initially exercised, a proper officer of the Company shall, upon the written request of Holders of record of 10% or more of the Series A Preferred Stock then outstanding, addressed to the Secretary of the Company, call a special meeting of Holders of Series A Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for Holding annual meetings of stockholders of the Company or, if none, at a place designated by the Secretary of the Company. If such meeting shall not be called by the proper officers of the Company within 30 days after the personal service of such written request upon the Secretary of the Company, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Company at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the Holders of record of 10% of the shares of Series A Preferred Stock then outstanding may designate in writing a Holder of Series A Preferred Stock to call such meeting at the expense of the Company, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be (e) If any director so elected by the Holders of Series A Preferred Stock shall cease to serve as a director before his term shall expire, the Holders of Series A Preferred Stock then outstanding may, at a special meeting of the Holders called as provided above, elect a successor to hold office for the unexpired term of the director whose place shall be vacant. (f) In addition to the matters set forth in Section 2(b), the Company shall not, without the affirmative vote or consent of the Holders of at least a majority of the shares of Series A Preferred Stock then outstanding (with shares held by the Company or any of its Affiliates not being considered to be outstanding for this purpose) voting or consenting as the case may be as one class: (i) merge, consolidate or sell assets of the Company except as permitted pursuant to Section 9(b); and 26 (ii) amend or otherwise alter this Statement of Resolutions Fixing Terms or the form of the Exchange Indenture: (g) In addition to the matters set forth in clause (f) above, except as stated above under Section 2, the Company shall not, without the affirmative vote or consent of holders of at least 5000 of the shares of Series A Preferred Stock then outstanding (with shares held by the Company or any of its Affiliates not being considered to be outstanding for his purpose), voting or consenting. as the case may be, as one class: (i) amend the Statement of Resolutions Fixing Terms so as to adversely affect the specified rights, preferences, privileges or voting rights of holders of shares of the Series A Preferred Stock (ii) authorize the issuance of any additional share of Series A Preferred Stock. (h) Without the consent of each Holder affected, an amendment or waiver of the Company's Articles of Incorporation or of this Statement of Resolutions Fixing Terms may not (with respect to any shares of Series A Preferred Stock held by a non-consenting Holder): (i) alter the voting rights with respect to the Series A Preferred Stock (provided, however, that the consent of Holders of Series A Preferred Stock shall not be required to approve the Voting Rights Amendment) or reduce the number of shares of Series A Preferred Stock whose holders must consent to an amendment, supplement or waiver; (ii) reduce the Liquidation Preference of or change the Mandatory Redemption Date of any share of Series A Preferred Stock or alter the provisions with respect to the redemption of the Series A Preferred Stock (except as provided with respect to Section 8 hereof): (iii) reduce the rate or change the time for payment of dividends on any share of Series A Preferred Stock; (iv) waive the consequences of any failure to pay dividends on the Series A Preferred Stock; (v) make any share of Series A Preferred Stock payable in any form other than that stated in this Statement of Resolutions Fixing Terms; 27 (vi) make any change in the provisions of this Statement of Resolutions Fixing Terms relating to waivers of the rights of holders of Series A Preferred Stock to receive the Liquidation Preference and dividends on the Series A Preferred Stock: (vii) waive a redemption payment with respect to any share of Series A Preferred Stock (except as provided with respect to Section 8 hereof); or (viii) make any change in the foregoing amendment and waiver provisions. (i) The Company in its sole discretion may, without the vote or consent of any Holders of the Series A Preferred Stock, amend or supplement this Statement of Resolutions Fixing Terms: (i) to cure any ambiguity, defect or inconsistency; (ii) except as set forth in clauses (f) and (g) above, create, authorize or issue any shares of Junior Securities or Parity Securities: (iii) decrease the amount of authorized capital stock of any class, including any Series A Preferred Stock; (iv) increase the amount of authorized capital stock of any class of Junior Securities; or (v) to make any change that would provide any additional rights or benefits to the Holders of the Series A Preferred Stock or that does not adversely affect the legal rights under this Statement of Resolutions Fixing Terms of any such Holder. 8. Change of Control. (a) Upon the occurrence a Change of Control, the Company shall make an offer (the "Change of Control Offer") to each Holder of shares of Series A Preferred Stock to repurchase all or any part (but not, in the case of any Holder requiring the Company to purchase less than all of the shares of Series A Preferred Stock held by such Holder, any fractional shares) of such Holder's Series A Preferred Stock at an offer price in cash equal to blob of the aggregate Liquidation Preference thereof plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends, if any. thereon to but excluding the date of purchase (the "Change of Control Payment") (including an amount in cash equal to a pro rated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date) (subject to the right of Series A Preferred Stock Holders of record on the relevant record date to receive dividends due on the 28 relevant dividend payment date); provided, however, that notwithstanding the occurrence of a Change of Control, the Company shall not be obligated to purchase the Series A Preferred Stock pursuant to this covenant in the event that it has exercised its right to redeem all of the Series A Preferred Stock pursuant to Section 5(b). (b) The Change of Control Offer shall include all instructions and materials necessary to enable Holders to tender their shares of Series A Preferred Stock and the circumstances and relevant facts and financial information regarding such Change of Control. (c) The Company shall comply, to the extent applicable. with the requirements of Rule 14(e) of the Exchange Act and any other securities laws and regulations in connection with the repurchase of the Series A Preferred Stock as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this paragraph by virtue thereof. The Change of Control Offer shall contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable such Holders to make an informed decision with respect to the Change of Control Offer (which at a minimum will include (i) the most recent annual and quarterly financial statements, (ii) a description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Change of Control Offer) and (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase. (d) Within 30 days following any Change of Control (or at the Company's option, prior to such Change of Control but after the public announcement thereof), the Company shall mail a notice to each Holder stating: (i) that the Change of Control Offer is being made pursuant to this Section 8 and that all shares of Series A Preferred Stock tendered shall be accepted for payment; (ii) the amount of the Change of Control Payment. the purchase date, which shall be not earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"): (iii) that any share of Series A Preferred Stock not tendered shall continue to accumulate dividends; 29 (iv) the place or places where Series A Preferred Stock are to be surrendered for tender pursuant to the Change of Control Offer; (v) that, on the Change of Control Payment Date, the purchase price shall become due and payable upon each share of Series A Preferred Stock accepted for payment pursuant to the Change of Control Offer and, unless the Company fails to pay the Change of Control Payment on the Change of Control Payment Date, all shares of Series A Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accumulate dividends after the Change of Control Payment Date; (vi) that Holders electing to have any shares of Series A Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender the shares of Series A Preferred Stock. with the form entitled "Option of Holder to Elect Purchase" which shall be included with the notice of Change of Control completed. to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vii) that, if such Offer is made prior to such Change of Control, payment is conditioned on the occurrence of such Change of Control: and (viii) that the Holder may tender all or any portion of the shares of Series A Preferred Stock held by such Holder and that in the case of any Holder whose shares are to be purchased only in part, the Company shall execute, authorize and deliver to the Holder, without service charge, a new certificate as requested by' such Holder, for the unpurchased portion of his shares of Series A Preferred Stock. (e) On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all shares of Series A Preferred Stock or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Payment Agent an amount equal to the Change of Control Payment in respect of all shares of Series A Preferred Stock or portions thereof so tendered and (iii) deliver or cause to be delivered to the Transfer Agent the shares of Series A Preferred Stock so accepted together with an Officers' Certificate stating the aggregate Liquidation Preference of the shares of Series A Preferred Stock or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each holder of Series A Preferred Stock so tendered the Change of Control Payment for such Series A Preferred Stock, and the Transfer Agent shall promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new certificate representing the shares of Series A Preferred Stock equal in Liquidation Preference amount to any unpurchased portion of the shares of the shares of Series A Preferred Stock surrendered, if any. The Company shall publicly announce the results of the 30 Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (f) If at the time of a Change of Control, the Company is restricted or prohibited by the terms of any Credit Agreements from purchasing shares of Series A Preferred Stock that may be tendered by holders pursuant to a Change of Control Offer, prior to complying with the provisions of Section 8(a), but in any event within 30 days following a Change of Control (unless the Company has exercised its right to redeem all the Series A Preferred Stock pursuant to Section 5(b)), the Company shall either (i) repay in full all outstanding Obligations under such Credit Agreements or offer to repay in full all outstanding Obligations under such Credit Agreements and repay the Obligations of each lender who has accepted such offer or (ii) obtain the requisite consent under such Credit Agreements to permit the repurchase of the Series A Preferred Stock required by this Section 8. The Company must first comply with the covenant described in the preceding sentence before it will be required to repurchase shares of Series A Preferred Stock in the event of a Change of Control; provided, that if the Company fails to comply with the covenant described in the preceding sentence, the sole remedy to holders of Series A Preferred Stock will be the voting rights arising from a Voting Rights Triggering Event. Moreover, the Company will not repurchase or redeem any Series A Preferred Stock pursuant to this Change of Control provision prior to the Company's repurchase of the Senior Subordinated Notes pursuant to the Change of Control covenants in the Notes Indenture. (g) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 8 applicable to a Change of Control Offer made by the Company and purchases all shares of Series A Preferred Stock validly tendered and not withdrawn under such Chance of Control Offer. 9. Certain Covenants (a) Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. (i) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock: provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage Ratio at the time of the incurrence of such Indebtedness, after giving pro-forma effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1. 31 (ii) Notwithstanding clause (i) above, if there exists no Voting Rights Triggering Event or event which with notice or lapse of time or both would become a Voting Rights Triggering Event immediately prior and subsequent thereto, the Company and its Restricted Subsidiaries may Incur Permitted Indebtedness (other than the Indebtedness evidenced by the Exchange Debentures) without regard to the foregoing limitation provided, however, that the Company will not permit any Unrestricted Subsidiary to Incur Indebtedness other than Non-Recourse Debt and in the event such Indebtedness ceases to be Non-Recourse Debt such event shall be deemed to constitute an Incurrence of Indebtedness by the Company. (b) Merger, Consolidation, or Sale of Assets. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia: (ii) the Series A Preferred Stock shall be converted into or exchanged for and shall become shares of the Successor Company, having in respect of such successor, transferee or resulting corporation substantially the same powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon that the Series A Preferred Stock had immediately prior to such transaction; (iii) immediately after such transaction, no Voting Rights Triggering Event, and no event that after the giving of notice or lapse of time or both would become a Voting Rights Triggering Event, shall have occurred and be continuing, and (iv) the Company or the Surviving Entity will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of Section 9(a)(i). Notwithstanding the restrictions described in the foregoing clause (iv), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. 32 (c) Restricted Payments (i) The Company and its Restricted Subsidiaries shall not make any Restricted Payment unless after giving effect thereto (A) no Voting Rights Triggering Event or event which, with notice or lapse of time or both, would become a Voting Rights Triggering Event has occurred and is continuing: (B) all dividends on the Series A Preferred Stock payable on dividend payment dates after [ ], 2003, have been declared and paid in cash; (C) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Statement of Resolutions Fixing Terms (excluding Restricted Payments permitted by clauses (B), (C) and (E) of paragraph (ii) below, is less than the sum of (1)(a) 100% of the aggregate Consolidated Cash Flow of the Company (or, in the event such Consolidated Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the period beginning on the first day of the Company's fiscal quarter commencing after the Issue Date and ending on the last day of the Company's most recent fiscal quarter for which financial information is available to the Company ending prior to the date of such proposed Restricted Payment, taken as one accounting period, less (b) 1.4 times Consolidated Interest Expense for the same period, plus (2) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the Issue Date of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company, other than Disqualified Stock or debt securities that have been converted into Disqualified Stock and other than the Common Stock issued in the Common Stock Offering), plus (3) to the extent that any Restricted Investment that was made after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (a) the net proceeds of such sale, liquidation or repayment and (b) the amount of such Restricted Investment, plus (4) $5.0 million. (ii) The provisions in Section 9(c)(i) shall not be violated, so long as no Voting Rights Triggering Event or event which with notice or lapse of time or both would become a Voting Rights Triggering Event has occurred and is continuing or shall occur as a consequence of the actions or payments set forth below, by reason of (A) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Statement of Resolutions Fixing Terms; (B) the redemption, repurchase, retirement or other acquisition of any Junior Securities or Parity Securities of the Company in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other Junior Securities or Parity Securities of the Company (other than any Disqualified 33 Stock); (C) the repurchase, redemption or other acquisition or retirement for value of any Junior Securities or Parity Securities of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of this Statement of Resolutions Fixing Terms in connection with the termination of such person's employment for any reason (including by reason of death or disability); provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Junior Securities or Parity Securities shall not exceed $500,000 in any twelve-month period; and provided further that no Voting Rights Triggering Event shall have occurred and be continuing immediately after such transaction; and (D) repurchases of Junior Securities or Parity Securities deemed to occur upon exercise of stock options if such Junior Securities or Parity Securities represent a portion of the exercise price of such options. (d) Designation of Unrestricted Subsidiaries. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Voting Rights Triggering Event. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under clause (C) of Section 9(c)(i). All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. (e) Limitations on Transactions with Affiliates and Related Persons. The Company shall not, and shall not permit any Restricted Subsidiary of the Company to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, such Affiliate Transaction or series of Affiliated Transactions has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate 34 Transaction or series of Affiliated Transactions, and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or series of related Affiliate Transactions and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view has been issued to the Company by an accounting, appraisal, engineering or investment banking firm of national standing provided that the following shall not be deemed Affiliate Transactions: (1) transactions contemplated by any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (2) transactions between or among the Company and/or its Restricted Subsidiaries,(3) Restricted Payments and Permitted Investments that are permitted by Section 9(c)" and (4) indemnification payments made to officers, directors and employees of the Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or contractual provisions. (f) Reports. Whether or not required by the rules and regulations of the Commission, so long as any shares of Series A Preferred Stock are outstanding, the Company will furnish to the Transfer Agent and the Holders, (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company was required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition. whether or not required by the rules and regulations of the Commission, the Company will file a copy of such information and reports with the Commission for public availability within the time periods set forth in the Commission's rules and regulations (unless the Commission will not accept such filing). 10. Amendment. Unless otherwise provided in Section 2(b) or 7, this Statement of Resolutions Fixing Terms shall not be amended in any manner that would increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the 35 Holders of a majority of the outstanding Series A Preferred Stock voting separately as a class. 11. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this Statement of Resolutions Fixing Terms (as such Statement of Resolutions Fixing Terms may be amended from time to time in accordance with the terms hereof) and in the Articles of Incorporation. The shares of Series A Preferred Stock shall have no preemptive or subscription rights. 12. Headings of Sections. The headings of the various sections and subsections hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 13. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this Statement of Resolutions Fixing Terms (as this Statement of Resolutions Fixing Terms may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this Statement of Resolutions Fixing Terms (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 36 IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed by [_______________] of the Company and by [________________________] of the Company, this [____________] day of May, 1998. CUMULUS MEDIA INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: ATTEST: By: --------------------------- Name: Title: 37 ANNEX A FORM OF EXCHANGE INDENTURE 38 EX-10.1 10 EXHIBIT 10.1 Exhibit 10.1 ================================================================================ $190,000,000 CREDIT AGREEMENT among CUMULUS HOLDINGS, INC., as Borrower, The Several Lenders from Time to Time Parties Hereto, LEHMAN BROTHERS INC., as Arranger, LEHMAN COMMERCIAL PAPER INC., as Syndication Agent, and LEHMAN COMMERCIAL PAPER INC., as Administrative Agent Dated as of March 2, 1998 ================================================================================ TABLE OF CONTENTS ----------------- Page SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . 26 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . 27 2.1 Term Loan Commitments. . . . . . . . . . . . . . . . . . . . . . . 27 2.2 Procedure for Term Loan Borrowing. . . . . . . . . . . . . . . . . 27 2.3 Repayment of Term Loans. . . . . . . . . . . . . . . . . . . . . . 27 2.4 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . 28 2.5 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . 29 2.6 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . 30 2.7 Commitment Fees, etc. . . . . . . . . . . . . . . . . . . . . . . 31 2.8 Termination or Reduction of Commitments. . . . . . . . . . . . . . 31 2.9 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . 32 2.10 Mandatory Prepayments and Commitment Reductions. . . . . . . . . . 32 2.11 Conversion and Continuation Options. . . . . . . . . . . . . . . . 34 2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches. . . . . 34 2.13 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . 34 2.14 Computation of Interest and Fees . . . . . . . . . . . . . . . . . 35 2.15 Inability to Determine Interest Rate . . . . . . . . . . . . . . . 35 2.16 Pro Rata Treatment and Payments. . . . . . . . . . . . . . . . . . 36 2.17 Requirements of Law. . . . . . . . . . . . . . . . . . . . . . . . 37 2.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.19 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2.20 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.21 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . 41 SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . 41 3.1 L/C Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.2 Procedure for Issuance of Letter of Credit . . . . . . . . . . . . 42 3.3 Fees and Other Charges . . . . . . . . . . . . . . . . . . . . . . 42 3.4 L/C Participations . . . . . . . . . . . . . . . . . . . . . . . . 43 3.5 Reimbursement Obligation of the Borrower . . . . . . . . . . . . . 43 3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . 44 3.7 Letter of Credit Payments. . . . . . . . . . . . . . . . . . . . . 44 3.8 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 4. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 45 4.1 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . 45 4.2 No Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . 45 4.4 Corporate Power; Authorization; Enforceable Obligations. . . . . . 46 4.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . 46 4.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . 47 -i- Page ---- 4.9 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 47 4.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.11 Federal Regulations. . . . . . . . . . . . . . . . . . . . . . . . 47 4.12 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.13 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.14 Investment Company Act; Other Regulations. . . . . . . . . . . . . 48 4.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 48 4.18 Accuracy of Information, etc . . . . . . . . . . . . . . . . . . . 49 4.19 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . 50 4.20 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 4.21 Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 51 4.22 Regulation H . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 4.23 Licenses; Permits; etc.. . . . . . . . . . . . . . . . . . . . . . 51 4.24 FCC Compliance, etc. . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 52 5.1 Conditions to Initial Extension of Credit. . . . . . . . . . . . . 52 5.2 Conditions to Each Extension of Credit . . . . . . . . . . . . . . 54 SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 55 6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 55 6.2 Certificates; Other Information. . . . . . . . . . . . . . . . . . 56 6.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . 57 6.4 Conduct of Business and Maintenance of Existence, etc. . . . . . . 57 6.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . 58 6.6 Inspection of Property; Books and Records; Discussions . . . . . . 58 6.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 6.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . 59 6.9 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . 59 6.10 Additional Collateral, etc.. . . . . . . . . . . . . . . . . . . . 59 6.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 61 6.12 Transfer of FCC Licenses . . . . . . . . . . . . . . . . . . . . . 62 6.13 Mortgages; Title Insurance; Flood Insurance. . . . . . . . . . . . 62 6.14 Pro Forma Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 64 SECTION 7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 64 7.1 Financial Condition Covenants. . . . . . . . . . . . . . . . . . . 64 7.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . 66 7.3 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . 67 7.4 Limitation on Fundamental Changes. . . . . . . . . . . . . . . . . 68 7.5 Limitation on Disposition of Property. . . . . . . . . . . . . . . 68 7.6 Limitation on Restricted Payments. . . . . . . . . . . . . . . . . 68 7.7 Limitation on Capital Expenditures . . . . . . . . . . . . . . . . 69 7.8 Limitation on Investments. . . . . . . . . . . . . . . . . . . . . 69 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc. . . . . . . . . . . . . . . . . . . . . . . . . 70 7.10 Limitation on Transactions with Affiliates . . . . . . . . . . . . 70 -ii- Page ---- 7.11 Limitation on Sales and Leasebacks . . . . . . . . . . . . . . . . 70 7.12 Limitation on Changes in Fiscal Periods. . . . . . . . . . . . . . 71 7.13 Limitation on Negative Pledge Clauses. . . . . . . . . . . . . . . 71 7.14 Limitation on Restrictions on Subsidiary Distributions . . . . . . 71 7.15 Limitation on Lines of Business. . . . . . . . . . . . . . . . . . 71 7.16 Limitation on License Subsidiary . . . . . . . . . . . . . . . . . 71 7.17 Limitation on Activities of the Parent . . . . . . . . . . . . . . 71 SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 9. THE AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 76 9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . 76 9.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . 76 9.4 Reliance by the Agents . . . . . . . . . . . . . . . . . . . . . . 76 9.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . 77 9.6 Non-Reliance on Agents and Other Lenders . . . . . . . . . . . . . 77 9.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 78 9.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . 78 9.9 Successor Administrative Agent . . . . . . . . . . . . . . . . . . 78 9.10 Authorization to Release Liens . . . . . . . . . . . . . . . . . . 79 9.11 The Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 79 10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 79 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . 81 10.4 Survival of Representations and Warranties . . . . . . . . . . . . 81 10.5 Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . . 81 10.6 Successors and Assigns; Participations and Assignments . . . . . . 82 10.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . 84 10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 86 10.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . 86 10.13 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . 86 10.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . 87 10.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 87 -iii- ANNEXES: A Pricing Grid SCHEDULES: 1.1A Commitments 1.1B Mortgaged Property 1.1C Acquisition Agreements 1.1D Existing Letters of Credit 4.1(b) Material Liabilities 4.4 Consents, Authorizations, Filings and Notices 4.15 Subsidiaries 4.19(a) UCC Filing Jurisdictions 4.19(b) Mortgage Filing Jurisdictions 4.23 Licenses 7.2(d) Existing Indebtedness 7.3(f) Existing Liens 7.8(i) Existing Investments EXHIBITS: A Form of Guarantee and Collateral Agreement B Form of Compliance Certificate C Form of Closing Certificate D Form of Mortgage E Form of Assignment and Acceptance F Form of Legal Opinion of Godfrey & Kahn, S.C. G-1 Form of Term Note G-2 Form of Revolving Credit Note H Form of Exemption Certificate -iv- CREDIT AGREEMENT, dated as of March 2, 1998, among CUMULUS HOLDINGS, INC., an Illinois corporation (the "BORROWER"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "LENDERS"), LEHMAN BROTHERS INC., as advisor and arranger (in such capacity, the "ARRANGER"), LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such capacity, the "SYNDICATION AGENT"), and LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: WHEREAS, the Borrower, certain subsidiaries of the Borrower, the financial institutions party thereto (the "EXISTING LENDERS") and NationsBank of Texas, N.A., as administrative agent and issuing bank, are parties to the Credit Agreement, dated as of July 7, 1997 and as amended, supplemented or otherwise modified (the "EXISTING CREDIT FACILITY"); WHEREAS, the Borrower has entered into asset purchase agreements with the sellers named therein providing for the purchase by the Borrower of properties and assets to be used in the operation of radio broadcast stations (the "ACQUISITION"), as described in the asset purchase agreements listed on Schedule 1.1C (collectively, the "ACQUISITION AGREEMENTS"); WHEREAS, the Borrower desires to establish credit facilities to refinance the indebtedness outstanding under the Existing Credit Facility, to finance the Acquisition and other acquisitions of properties and assets to be used in the operation of radio broadcast stations and to finance the Borrower's ongoing working capital and general corporate needs; WHEREAS, the Lenders are willing to make such credit facilities available upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "ACQUISITION": as defined in the recitals to this Agreement. "ACQUISITION AGREEMENTS": as defined in the recitals to this Agreement. "ADJUSTMENT DATE": as defined in the Pricing Grid. "AFFILIATE": as to any Person, any other Person which, directly or indirectly, is in 2 control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "AGENTS": the collective reference to the Syndication Agent and the Administrative Agent. "AGGREGATE EXPOSURE": with respect to any Lender at any time, an amount equal to (a) until the Term Loan Commitment Termination Date, the aggregate amount of such Lender's Commitments at such time or, if the Commitments have been terminated, the sum of (i) the aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the amount of such Lender's Revolving Extensions of Credit then outstanding and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the amount of such Lender's Revolving Credit Commitment then in effect or, if the Revolving Credit Commitments have been terminated, the amount of such Lender's Revolving Extensions of Credit then outstanding. "AGGREGATE EXPOSURE PERCENTAGE": with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time. "AGREEMENT": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "APPLICABLE MARGIN": for each Type of Loan, the rate per annum set forth under the relevant column heading below: Base Rate Eurodollar Loans Loans --------- ----------- Revolving Credit Loans 1.75% 2.75% Term Loans 1.75% 2.75% PROVIDED, that on and after the first Adjustment Date, the Applicable Margin with respect to Revolving Credit Loans and Term Loans will be determined pursuant to the Pricing Grid. "APPLICATION": an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit. "ASSET SALE": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c) or (d) of Section 7.5). 3 "ASSIGNEE": as defined in Section 10.6(c). "ASSIGNOR": as defined in Section 10.6(c). "AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Revolving Credit Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Revolving Credit Commitment then in effect OVER (b) such Lender's Revolving Extensions of Credit then outstanding. "AVAILABLE TERM LOAN COMMITMENT": as to any Term Loan Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Term Loan Commitment then in effect OVER (b) the aggregate then unpaid principal amount of such Lender's Term Loans. "BASE RATE": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by the Reference Lender as its prime or base rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Reference Lender in connection with extensions of credit to debtors); "BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and "THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Reference Lender from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. Any change in the Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "BASE RATE LOANS": Loans the rate of interest applicable to which is based upon the Base Rate. "BENEFITTED LENDER": as defined in Section 10.7. "BOARD": the Board of Governors of the Federal Reserve System of the United 4 States (or any successor). "BORROWING DATE": any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder. "BUSINESS": as defined in Section 4.17(b). "BUSINESS DAY": (a) for all purposes other than as covered by clause (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. "CAPITAL EXPENDITURES": for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "CAPITAL LEASE OBLIGATIONS": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "CASH EQUIVALENTS": (a) 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; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("MOODY'S"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any 5 commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "C/D ASSESSMENT RATE": for any day as applied to any Base Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.4 (or any successor provision) to the FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D RESERVE PERCENTAGE": for any day as applied to any Base Rate Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board as in effect from time to time) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "CLOSING DATE": the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied, which date is March 2, 1998. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL": all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "COMMITMENT": as to any Lender, the sum of the Term Loan Commitment and the Revolving Credit Commitment of such Lender. "COMMITMENT FEE RATE": 1/2 of 1% per annum; PROVIDED, that on and after the first Adjustment Date, the Commitment Fee Rate will be determined pursuant to the Pricing Grid. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. 6 "COMPLIANCE CERTIFICATE": a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B. "CONSOLIDATED CURRENT ASSETS": at any date, all amounts (other than cash and Cash Equivalents) which would, in conformity with GAAP, be set forth opposite the caption "total current assets" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date. "CONSOLIDATED CURRENT LIABILITIES": at any date, all amounts which would, in conformity with GAAP, be set forth opposite the caption "total current liabilities" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date, but excluding (a) the current portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without duplication of clause (a) above, all Indebtedness consisting of Revolving Credit Loans to the extent otherwise included therein. "CONSOLIDATED EBITDA": for any period, Consolidated Net Income for such period PLUS, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business) and (f) any other non-cash charges, and PLUS Cost Savings for such period, and MINUS, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (c) any other non-cash income, all as determined on a consolidated basis, and MINUS, to the extent the income attributable to Local Marketing Agreements accounts for more than 25% (or, prior to the consummation of the IPO, 50%) of Consolidated EBITDA, an amount equal to such excess; PROVIDED, that the Borrower may, at its option, exclude the income attributable to Local Marketing Agreements from the calculation of Consolidated EBITDA. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO": for any period, the ratio of (a) Consolidated EBITDA for such period less the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such period on account of Capital Expenditures to (b) Consolidated Fixed Charges for such period. "CONSOLIDATED FIXED CHARGES": for any period, the sum (without duplication) of (a) Consolidated Interest Expense for such period, (b) provision for cash income taxes made by the Borrower or any of its Subsidiaries on a consolidated basis in respect of such period and (c) scheduled payments made during such period on account of principal of 7 Indebtedness of the Borrower or any of its Subsidiaries (including scheduled principal payments in respect of the Term Loans and scheduled reductions of the Revolving Credit Commitments). "CONSOLIDATED INTEREST COVERAGE RATIO": for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "CONSOLIDATED INTEREST EXPENSE": for any period, total cash interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP). "CONSOLIDATED LEVERAGE RATIO": as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period; PROVIDED that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries in a Permitted Acquisition during such period, and any Cost Savings in connection with such Permitted Acquisition, shall be included on a PRO FORMA basis for such period (assuming the consummation of such Permitted Acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been previously provided to the Administrative Agent and the Lenders and (ii) either (A) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (B) have been found acceptable by the Administrative Agent, it being understood that the acceptability of such financial statements would be determined based on the quality and method of presentation, and not the substance, of the financial information presented therein; and PROVIDED, FURTHER, that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, in the event that FCC approval is pending for a Permitted Acquisition, the EBITDA of any radio station being operated under a Local Marketing Agreement entered into in connection with such pending Permitted Acquisition shall be included on a PRO FORMA basis for such period (assuming such Local Marketing Agreement became effective on the first day of such period), it being understood that payments made by the Borrower or any such Subsidiary for the right to operate such station under the Local Marketing Agreement shall not be taken into account in determining EBITDA of such station. "CONSOLIDATED NET INCOME": for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance 8 with GAAP; PROVIDED that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "CONSOLIDATED NET WORTH": at any date, all amounts which would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under stockholders' equity at such date. "CONSOLIDATED SENIOR DEBT": all Consolidated Total Debt other than Subordinated Debt. "CONSOLIDATED SENIOR DEBT RATIO": as of the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Senior Debt on such day to (b) Consolidated EBITDA for such period; PROVIDED that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries in a Permitted Acquisition during such period, and any Cost Savings in connection with such Permitted Acquisition, shall be included on a PRO FORMA basis for such period (assuming the consummation of such Permitted Acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been previously provided to the Administrative Agent and the Lenders and (ii) either (A) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (B) have been found acceptable by the Administrative Agent; and PROVIDED, FURTHER, that in the event that FCC approval is pending for a Permitted Acquisition, Consolidated EBITDA of the Borrower and its Subsidiaries for any period shall also include the EBITDA during such period of any radio station being operated under a Local Marketing Agreement entered into in connection with such pending Permitted Acquisition, it being understood that payments made by the Borrower or any such Subsidiary for the right to operate such station under the Local Marketing Agreement shall not be taken into account in determining EBITDA of such station. "CONSOLIDATED TOTAL DEBT": at any date, the aggregate principal amount of all Funded Debt of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. 9 "CONSOLIDATED WORKING CAPITAL": at any date, the excess of Consolidated Current Assets on such date over Consolidated Current Liabilities on such date. "CONTINUING DIRECTORS": the directors of the Borrower on the Closing Date, after giving effect to the Acquisition and the other transactions contemplated hereby, and each other director, if, in each case, such other director's nomination for election to the board of directors of the Borrower is recommended by at least 66-2/3% of the then Continuing Directors of the Borrower. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. "CONTROL INVESTMENT AFFILIATE": as to any Person, any other Person which (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "COST SAVINGS": for any period, cost savings attributable to such period identified by the Borrower in conjunction with an acquisition which can be implemented within 90 days of taking control of the target of such acquisition, PROVIDED that the Borrower shall provide support for such calculation of cost savings of a nature which is satisfactory to the Agents (and, in any event, in conformity with Regulation S-X). "DEFAULT": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "DISPOSITION": with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; the terms "DISPOSE" and "DISPOSED OF" shall have correlative meanings. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "DOMESTIC SUBSIDIARY": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "ECF PERCENTAGE": 75%; PROVIDED, that, with respect to any fiscal year of the Borrower ending on or after December 31, 1998, the ECF Percentage shall be 50% if the Consolidated Leverage Ratio as of the last day of such fiscal year is less than 5.0 to 1.0. "ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) 10 regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "EURODOLLAR BASE RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the "EURODOLLAR BASE RATE" for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "EURODOLLAR LOANS": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "EURODOLLAR RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): EURODOLLAR BASE RATE 1.00 - Eurocurrency Reserve Requirements "EURODOLLAR TRANCHE": the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "EVENT OF DEFAULT": any of the events specified in Section 8, PROVIDED that any 11 requirement for the giving of notice, the lapse of time, or both, has been satisfied. "EXCESS CASH FLOW": for any fiscal year of the Borrower, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) an amount equal to the amount of all non-cash charges (including depreciation and amortization) deducted in arriving at such Consolidated Net Income, (iii) decreases in Consolidated Working Capital for such fiscal year, (iv) an amount equal to the aggregate net non-cash loss on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income and (v) the net increase during such fiscal year (if any) in deferred tax accounts of the Borrower OVER (b) the sum, without duplication, of (i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any such expenditures financed with the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of Revolving Credit Loans during such fiscal year to the extent accompanying permanent optional reductions of the Revolving Credit Commitments and all optional prepayments of the Term Loans and other Funded Debt during such fiscal year, (iv) the aggregate amount of all regularly scheduled principal payments of Funded Debt (including, without limitation, the Loans) of the Borrower and its Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), (v) increases in Consolidated Working Capital for such fiscal year, (vi) an amount equal to the aggregate net non-cash gain on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, and (vii) the net decrease during such fiscal year (if any) in deferred tax accounts of the Borrower. "EXCESS CASH FLOW APPLICATION DATE": as defined in Section 2.10(c). "EXCESS CASH ON HAND": at any date, an amount equal to cash and Cash Equivalents of the Borrower and its Subsidiaries on hand on such date MINUS $2,500,000. "EXCLUDED FOREIGN SUBSIDIARIES": Caribbean Communications Company Limited and any other Foreign Subsidiary in respect of which either (i) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (ii) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower. "EXISTING CREDIT FACILITY": as defined in the recitals to this Agreement. "EXISTING LENDERS": as defined in the recitals to this Agreement. "EXISTING LETTERS OF CREDIT": the collective reference to the outstanding letters of credit listed on Schedule 1.1D issued for the account of the Borrower or any of its 12 Subsidiaries pursuant to the terms of the Existing Credit Facility. "FACILITIES": each of (a) the Term Loan Commitments and the Term Loans made thereunder (the "TERM LOAN FACILITY") and (b) the Revolving Credit Commitments and the extensions of credit made thereunder (the "REVOLVING CREDIT FACILITY"). "FCC": the Federal Communications Commission (or any successor). "FCC LICENSES": Licenses issued by the FCC to own and operate radio stations owned or acquired by the Borrower and its Subsidiaries. "FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Reference Lender from three federal funds brokers of recognized standing selected by it. "FINAL MATURITY DATE": March 2, 2006. "FOREIGN SUBSIDIARY": any Subsidiary of the Borrower that is not a Domestic Subsidiary. "FUNDED DEBT": as to any Person, all Indebtedness (including Indebtedness to be incurred in connection with any pending Permitted Acquisition for which there is a Local Marketing Agreement in effect (other than any Local Marketing Agreement in effect on the Closing Date) but excluding issued but undrawn Letters of Credit) of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including, without limitation, all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation and, in the case of the Borrower, Indebtedness in respect of the Loans; PROVIDED, that for purposes of calculating Funded Debt of the Borrower, the Preferred Stock and any obligations in respect of such Preferred Stock described in clause (g) or (k) of the definition of Indebtedness shall be excluded; PROVIDED, FURTHER, that the amount of Indebtedness to be incurred in connection with any pending Permitted Acquisition for which there is a Local Marketing Agreement in effect shall be deemed to be an amount equal to the purchase price for such Permitted Acquisition minus Excess Cash on Hand (after giving effect to any allocation of Excess Cash on Hand to be used for any other Permitted Acquisition); and PROVIDED, FURTHER, that to the extent that the income attributable to a Local Marketing Agreement entered into in connection with a pending Permitted Acquisition is excluded from the calculation of Consolidated EBITDA, the Indebtedness to be incurred in connection with such Permitted Acquisition shall be excluded from the calculation of Funded Debt of the 13 Borrower and its Subsidiaries. "FUNDING OFFICE": the office specified from time to time by the Administrative Agent as its funding office by notice to the Borrower and the Lenders. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time, except that for purposes of Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered pursuant to Section 4.1(a). "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, the National Association of Insurance Commissioners). "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good 14 faith. "HEDGE AGREEMENTS": all interest rate swaps, caps or collar agreements or similar arrangements entered into by the Borrower providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "INDEBTEDNESS": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than current trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, (j) for the purposes of Section 8(e) only, all obligations of such Person in respect of Hedge Agreements and (k) the liquidation value of any preferred Capital Stock of such Person or its Subsidiaries held by any Person other than such Person and its Wholly Owned Subsidiaries. "INDEMNIFIED LIABILITIES": as defined in Section 10.5. "INDEMNITEE": as defined in Section 10.5. "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INTELLECTUAL PROPERTY": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. 15 "INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan (other than any Revolving Credit Loan that is a Base Rate Loan), the date of any repayment or prepayment made in respect thereof. "INTEREST PERIOD": as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) no Interest Period shall extend beyond the Final Maturity Date; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "INVESTMENTS": as defined in Section 7.8. "IPO": a registered initial public offering of the Borrower's common stock, underwritten by a group of nationally recognized investment banking firms of which Lehman Brothers Inc. is a manager, that generates gross cash proceeds to the Borrower of at least $75,000,000. "ISSUING LENDER": Lehman Commercial Paper Inc., or any other Lender from time to time designated by the Borrower with the approval of such Lender and the Syndication 16 Agent, in its capacity as issuer of any Letter of Credit. "L/C COMMITMENT": $25,000,000. "L/C FEE PAYMENT DATE": the last day of each March, June, September and December and the Final Maturity Date. "L/C OBLIGATIONS": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 3.5. "L/C PARTICIPANTS": the collective reference to all the Revolving Credit Lenders other than the Issuing Lender. "LETTERS OF CREDIT": the collective reference to the letters of credit issued by the Issuing Lender pursuant to Section 3.1(a). "LICENSES": as defined in Section 4.23. "LICENSE SUBSIDIARY": the collective reference to Cumulus Licensing Corp., a Nevada corporation, and any other direct or indirect Subsidiary of the Borrower that holds FCC Licenses and engages in no other business. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "LOAN": any loan made by any Lender pursuant to this Agreement. "LOAN DOCUMENTS": this Agreement, the Security Documents, the Syndication Letter Agreement and the Notes. "LOAN PARTIES": the Borrower and each Subsidiary of the Borrower which is a party to a Loan Document. "LOCAL MARKETING AGREEMENT": any local marketing agreement entered into between the Borrower or any of its Subsidiaries and a seller of the stock or assets of a radio broadcast station. "MAJORITY FACILITY LENDERS": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Total Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or (a) in the case of the Term Loan Facility, prior to any termination of the Term Loan 17 Commitments, the holders of more than 50% of the Total Term Loan Commitments and (b) in the case of the Revolving Credit Facility, prior to any termination of the Revolving Credit Commitments, the holders of more than 50% of the Total Revolving Credit Commitments). "MAJORITY REVOLVING CREDIT FACILITY LENDERS": the Majority Facility Lenders in respect of the Revolving Credit Facility. "MAJORITY TERM LOAN FACILITY LENDERS": the Majority Facility Lenders in respect of the Term Loan Facility. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Agents or the Lenders hereunder or thereunder. "MATERIAL ENVIRONMENTAL AMOUNT": an amount payable by the Borrower and/or its Subsidiaries in excess of $2,500,000 for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, forces, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, radioactivity, polychlorinated biphenyls and urea-formaldehyde insulation. "MORTGAGED PROPERTIES": the real properties listed on Schedule 1.1B, as to which the Administrative Agent for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages. "MORTGAGES": each of the mortgages and deeds of trust made by any Loan Party in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, substantially in the form of Exhibit D (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is to be recorded), as the same may be amended, supplemented or otherwise modified from time to time. "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NET CASH PROCEEDS": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the 18 repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "NON-EXCLUDED TAXES": as defined in Section 2.18(a). "NON-U.S. LENDER": as defined in Section 2.18(d). "NOTES": the collective reference to any promissory note evidencing Loans. "OBLIGATIONS": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender (or, in the case of Hedge Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, arising under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Hedge Agreement entered into with any Lender or any affiliate of any Lender or any other document made, delivered or given by the Borrower in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise. "OTHER TAXES": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "PARENT": Cumulus Media, LLC, a Wisconsin limited liability company and the parent company of the Borrower. "PARTICIPANT": as defined in Section 10.6(b). "PAYMENT OFFICE": the office specified from time to time by the Administrative Agent as its payment office by notice to the Borrower and the Lenders. 19 "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor). "PERMITTED ACQUISITION": (a) the Acquisition and any other acquisition for which the Borrower has obtained the prior written approval of the Required Lenders and (b) any other acquisition made by the Borrower or any of its Subsidiaries so long as, with respect to any such other acquisition, the following conditions are satisfied: (i) no Default or Event of Default shall have occurred and be continuing or would result from such acquisition; (ii) after giving effect to such acquisition, the Borrower shall be in pro forma compliance with the financial covenants set forth in Section 7.1; (iii) the target of such acquisition shall have no more than $1,000,000 of negative cash flow after giving effect to any Cost Savings; (iv) the target of such acquisition shall be the stock or assets of a radio station located in the United States of America or within an existing market of the Borrower or any of its Subsidiaries in the Caribbean at the time of such acquisition; (v) the acquisition shall conform with the Borrower's stated management strategy as in effect on the Closing Date; (vi) the acquisition shall be (A) in an existing market of the Borrower, (B) in a market where the Borrower has entered into a contractual arrangement to purchase the stock or assets of another radio station or (C) in a market where the target of such acquisition has a minimum market share of 15% of the "12 plus" audience, as measured by Arbitron (or a comparable rating service acceptable to the Administrative Agent) in its most recent rating survey; (vii) the aggregate consideration for such acquisition shall not exceed $10,000,000; (viii) after giving effect to such acquisition, the aggregate Available Revolving Credit Commitments shall be at least $10,000,000; and (ix) an environmental audit satisfactory to the Administrative Agent shall have been performed with respect to the properties to be acquired. "PERMITTED INVESTORS": the collective reference to the members of the Parent on the Closing Date and their respective Control Investment Affiliates. "PERSON": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. 20 "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PREFERRED STOCK": the collective reference to (a) the Borrower's non-voting Class A Cumulative Preferred Stock owned, beneficially and of record on the date hereof, by The Northwestern Mutual Life Insurance Company and (b) any additional non-voting cumulative preferred stock issued by the Borrower after the date hereof so long as such preferred stock, by its terms, (i) may not be purchased, redeemed, retired or otherwise acquired for value prior to the first anniversary of the Final Maturity Date and (ii) provides for the payment of dividends thereon solely in additional shares of non-voting cumulative preferred stock. "PRICING GRID": the pricing grid attached hereto as Annex A. "PRO FORMA BALANCE SHEET": as defined in Section 6.14. "PROJECTIONS": as defined in Section 6.2(c). "PROPERTIES": as defined in Section 4.17(a). "PROPERTY": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. "RECOVERY EVENT": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Borrower or any of its Subsidiaries. "REFERENCE LENDER": Citibank, N.A. "REGISTER": as defined in Section 10.6(d). "REGULATION G": Regulation G of the Board as in effect from time to time. "REGULATION U": Regulation U of the Board as in effect from time to time. "REIMBURSEMENT OBLIGATION": the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "REINVESTMENT DEFERRED AMOUNT": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any of its Subsidiaries in connection therewith which are not applied to prepay the Term Loans or reduce the Revolving Credit Commitments pursuant to Section 2.10(b) as a result of the delivery of a Reinvestment Notice. 21 "REINVESTMENT EVENT": any Asset Sale or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice. "REINVESTMENT NOTICE": a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its business. "REINVESTMENT PREPAYMENT AMOUNT": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the Borrower's business. "REINVESTMENT PREPAYMENT DATE": with respect to any Reinvestment Event, the earlier of (a) the date occurring one year after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire assets useful in the Borrower's business with all or any portion of the relevant Reinvestment Deferred Amount. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the 30-day notice period is waived under subsection .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. Section 4043. "REQUIRED LENDERS": at any time, the holders of more than 50% of (a) until the Term Loan Commitment Termination Date, the Commitments or, if the Commitments have been terminated, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) the Total Revolving Extensions of Credit then outstanding and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) the Total Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit then outstanding. "REQUIRED PREPAYMENT LENDERS": the Majority Facility Lenders in respect of each Facility. "REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "RESPONSIBLE OFFICER": the chief executive officer, president or chief financial 22 officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower. "RESTRICTED PAYMENTS": as defined in Section 7.6. "REVOLVING CREDIT COMMITMENT": as to any Lender, the obligation of such Lender, if any, to make Revolving Credit Loans and participate in Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading "Revolving Credit Commitment" opposite such Lender's name on Schedule 1.1A, as the same may be reduced from time to time pursuant to Sections 2.4(b), 2.6 and 2.8 or otherwise changed from time to time pursuant to the terms hereof. The original amount of the Total Revolving Credit Commitments is $110,000,000. "REVOLVING CREDIT COMMITMENT PERIOD": the period from and including the Closing Date to the Final Maturity Date. "REVOLVING CREDIT LENDER": each Lender which has a Revolving Credit Commitment or which is the holder of Revolving Credit Loans. "REVOLVING CREDIT LOANS": as defined in Section 2.4. "REVOLVING CREDIT PERCENTAGE": as to any Revolving Credit Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Loans then outstanding). "REVOLVING EXTENSIONS OF CREDIT": as to any Revolving Credit Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding and (b) such Lender's Revolving Credit Percentage of the L/C Obligations then outstanding. "SECURITY DOCUMENTS": the collective reference to the Guarantee and Collateral Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "SELLERS": the collective reference to each of the sellers party to any of the Acquisition Agreements. "SENIOR SUBORDINATED NOTE INDENTURE": the Indenture to be entered into by the Borrower in connection with the issuance of the Senior Subordinated Notes, together with all instruments and other agreements entered into by the Borrower in connection therewith, the terms of which shall be acceptable to the Agents, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. 23 "SENIOR SUBORDINATED NOTES": up to $250,000,000 in aggregate principal amount of senior subordinated notes of the Borrower to be issued pursuant to the Senior Subordinated Note Indenture, PROVIDED that the terms and conditions of such notes are acceptable to the Agents. "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SOLVENT": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "SPECIFIED CHANGE OF CONTROL": a "Change of Control" (or an event of similar designation), as defined in the Senior Subordinated Note Indenture. "SUBORDINATED DEBT": the Senior Subordinated Notes and any other unsecured Indebtedness of the Borrower or any of its Subsidiaries: no part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the Final Maturity Date; the payment of the principal of and interest on which and other obligations of the Borrower and its Subsidiaries in respect thereof are subordinated, on terms and conditions approved in writing by the Required Lenders, to the prior payment in full of the principal of and interest (including post-petition interest) on the Loans and all other obligations and liabilities of the Loan Parties to the Agents and the Lenders hereunder and under the other Loan Documents; and all other terms and conditions of which are satisfactory in form and substance to the Required Lenders (as evidenced by their prior written approval thereof). "SUBSIDIARY": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the 24 time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "SUBSIDIARY GUARANTOR": each Subsidiary of the Borrower other than any Excluded Foreign Subsidiary. "SYNDICATION DATE": the date on which the Syndication Agent completes the syndication of the Facilities and the entities selected in such syndication process become parties to this Agreement. "SYNDICATION LETTER AGREEMENT": the letter agreement, dated as of March 2, 1998, between the Borrower and the Syndication Agent relating to the syndication of the Facilities. "TERM LOAN": as defined in Section 2.1. "TERM LOAN COMMITMENT": as to any Lender, the obligation of such Lender, if any, to make a Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Term Loan Commitment" opposite such Lender's name on Schedule 1.1A. The original aggregate amount of the Term Loan Commitments is $80,000,000. "TERM LOAN COMMITMENT TERMINATION DATE": the earlier of (a) the Syndication Date and (b) August 31, 1998. "TERM LOAN LENDER": each Lender which has a Term Loan Commitment or which is the holder a Term Loan. "TERM LOAN PERCENTAGE": as to any Term Loan Lender at any time, the percentage which such Lender's Term Loan Commitment then constitutes of the aggregate Term Loan Commitments (or, at any time after the Term Loan Commitment Termination Date, the percentage which the aggregate principal amount of such Lender's Term Loans then outstanding constitutes of the aggregate principal amount of the Term Loans then outstanding). "TOTAL REVOLVING CREDIT COMMITMENTS": at any time, the aggregate amount of the Revolving Credit Commitments then in effect. "TOTAL REVOLVING EXTENSIONS OF CREDIT": at any time, the aggregate amount of the Revolving Extensions of Credit of the Revolving Credit Lenders outstanding at such time. "TOTAL TERM LOAN COMMITMENTS": at any time, the aggregate amount of the Term Loan Commitments then in effect. 25 "TRANSFEREE": as defined in Section 10.15. "TYPE": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "WHOLLY OWNED SUBSIDIARY": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 TERM LOAN COMMITMENTS. Subject to the terms and conditions hereof, each Term Loan Lender severally agrees to make, in up to five separate draws during the period commencing on the Closing Date and ending on the Term Loan Commitment Termination Date, term loans (each, a "TERM LOAN") to the Borrower in an aggregate principal amount not to exceed the amount of the Term Loan Commitment of such Lender. The Term Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.11. 2.2 PROCEDURE FOR TERM LOAN BORROWING. The Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans), specifying (i) the amount and Type of Term Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar 26 Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. The Term Loans made on the Closing Date shall initially be Base Rate Loans, and no Term Loan may be converted into or continued as a Eurodollar Loan having an Interest Period in excess of one month prior to the Syndication Date. Each borrowing under the Term Loan Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Term Loan Lender thereof. Each Term Loan Lender will make the amount of its PRO RATA share of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent in like funds as received by the Administrative Agent. 2.3 REPAYMENT OF TERM LOANS. The Term Loan of each Term Loan Lender shall mature in 25 consecutive installments, commencing on March 31, 2000 and ending on the Final Maturity Date, each of which shall be in an amount equal to such Lender's Term Loan Percentage multiplied by the amount set forth below opposite such installment: Installment Principal Amount ----------- ---------------- March 31, 2000 $2,500,000 June 30, 2000 $2,500,000 September 30, 2000 $2,500,000 December 31, 2000 $2,500,000 March 31, 2001 $2,500,000 June 30, 2001 $2,500,000 September 30, 2001 $2,500,000 December 31, 2001 $2,500,000 March 31, 2002 $2,500,000 June 30, 2002 $2,500,000 September 30, 2002 $2,500,000 December 31, 2002 $2,500,000 March 31, 2003 $3,750,000 June 30, 2003 $3,750,000 September 30, 2003 $3,750,000 December 31, 2003 $3,750,000 March 31, 2004 $3,750,000 June 30, 2004 $3,750,000 September 30, 2004 $3,750,000 December 31, 2004 $3,750,000 March 31, 2005 $3,750,000 June 30, 2005 $3,750,000 September 30, 2005 $3,750,000 December 31, 2005 $3,750,000 Final Maturity Date $5,000,000; 27 PROVIDED, HOWEVER, that if after giving effect to any Term Loans made on the Term Loan Commitment Termination Date, the Total Term Loan Commitments exceeds the amount of Term Loans made to the Borrower, the foregoing installments shall be ratably reduced by an aggregate amount equal to such excess. 2.4 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Revolving Credit Lender severally agrees to make revolving credit loans ("REVOLVING CREDIT LOANS") to the Borrower from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Revolving Credit Percentage of the L/C Obligations then outstanding, does not exceed the amount of such Lender's Revolving Credit Commitment. During the Revolving Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.11, PROVIDED that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Final Maturity Date. (b) The Revolving Credit Commitment of each Revolving Credit Lender shall be reduced in 25 consecutive installments, commencing on March 31, 2000 and ending on the Final Maturity Date, each of which shall be in an amount equal to such Lender's Revolving Credit Percentage multiplied by the amount set forth below opposite such installment: Installment Principal Amount ----------- ---------------- March 31, 2000 $2,500,000 June 30, 2000 $2,500,000 September 30, 2000 $2,500,000 December 31, 2000 $2,500,000 March 31, 2001 $2,500,000 June 30, 2001 $2,500,000 September 30, 2001 $2,500,000 December 31, 2001 $2,500,000 March 31, 2002 $3,750,000 June 30, 2002 $3,750,000 September 30, 2002 $3,750,000 December 31, 2002 $3,750,000 March 31, 2003 $5,000,000 June 30, 2003 $5,000,000 September 30, 2003 $5,000,000 December 31, 2003 $5,000,000 March 31, 2004 $6,250,000 June 30, 2004 $6,250,000 September 30, 2004 $6,250,000 December 31, 2004 $6,250,000 March 31, 2005 $6,250,000 28 June 30, 2005 $6,250,000 September 30, 2005 $6,250,000 December 31, 2005 $6,250,000 Final Maturity Date $5,000,000 2.5 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, PROVIDED that the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. Any Revolving Credit Loans made on the Closing Date shall initially be Base Rate Loans, and no Revolving Credit Loan may be made as, converted into or continued as a Eurodollar Loan having an Interest Period in excess of one month prior to the Syndication Date. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will make the amount of its PRO RATA share of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent in like funds as received by the Administrative Agent. 2.6 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Revolving Credit Lender or Term Loan Lender, as the case may be, (i) the then unpaid principal amount of each Revolving Credit Loan of such Revolving Credit Lender in accordance with Section 2.10(e) and on the Final Maturity Date (or such earlier date on which the Loans become due and payable pursuant to Section 8) and (ii) the principal amount of each Term Loan of such Term Loan Lender in installments according to the amortization schedule set forth in Section 2.3 (or on such earlier date on which the Loans become due and payable pursuant to Section 8). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.13. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent, on behalf of the Borrower, shall maintain the 29 Register pursuant to Section 10.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.6(b) shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the existence and amounts of the obligations of the Borrower therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender in accordance with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note of the Borrower evidencing any Term Loans or Revolving Credit Loans, as the case may be, of such Lender, substantially in the forms of Exhibit G-1 or G-2, respectively, with appropriate insertions as to date and principal amount. 2.7 COMMITMENT FEES, ETC. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Credit Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Final Maturity Date, commencing on the first of such dates to occur after the date hereof. The Borrower agrees to pay to the Administrative Agent for the account of each Term Loan Lender a commitment fee for the period from and including the Closing Date to the Term Loan Commitment Termination Date, computed at the Commitment Fee Rate on the amount of the Available Term Loan Commitment of such Lender, payable quarterly in arrears on the last day of each March, June, September and December and on the Term Loan Commitment Termination Date (b) The Borrower agrees to pay to the Syndication Agent the fees in the amounts and on the dates previously agreed to in writing by the Borrower and the Syndication Agent. (c) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and the Administrative Agent. 2.8 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; PROVIDED that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the 30 Revolving Credit Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect. The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to reduce the amount of the Term Loan Commitments by an amount equal to the excess of the Total Term Loan Commitments over the aggregate unpaid principal amount of Term Loans then outstanding. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Term Loan Commitments then in effect. 2.9 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or Base Rate Loans; PROVIDED, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.19. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Credit Loans which are Base Rate Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. 2.10 MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) Unless the Required Prepayment Lenders shall otherwise agree, if any Capital Stock shall be issued, or Indebtedness incurred, by the Borrower or any of its Subsidiaries (excluding (i) any issuance of Capital Stock in connection with an IPO consummated within six months of the Closing Date, (ii) any Senior Subordinated Notes issued within six months of the Closing Date and (iii) any Indebtedness incurred in accordance with Section 7.2 (other than Section 7.2(f) or Section 7.2(h)) as in effect on the date of this Agreement), an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or incurrence toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.10(d). (b) Unless the Required Prepayment Lenders shall otherwise agree, if on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be applied on such date toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.10(d); PROVIDED, that, notwithstanding the foregoing, (i) the aggregate Reinvestment Deferred Amount less any amounts expended prior to the most recent Reinvestment Prepayment Date to acquire assets useful in the Borrower's business shall not exceed $10,000,000 at any one time and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.10(d). 31 (c) Unless the Required Prepayment Lenders shall otherwise agree, if, for any fiscal year of the Borrower commencing with the fiscal year ending December 31, 1998, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF Percentage of such Excess Cash Flow toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.10(d). Each such prepayment and commitment reduction shall be made on a date (an "EXCESS CASH FLOW APPLICATION DATE") no later than five days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 6.1(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered. (d) Amounts to be applied in connection with prepayments and Commitment reductions made pursuant to paragraphs (a), (b) and (c) of this Section shall be applied, FIRST, to the prepayment of the Term Loans and, SECOND, to reduce permanently the Revolving Credit Commitments. Any such reduction of the Revolving Credit Commitments shall be accompanied by prepayment of the Revolving Credit Loans to the extent, if any, that the Total Revolving Extensions of Credit exceed the amount of the Total Revolving Credit Commitments as so reduced, PROVIDED that if the aggregate principal amount of Revolving Credit Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders on terms and conditions satisfactory to the Administrative Agent. (e) If, at any time during the Revolving Credit Commitment Period, the Total Revolving Extensions of Credit exceeds the amount of the Total Revolving Credit Commitments then in effect, the Borrower shall, without notice or demand, immediately repay the Revolving Credit Loans in an aggregate principal amount equal to such excess, PROVIDED that if the aggregate principal amount of Revolving Credit Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders on terms and conditions satisfactory to the Administrative Agent. (f) The amount of each principal prepayment of the Term Loans shall be applied to reduce the then remaining installments of the Term Loans PRO RATA based upon the then remaining principal amounts thereof. Amounts prepaid on account of the Term Loans may not be reborrowed. The amount of each principal prepayment of the Revolving Credit Loans shall be applied to reduce the then remaining scheduled Revolving Credit Commitment reductions PRO RATA based upon the scheduled amounts of such reductions. (g) The application of any prepayment pursuant to this Section shall be made first to Base Rate Loans and second to Eurodollar Loans. Each prepayment of the Loans under this Section (except in the case of Revolving Credit Loans that are Base Rate Loans) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. 2.11 CONVERSION AND CONTINUATION OPTIONS.(a) The Borrower may elect from 32 time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, PROVIDED that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), PROVIDED that no Base Rate Loan under a particular Facility may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the Final Maturity Date. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, PROVIDED that no Eurodollar Loan under a particular Facility may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the Final Maturity Date, and PROVIDED, FURTHER, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. 2.12 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF EURODOLLAR TRANCHES. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time. 2.13 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) shall bear interest at a rate per annum which is equal to (x) in the case of the Loans, the rate that would 33 otherwise be applicable thereto pursuant to the foregoing provisions of this Section PLUS 2% or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans under the Revolving Credit Facility PLUS 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans under the relevant Facility PLUS 2% (or, in the case of any such other amounts that do not relate to a particular Facility, the rate then applicable to Base Rate Loans under the Revolving Credit Facility PLUS 2%), in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, PROVIDED that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand. 2.14 COMPUTATION OF INTEREST AND FEES. (a) Interest, fees and commissions payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.13(a). 2.15 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, 34 the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the first day of such Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans. 2.16 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee and any reduction of the Commitments of the Lenders shall be made PRO RATA according to the respective Term Loan Percentages or Revolving Credit Percentages, as the case may be, of the relevant Lenders. Each payment (other than prepayments) in respect of principal or interest in respect of the Loans, and each payment in respect of Reimbursement Obligations, shall be applied to the amounts of such obligations owing to the Lenders PRO RATA according to the respective amounts then due and owing to the Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Term Loans shall be made PRO RATA according to the respective outstanding principal amounts of the Term Loans then held by the Term Loan Lenders. (c) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made PRO RATA according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Revolving Credit Lenders. (d) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Payment Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (e) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may 35 assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans under the relevant Facility, on demand, from the Borrower. (f) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment being made hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective PRO RATA shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days of such required date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower. 2.17 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.18 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining 36 Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (d) Each Lender agrees that, in calculating the amounts payable by the Borrower pursuant to this Section, it will calculate such amounts on a basis no less favorable to the Borrower than the basis of calculation used by such Lender for other borrowers deemed by such Lender to be similarly situated. 2.18 TAXES. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("NON-EXCLUDED TAXES") or Other Taxes are required to be withheld from any amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such 37 other amounts payable hereunder at the rates or in the amounts specified in this Agreement, PROVIDED, HOWEVER, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time the Lender becomes a party to this Agreement, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph (a). (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agents and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this Section 2.18 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (d) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "NON-U.S. LENDER") shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a statement substantially in the form of Exhibit H and a Form W-8, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non-U.S. 38 withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, PROVIDED that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. 2.19 INDEMNITY. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender sustains or incurs as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) OVER (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.20 ILLEGALITY. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.19. 2.21 CHANGE OF LENDING OFFICE. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.17 or 2.18(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the 39 object of avoiding the consequences of such event; PROVIDED, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and PROVIDED, FURTHER, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.17 or 2.18(a). SECTION 3. LETTERS OF CREDIT 3.1 L/C COMMITMENT. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Revolving Credit Lenders set forth in Section 3.4(a), agrees to issue Letters of Credit for the account of the Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by the Issuing Lender; PROVIDED that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Final Maturity Date, PROVIDED that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 PROCEDURE FOR ISSUANCE OF LETTER OF CREDIT. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). 3.3 FEES AND OTHER CHARGES. (a) The Borrower will pay a fee on all outstanding 40 Letters of Credit at a per annum rate equal to the lesser of (i) the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility and (ii) 2.50%, shared ratably among the Revolving Credit Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. In addition, the Borrower shall pay to the Issuing Lender for such Lender's own account a fronting fee at a rate per annum, not in excess of 1/8 of 1% per annum, agreed upon by the Borrower and the Issuing Lender, on the face amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee Payment Date after the Issuance Date. (b) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 3.4 L/C PARTICIPATIONS. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Credit Percentage in the obligations and rights of the Issuing Lender under each Letter of Credit and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at such Lender's address for notices specified herein an amount equal to such L/C Participant's Revolving Credit Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to the Issuing Lender as applicable, pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans under the Revolving Credit Facility. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its PRO RATA share of such payment in accordance with Section 3.4(a), the Issuing Lender receives any payment related to such Letter of 41 Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its PRO RATA share thereof; PROVIDED, HOWEVER, that in the event that any such payment received by the Issuing Lender shall be required to be returned by it, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to such L/C Participant. 3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER. The Borrower agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Section from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate set forth in (i) until the second Business Day following the date of the applicable drawing, Section 2.13(b) and (ii) thereafter, Section 2.13(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 of Base Rate Loans in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. 3.6 OBLIGATIONS ABSOLUTE. The Borrower's obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that such Lender shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Lender. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower. 3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for payment under 42 any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. 3.8 APPLICATIONS. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, the Borrower hereby represents and warrants to each Agent and each Lender that: 4.1 FINANCIAL CONDITION.(a) The unaudited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at December 31, 1997, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, present fairly in all material respects the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as disclosed therein). (b) Except as set forth on Schedule 4.1(b), as of the date hereof, the Borrower and its Subsidiaries do not have any Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are material to the Borrower and its Subsidiaries, taken as a whole, which are not reflected in the most recent financial statements referred to in this Section. The Guarantee Obligations, contingent liabilities and liabilities for taxes, long-term leases and unusual forward and long-term commitments listed on Schedule 4.1(b) could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. There are no Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments of the Borrower or any of its Subsidiaries, including those listed on Schedule 4.1(b), that could, in the aggregate, reasonably be expected to have a Material Adverse Effect. During the period from December 31, 1997, to and including the date hereof there has been no Disposition by the Borrower or any of its Subsidiaries of any material part of its business or Property. 4.2 NO CHANGE. Since December 31, 1997 there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. 43 4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder and to consummate the Acquisition. Each Loan Party has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party, to consummate the Acquisition and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Acquisition or the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 4.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 4.19. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 NO LEGAL BAR. The execution, delivery and performance of this Agreement and the other Loan Documents, the consummation of the Acquisition, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower or any of its Subsidiaries (after taking into account all consents and waivers obtained by the Borrower prior to the date hereof) and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). Management of the Borrower has no reason to believe that any Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents, the Acquisition or any of the other transactions contemplated hereby or thereby, or (b) which could reasonably be 44 expected to have a Material Adverse Effect. 4.7 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and each of its Subsidiaries has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other Property, and none of such Property is subject to any Lien except as permitted by Section 7.3. 4.9 INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim. The use of Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect. 4.10 TAXES. Each of the Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 4.11 FEDERAL REGULATIONS. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in Regulation G or Regulation U, as the case may be. 4.12 LABOR MATTERS. There are no strikes or other labor disputes against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payments made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Borrower or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the 45 aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Borrower or the relevant Subsidiary. 4.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 4.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness. 4.15 SUBSIDIARIES. The Subsidiaries listed on Schedule 4.15 constitute all the Subsidiaries of the Borrower at the date hereof. 4.16 USE OF PROCEEDS. The proceeds of the Term Loans shall be used to finance the Acquisition, to refinance outstanding Indebtedness under the Existing Credit Facility and to pay related fees and expenses. The proceeds of the Revolving Credit Loans and the Letters of Credit shall be used to finance Permitted Acquisitions, working capital needs, Capital Expenditures and other general corporate purposes of the Borrower and its Subsidiaries in the ordinary course of business. 4.17 ENVIRONMENTAL MATTERS. Other than as could not, individually or in the aggregate, reasonably be expected to result in the payment of a Material Environmental Amount: (a) the facilities and properties owned, leased or operated by the Borrower or any of its Subsidiaries (the "PROPERTIES") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances which (i) constitute or constituted a violation of, or (ii) could give rise to liability under, any Environmental Law; (b) the Properties and all operations at the Properties are in material compliance, 46 and have in the last five years been in material compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Borrower or any of its Subsidiaries (the "BUSINESS"); neither the Borrower nor any of its Subsidiaries has contractually assumed any liability of any other Person under Environmental Laws; (c) neither the Borrower nor any of its Subsidiaries has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened; (d) materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law; (e) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business; and (f) there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 4.18 ACCURACY OF INFORMATION, ETC. The statements and information contained in this Agreement, any other Loan Document and any other document, certificate or statement furnished to the Agents or the Lenders or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, taken as a whole, did not contain as of the date such statements, information, documents and certificate were so furnished, any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. The projections and PRO FORMA financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Agents and the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. As of the date hereof, the representations and warranties of the Borrower and, to the Borrower's knowledge, of the Sellers contained in the Acquisition Agreements are true and correct in all material respects. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse 47 Effect that has not been expressly disclosed herein, in the other Loan Documents or in any other documents, certificates and statements furnished to the Agents and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 4.19 SECURITY DOCUMENTS. (a) Subject to the limitations contained in Section 6.11(b), the Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Administrative Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements in appropriate form are filed in the offices specified on Schedule 4.19(a), and, in each case, subject to the limitations contained in Section 6.11(b), the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person. (b) Each of the Mortgages, when executed and delivered by the Loan Party granting a security interest in the Mortgaged Property covered thereby, will be effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person. 4.20 SOLVENCY. Each Loan Party is, and after giving effect to the Acquisitions and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 4.21 SENIOR INDEBTEDNESS. Upon execution of the Senior Subordinated Note Indenture, (a) the Obligations will constitute "Senior Indebtedness" (or an equivalent designation) of the Borrower under and as defined in the Senior Subordinated Note Indenture and (b) the obligations of each Subsidiary Guarantor under the Guarantee and Collateral Agreement will constitute "Guarantor Senior Indebtedness" (or an equivalent designation) of such Subsidiary Guarantor under and as defined in the Senior Subordinated Note Indenture. 4.22 REGULATION H. No Mortgage encumbers improved real property which is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968. 4.23 LICENSES; PERMITS; ETC. Schedule 4.23 accurately and completely lists all material authorizations, licenses and permits of any public or governmental regulatory body granted or assigned to the Borrower or any of its Subsidiaries, including but not limited to all material authorizations, licenses and permits for the operation of any radio station, and all 48 material FCC Licenses held by other entities with which the Borrower or its Subsidiaries have entered into Local Marketing Agreements giving the Borrower or its Subsidiaries, subject to the restrictions contained in the Communications Act of 1934, as amended, and the rules and regulations of the FCC, the right to provide programming for, and conduct certain operations of, the radio stations with respect to which such FCC Licenses were granted, and the same constitute the only material authorizations, licenses and permits of any public or governmental regulatory body which are required or necessary for the conduct of the respective businesses of the Borrower and its Subsidiaries as now conducted or proposed to be conducted (such authorizations, licenses and permits, together with any extensions or renewals thereof, being herein sometimes referred to collectively as the "LICENSES"). Except with respect to FCC Licenses relating to stations subject to a Local Marketing Agreement (as identified in Schedule 4.23), all of such Licenses listed in Schedule 4.23 are issued in the name of, or are (or, in the case of those Licenses relating to the operation of radio stations subject to a Local Marketing Agreement but which are to be acquired in the Acquisition, upon the consummation of the Acquisition, will be) validly assigned to, the Borrower or the License Subsidiary and are (or, in the case of those FCC Licenses relating to the operation of radio stations subject to a Local Marketing Agreement and which are to be acquired in the Acquisition, to the best of the Borrower's knowledge are) validly issued and in full force and effect, and the Borrower has (or, in the case of those FCC Licenses relating to the operation of radio stations subject to a Local Marketing Agreement and which are to be acquired in the Acquisition, to the best of the Borrower's knowledge each holder of such Licenses has) (i) fulfilled and performed in all material respects all of its obligations with respect thereto and (ii) full power and authority to operate thereunder. Except with respect to those stations identified in Schedule 4.23 as being subject to Local Marketing Agreements, the transfer from the Sellers to the Borrower of control of the radio stations being acquired in the Acquisition and the assets related thereto and the transfer of the related FCC Licenses from the Sellers to the Borrower have been approved by the FCC or will have been approved at or prior to the consummation of such Acquisition, it being understood that, to the extent such FCC approval has not been obtained, management of the Borrower has no reason to believe such FCC approval will not be obtained at or prior to the consummation of such Acquisition. Complete and correct copies of such orders of the FCC have been delivered to the Administrative Agent. All FCC Licenses are held by the License Subsidiary. 4.24 FCC COMPLIANCE, ETC. The Borrower and each of its Subsidiaries are (and, after giving effect to the Acquisition, each will be) in compliance with all rules, regulations and administrative orders of the FCC applicable to the Borrower or any of its Subsidiaries or the operation of its Properties, except where the failure to be in such compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 5. CONDITIONS PRECEDENT 5.1 CONDITIONS TO INITIAL EXTENSION OF CREDIT. The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent: 49 (a) LOAN DOCUMENTS. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Borrower, (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of the Borrower and each Subsidiary Guarantor, and (iii) for the account of each relevant Lender, Notes conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Borrower. (b) FINANCIAL STATEMENTS. The Lenders shall have received unaudited consolidated financial statements of the Borrower and its consolidated Subsidiaries for the 1997 fiscal year, and such financial statements shall be reasonably satisfactory to the Lenders. (c) APPROVALS. All governmental and third party approvals (including landlords' and other consents) necessary or, in the discretion of the Agents, advisable in connection with the Acquisition, the continuing operations of the Borrower and its Subsidiaries and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Acquisition or the financing contemplated hereby. (d) RELATED AGREEMENTS. The Administrative Agent shall have received (in a form reasonably satisfactory to the Syndication Agent), with a copy for each Lender, true and correct copies, certified as to authenticity by the Borrower, of each Acquisition Agreement and such other documents or instruments as may be reasonably requested by the Syndication Agent, including, without limitation, a copy of any debt instrument, security agreement or other material contract to which the Loan Parties may be a party. (e) TERMINATION OF EXISTING CREDIT FACILITY. The Administrative Agent shall have received evidence satisfactory to the Agents that (i) the Existing Credit Facility shall be simultaneously terminated, (ii) all amounts thereunder shall be simultaneously paid in full, (iii) all letters of credit (other than any Existing Letter of Credit) and other contingent obligations in connection with the Existing Credit Facility shall have been terminated and arrangements satisfactory to the Agents shall have been made for the termination of Liens and security interests granted in connection therewith. (f) FEES. The Lenders and the Agents shall have received all fees required to be paid, and all expenses for which invoices have been presented, on or before the Closing Date; all such amounts will be paid with the proceeds of the Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or prior to the Closing Date. (g) BUSINESS PLAN. The Lenders shall have received a satisfactory business plan for fiscal years 1998 through 2002. (h) CAPITAL STRUCTURE. The Lenders shall be satisfied with the capital and legal structure of the Borrower and its Subsidiaries after giving effect to the Acquisition and 50 the other transactions contemplated hereby. (i) LIEN SEARCHES. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and such search shall reveal no liens on any of the assets of the Borrower or its Subsidiaries except for liens in respect of the Existing Credit Facility (for which arrangements satisfactory to the Agents shall have been made for the termination of such liens) and liens permitted by Section 7.3. (j) ENVIRONMENTAL AUDIT. The Administrative Agent shall have received an environmental audit satisfactory to the Agents with respect to the real properties owned or leased by the Borrower and its Subsidiaries, as specified by the Administrative Agent. (k) CLOSING CERTIFICATE. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments. (l) LEGAL OPINIONS. The Administrative Agent shall have received the following executed legal opinions: (i) the legal opinion of Godfrey & Kahn, S.C., counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F; (ii) the legal opinion of Paul, Hastings, Janofsky & Walker, LLP, special FCC counsel to the Borrower and its Subsidiaries; (iii) to the extent consented to by the relevant counsel, each legal opinion, if any, delivered in connection with the Acquisition Agreements, accompanied by a reliance letter in favor of the Lenders; and (iv the legal opinion of local counsel in each of Illinois and Nevada and of such other special and local counsel as may be required by the Administrative Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (m) PLEDGED STOCK; STOCK POWER; PLEDGED NOTES. The Administrative Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note pledged to the Administrative Agent pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank satisfactory to the Syndication Agent) by the pledgor thereof. (n) FILINGS, REGISTRATIONS AND RECORDINGS. Each document (including, without 51 limitation, any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 7.3), shall be in proper form for filing, registration or recordation. (o) INSURANCE. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 5.3 of the Guarantee and Collateral Agreement. 5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date, except those representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date. (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall and shall cause each of its Subsidiaries to: 6.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent for delivery to each Lender (and the Administrative Agent agrees to make and deliver such copies): (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower (including fiscal year 1997), a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Price Waterhouse or other 52 independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event not later than 45 days after the end of each month occurring during each fiscal year of the Borrower (other than the third, sixth, ninth and twelfth such month), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative Agent for delivery to each Lender (and the Administrative Agent agrees to make and deliver such copies), or, in the case of clause (g), to the relevant Lender: (a) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a listing of any county or state 53 within the United States where any Loan Party keeps inventory or equipment and of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date); (c) as soon as available, and in any event no later than 45 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "PROJECTIONS"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) within 45 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year; (e) no later than ten Business Days prior to the effectiveness thereof, copies of substantially final drafts of the Senior Subordinated Note Indenture and, no later than five Business Days prior to the effectiveness thereof, copies of substantially final drafts of any proposed amendment, supplement, waiver or other modification with respect to the Senior Subordinated Note Indenture or any Acquisition Agreement; (f) within five days after the same are sent, copies of all financial statements and reports which the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (g) promptly upon receipt thereof, a copy of any other report or "management letter" submitted by independent certified public accountants to the Borrower or any of its Subsidiaries in connection with any annual, interim or special audit of the Borrower or any of its Subsidiaries; and (h) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all obligations of whatever nature 54 that are material to the Borrower and its Subsidiaries, taken as a whole, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE, ETC. (a) (i) Preserve, renew and keep in full force and effect its corporate existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all Property useful and necessary in its business in good working order and condition, taken as a whole, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records upon reasonable advance notice to the Borrower (which notice shall not be required to be given during the continuance of a Default or an Event of Default) and at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants. 6.7 NOTICES. Promptly give to the Administrative Agent for delivery to each Lender (and the Administrative Agent agrees to make and so deliver such copies) notice of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Borrower or any of its Subsidiaries in which the amount involved is $1,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; 55 (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (e) any development or event which has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary proposes to take with respect thereto. 6.8 ENVIRONMENTAL LAWS. (a) Comply in all respects with, and, to the extent it has the capability to do so, ensure compliance in all respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all respects with and maintain, and, to the extent it has the capability to do so, ensure that all tenants and subtenants obtain and comply in all respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. For purposes of this section 6.8(a), noncompliance by the Borrower with any applicable Environmental Law or environmental permit shall be deemed not to constitute a breach of this covenant PROVIDED that, upon learning of any actual or suspected noncompliance, the Borrower shall promptly undertake all reasonable efforts to achieve compliance, and PROVIDED further that, in any case, such noncompliance, and any other noncompliance with Environmental Law, individually or in the aggregate could not reasonably be expected to result in the payment of a Material Environmental Amount. (b) Promptly comply with all orders and directives of all Governmental Authorities regarding Environmental Laws, other than such orders and directives as to which appropriate proceedings have been timely and properly taken in good faith, and PROVIDED that the pendency of any and all such proceedings could not reasonably be expected to have a Material Adverse Effect. 6.9 INTEREST RATE PROTECTION. Unless the Borrower shall have issued its Senior Subordinated Notes, enter, within 90 days after the Closing Date, into Hedge Agreements to the extent required by the Agents to provide that an aggregate principal amount of the Loans specified by the Agents is subject to either a fixed interest rate or interest rate protection for a period of not less than four years, which Hedge Agreements shall have terms and conditions reasonably satisfactory to the Agents. 6.10 ADDITIONAL COLLATERAL, ETC. (a) With respect to any Property acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than (x) any Property of an Excluded Foreign Subsidiary, (y) any Property described in paragraph (b), (c) or (d) below and (z) any Property subject to a Lien expressly permitted by Section 7.3(g) or 7.3(h)) as to which the 56 Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, subject to the limitations contained in Section 6.11(b), a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, subject to the limitations contained in Section 6.11(b), a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent. (b) To the extent requested by the Agents, with respect to any fee interest in any real property acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than (x) any such real property of an Excluded Foreign Subsidiary and (y) any such real property subject to a Lien expressly permitted by Section 7.3(g) or 7.3(h)), promptly (i) execute and deliver a first priority Mortgage in favor of the Administrative Agent, for the benefit of the Lenders, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real estate (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor's certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such mortgage or deed of trust, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Borrower or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent, and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 56 (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Borrower or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Lien of the Administrative Agent thereon, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 6.11 FURTHER ASSURANCES. (a) From time to time hereafter, the Borrower will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents, and will take all such actions, as the Administrative Agent may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents, or of more fully perfecting or renewing the rights of the Administrative Agent and the Lenders with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Borrower which may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any consent, approval, recording, qualification or authorization of any Governmental Authority, including, without limitation, the FCC, the Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lender may be required to obtain from the Borrower or any of its Subsidiaries for such governmental consent, approval, recording, qualification or authorization. (b) Notwithstanding anything herein or in the Security Documents to the contrary, to the extent this Agreement or any other Loan Document purports to require any Loan Party to grant to the Administrative Agent, on behalf of the Lenders, a security interest in the FCC Licenses of any Loan Party now owned or hereafter acquired, as the case may be, the Administrative Agent, on behalf of the Lenders, shall only have a security interest in such FCC Licenses at such times and to the extent that a security interest in such licenses is permitted under applicable law. Notwithstanding anything to the contrary contained herein or in the other Loan Documents, the Administrative Agent will not take any action pursuant to this Agreement or any other Loan Document that would constitute or result in any assignment of any FCC License or any change of control of any Loan Party without first obtaining the prior approval of the FCC or other state or Governmental Authority, if, under the existing law, such assignment of any FCC License or change of control would require the prior approval of the FCC or other state or Governmental Authority. Prior to the exercise by the Administrative Agent of any power, right, 58 privilege or remedy pursuant to this Agreement which requires any consent, approval, recording, qualification or authorization of any Governmental Authority or instrumentality, the Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments and other documents and papers that the Administrative Agent may be required to obtain for such governmental consent, approval, recording, qualification or authorization. Without limiting the generality of the foregoing, the Borrower will use its best efforts upon the reasonable request of the Administrative Agent to obtain from the appropriate governmental authorities the necessary consents and approvals, if any, for the assignment or transfer of such authorizations, licenses and permits to the Administrative Agent or its designee upon or following acceleration of the payment of the Loans in accordance with the provisions hereof. 6.12 TRANSFER OF FCC LICENSES. The Borrower will use its best efforts to obtain as soon as practicable consent from the FCC to transfer any FCC Licenses from time to time owned or acquired by it to the License Subsidiary and upon receipt of such consent will promptly transfer such FCC Licenses to the License Subsidiary. 6.13 MORTGAGES; TITLE INSURANCE; FLOOD INSURANCE.(a) The Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, a Mortgage covering each of the Mortgaged Properties, executed and delivered by a duly authorized officer of each party thereto. (b) (i) If requested by the Administrative Agent, the Borrower shall furnish to the Administrative Agent and the title insurance company issuing the policy referred to in clause (ii) below (the "TITLE INSURANCE COMPANY"), within 60 days after the Closing Date, maps or plats of an as-built survey of the sites of the Mortgaged Properties certified to the Administrative Agent and the Title Insurance Company in a manner satisfactory to them, dated a date satisfactory to the Administrative Agent and the Title Insurance Company by an independent professional licensed land surveyor satisfactory to the Administrative Agent and the Title Insurance Company, which maps or plats and the surveys on which they are based shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (A) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (B) the lines of streets abutting the sites and width thereof; (C) all access and other easements appurtenant to the sites; (D) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (E) any encroachments on any adjoining property by the building structures and improvements on the sites; (F) if the site is described as being on a filed map, a legend relating the survey to said map; and (G) the flood zone designations, if any, in which the Mortgaged Properties are located. (ii) The Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, in respect of each Mortgaged Property a mortgagee's title insurance policy (or policies) or marked up unconditional binder for such insurance. Each such policy shall (A) be in an amount satisfactory to the Administrative Agent; (B) be issued at ordinary rates; (C) 59 insure that the Mortgage insured thereby creates a valid first Lien on such Mortgaged Property free and clear of all defects and encumbrances, except as disclosed therein; (D) name the Administrative Agent for the benefit of the Lenders as the insured thereunder; (E) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and 10/17/84) (or equivalent policies); (F) contain such endorsements and affirmative coverage as the Administrative Agent may reasonably request; and (G) be issued by title companies satisfactory to the Administrative Agent (including any such title companies acting as co-insurers or reinsurers, at the option of the Administrative Agent). The Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, evidence satisfactory to it that all premiums in respect of each such policy, all charges for mortgage recording tax, and all related expenses, if any, have been paid. (iii) If requested by the Administrative Agent, the Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, (A) a policy of flood insurance which (1) covers any parcel of improved real property which is encumbered by any Mortgage (2) is written in an amount not less than the outstanding principal amount of the Indebtedness secured by such Mortgage which is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not later than the maturity of the Indebtedness secured by such Mortgage and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board. (iv) The Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (ii) above and a copy of all other material documents affecting the Mortgaged Properties. (c) If requested by the Administrative Agent, the Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, any consents or estoppels reasonably deemed necessary or advisable by the Administrative agent in connection with the Mortgages, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent. (d) If requested by the Administrative Agent, the Borrower shall furnish to the Administrative Agent, within 60 days after the Closing Date, legal opinions relating to the matters described in this Section, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 6.14 PRO FORMA BALANCE SHEET. The Borrower shall furnish to the Administrative Agent, within 15 days after the Closing Date, the unaudited PRO FORMA consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 1997 (including the notes thereto) (the "PRO FORMA BALANCE SHEET"), giving effect (as if such events had occurred on such date) to (a) the consummation of the Acquisition, (b) the Loans made on the Closing Date and the use of proceeds thereof and (c) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet shall have been prepared based on the best information available to the Borrower as of the date of delivery thereof, and shall be accompanied by a certificate to the effect that management of the Borrower believes the Pro Forma Balance Sheet 60 presents fairly on a PRO FORMA basis the estimated financial position of Borrower and its consolidated Subsidiaries as at December 31, 1997, assuming that the events specified in the preceding sentence had actually occurred at such date. SECTION 7. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 FINANCIAL CONDITION COVENANTS. (a) CONSOLIDATED LEVERAGE RATIO. Permit the Consolidated Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending during any test period set forth below to exceed the ratio set forth below opposite such test period: Consolidated Test Period Leverage Ratio ----------- -------------- Closing Date to the earlier of (x) the date of consummation of the IPO and (y) July 1, 1998 8.00 to 1.00 the earlier of (x) the day immediately following consummation of the IPO and (y) August 1, 1998 to September 30, 1998 7.50 to 1.00 October 1, 1998 to December 31, 1998 6.75 to 1.00 January 1, 1999 to June 30, 1999 6.50 to 1.00 July 1, 1999 to December 31, 1999 6.00 to 1.00 January 1, 2,000 and thereafter 5.50 to 1.00 (b) CONSOLIDATED SENIOR DEBT RATIO. Permit the Consolidated Senior Debt Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending during any test period set forth below to exceed the ratio set forth below opposite such test period: 61 Consolidated Test Period Senior Debt Ratio ----------- ----------------- Closing Date to the earlier of (x) the date of consummation of the IPO and (y) July 1, 1998 8.00 to 1.00 the earlier of (x) the day immediately following consummation of the IPO and (y) August 1, 1998 to September 30, 1998 6.50 to 1.00 October 1, 1998 to December 31, 1998 5.00 to 1.00 January 1, 1999 to June 30, 1999 4.50 to 1.00 July 1, 1999 to December 31, 1999 4.00 to 1.00 January 1, 2000 and thereafter 3.50 to 1.00 (c) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower ending during any test period set forth below to be less than the ratio set forth below opposite such test period: Consolidated Interest Test Period Coverage Ratio ----------- -------------- Closing Date to September 30, 1998 1.60 to 1.00 October 1, 1998 to September 30, 1999 1.70 to 1.00 October 1, 1999 to June 30, 2000 2.00 to 1.00 July 1, 2000 to June 30, 2001 2.25 to 1.00 July 1, 2001 and thereafter 2.50 to 1.00 (d) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Permit the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower ending during any test period set forth below to be less than 1.20 to 1.00. 7.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary Guarantor to the Borrower or any other Subsidiary; 62 (c) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 7.3(g) or 7.3(h) in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding; (d) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof or any shortening of the maturity of any principal amount thereof); (e) Guarantee Obligations made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of the Borrower or any Subsidiary Guarantor; (f) Indebtedness of the Borrower in respect of the Senior Subordinated Notes in an aggregate principal amount not to exceed $250,000,000; (g) additional Indebtedness of the Borrower or any of its Subsidiaries, on terms and conditions reasonably satisfactory to the Agents, issued to a seller of the stock or assets of a radio broadcast station in connection with any Permitted Acquisition, PROVIDED that the aggregate principal amount (for the Borrower and all Subsidiaries) of such seller financing shall not exceed $10,000,000 at any one time outstanding; and (h) Indebtedness of the Borrower in respect of shares of Preferred Stock issued after the date hereof on terms and conditions reasonably satisfactory to the Agents. 7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade 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; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the Property 63 subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) Liens in existence on the date hereof listed on Schedule 7.3(f), securing Indebtedness permitted by Section 7.2(d), PROVIDED that no such Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition of fixed or capital assets, PROVIDED that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property other than the Property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; (h) Liens on real property acquired in a Permitted Acquisition securing Indebtedness permitted by Section 7.2(c), PROVIDED that (i) such Liens existed at the time of such Permitted Acquisition and were not created in anticipation thereof, (ii) such Liens do not at any time encumber any Property other than the real Property financed by such Indebtedness and (iii) the amount of the Indebtedness secured thereby is not increased; (i) Liens created pursuant to the Security Documents; and (j) any interest or title of a lessor under any lease entered into by the Borrower or any other Subsidiary in the ordinary course of its business and covering only the assets so leased. 7.4 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its Property or business, except that: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (PROVIDED that the Borrower shall be the continuing or surviving corporation) or with or into any Subsidiary Guarantor (PROVIDED that the Subsidiary Guarantor shall be the continuing or surviving corporation); and (b) any Subsidiary of the Borrower may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Subsidiary Guarantor. 7.5 LIMITATION ON DISPOSITION OF PROPERTY. Dispose of any of its Property (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; 64 (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 7.4(b); (d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Subsidiary Guarantor; (e) the Disposition of other assets having a fair market value not to exceed $2,000,000 in the aggregate for any fiscal year of the Borrower; and (f) any Asset Sale or Recovery Event, PROVIDED, that the requirements of Section 2.10(b) are complied with in connection therewith. 7.6 LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of the Borrower or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (collectively, "RESTRICTED PAYMENTS"), except that (a) any Subsidiary may make Restricted Payments to the Borrower or any Subsidiary Guarantor and (b) the Borrower may pay dividends solely in additional shares of Preferred Stock in respect of the shares of Preferred Stock. 7.7 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make any Capital Expenditure, except (a) Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding in any fiscal year of the Borrower the sum of (i) the product of (x) $25,000 multiplied by (y) the number of radio broadcast stations owned by the Borrower and its Subsidiaries, PROVIDED that, with respect to any radio broadcast station that was not owned by the Borrower or any of its Subsidiaries for the full fiscal year, such amount shall be reduced by an amount for each such radio station equal to the product of (x) $25,000 multiplied by (y) a fraction the numerator of which is the number of months such station was not so owned and the denominator of which is 12, and (ii) up to $2,500,000 expended to obtain construction permits in the markets in which the Borrower and its Subsidiaries operate radio broadcast stations, (b) Capital Expenditures by the Borrower and its Subsidiaries consisting of one-time technology investments of up to $50,000 for each radio broadcast station owned by the Borrower and its Subsidiaries and (c) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount. 7.8 LIMITATION ON INVESTMENTS. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting an ongoing business from, or make any other investment in, any other Person (all of the foregoing, "INVESTMENTS"), except: (a) extensions of trade credit in the ordinary course of business; (b) Investments in Cash Equivalents; 65 (c) Investments arising in connection with the incurrence of Indebtedness permitted by Section 7.2(b); (d) loans and advances to employees of the Borrower or any Subsidiaries of the Borrower in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) in an aggregate amount for the Borrower and Subsidiaries of the Borrower not to exceed at any one time outstanding the lesser of (i) $10,000 multiplied by the number of radio broadcast stations owned by the Borrower and its Subsidiaries as at the date of determination and (ii) $3,000,000; (e) the Acquisition; (f) Investments in assets useful in the Borrower's business made by the Borrower or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount; (g) Investments (other than those relating to the incurrence of Indebtedness permitted by Section 7.8(c)) by the Borrower or any of its Subsidiaries in the Borrower or any Person that, prior to such investment, is a Subsidiary Guarantor; (h) Permitted Acquisitions; (i) Investments in existence on the date hereof and listed on Schedule 7.8(i); and (j) in addition to Investments otherwise expressly permitted by this Section, Investments by the Borrower or any of its Subsidiaries in an aggregate amount (valued at cost) not to exceed $2,500,000 during the term of this Agreement. 7.9 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS, ETC. (a) Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise voluntarily or optionally defease, the Senior Subordinated Notes, (b) amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Senior Subordinated Notes (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof, reduce the rate or extend the date for payment of interest thereon or relax any covenant or other restriction applicable to the Borrower or any of its Subsidiaries and (ii) does not involve the payment of a consent fee), (c) designate any Indebtedness (other than the Obligations) as "Designated Senior Indebtedness" for the purposes of the Senior Subordinated Note Indenture or (d) amend its certificate of incorporation in any manner determined by the Administrative Agent to be adverse to the Lenders. 7.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the Borrower or such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no less favorable to the 66 Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate; PROVIDED that nothing in this Section 7.10 shall be deemed to prohibit the Borrower from paying, prior to the IPO, to the Parent up to $600,000 in any fiscal year of the Borrower as compensation for management services rendered by the Parent. 7.11 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary. 7.12 LIMITATION ON CHANGES IN FISCAL PERIODS. Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower's method of determining fiscal quarters. 7.13 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into or suffer to exist or become effective any agreement which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, to secure the Obligations or, in the case of any guarantor, its obligations under the Guarantee and Collateral Agreement, other than (a) this Agreement and the other Loan Documents and (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby). 7.14 LIMITATION ON RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower, (b) make Investments in the Borrower or any other Subsidiary or (c) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents and (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement which has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary. 7.15 LIMITATION ON LINES OF BUSINESS. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement (after giving effect to the Acquisition) or which are reasonably related thereto. 7.16 LIMITATION ON LICENSE SUBSIDIARY. Permit the License Subsidiary to engage in any business or to incur any liability except that the License Subsidiary may (a) hold the FCC Licenses, (b) execute and deliver the Guarantee and Collateral Agreement and (c) incur obligations as a purchaser under any purchase agreement executed in connection with any Permitted Acquisition. 66 7.17 LIMITATION ON ACTIVITIES OF THE PARENT. Prior to the consummation of the IPO, permit the Parent to (a) conduct, transact or otherwise engage in, or commit to conduct, transact or otherwise engage in, any business or operations other than those incidental to its ownership of the Capital Stock of the Borrower, (b) incur, create, assume or suffer to exist any Indebtedness or other liabilities or financial obligations, except (i) nonconsensual obligations imposed by operation of law and (ii) obligations with respect to its Capital Stock, or (c) own, lease, manage or otherwise operate any properties or assets other than the ownership of shares of Capital Stock of the Borrower. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) (i) Any Loan Party shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to the Borrower only), Section 6.7(a), Section 7 or Section 5 of the Guarantee and Collateral Agreement or (ii) an "Event of Default" under and as defined in any Mortgage shall have occurred and be continuing; or (d) Any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days; or (e) The Parent, the Borrower or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a 68 trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; PROVIDED, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $2,500,000; PROVIDED, that on and after the date of the consummation of the IPO, the provisions of this paragraph (e) shall cease to apply to the Parent; or (f) (i) The Parent, the Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Parent, the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Parent, the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Parent, the Borrower or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Parent, the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Parent, the Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; PROVIDED, that on and after the date of the consummation of the IPO, the provisions of this paragraph (f) shall cease to apply to the Parent; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single 69 Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $1,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (i) Any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) The guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or (k)(i) Prior to the consummation of the IPO, (A) the Permitted Investors shall cease to have the power to vote or direct the voting of securities having a majority of the ordinary voting power for the election of directors of the Parent (determined on a fully diluted basis); or (B) the Permitted Investors shall cease to own of record and beneficially an amount of Capital Stock of the Parent equal to at least 51% of the amount of Capital Stock of the Parent owned by the Permitted Investors of record and beneficially as of the Closing Date; or (C) the Parent shall cease to own and control, of record and beneficially, directly, 100% of each class of outstanding Capital Stock of the Borrower (other than the Preferred Stock) free and clear of all Liens; or (ii) on and after the date of the consummation of the IPO, (A) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Permitted Investors) shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of securities of the Borrower having at least 35% of the ordinary voting power for the election of directors of the Borrower; or (B) the board of directors of the Borrower shall cease to consist of a majority of Continuing Directors; or (C) a Specified Change of Control shall occur; or (l) The Senior Subordinated Notes or any guarantees thereof shall cease, for any reason, to be validly subordinated to the Obligations or the obligations of the Subsidiary Guarantors under the Guarantee and Collateral Agreement, as the case may be, as provided in the Senior Subordinated Note Indenture, or any Loan Party, any Affiliate of 70 any Loan Party, the trustee in respect of the Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes shall so assert; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Revolving Credit Facility Lenders, the Administrative Agent may, or upon the request of the Majority Revolving Credit Facility Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving Credit Commitments shall immediately terminate; (ii) with the consent of the Majority Term Loan Facility Lenders, the Administrative Agent may, or upon the request of the Majority Term Loan Facility Lenders, the Administrative Agent shall, by notice to the Borrower declare the Term Loan Commitments to be terminated forthwith, whereupon the Term Loan Commitments shall immediately terminate; and (iii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). 71 SECTION 9. THE AGENTS 9.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints the Agents as the agents of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. 9.2 DELEGATION OF DUTIES. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 9.3 EXCULPATORY PROVISIONS. Neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. No Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 9.4 RELIANCE BY THE AGENTS. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Loan Parties), independent accountants and other experts selected by such Agent. The Agents may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive 72 such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 9.5 NOTICE OF DEFAULT. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6 NON-RELIANCE ON AGENTS AND OTHER LENDERS. Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereinafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to each Agent that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 9.7 INDEMNIFICATION. The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in 73 effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; PROVIDED that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements which are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. The agreements in this Section 9.7 shall survive the payment of the Loans and all other amounts payable hereunder. 9.8 AGENT IN ITS INDIVIDUAL CAPACITY. Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though such Agent was not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 9.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. The Syndication Agent may, at any time, by notice to the Lenders and the Administrative Agent, resign as Syndication Agent hereunder, whereupon the duties, rights, obligations and responsibilities hereunder shall automatically be assumed by, and inure to the benefit of, the Administrative Agent, without any further act by the Syndication Agent, the Administrative Agent or any Lender. After any retiring Agent's resignation as Agent, the 74 provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 9.10 AUTHORIZATION TO RELEASE LIENS. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to release any Lien covering any Property of the Borrower or any of its Subsidiaries that is the subject of a Disposition which is permitted by this Agreement or which has been consented to in accordance with Section 10.1. 9.11 THE ARRANGER. The Arranger, in its capacity as such, shall have no duties or responsibilities, and shall incur no liability, under this Agreement and the other Loan Documents. SECTION 10. MISCELLANEOUS 10.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or (with the written consent of the Required Lenders) the Agents and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders, or the Agents, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Commitment of any Lender, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section or reduce any percentage specified in the definition of Required Lenders or Required Prepayment Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the consent of all Lenders; (iii) reduce the percentage specified in the definition of Majority Facility Lenders with respect to any Facility without the consent of all Lenders under such Facility; (iv) amend, modify or waive any provision of Section 9 without the consent of the Agents; (v) amend, modify or waive any provision of Section 2.16 without the consent of each Lender directly affected thereby; or (vi) amend, modify or waive any provision of Section 3 without the consent of the Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Agents and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or 75 Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Any such waiver, amendment, supplement or modification shall be effected by a written instrument signed by the parties required to sign pursuant to the foregoing provisions of this Section; PROVIDED, that delivery of an executed signature page of any such instrument by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof. 10.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed (a) in the case of the Borrower, the Syndication Agent, the Administrative Agent and the Issuing Lender, as follows and (b) in the case of the Lenders, as set forth on Schedule I or, in the case of a Lender which becomes a party to this Agreement pursuant to an Assignment and Acceptance, in such Assignment and Acceptance or (c) in the case of any party, to such other address as such party may hereafter notify to the other parties hereto: The Borrower: Cumulus Holdings, Inc. 330 East Kilbourn Avenue Milwaukee, Wisconsin 53202 Attention: Richard Weening Telecopy: (414) 283-4505 Telephone: (414) 283-4500 The Syndication Agent, the Administrative Agent and the Issuing Lender: Lehman Commercial Paper Inc. 3 World Financial Center New York, New York 10285 Attention: Michele Swanson Telecopy: (212) 528-0819 Telephone: (212) 526-0330 PROVIDED that any notice, request or demand to or upon any Agent or any Lender shall not be effective until received. 10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the either Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or 76 statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder. 10.5 PAYMENT OF EXPENSES. The Borrower agrees (a) to pay or reimburse the Agents and the Arranger for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agents, (b) to pay or reimburse each Lender and each Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Agents, (c) to pay, indemnify, and hold each Lender, each Agent and the Arranger harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender, each Agent and the Arranger and their respective officers, directors, employees, affiliates, agents and controlling persons (each, an "INDEMNITEE") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower, any of its Subsidiaries or any of the Properties (all the foregoing in this clause (d), collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries so to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any indemnitee. The agreements in this Section shall survive repayment of the Loans and all other amounts payable hereunder. 10.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agents, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agents and each Lender. 77 (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "PARTICIPANT") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, or postpone the date of the final maturity of the Loans, in each case to the extent subject to such participation. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, PROVIDED that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; PROVIDED that, in the case of Section 2.18, such Participant shall have complied with the requirements of said Section and PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "ASSIGNOR") may, in accordance with applicable law, at any time and from time to time assign to any Lender or any affiliate thereof or, with the consent of the Borrower, the Issuing Lender and the Agents (which, in each case, shall not be unreasonably withheld or delayed), to an additional bank, financial institution or other entity (an "ASSIGNEE") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee and such Assignor (and, where the consent of the Borrower, the Agents or the Issuing Lender is required pursuant to the foregoing provisions, by the Borrower and such other Persons) and delivered to the Administrative Agent for its acceptance and recording in the Register; PROVIDED that no such assignment to an Assignee (other than any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Borrower, the Syndication Agent and the Administrative Agent. Any such assignment need not be ratable as among the Facilities. Upon such execution, delivery, acceptance and recording, from and after 78 the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such Assignor shall cease to be a party hereto). Notwithstanding any provision of this Section, the consent of the Borrower shall not be required for any assignment which occurs at any time when any Event of Default shall have occurred and be continuing. (d) The Administrative Agent shall maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agents and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Notes evidencing such Loans recorded therein for all purposes of this Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance; thereupon one or more new Notes in the same aggregate principal amount shall be issued to the designated Assignee, and the old Notes shall be returned by the Administrative Agent to the Borrower marked "cancelled". The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in any case where the consent of any other Person is required by Section 10.6(c), by each such other Person) together with payment to the Administrative Agent of a registration and processing fee of $2,000 (except that no such registration and processing fee shall be payable (y) in connection with an assignment by Lehman Commercial Paper Inc. or (z) in the case of an Assignee which is already a Lender or is an affiliate of a Lender or a Person under common management with a Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Revolving Credit Note and/or Term Notes, as the case may be, of the assigning Lender) a new Revolving Credit Note and/or Term Notes, as the case may be, to the order of such Assignee in an amount equal to the Revolving Credit Commitment and/or Term Loans, as the case may be, assumed or acquired by it pursuant to such Assignment and Acceptance and, if the Assignor has retained a Revolving Credit Commitment and/or Term Loans, as the case may be, upon request, a new Revolving Credit Note and/or Term Notes, as the case may be, to the order of the Assignor in an amount equal to the Revolving Credit Commitment and/or Term Loans, as the case may be, retained by it hereunder. Such new Note or Notes shall be dated the Closing Date and shall otherwise be in the form of the Note or Notes replaced thereby. 79 (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 10.7 ADJUSTMENTS; SET-OFF. (a) Except to the extent that this Agreement provides for payments to be allocated to a particular Lender or to the Lenders under a particular Facility, if any Lender (a "BENEFITTED LENDER") shall at any time receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Obligations, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Obligations, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, PROVIDED that the failure to give such notice shall not affect the validity of such setoff and application. 10.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 10.9 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 80 10.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Agents and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by any Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 10.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 10.13 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) no Agent or Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan 81 Documents, and the relationship between the Agents and the Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of creditor and debtor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower, the Agents and the Lenders. 10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 10.15 CONFIDENTIALITY. Each of the Agents and the Lenders agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; PROVIDED that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each, a "TRANSFEREE") or prospective Transferee which agrees to comply with the provisions of this Section, (c) any of its employees, directors, agents, attorneys, accountants and other professional advisors, (d) upon the request or demand of any Governmental Authority having jurisdiction over it, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) which has been publicly disclosed other than in breach of this Section 10.15, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. CUMULUS HOLDINGS, INC. By: ----------------------------- Name: Title: LEHMAN BROTHERS INC., as Arranger By: ----------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC., as Syndication Agent, Administrative Agent, Issuing Lender and as a Lender By: ----------------------------- Name: Title: ANNEX A PRICING GRID FOR LOANS AND COMMITMENT FEES
============================================================================================== Applicable Margin Consolidated Leverage Applicable Margin for Base Rate Commitment Fee Ratio for Eurodollar Loans Loans Rate - ---------------------------------------------------------------------------------------------- > or equal to 6.00 to 1.00 2.750% 1.750% 0.500% - ---------------------------------------------------------------------------------------------- > or equal to 5.50 to 1.00 2.500% 1.500% 0.500% and < 6.00 to 1.00 - ---------------------------------------------------------------------------------------------- > or equal to 5.00 to 1.00 2.125% 1.125% 0.500% and < 5.50 to 1.00 - ---------------------------------------------------------------------------------------------- > or equal to 4.50 to 1.00 2.000% 1.000% 0.500% and < 5.00 to 1.00 - ---------------------------------------------------------------------------------------------- > or equal to 4.00 to 1.00 1.750% 0.750% 0.375% and < 4.50 to 1.00 - ---------------------------------------------------------------------------------------------- < 4.00 to 1.00 1.500% 0.500% 0.375% ==============================================================================================
Changes in the Applicable Margin with respect to Loans or in the Commitment Fee Rate resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the "ADJUSTMENT DATE") that is six full calendar months after the Closing Date and, thereafter, on each date on which financial statements are delivered to the Lenders pursuant to Section 6.1 (but in any event not later than the 45th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 6.00 to 1.00. In addition, at all times while an Event of Default shall have occurred and be continuing, the Consolidated Leverage Ratio shall for the purposes of this definition be deemed to be greater than 6.00 to 1.00. Each determination of the Consolidated Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Borrower ending at the end of the period covered by the relevant financial statements. SCHEDULE 1.1A COMMITMENTS: LENDING OFFICES AND ADDRESSES - ------------------------------------------------------------------------------- Commitments Name of Lender and ---------------------------------- Information for Notices Revolving Credit Term Loan - -------------------------------------------------------------------------------- Lehman Commercial Paper Inc. $110,000,000 $80,000,000 3 World Financial Center New York, New York 10285 Attention: Michele Swanson Telecopy: (212) 528-0819 Telephone: (212) 526-0330 - -------------------------------------------------------------------------------- SCHEDULE 1.1B MORTGAGED PROPERTY SCHEDULE 1.1C ACQUISITION AGREEMENTS SCHEDULE 1.1D EXISTING LETTERS OF CREDIT SCHEDULE 4.1(b) MATERIAL LIABILITIES SCHEDULE 4.4 CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES SCHEDULE 4.15 SUBSIDIARIES SCHEDULE 4.19(a) UCC FILING JURISDICTIONS SCHEDULE 4.19(b) MORTGAGE FILING JURISDICTIONS SCHEDULE 4.23 LICENSES SCHEDULE 7.2(e) EXISTING INDEBTEDNESS SCHEDULE 7.3(f) EXISTING LIENS SCHEDULE 7.8(i) EXISTING INVESTMENTS EX-10.3 11 EXHIBIT 10.3 Exhibit 10.3 INDENTURE dated as of _______ __, 1998 among Cumulus Media Inc., an Illinois corporation (the "Company"), as issuer and _______________________, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the ____% Senior Subordinated Notes due 2008 of the Company (the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance or other disposition (but excluding the creation of a Lien) of any assets including, without limitation, by way of a sale and leaseback (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Sections 4.13 and/or 5.1 hereof and not by Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (including the sale by the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net 2 proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (2) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (3) the making of a Restricted Payment or a Permitted Investment that is permitted by Section 4.7; (4) a disposition of cash or Cash Equivalents; (5) a disposition of either obsolete equipment or equipment that is damaged, worn out or otherwise no longer useful in the business; (6) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (7) any sale and leaseback of an asset within 90 days after the completion of construction or acquisition of such asset; (8) any surrender or waiver of contract rights or a settlement, release or surrender of contract, tort or other claims of any kind or a grant of any Lien not prohibited by this Indenture; and (9) any transfer of properties or assets that is governed by Section 4.14 hereof; or (10) a disposition of inventory in the ordinary course of business. "Asset Swap" means the execution of a definitive agreement, subject only to regulatory approval 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 assets used or useful in a Permitted Business between the Company or any of its Restricted Subsidiaries and another person or group of affiliated persons; provided that any amendment to or waiver of any closing conditions which individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Board of Directors" means the Board of Directors of the Company or any authorized committee of such Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability 3 in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having a rating of at least P2 from Moody's (or its successor) or a rating of at least A2 from S&P (or its successor), and (vi) investments in money market or other mutual funds substantially all of whose assets comprise securities of the types described in clauses (ii) through (v) above. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" or group of related "persons" (a "Group") (as such terms are used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) the result of which is that any "person" (as defined above) or Group becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 50% of the aggregate voting power of all classes of Capital Stock of the Company having the right to elect directors under ordinary circumstances or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. 4 "Closing Date" means the date of the closing of the sale of the Notes offered pursuant to the Offering. "Commission" means the Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any Person for any period, the sum of, without duplication, the Consolidated Net Income of such Person for such period plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (ii) Consolidated Interest Expense of such Person for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iii) the product of (a) all cash dividend payments, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local effective tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP, plus (iv) consolidated depreciation, amortization and other non-cash charges of the Person and its Subsidiaries deducted in computing Consolidated Net Income of such Person for such period plus (v) cash payments with respect to any non-cash charges previously added back pursuant to clause (iv). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any 5 of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded and (v) all other extraordinary gains and extraordinary losses shall be excluded. "Consolidated Net Tangible Assets" of a Person means the consolidated total assets of such Person and its consolidated Subsidiaries determined in accordance with GAAP, less the sum of (i) all current liabilities and current liability items, and (ii) all goodwill, trade names, trademarks, patents, organization expense, unamortized debt discount and expense and other similar intangibles properly classified as intangibles in accordance with GAAP. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write- 6 ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of original issuance of the Notes or (ii) was nominated for election or elected to such Board of Directors with the approval of (x) two-thirds of the Continuing Directors who were members of such Board at the time of such nomination or election or (y) two-thirds of those Directors who were previously approved by Continuing Directors. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.2 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreements" means, with respect to the Company, one or more debt facilities (including, without limitation, the Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payment financing, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Agreements outstanding on the date on which the Notes are first issued and authenticated under this Indenture (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness set forth in Section 4.9 hereof. "Credit Facility" means that certain Credit Agreement, dated as of March 2, 1998, by and among the Company, Lehman Brothers Inc., as Arranger, and Lehman Brothers Commercial Paper Inc., as Syndication Agent and Administrative Agent, and certain banks, financial institutions and other entities, as lenders, providing for up to $190 million of Indebtedness, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or 7 refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, 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 Debt" means (i) the Credit Facility and (ii) any other Senior Debt permitted under this Indenture the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified 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 or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is convertible or exchangeable for Indebtedness or Disqualified Stock or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature, provided however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof (or of any security into which it is convertible or for which it is exchangeable) have the right to require the issuer to repurchase such Capital Stock (or such security into which it is convertible or for which it is exchangeable) upon the occurrence of any of the events constituting an Asset Sale or a Change of Control shall not constitute Disqualified Stock if such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provides that the issuer thereof will not repurchase or redeem any such Capital Stock (or any such security into which it is convertible or for which it is exchangeable) pursuant to such provisions prior to compliance by the Company with the provisions of Section 4.10 or Section 4.13 hereof, as the case may be. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public 8 Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on date hereof. "Government Securities" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by the terms of the Indenture and (ii) other agreements or arrangements designed to protect such Person against fluctuation in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business. "Holder" means a Person in whose name a Note is registered on the Registrar's books. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, or (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof (other than letters of credit securing obligations not constituting Indebtedness that are issued in the ordinary course of business by a Person to the extent not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day 9 following receipt by such Person of a demand for reimbursement following payment on the letter of credit) or bankers' acceptances, or (iii) representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable, or (iv) representing any Hedging Obligations, in each case if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. "Indenture" means this Indenture, as amended or supplemented from time to time. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Issue Date" means the date on which the Notes are originally issued. "Leverage Ratio" means 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 Disqualified Stock of the Company and preferred stock of the Company's Subsidiaries (except preferred stock issued to the Company or a Wholly Owned Restricted Subsidiary of the Company) on such date to (ii) the Consolidated Cash Flow 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 10 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 first day of the Four Quarter Period. In addition to the foregoing, for purposes of this definition, Consolidated Cash Flow 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 acquisition (including, without limitation, any 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 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 acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such preferred stock and also including any Consolidated Cash Flow associated with such acquisition) occurred on the first day of the Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company consistent with Article 11 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated Cash Flow," (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 11 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 Hedging Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, the City of Chicago or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement with respect to a lease not intended as a security agreement). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding cash amounts placed in escrow, until such amounts are released to the Company), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and expenses, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or 12 payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve established for future liabilities. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity or agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise); (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. "Note Custodian" means the Trustee or the Registrar, as custodian with respect to the Notes in global form, or any successor entity thereto or any entity acting as custodian with respect to Notes in global form. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, the Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company, by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.5 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets 13 the requirements of Section 11.5 hereof. The counsel may be an employee of or counsel to the Company or the Trustee. "Pari Passu Indebtedness" means indebtedness which ranks pari passu in right of payment to the Notes. "Permitted Business" means the broadcasting business or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "Permitted Indebtedness" has the meaning given in Section 4.9 hereof. "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment and any related transactions that at the time of such Investment are contractually mandated to occur, (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (e) that are at the time outstanding without giving effect to subsequent changes in value or increases or decreases attributable to the accounting for the net income of such Investment, not to exceed $15.0 million; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock); (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (A) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (B) as a result of the transfer of title with respect to any secured investment in default as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to such secured Investment; (h) Hedging Obligations permitted under Section 4.9 hereof; (i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case, incurred in the ordinary course 14 of business; and (j) any guarantees permitted to be made pursuant to Section 4.9 hereof. "Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Senior Debt that is outstanding on the date of issuance of the Notes and Liens securing Senior Debt that is permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company and Liens on property or assets of a Subsidiary existing at the time it became a Subsidiary, provided that such Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property; (iv) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date hereof; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) statutory liens of landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like Liens arising in the ordinary course of business; (viii) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (ix) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (f) of the second paragraph of Section 4.9 hereof covering only the assets acquired with such Indebtedness; (x) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary; (xi) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xii) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred or imposed, as applicable, in the ordinary course of business and consistent with industry practices which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or its Subsidiary) or interfere with the ordinary conduct 15 of the business of the Company or such Subsidiary; provided, however, that any such Liens are not incurred in connection with any borrowing of money or any commitment to loan any money or to extend any credit; and (xiii) customary Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance and other types of social security legislation. "Permitted Refinancing Debt" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Debt has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable taken as a whole to the Holders of the Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Principal" means Richard W. Weening and Lewis W. Dickey, Jr. "Related Party" with respect to any Principal means (A) any controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate family member (in the case of an individual) of such principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). 16 "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group and its successors. "Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of the Company under or in respect of any Credit Agreement, whether for principal, interest (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not the claim for such interest is allowed as a claim in such proceeding), reimbursement obligations, fees, commissions, expenses, indemnities or other amounts, and (ii) any other Indebtedness permitted under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes. Notwithstanding anything to the contrary in the foregoing sentence, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, or (y) any Indebtedness that is incurred in violation of the Indenture (other than Indebtedness under (i) the Credit Facility or (ii) any other Credit Agreement that is incurred on the basis of a representation by the Company to the applicable lenders that it is permitted to incur such Indebtedness under the Indenture). "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Subordinated Indebtedness" means any Indebtedness of the Company or any Restricted Subsidiary (whether outstanding on the date of the issuance of the Notes or thereafter incurred) 17 which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Total Assets" means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the most recent balance sheet of such Person. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if: (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of designation, and will at all times thereafter consist of, Non-Recourse Debt; (c) the Company certifies that such designation was permitted by Section 4.7; (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no Investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted 18 Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that (1) immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to Section 4.9 on a pro forma basis taking into account such designation and (2) such Subsidiary executes a Guarantee pursuant to the terms of this Indenture. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) are owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. 19 Section 1.2. Other Definitions. Defined in Term Section "Affiliate Transaction"...................... 4.11 "Asset Sale Offer"........................... 3.9 "Bankruptcy Law"............................. 10.2 "Change of Control Offer".................... 4.13 "Change of Control Payment".................. 4.13 "Change of Control Payment Date"............. 4.13 "Closing Date"............................... 2.1 "Covenant Defeasance"........................ 8.3 "Custodian".................................. 6.1 "DTC"........................................ 2.3 "Equity Offering"............................ 3.7 "Event of Default"........................... 6.1 "Excess Proceeds"............................ 4.10 "Global Note" ............................... 2.1 "Global Note Holder"......................... 2.1 "incur"...................................... 4.9 "Legal Defeasance"........................... 8.2 "Notice of Default".......................... 6.1 "Offer Amount"............................... 3.9 "Offer Period"............................... 3.9 "Paying Agent"............................... 2.3 "Payment Blockage Notice".................... 10.4 "Payment Default"............................ 6.1 "Permitted Indebtedness"..................... 4.9 "Purchase Date".............................. 3.9 "Registrar".................................. 2.3 "Restricted Payments"........................ 4.7 "Senior Debt"................................ 10.2 Section 1.3. Incorporation By Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the 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 Notes; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" means the Company and any successor obligor upon the Notes. 20 All other terms used in this indenture that are defined by the TIA, defined by TIA reference to another statute or defined by rule enacted by the Commission under the TIA have the meanings so assigned to them. Section 1.4. 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; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the Commission from time to time. ARTICLE 2 THE NOTES Section 2.1. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated herein and made part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The Notes will be fully registered as to principal and interest in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Notes offered and sold may be issued initially in the form of one or more fully registered global Notes (each being called a "Global Note"), with, or on behalf of, The Depository Trust Company and registered in the name of Cede & Co., as nominee of the Depository (such nominee being referred to herein as the "Global Note Holder"), or will remain in the custody of the Registrar pursuant to the Fast Balance Certificate Agreement between the Depository and the Registrar and shall bear the legend set forth as Exhibit B. Except as set forth in Section 2.6, the Global Notes may be transferred, in whole and not in 21 part, only to another nominee of the Depository or to a successor of the Depository or its nominee. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and (as to the Trustee, to the extent such terms and provisions pertain to the Trustee) to be bound thereby. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the legend on Exhibit B). Notes issued in certificated form shall be substantially in the form of Exhibit A attached hereto (but without including the legend on Exhibit B). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue up to the aggregate principal amount of $100,000,000. The aggregate principal amount of Notes outstanding at any time may not exceed $100,000,000, except as provided in Section 2.7 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An 22 authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Section 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York where (i) Notes may be presented for registration of transfer or for exchange ("Registrar") and (ii) Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC")to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.4. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent, including the Trustee (who shall be deemed to have agreed by its execution of this Indenture), to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee (unless the Paying Agent is the Trustee, in which case it shall hold in trust for the Holders) all money held by the Paying Agent for the payment of principal, premium, if any, or interest, on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as sole Paying Agent for the Notes. 23 Section 2.5. Holder 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 all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA ss. 312(a). Section 2.6. Transfer and Exchange. Subject to the provisions of Section 2.13, when Notes are presented to the Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof (or his attorney duly authorized in writing) in form satisfactory to the Company and to the Registrar. In order to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's written request. No service charge shall be made for any registration of transfer or exchange or of redemption, but the Company may, by notice to the Trustee, require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other governmental charge payable upon exchanges or transfers pursuant to Sections 2.2, 2.3, 3.6, 3.7(b) or 3.9). The Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes 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 Note being redeemed in part. Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. 24 Section 2.7. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company and the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.8. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Notes will also cease to be outstanding for certain purposes hereunder as provided in Article 8 hereof. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.9. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or by any Affiliate of the 25 Company shall be considered as though 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 Notes that a Trustee actually knows are registered in the names of the Company or any of their Affiliates or are certified as such by the Company in an Officer's Certificate delivered to the Trustee shall be so disregarded. When the Company or any of its Affiliates repurchases or otherwise acquires Notes, the Company shall notify the Trustee, in writing, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. The Trustee may require an Officer's Certificate listing Notes owned by the Company or any of its Affiliates. Section 2.10. CUSIP Number. The Company in issuing the Notes may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such 26 defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. Book-Entry Provisions for Global Notes. (a) The Global Notes initially shall (i) be registered in the name of Cede & Co., as the nominee of The Depository Trust Company, (ii) be delivered to the Registrar as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. (b) Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Registrar or the Trustee as its custodian, or under the Global Note, 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 Note 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 its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (c) Transfers of Global Notes 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 Notes may be transferred or exchanged for Certificated Notes in accordance with the rules and procedures of the Depository. In addition, Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Company notifies the Registrar that the Depository is unwilling or unable to continue as Depository for any Global Note and a successor Depository is not appointed by the Company within 90 days of such notice or (ii) the Company, at its option, notifies the Registrar in writing that it elects to cause the issuance of Notes in definitive form under this Indenture or (iii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Certificated Notes. (d) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (c), the Registrar shall (if one or more Certificated Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall 27 authenticate and deliver, one or more Certificated Notes of like tenor and amount. (e) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to the second sentence of paragraph (c), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Certificated Notes of authorized denominations. (f) The Holder of any Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.1. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, then it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the paragraph of the Notes and/or Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.2. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption shall 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, if the Notes 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 no Notes of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; 28 except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. A new Note in principal amount equal to the unredeemed portion thereof shall be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, unless the Company defaults in payment of the redemption price, interest ceases to accrue on Notes or portions of them called for redemption. Except as provided in this Section 3.2, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The provisions of the two preceding paragraphs of this Section 3.2 shall not apply with respect to any redemption affecting only a Global Note, whether such Global Note is to be redeemed in whole or in part. In case of any such redemption in part, the unredeemed portion of the principal amount of the Global Note shall be in an authorized denomination. Section 3.3. Notice of Redemption. Subject to the provisions of Section 3.9 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder of Notes to be redeemed at such Holder's registered address, provided, however, that the Company shall provide notice to the Trustee in accordance with Section 3.1 hereof at least five days prior to the mailing of the notice pursuant to this Section 3.3. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption cease to accrue on and after the redemption date; 29 (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. If any of the Notes to be redeemed is in the form of a Global Note, then such notice shall be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to redemptions. At the Company's request and expense, the Trustee shall give the notice of redemption in the Company's name; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.5. Deposit of Redemption Price. On or prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. 30 Section 3.6. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.7. Optional Redemption. (a) Except as described below the Notes will not be redeemable at the Company's option prior to ________ __, 2003. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on _________ __ of each of the years indicated below: Percentage of Year Principal Amount ---- ---------------- 2003..................................... 2004..................................... 2005. ................................... 2006 and thereafter...................... 100.0000% (b) Prior to _______ __, 2001, the Company may, at its option, on any one or more occasions, redeem up to 35% of the original aggregate principal amount of Notes at a redemption price equal to ____% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date with all or a portion of the net proceeds of one or more Equity Offerings (as defined below); provided that at least 65% of the original aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 90 days of the date after the closing of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any public or private sale of Common Stock of the Company pursuant to which the company receives net proceeds of at least $25.0 million, other than issuances of Common Stock of the Company pursuant to employee benefit plans or as compensation to employees. 31 (c) Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. Section 3.8. Mandatory Redemption. Except as set forth under Sections 4.10 and 4.13 hereof, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.9. Offer to Purchase By Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders of Notes and, to the extent required by the terms thereof, to all holders or lenders of other Pari Passu Indebtedness, to purchase Notes and any such Pari Passu Indebtedness (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof, giving effect to any related offer for Pari Passu Indebtedness pursuant to Section 4.10, (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; 32 (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depository, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depository or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased) in the manner provided in Section 4.10; and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). If any of the Notes subject to an Asset Sale Offer is in the form of a Global Note, then such notice may be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to repurchases. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall 33 deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.9. The Company, the Depository or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon receipt of a written authentication order of the Company signed by two Officers of the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.9, any purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. ARTICLE 4 COVENANTS Section 4.1. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all such amounts then due. [The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.] Section 4.2. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where principal, premium, if any, and interest on the Notes will be paid and where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this 34 Indenture may be served. The Company shall give prompt written 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 Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the following office of an Affiliate of the Trustee as one such office or agency of the Company in accordance with Section 2.3. Section 4.3. Reports. Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of such information and report with the Commission for public availability within the time periods set forth in the Commission's rules and regulations (unless the Commission will not accept such a filing). The Company shall at all times comply with TIA ss.314(a). Section 4.4. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a 35 view to determining whether the Company 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 or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. As of the date hereof, the Company's fiscal year ends on December 31 of each calendar year. In the event the Company changes its fiscal year, it shall promptly notify the Trustee of such change. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the fiscal year-end financial statements delivered pursuant to Section 4.3(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof 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) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within five Business Days of any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.5. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. 36 Section 4.6. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.7. Restricted Payments. The Company shall not and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment to holders of the Company's Equity Interests in connection with any merger or consolidation involving the Company) to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any direct or indirect parent or other Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except at final maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of Section 4.9 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of 37 the Indenture (excluding Restricted Payments permitted by clauses (2), (3),(5), (6) and (7) of the next succeeding paragraph), is less than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the Company (or, in the event such Consolidated Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the period beginning on the first day of the Company's fiscal quarter commencing after the Issue Date and ending on the last day of the Company's most recent fiscal quarter for which financial information is available to the Company ending prior to the date of such proposed Restricted Payment, taken as one accounting period, less (B) 1.4 times Consolidated Interest Expense for the same period, plus (ii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the date hereof of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company, other than Disqualified Stock or debt securities that have been converted into Disqualified Stock and other than the Common Stock issued in the Common Stock Offering), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the net proceeds of such sale, liquidation or repayment and (B) the amount of such Restricted Investment, plus (iv) $5.0 million. The foregoing provisions will not prohibit (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (2) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of subordinated Permitted Refinancing Debt or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any 38 management equity subscription agreement or stock option agreement in effect as of the date of the Indenture in connection with the termination of such person's employment for any reason (including by reason of death or disability); provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 million in any twelve-month period; and provided further that no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (5) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; (6) (a) the issuance by the Company of shares of Series A Preferred Stock as dividends paid in kind on the Series A Preferred Stock and (b) commencing __________, 2003, the payment of cash dividends by the Company on the Series A Preferred Stock or on any Preferred Stock issued in exchange for the Series A Preferred Stock, or any dividends on such Preferred Stock to the extent such dividends are made pursuant to the terms of the Certificate of Designation of such Preferred Stock, so long as the Company would be able to Incur, on a pro forma basis, an additional $1.00 of Indebtedness under Section 4.9 hereof; and (7) the exchange of Series A Preferred Stock for Exchange Debentures in accordance with the terms of the Certificate of Designation for such Series A Preferred Stock as in effect on the Issue Date; provided, however, that the Company may only effect such exchange so long as the Company would be able to Incur, on a pro forma basis, an additional $1.00 of Indebtedness under Section 4.9 hereof. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or the applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than five days after the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.7 were computed. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and shall reduce the amount available for Restricted Payments under clause (c) of the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value 39 of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Section 4.8. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed by it to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any Restricted Subsidiaries of the Company, except for such encumbrances or restrictions existing under or by reason of (a) the Credit Facility as in effect as of the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof or any other Credit Agreement, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or any other Credit Agreements are no more restrictive taken as a whole with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date of this Indenture, (b) this Indenture and the Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except, in the case of Indebtedness, to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired, provided that, such Indebtedness or Disqualified Stock was permitted by the terms of this Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases and customary provisions in other agreements that restrict assignment of such agreements or rights thereunder, entered into in the ordinary course of business and consistent with past practices, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired or (g) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. 40 Section 4.9. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company will not, and will not permit any of its Restricted 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 (including Acquired Debt) and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage Ratio at the time of the incurrence of such indebtedness, after giving pro-forma effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1. Notwithstanding the foregoing, the Indenture will not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Notes; (b) the incurrence by the Company of Indebtedness pursuant to Credit Agreements so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Agreements does not, at any one time, exceed $190.0 million, less the aggregate amount of all proceeds from all Asset Sales that have been applied since the date hereof to permanently reduce the outstanding amount of such Indebtedness pursuant to the provisions described under Section 4.10; (c) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date of the Indenture; (d) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (e) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness represented by Capital 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, lease or cost of construction or improvement of property, plant or equipment used in a Permitted Business in an aggregate principal amount not to exceed $15.0 million at any time outstanding; (f) the incurrence by the Company or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred; (g) the incurrence 41 by the Company or its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating or variable rate Indebtedness or for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, in each case in respect of Indebtedness that is permitted by the terms of the Indenture to be outstanding; provided, however, that in the case of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risks with respect to Indebtedness, the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates and in the case of Hedging Obligations incurred for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, such Hedging Obligations do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness incurred solely in respect of performance, surety and similar bonds or completion guarantees, to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money to others; (i) Indebtedness arising out of standby letters of credit covering workers compensation, performance or similar obligations in an aggregate amount not to exceed $500,000 at any time outstanding; (j) any guarantee of the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of the Indenture; (k) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $10.0 million; (l) the issuance of Series A Preferred Stock issued as payment in kind dividends on the Series A Preferred Stock outstanding on the Issue Date or issued subsequent to the Issue Date as dividends permitted pursuant to this clause (l), to the extent such dividends are made pursuant to the terms of the Certificate of Designation for such Series A Preferred Stock as in effect on the Issue Date, on any Preferred Stock issued in exchange for the Series A Preferred Stock, or any dividends on such Preferred Stock to the extent such dividends are made pursuant to the terms of the Certificate of Designation of such Preferred Stock; and (m) the incurrence by the Company of Indebtedness in respect of Exchange Debentures issued as payment in kind interest on Exchange Debentures issued on the exchange of Exchangeable Preferred Stock, to the extent such interest payments are made pursuant to the terms of the Exchange Debenture Indenture. The Company will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, 42 such event shall be deemed to constitute an incurrence of Indebtedness by the Company. Section 4.10. Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company set forth in an Officer's Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary, is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any non-cash consideration received by the Company or any such Restricted Subsidiary that are converted by the Company or such Restricted Subsidiary into cash within 30 days of closing such Asset Sale, shall be deemed to be cash for purposes of this provision (to the extent of the cash received). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at its option, (a) to permanently reduce Senior Debt (and to correspondingly permanently reduce commitments with respect thereto in the case of revolving borrowings), or (b) to an investment in any one or more businesses, capital expenditures or acquisition of other assets, in each case, used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph will (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of the Notes and, to the extent required by the terms thereof, to all holders or lenders of Pari Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess 43 Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Indenture or the agreements governing the Pari Passu Indebtedness, as applicable. To the extent that the aggregate principal amount of the Notes and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Notes surrendered by Holders thereof and other Pari Passu Indebtedness surrendered by holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and the trustee or other lender representative for the Pari Passu Indebtedness shall select the Pari Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction or series of Affiliated Transactions complies with clause (i) above and that such Affiliate Transaction or series of Affiliated Transactions has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate Transaction or series of Affiliated Transactions, which resolution shall be conclusive evidence of compliance with this provision, and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, the Company delivers an Officer's Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (i) above and that such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or series of related Affiliate Transactions and an opinion as to the 44 fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an accounting, appraisal, engineering or investment banking firm of national standing (which resolution and fairness opinion shall be conclusive evidence of compliance with this provision); provided that the following shall not be deemed Affiliate Transactions: (1) transactions contemplated by any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (2) transactions between or among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments and Permitted Investments that are permitted by Section 4.7 of this Indenture, (4) indemnification payments made to officers, directors and employees of the Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or contractual provisions and (5) any agreement as in effect as of the Issue Date or any Transaction contemplated thereby. Section 4.12. Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any of its property or assets, now owned or hereafter acquired. Section 4.13. Offer to Repurchase Upon Change of Control. Change of Control Upon the occurrence of a Change of Control, each Holder of the Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will (i) mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offer to repurchase the Notes pursuant to the procedures required by the Indenture and described in such notice on a date no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date") and (ii) (a) offer to repay in full all Obligations under the Credit Facility and to repay in full all Obligations of each lender who has accepted such offer or (b) obtain the requisite consent under agreements evidencing Senior Debt to permit the purchase of the Notes as described herein. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and 45 regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the relevant Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of such Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each tendering Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company will not be required to make a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes (or portions thereof) validly tendered and not withdrawn under such Change of Control Offer. Section 4.14. Asset Swaps The Company will not, and will not permit any of its Restricted Subsidiaries to, in one or a series of related transactions, directly or indirectly, engage in any Asset Swaps, unless: (i) at the time of entering into the agreement to swap assets and immediately after giving effect to the proposed Asset Swap, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would, after giving pro forma effect to the proposed Asset Swap, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in Section 4.9 hereof; (iii) the respective fair market values of the assets being purchased and sold by the Company or any of its Restricted Subsidiaries (as determined in good faith by the management of the Company or, if such Asset Swap includes consideration in excess of $_____ million by the Board of Directors of the Company, as evidenced by a Board Resolution) are substantially the same at the time of entering into the agreement to swap assets; and (iv) at the time of the consummation of the proposed Asset Swap, the percentage of any decline in the fair market 46 value (determined as aforesaid) of the asset or assets being acquired by the Company and its Restricted Subsidiaries shall not be significantly greater than the percentage of any decline in the fair market value (determined as aforesaid) of the assets being disposed of by the Company or its Restricted Subsidiaries, calculated from the time the agreement to swap assets was entered into. Section 4.15. Corporate Existence. Subject to Article 5 hereof, the Company and the Subsidiaries shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of the Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter, partnership agreement and statutory), licenses and franchises of the Company and the Subsidiaries; provided, however, that the Company and the Subsidiaries shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of the Subsidiaries, if the Board of Directors of the relevant Person shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.16. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.9 hereof, the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes; provided, however, that the foregoing limitation shall not apply to distinctions between categories of Indebtedness that exist by reason of any Liens arising or created in respect of some but not all such Indebtedness. Section 4.17. Business Activities. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any material respect in any business other than a Permitted Business. Section 4.18. Issuances and Sales of Capital Stock of Wholly Owned Restricted Subsidiaries. The Company (i) will not, and will not permit any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Restricted 47 Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof and (ii) will not permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary; provided that the Company may, and may permit any Wholly Owned Restricted Subsidiary of the Company to, take any of the actions referred to in (i) and (ii) above so long as immediately after giving effect to such action no more than 10% of the Consolidated Net Tangible Assets of the Company and its Subsidiaries is owned by other than Wholly Owned Restricted Subsidiaries of the Company. Section 4.19. Payments for Consent Neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions hereof or of the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5 SUCCESSORS Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets. The Company will not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the 48 Surviving Entity (if the Company is not the continuing obligor under this Indenture) assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after giving effect to such transaction or series of transactions no Default or Event of Default exists; (iv) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Subsidiary which becomes the obligation of the Company or any of its Subsidiary as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving Entity (if the Company is not the continuing obligor under this Indenture) is equal to or greater than the Consolidated Net Worth of the Company and its Subsidiaries immediately prior to such transaction or series of transactions and (v) the Company or Surviving Entity (if the Company is not the continuing obligor under this Indenture) will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of Section 4.9 hereof. Notwithstanding the restrictions described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. Section 5.2. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the Surviving Entity and not to the Company), 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; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1 hereof. 49 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if (i) a default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions herein); (ii) a default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions herein); (iii) the failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under Article 4 hereof; (iv) failure by the Company for 30 days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of $5.0 million, which judgments remain unpaid or discharged for a period of 60 days; (vii) the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding, (b) consents to the entry of an order for relief against it in an involuntary case or proceeding, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property or (d) makes a general assignment for the benefit of its creditors; (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case or proceeding, (b) appoints a Custodian of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or (c) 50 orders the liquidation of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within five business days of becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. Section 6.2. Acceleration. If an Event of Default (other than an Event of Default described in Section 6.1 (vii) or (viii) above) relating to the Company occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare the unpaid principal amount of and any accrued and unpaid interest on all the Notes to be due and payable immediately. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall notify the holders of Designated Senior Debt of such acceleration. Upon such declaration the principal and interest shall be due and payable immediately; provided, however, that so long as any Designated Senior Debt or any commitment therefor is outstanding, any such notice or declaration shall not become effective until the earlier of (a) five Business Days after such notice is delivered to the representative for the Designated Senior Debt or (b) the acceleration of any Designated Senior Debt and thereafter, payments on the Notes pursuant to this Article 6 shall be made only to the extent permitted pursuant to Article 10 herein. Notwithstanding the foregoing paragraph, in the case of an Event of Default arising under Section 6.1 (vii) or (viii) above, all outstanding Notes will become due and payable without further action or notice. After a declaration of acceleration under this Indenture, but before a judgment or decree for payment of principal, premium, if any, and interest on the Notes due under this Article 6 has been obtained by the Trustee, Holders of a majority in principal amount of the then outstanding Notes by written notice to the Company and the Trustee may rescind an acceleration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and (b) all overdue interest 51 on the Notes, if any, (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iii) all existing Events of Default (except nonpayment of principal, premium, if any, or interest that has become due solely because of the acceleration) have been cured or waived. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note 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. All remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of principal of, premium and liquidated damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.5. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability it being understood that (subject to Section 7.1) the Trustee shall have no duty to ascertain whether or not such actions or forebearances are unduly prejudicial to such holders. 52 Section 6.6. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.7. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), 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 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest 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. 53 Section 6.9. Trustee May File Proofs of Claim. The Trustee is authorized to 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, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall, subject to the provisions of Article 10, pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Sections 6.8 and 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and accrued interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for 54 principal, premium, if any, and accrued interest, as the case may be, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes 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 a 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 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.1. Duties of Trustee. (a) If 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, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) 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 any notices, requests, statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to 55 determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) 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 6.5 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have furnished to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.2. Rights of Trustee. (a) The Trustee may conclusively rely 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 require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection 56 from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (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 or direction of any of the Holders unless such Holders shall have furnished to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except with respect to Sections 4.1 and 4.4 hereof, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. For the purposes of this clause (g) only, "actual knowledge" shall mean the actual fact or statement of knowing, without any duty to make investigation with regard thereto. (h) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (i) the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions, or agreements on the part of the Company, except as otherwise set forth herein, but the Trustee may require of the Company full information and advice as to the performance of the covenants, conditions and agreements contained herein and shall be entitled in connection herewith to examine the books, records and premises of the Company. (j) The permissive rights of the Trustee to perform the acts enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful misconduct. 57 Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or in any certificate delivered pursuant hereto or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.5. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on, any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.6. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2) and transmit by mail all reports as required by TIA ss. 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with 58 the Commission and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder, including, without limitation, extraordinary services such as default administration. 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 promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.7) and investigating or defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of their obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.7 are joint and several and shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) hereof occurs, the expenses and the compensation for the services 59 (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the extent applicable. Section 7.8. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) 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 promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. 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 Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 60 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, 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. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' 61 Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.2. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. Covenant Defeasance. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from their obligations under the covenants contained in Sections 4.3, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and in clause (iv) of Section 5.1 with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any compliance certificate, direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company 62 may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture, such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only with respect to the Company's failure to observe or perform the covenants, conditions and agreements of the Company under clause (iv) of Section 5.1), 6.1(4), 6.1(7) and 6.1(8) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest, on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) 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 outstanding Notes 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; 63 (c) in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes 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; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.1(9) or 6.1(10) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Notes over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent 64 (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.6. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental 65 authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Indenture, the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be; provided, however, that if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.1. With Consent of Holders of Notes. Except as provided below, this Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and any existing default or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company, authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes 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 amended or supplemental indenture or waiver. 66 Section 9.2. Without Consent of Holders of Notes. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of the Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (except as provided above in Sections 4.10 and 4.13 hereof), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of such Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of the Notes to receive payments of principal of or premium, if any, or interest on the Notes or (vii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions contained in Sections 4.10 and 4.13 hereof or the provisions of Article 10 hereof will require the consent of the Holders of at least 66 2/3% in principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of such Notes. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or representative thereof authorized to give a consent) consents to such change. Notwithstanding the foregoing, without the consent of any Holder of the Notes the Company and the Trustee may amend or supplement this Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under this Indenture of any such Holder, to secure the Notes or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Section 9.3. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. 67 Section 9.4. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.5. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.6. Trustee to Sign Amendment, etc. The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until its respective Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.1) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture and that there has been compliance with all conditions precedent. ARTICLE 10 SUBORDINATION Section 10.1. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that (i) the Indebtedness evidenced by the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes (including any obligation to repurchase the Notes) is subordinated in right of payment, to the extent and in the manner provided in this 68 Article, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) (ii) the subordination is for the benefit of the Holders of Senior Debt. Section 10.2. Certain Definitions. "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. A "distribution" may consist of cash, securities or other property, by set-off or otherwise. All Designated Senior Debt now or hereafter existing and all other Obligations relating thereto shall not be deemed to have been paid in full unless the holders or owners thereof shall have received payment in full in cash (or other form of payment consented to by the holders of such Designated Senior Debt) with respect to such Designated Senior Debt and all other Obligations with respect thereto. Section 10.3. Liquidation; Dissolution; Bankruptcy. (a) Upon any payment or distribution of property or securities to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) the holders of Senior Debt of the Company shall be entitled to receive payment in full in cash of all Obligations in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not a claim for such interest would be allowed in such proceeding) before the Holders of Notes shall be entitled to receive any payment with respect to the Notes and related Obligations ; and (2) until all Obligations with respect to Senior Debt of the Company (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Holders of Notes would be entitled shall be made to holders of Senior Debt of the Company (except that Holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 69 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture). Under the circumstances described in this Section 10.3, the Company or any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person making any payment or distribution of cash or other property or securities is authorized or instructed to make any payment or distribution to which the Holders of the Notes would otherwise be entitled (other than securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust referred to in the second parenthetical of clause (a)(2) above, which shall be delivered or paid to the Holders of Notes as set forth in such clauses) directly to the holders of the Senior Debt of the Company (pro rata to such holders on the basis of the respective amounts of Senior Debt of the Company held by such holders) or their Representatives, or to any trustee or trustees under any other indenture pursuant to which any such Senior Debt may have been issued, as their respective interests appear, to the extent necessary to pay all such Senior Debt in full, in cash or cash equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. To the extent any payment of or distribution in respect of Senior Debt, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment or distribution is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Senior Debt is declared to be fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Debt for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. Section 10.4. Default on Designated Senior Debt. The Company may not make any payment (whether by redemption, purchase, retirements, defeasance or otherwise) upon or in respect of the Notes (other than securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and 70 payments and other distributions made from any defeasance trust created pursuant to Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10 of this Indenture) until all principal and other Obligations with respect to the Senior Debt of the Company have been paid in full if: (i) a default in the payment of any principal of, premium, if any, or interest on Designated Senior Debt occurs; or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits, or with the giving of notice or passage of time or both (unless cured or waived) would permit, holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until 360 days shall have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior Payment Blockage Notice. No nonpayment default in respect of any Designated Senior Debt that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company shall resume payments on and distributions in respect of the Notes upon: (1) in the case of a default referred to in Section 10.4(i) hereof the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.4(ii) hereof, the earliest of (1) the date on which such nonpayment default is cured or waived, (2) the date the applicable Payment Blockage Notice is retracted by written notice to the Trustee and (3) 179 days after the date on which the applicable Payment Blockage Notice is received unless (A) the maturity of any Designated Senior Debt has been accelerated or (B) a Default or Event of Default under Section 6.1(vii) or (viii) has occurred and is continuing, if this Article otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.5. Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. 71 Section 10.6. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment or distribution of or in respect of any Obligations with respect to the Notes at a time when such payment or distribution is prohibited by Section 10.3 or Section 10.4 hereof, such payment or distribution shall be held by the Trustee (if the Trustee has actual knowledge that such payment or distribution is prohibited by Section 10.3 or 10.4) or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations 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 duty to the holders of Senior Debt, and, except as provided in Section 10.12, shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders of Notes or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.7. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article. Section 10.8. Subrogation. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes and the related Guarantees shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions and payments applicable to Senior Debt to the extent that distributions and payments otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A payment or distribution made under this Article to holders of Senior Debt that otherwise 72 would have been made to Holders of Notes and the related Guarantees is not, as between the Company and Holders of Notes, a payment by the Company on the Notes. Section 10.9. Relative Rights. This Article defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 10.10. Subordination May Not Be Impaired by Company. No right of any present or future holders of any Senior Debt to enforce subordination as provided in this Article Ten will 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 noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof that any such holder of Senior Debt may have or otherwise be charged with. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt. Section 10.11. Payment, Distribution or Notice to Representative. Whenever a payment or distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets or securities of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon 73 any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the 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. Section 10.12. Rights of Trustee and Paying Agent. 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 that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article, which notice shall specifically refer to Section 10.3 or 10.4 hereof. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. Authorization to Effect Subordination. Each Holder by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.9 hereof at least 30 days before the expiration of the time to file such claim, each lender under the Credit Facility is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.14. Amendments. No amendment may be made to the provisions of or the definitions of any terms appearing in this Article 10, or to the provisions of Section 6.2 relating to the Designated Senior Debt, that adversely affects the rights of any holder of Senior Debt then outstanding unless the holders of such Senior Debt (or any group or Representative authorized to give a consent) consent to such change. 74 Section 10.15. No Waiver of Subordination Provisions. Without in any way limiting the generality of Section 10.9 of this Indenture, 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, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Senior Debt, do any one or more of the following: (a) 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 or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (c) release any Person liable in any manner for the collection of Senior Debt; and (d) exercise or refrain from exercising any rights against the Company and any other Person. ARTICLE 11 MISCELLANEOUS Section 11.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. If any provisions of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the letter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. Section 11.2. Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Cumulus Media Inc. 330 E. Kilbourn Avenue Suite 250 Milwaukee, WI 53202 Attention: Richard W. Weening 75 With a copy to: Paul, Hastings, Janofsky & Walker LLP 399 Park Avenue, 31st Floor New York, NY 10022-4697 Attention: William Schwitter If to the Trustee: The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.3. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). 76 Section 11.4. 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: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 11.5. 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 a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) 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; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. 77 Section 11.7. No Personal Liability of Directors, Officers, Employees and Stockholders. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. Section 11.8. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE NOTES. Section 11.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or their respective Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.10. Successors. All agreements of the Company in this Indenture, the Notes shall bind its respective successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 11.11. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. 78 [Signatures on following page] 79 SIGNATURES Dated as of _________, 1998 CUMULUS MEDIA INC. Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ [TRUSTEE] Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ ================================================================================ EXHIBIT A (Face of Note) _____% Senior Subordinated Notes due 2008 No. $__________ CUSIP Number: CUMULUS MEDIA, INC. promises to pay to or registered assigns, the principal sum of DOLLARS on __________, 2008. Interest Payment Dates: ____________ and _________________ Record Dates: ______________________ and _________________ Dated: _______________, ____ CUMULUS MEDIA INC. By_______________________ Name: Title: By_______________________ Name: Title: This is one of the Notes referred to in the within-mentioned (SEAL) Indenture: as Trustee By____________________________ Authorized Signatory ================================================================================ A-1 (Back of Note) ___% Senior Subordinated Notes due 2008 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Cumulus Media Inc., an Illinois corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate of ___% per annum, which interest shall be payable in cash semiannually in arrears on each _______________ and ___________, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"); provided that the first Interest Payment Date shall be _____________, 1998. 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 the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 2. Method of Payment. On each Interest Payment Date the Company will pay interest to the Person who is the Holder of record of this Note as of the close of business on the _____________ or ____________ immediately preceding such Interest Payment Date, even if this Note is cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest on this Note will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, in the event the Notes do not remain in book-entry form, at the option of the Company, payment of interest may be made by check mailed to the Holder of this Note at its address set forth in the register of Holders of Notes; provided that all payments with respect to the Global Notes and definitive Notes having an aggregate principal amount of $5.0 million or more the Holders of which have given wire transfer instructions to the Company at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, ______________________, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Company's Subsidiaries may act in any such capacity. A-2 4. Indenture. The Company issued the Notes under an Indenture dated as of _____________, 1998, ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general unsecured obligations of the Company equal in an aggregate principal amount to $100,000,000 and will mature on ________________, 2008. 5. Optional Redemption. (a) Except as otherwise described below, the Notes are not redeemable at the Company's option prior to ____________, 2003. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on ____________ of the years indicated below: Year Percentage ---- ---------- 2003......................................... 2004......................................... 2005......................................... 2006 and thereafter.......................... 100.0000% (b) Prior to ____________, 2001 the Company may, at its option, on any one or more occasions, redeem up to 35% of the original aggregate principal amount of Notes at a redemption price equal to _______% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with the net proceeds of one or more Equity Offerings (as defined in the Indenture) of the Company; provided that at least 65% of the original aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that any such redemption shall occur within 90 days after the date of the closing of any such Equity Offering. 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. A-3 7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). The right of the Holders of the Notes to require the Company to repurchase such Notes upon a Change of Control may not be waived by the Trustee without the approval of the Holders of the Notes required by Section 9.2 of the Indenture. Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes pursuant to the procedures required by the Indenture and described in such notice. The Change of Control Payment shall be made on a business day not less than 30 days nor more than 60 days after such notice is mailed. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales permitted by the Indenture, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Notes and any other Pari Passu Indebtedness to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to, in the case of the Notes, 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase or, in the case of any Pari Passu Indebtedness, 100% of the principal amount thereof (or with respect to discount Pari Passu Indebtedness, the accreted value thereof) on the date of purchase, in each case, in accordance with the procedures set forth in Section 3.9 of the Indenture or the agreements governing the Pari Passu Indebtedness, as applicable. To the extent that the aggregate principal amount (or accreted value, as the case may be) of Notes, and Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the sum of (i) the aggregate principal amount of Notes surrendered by Holders thereof and (ii) the aggregate principal amount or accreted value, as the case may be, of Pari Passu Indebtedness surrendered by holders or lenders thereof exceeds the amount of Excess Proceeds, the Trustee and the trustee or other lender representative for the Pari Passu Indebtedness shall select the Notes and the other Pari Passu Indebtedness to be purchased on a pro rata basis, based on the A-4 aggregate principal amount (or accreted value, as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 8. 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 whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on the aggregate principal amount of the Notes called for redemption. 9. Denominations, Transfer, Exchange. The Notes may be issued initially in the form of one or more fully registered Global Notes. The Notes may also be issued in registered form without coupons in minimum denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Note for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or the tender offer or exchange offer for, such Notes), and any existing Default or Event of Default under, or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger A-5 or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: (i) default for 30 consecutive days in the payment when due of interest on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (iii) failure by the Company to comply with the provisions of Article 4 of the Indenture; (iv) failure by the Company for 30 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of $5.0 million, which judgments remain unpaid or discharged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. If any Event of Default (other than an Event of Default described in clause (vii) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. A-6 Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within 5 Business days after becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Subordination. The Notes are subordinated to Senior Debt of the Company. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) and authorizes the Trustee to give effect and appoints the Trustee as attorney-in-fact for such purpose. 14. Trustee Dealings with Company. 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 acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 15. No Recourse Against Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws A-7 and it is the view of the Commission that such a waiver is against public policy. 16. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. Abbreviations. Customary abbreviations may be used in the name of a Holder 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. 18. 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 Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Cumulus Media, Inc. 330 E. Kilbourn Avenue Suite 250 Milwaukee, WI 53202 Attention: Secretary A-8 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to - -------------------------------------------------------------------------------- (Insert assignee's Social Security or tax I.D. No.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: _____________________ Your Signature:_________________________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:*___________________________________________ - ---------- */ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box below: |_| Section 4.10 |_| Section 4.13 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the principal amount you elect to have purchased: $______________ Date: Your Signature:_________________________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:*___________________________________________ - ---------- */ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-10 EXHIBIT B (Form of Legend for Global Note) Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except 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 or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be 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. B-1 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES [To be attached to Global Note] The following exchanges of a part of this Global Note for definitive Notes have been made:
Principal Amount of Amount of decrease in Amount of increase in this Global Note Signature of authorized Principal Amount Principal Amount following such officer of Trustee Date of Exchange of this Global Note of this Global Note decrease (or increase) or Note Custodian - ---------------- ------------------- ------------------- ---------------------- -----------------
B-2 CROSS-REFERENCE TABLE* Trust Indenture Indenture Act Section Section 310 (a)(1) ................................................. 7.10 (a)(2) ................................................. 7.10 (a)(3) ................................................. N.A. (a)(4) ................................................. N.A. (a)(5) ................................................. 7.10 (b) ................................................. 7.10 (c) ................................................. N.A. 311 (a) ................................................. 7.11 (b) ................................................. 7.11 (c) ................................................. N.A. 312 (a) ................................................. 2.5 (b) ................................................. 12.3 (c) ................................................. 12.3 313 (a) ................................................. 7.6 (b)(1) ................................................. N.A. (b)(2) ................................................ 7.7 (c) ................................................. 7.6; 12.2 (d) ................................................. 7.6 314 (a) ................................................. 4.3; 12.2 (b) ................................................. N.A. (c)(1) ................................................. 12.4 (c)(2) ................................................. 12.4 (c)(3) ................................................. N.A. (d) ................................................. 10.3-10.5 (e) ................................................. 12.5 (f) ................................................. N.A. 315 (a) ................................................. 7.1 (b) ................................................. 7.5; 12.2 (c) ................................................. 7.1 (d) ................................................. 7.1 (e) ................................................. 6.11 316 (a)(last sentence) ..................................... 2.9 (a)(1)(A) .............................................. 6.5 (a)(1)(B) .............................................. 6.4 (a)(2) ................................................. N.A. (b) ................................................. 6.7 (c) ................................................. 2.12 317 (a)(1) ................................................. 6.8 (a)(2) ................................................. 6.9 (b) ................................................. 2.4 318 (a) ................................................. 12.1 (b) ................................................. N.A. (c) ................................................. 12.1 - ---------- N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. B-3 TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE ........................... 1 Section 1.1. Definitions ................................................. 1 Section 1.2. Other Definitions ........................................... 19 Section 1.3. Incorporation By Reference of Trust Indenture Act ........... 19 Section 1.4. Rules of Construction ....................................... 20 ARTICLE 2 THE NOTES ............................. 20 Section 2.1. Form and Dating ............................................. 20 Section 2.2. Execution and Authentication ................................ 21 Section 2.3. Registrar and Paying Agent .................................. 22 Section 2.4. Paying Agent to Hold Money in Trust ......................... 22 Section 2.5. Holder Lists ................................................ 23 Section 2.6. Transfer and Exchange ....................................... 23 Section 2.7. Replacement Notes ........................................... 24 Section 2.8. Outstanding Notes ........................................... 24 Section 2.9. Treasury Notes .............................................. 24 Section 2.10. CUSIP Number ............................................... 25 Section 2.11. Cancellation ............................................... 25 Section 2.12. Defaulted Interest ......................................... 25 Section 2.13. Book-Entry Provisions for Global Notes ..................... 26 ARTICLE 3 REDEMPTION AND PREPAYMENT .................... 27 Section 3.1. Notices to Trustee .......................................... 27 Section 3.2. Selection of Notes to Be Redeemed ........................... 27 Section 3.3. Notice of Redemption ........................................ 28 Section 3.4. Effect of Notice of Redemption .............................. 29 Section 3.5. Deposit of Redemption Price ................................. 29 Section 3.6. Notes Redeemed in Part ...................................... 30 Section 3.7. Optional Redemption ......................................... 30 Section 3.8. Mandatory Redemption ........................................ 31 Section 3.9. Offer to Purchase By Application of Excess Proceeds ......................................................... 31 ARTICLE 4 COVENANTS ............................. 33 Section 4.1. Payment of Notes ............................................ 33 Section 4.2. Maintenance of Office or Agency ............................. 33 Section 4.3. Reports ..................................................... 34 Section 4.4. Compliance Certificate ...................................... 34 Section 4.5. Taxes ....................................................... 35 Section 4.6. Stay, Extension and Usury Laws .............................. 36 Section 4.7. Restricted Payments ......................................... 36 Section 4.8. Dividend and Other Payment Restrictions Affecting Subsidiaries ..................................................... 39 Section 4.9. Incurrence of Indebtedness and Issuance of -i- Page ---- Preferred Stock .................................................. 40 Section 4.10. Asset Sales ................................................ 42 Section 4.11. Transactions with Affiliates ............................... 43 Section 4.12. Liens ...................................................... 44 Section 4.13. Offer to Repurchase Upon Change of Control ................. 44 Section 4.14. Asset Swaps ................................................ 46 Section 4.15. Corporate Existence ........................................ 47 Section 4.16. No Senior Subordinated Debt ................................ 47 Section 4.17. Business Activities ........................................ 47 ARTICLE 5 SUCCESSORS ............................ 47 Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets ........................................................... 47 Section 5.2. Successor Corporation Substituted ........................... 48 ARTICLE 6 DEFAULTS AND REMEDIES ....................... 49 Section 6.1. Events of Default ........................................... 49 [Section 6.2. Acceleration ............................................... 51 Section 6.3. Other Remedies .............................................. 51 Section 6.4. Waiver of Past Defaults ..................................... 52 Section 6.5. Control by Majority ......................................... 52 Section 6.6. Limitation on Suits ......................................... 52 Section 6.7. Rights of Holders of Notes to Receive Payment ............... 53 Section 6.8. Collection Suit by Trustee .................................. 53 Section 6.9. Trustee May File Proofs of Claim ............................ 53 Section 6.10. Priorities ................................................. 54 Section 6.11. Undertaking for Costs ...................................... 54 ARTICLE 7 TRUSTEE .............................. 55 Section 7.1. Duties of Trustee ........................................... 55 Section 7.2. Rights of Trustee ........................................... 56 Section 7.3. Individual Rights of Trustee ................................ 57 Section 7.4. Trustee's Disclaimer ........................................ 57 Section 7.5. Notice of Defaults .......................................... 58 Section 7.6. Reports by Trustee to Holders of the Notes .................. 58 Section 7.7. Compensation and Indemnity .................................. 58 Section 7.8. Replacement of Trustee ...................................... 59 Section 7.9. Successor Trustee by Merger, etc ............................ 61 Section 7.10. Eligibility; Disqualification .............................. 61 Section 7.11. Preferential Collection of Claims Against Company .......... 61 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE ............. 61 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance ....................................................... 61 Section 8.2. Legal Defeasance and Discharge .............................. 61 Section 8.3. Covenant Defeasance ......................................... 62 Section 8.4. Conditions to Legal or Covenant Defeasance .................. 63 -ii- Page ---- Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions .................... 64 Section 8.6. Repayment to Company ........................................ 65 Section 8.7. Reinstatement ............................................... 65 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER ................. 66 Section 9.1. With Consent of Holders of Notes ............................ 66 Section 9.2. Without Consent of Holders of Notes ......................... 66 Section 9.3. Compliance with Trust Indenture Act ......................... 67 Section 9.4. Revocation and Effect of Consents ........................... 67 Section 9.5. Notation on or Exchange of Notes ............................ 68 Section 9.6. Trustee to Sign Amendment, etc .............................. 68 ARTICLE 10 SUBORDINATION ........................... 68 Section 10.1. Agreement to Subordinate ................................... 68 Section 10.2. Certain Definitions ........................................ 68 Section 10.3. Liquidation; Dissolution; Bankruptcy ....................... 69 Section 10.4. Default on Designated Senior Debt .......................... 71 Section 10.5. Acceleration of Notes ...................................... 72 Section 10.6. When Distribution Must Be Paid Over ........................ 72 Section 10.7. Notice by Company .......................................... 73 Section 10.8. Subrogation ................................................ 73 Section 10.9. Relative Rights ............................................ 73 Section 10.10. Subordination May Not Be Impaired by Company .............. 73 Section 10.11. Payment, Distribution or Notice to Representative ................................................... 74 Section 10.12. Rights of Trustee and Paying Agent ........................ 74 Section 10.13. Authorization to Effect Subordination ..................... 75 Section 10.14. Amendments ................................................ 75 Section 10.15. No Waiver of Subordination Provisions ..................... 75 ARTICLE 11 MISCELLANEOUS ........................... 75 Section 11.1. Trust Indenture Act Controls ............................... 75 Section 11.2. Notices .................................................... 76 Section 11.3. Communication by Holders of Notes with Other Holders of Notes ................................................. 77 Section 11.4. Certificate and Opinion as to Conditions Precedent ........................................................ 77 Section 11.5. Statements Required in Certificate or Opinion .............. 77 Section 11.6. Rules by Trustee and Agents ................................ 78 Section 11.7. No Personal Liability of Directors, Officers, Employees and Stockholders ....................................... 78 Section 11.8. Governing Law .............................................. 78 Section 11.9. No Adverse Interpretation of Other Agreements .............. 78 Section 11.10. Successors ................................................ 78 Section 11.11. Severability .............................................. 78 Section 11.12. Counterpart Originals ..................................... 79 Section 11.13. Table of Contents, Headings, Etc .......................... 79 -iii- Page ---- EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF LEGEND FOR GLOBAL NOTE -iv- EX-10.4 12 EXHIBIT 10.4 Exhibit 10.4 INDENTURE dated as of _______ __, 1998 among Cumulus Media Inc., an Illinois corporation (the "Company"), as issuer and _______________________, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the ____% Subordinated Exchange Debentures due 2009 of the Company (the "Exchange Debentures"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance or other disposition (but excluding the creation of a Lien) of any assets including, without limitation, by way of a sale and leaseback (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Sections 4.13 and/or 5.1 hereof and not by Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Subsidiaries (including the sale by the Company or a Restricted Subsidiary of Equity Interests in an Unrestricted Subsidiary), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net 2 proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (2) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company; (3) the making of a Restricted Payment or a Permitted Investment that is permitted by Section 4.7; (4) a disposition of cash or Cash Equivalents; (5) a disposition of either obsolete equipment or equipment that is damaged, worn out or otherwise no longer useful in the business; (6) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (7) any sale and leaseback of an asset within 90 days after the completion of construction or acquisition of such asset; (8) any surrender or waiver of contract rights or a settlement, release or surrender of contract, tort or other claims of any kind or a grant of any Lien not prohibited by this Exchange Debenture Indenture; and (9) any transfer of properties or assets that is governed by Section 4.14 hereof; or (10) a disposition of inventory in the ordinary course of business. "Asset Swap" means the execution of a definitive agreement, subject only to regulatory approval 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 assets used or useful in a Permitted Business between the Company or any of its Restricted Subsidiaries and another person or group of affiliated persons; provided that any amendment to or waiver of any closing conditions which individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Board of Directors" means the Board of Directors of the Company or any authorized committee of such Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability 3 in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company or similar entity, any membership or similar interests therein and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having a rating of at least P2 from Moody's (or its successor) or a rating of at least A2 from S&P (or its successor), and (vi) investments in money market or other mutual funds substantially all of whose assets comprise securities of the types described in clauses (ii) through (v) above. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" or group of related "persons" (a "Group") (as such terms are used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any purchase, sale, acquisition, disposition, merger or consolidation) the result of which is that any "person" (as defined above) or Group becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 50% of the aggregate voting power of all classes of Capital Stock of the Company having the right to elect directors under ordinary circumstances or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. 4 "Closing Date" means the date of the closing of the sale of the Exchange Debentures offered pursuant to the Offering. "Commission" means the Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any Person for any period, the sum of, without duplication, the Consolidated Net Income of such Person for such period plus (i) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (ii) Consolidated Interest Expense of such Person for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iii) the product of (a) all cash dividend payments, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local effective tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP, plus (iv) consolidated depreciation, amortization and other non-cash charges of the Person and its Subsidiaries deducted in computing Consolidated Net Income of such Person for such period plus (v) cash payments with respect to any non-cash charges previously added back pursuant to clause (iv). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any 5 of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of preferred stock of such Person or any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded and (v) all other extraordinary gains and extraordinary losses shall be excluded. "Consolidated Net Tangible Assets" of a Person means the consolidated total assets of such Person and its consolidated Subsidiaries determined in accordance with GAAP, less the sum of (i) all current liabilities and current liability items, and (ii) all goodwill, trade names, trademarks, patents, organization expense, unamortized debt discount and expense and other similar intangibles properly classified as intangibles in accordance with GAAP. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write- 6 ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Exchange Debenture Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of original issuance of the Exchange Debentures or (ii) was nominated for election or elected to such Board of Directors with the approval of (x) two-thirds of the Continuing Directors who were members of such Board at the time of such nomination or election or (y) two-thirds of those Directors who were previously approved by Continuing Directors. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.2 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreements" means, with respect to the Company, one or more debt facilities (including, without limitation, the Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, production payment financing, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Agreements outstanding on the date on which the Exchange Debentures are first issued and authenticated under this Exchange Debenture Indenture (after giving effect to the use of proceeds thereof) shall be deemed to have been incurred on such date in reliance on the exception provided by clause (b) of the definition of Permitted Indebtedness set forth in Section 4.9 hereof. "Credit Facility" means that certain Credit Agreement, dated as of March 2, 1998, by and among the Company, Lehman Brothers Inc., as Arranger, and Lehman Brothers Commercial Paper Inc., as Syndication Agent and Administrative Agent, and certain banks, financial institutions and other entities, as lenders, providing for up to $190 million of Indebtedness, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or 7 refinanced, in whole or in part, from time to time, whether or not with the same lenders or agents. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Depository" means, with respect to the Exchange Debentures issued in the form of one or more Global Exchange Debentures, 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 Exchange Debenture Senior Debt" means (i) the Credit Facility and (ii) any other Exchange Debenture Senior Debt permitted under this Exchange Debenture Indenture the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Exchange Debenture Senior Debt." "Disqualified 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 or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is convertible or exchangeable for Indebtedness or Disqualified Stock or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Exchange Debentures mature, provided however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof (or of any security into which it is convertible or for which it is exchangeable) have the right to require the issuer to repurchase such Capital Stock (or such security into which it is convertible or for which it is exchangeable) upon the occurrence of any of the events constituting an Asset Sale or a Change of Control shall not constitute Disqualified Stock if such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provides that the issuer thereof will not repurchase or redeem any such Capital Stock (or any such security into which it is convertible or for which it is exchangeable) pursuant to such provisions prior to compliance by the Company with the provisions of Section 4.10 or Section 4.13 hereof, as the case may be. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. 8 "Exchange Debenture Custodian" means the Trustee or the Registrar, as custodian with respect to the Exchange Debentures in global form, or any successor entity thereto or any entity acting as custodian with respect to Exchange Debentures in global form. "Exchange Debenture Indenture" means this Indenture, as amended or supplemented from time to time. "Exchange Debenture Pari Passu Debt" means indebtedness which ranks pari passu in right of payment to the Exchange Debentures. "Exchange Debenture Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of the Company under or in respect of any Credit Agreement, whether for principal, interest (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not the claim for such interest is allowed as a claim in such proceeding), reimbursement obligations, fees, commissions, expenses, indemnities or other amounts, and (ii) any other Indebtedness permitted under the terms of this Exchange Debenture Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Exchange Debentures. Notwithstanding anything to the contrary in the foregoing sentence, Exchange Debenture Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, or (y) any Indebtedness that is incurred in violation of the Exchange Debenture Indenture (other than Indebtedness under (i) the Credit Facility or (ii) any other Credit Agreement that is incurred on the basis of a representation by the Company to the applicable lenders that it is permitted to incur such Indebtedness under this Exchange Debenture Indenture). "Exchange Debenture Subordinated Debt" means any Indebtedness of the Company or any Restricted Subsidiary (whether outstanding on the date of the issuance of the Exchange Debentures or thereafter incurred) which is subordinate or junior in right of payment to the Exchange Debentures pursuant to a written agreement. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on date hereof. "Government Securities" means securities that are (a) direct obligations of the United States of America for the timely 9 payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by the terms of the Exchange Debenture Indenture and (ii) other agreements or arrangements designed to protect such Person against fluctuation in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business. "Holder" means a Person in whose name an Exchange Debenture is registered on the Registrar's books. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, (i) in respect of borrowed money, or (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof (other than letters of credit securing obligations not constituting Indebtedness that are issued in the ordinary course of business by a Person to the extent not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit) or bankers' acceptances, or (iii) representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable, or (iv) representing any Hedging 10 Obligations, in each case if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Issue Date" means the date on which the Exchange Debentures are originally issued. "Leverage Ratio" means 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 Disqualified Stock of the Company and preferred stock of the Company's Subsidiaries (except preferred stock issued to the Company or a Wholly Owned Restricted Subsidiary of the Company) on such date to (ii) the Consolidated Cash Flow 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 11 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 first day of the Four Quarter Period. In addition to the foregoing, for purposes of this definition, Consolidated Cash Flow 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 acquisition (including, without limitation, any 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 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 acquisition (including the incurrence, assumption or liability for any such Indebtedness and the issuance of such preferred stock and also including any Consolidated Cash Flow associated with such acquisition) occurred on the first day of the Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company consistent with Article 11 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. Furthermore, in calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated Cash Flow," (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 Hedging Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, the City of 12 Chicago or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement with respect to a lease not intended as a security agreement). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, but excluding cash amounts placed in escrow, until such amounts are released to the Company), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and expenses, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve established for future liabilities. 13 "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity or agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise); (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the explicit terms of which provide that there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Exchange Debentures by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, the Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company, by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.5 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.5 hereof. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Business" means the broadcasting business or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto. "Permitted Indebtedness" has the meaning given in Section 4.9 hereof. "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or securities issued or directly and fully guaranteed or insured by the United 14 States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if, as a result of such Investment and any related transactions that at the time of such Investment are contractually mandated to occur, (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) other Investments in any Person or Persons having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (e) that are at the time outstanding without giving effect to subsequent changes in value or increases or decreases attributable to the accounting for the net income of such Investment, not to exceed $15.0 million; (f) any Investment acquired by the Company in exchange for Equity Interests in the Company (other than Disqualified Stock); (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (A) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (B) as a result of the transfer of title with respect to any secured investment in default as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to such secured Investment; (h) Hedging Obligations permitted under Section 4.9 hereof; (i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case, incurred in the ordinary course of business; and (j) any guarantees permitted to be made pursuant to Section 4.9 hereof. "Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Exchange Debenture Senior Debt that is outstanding on the date of issuance of the Exchange Debentures and Liens securing Exchange Debenture Senior Debt that is permitted by the terms of the Exchange Debenture Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company and Liens on property or assets of a Subsidiary existing at the time it became a Subsidiary, provided that such Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property; (iv) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other kinds of social security, or to secure the payment or performance of 15 tenders, statutory or regulatory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the date hereof; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) statutory liens of landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like Liens arising in the ordinary course of business; (viii) judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (ix) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (f) of the second paragraph of Section 4.9 hereof covering only the assets acquired with such Indebtedness; (x) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary; (xi) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xii) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred or imposed, as applicable, in the ordinary course of business and consistent with industry practices which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or its Subsidiary) or interfere with the ordinary conduct of the business of the Company or such Subsidiary; provided, however, that any such Liens are not incurred in connection with any borrowing of money or any commitment to loan any money or to extend any credit; and (xiii) customary Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance and other types of social security legislation. "Permitted Refinancing Debt" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of the Indebtedness so extended, 16 refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Debt has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Exchange Debentures, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Exchange Debentures on terms at least as favorable taken as a whole to the Holders of the Exchange Debentures as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Principal" means Richard W. Weening and Lewis W. Dickey, Jr. "Related Party" with respect to any Principal means (A) any controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate family member (in the case of an individual) of such principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any direct or indirect Subsidiary of the Company that is not an Unrestricted Subsidiary. 17 "S&P" means Standard & Poor's Ratings Group and its successors. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date on which this Exchange Debenture Indenture is qualified under the TIA. "Total Assets" means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the most recent balance sheet of such Person. "Trustee" means the party named as such in the preamble to this Exchange Debenture Indenture until a successor replaces it in accordance with the applicable provisions of this Exchange Debenture Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if: (a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of designation, and will at all times thereafter consist of, Non-Recourse Debt; (c) the Company 18 certifies that such designation was permitted by Section 4.7; (d) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity Interest in, and has no Investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (g) on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms substantially less favorable to the Company than those that might have been obtained from Persons who are not Affiliates of the Company. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Exchange Debenture Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that (1) immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could incur at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness) pursuant to Section 4.9 on a pro forma basis taking into account such designation and (2) such Subsidiary executes a Guarantee pursuant to the terms of this Exchange Debenture Indenture. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) are owned, directly or 19 indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. Section 1.2. Other Definitions. Defined in Term Section "Affiliate Transaction"....................... 4.11 "Asset Sale Offer"............................ 3.9 "Bankruptcy Law".............................. 10.2 "Change of Control Offer"..................... 4.13 "Change of Control Payment"................... 4.13 "Change of Control Payment Date".............. 4.13 "Closing Date"................................ 2.1 "Covenant Defeasance"......................... 8.3 "Custodian"................................... 6.1 "DTC"......................................... 2.3 "Equity Offering"............................. 3.7 "Event of Default"............................ 6.1 "Excess Proceeds"............................. 4.10 "Global Exchange Debenture" .................. 2.1 "Global Exchange Debenture Holder"............ 2.1 "incur"....................................... 4.9 "Legal Defeasance"............................ 8.2 "Notice of Default"........................... 6.1 "Offer Amount"................................ 3.9 "Offer Period"................................ 3.9 "Paying Agent"................................ 2.3 "Payment Blockage Notice"..................... 10.4 "Payment Default"............................. 6.1 "Permitted Indebtedness"...................... 4.9 "Purchase Date"............................... 3.9 "Registrar"................................... 2.3 "Restricted Payments"......................... 4.7 "Exchange Debenture Senior Debt".............. 10.2 Section 1.3. Incorporation By Reference of Trust Indenture Act. Whenever this Exchange Debenture Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Exchange Debenture Indenture. The following TIA terms used in this Exchange Debenture Indenture have the following meanings: "indenture securities" means the Exchange Debentures; "indenture to be qualified" means this Exchange Debenture Indenture; "indenture trustee" or "institutional trustee" means the Trustee; 20 "obligor" means the Company and any successor obligor upon the Exchange Debentures. All other terms used in this Exchange Debenture Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by rule enacted by the Commission under the TIA have the meanings so assigned to them. Section 1.4. 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; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the Commission from time to time. ARTICLE 2 THE EXCHANGE DEBENTURES Section 2.1. Form and Dating. The Exchange Debentures and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated herein and made part of this Exchange Debenture Indenture. The Exchange Debentures may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Exchange Debenture shall be dated the date of its issuance and shall show the date of its authentication. The Exchange Debentures will be fully registered as to principal and interest in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Exchange Debentures offered and sold may be issued initially in the form of one or more fully registered global Exchange Debentures (each being called a "Global Exchange Debenture"), with, or on behalf of, The Depository Trust Company and registered in the name of Cede & Co., as nominee of the Depository (such nominee being referred to herein as the "Global Exchange Debenture Holder"), or will remain in the custody of the 21 Registrar pursuant to the Fast Balance Certificate Agreement between the Depository and the Registrar and shall bear the legend set forth as Exhibit B. Except as set forth in Section 2.6, the Global Exchange Debenture may be transferred, in whole and not in part, only to another nominee of the Depository or to a successor of the Depository or its nominee. The terms and provisions contained in the Exchange Debentures shall constitute, and are hereby expressly made, a part of this Exchange Debenture Indenture and the Company and the Trustee, by their execution and delivery of this Exchange Debenture Indenture, expressly agree to such terms and provisions and (as to the Trustee, to the extent such terms and provisions pertain to the Trustee) to be bound thereby. Exchange Debentures issued in global form shall be substantially in the form of Exhibit A attached hereto (including the legend on Exhibit B). Exchange Debentures issued in certificated form shall be substantially in the form of Exhibit A attached hereto (but without including the legend on Exhibit B). Each Global Exchange Debenture shall represent such of the outstanding Exchange Debentures as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Exchange Debentures from time to time endorsed thereon and that the aggregate amount of outstanding Exchange Debentures represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Exchange Debenture to reflect the amount of any increase or decrease in the amount of outstanding Exchange Debentures represented thereby shall be made by the Trustee or the Exchange Debenture Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2. Execution and Authentication. Two Officers shall sign the Exchange Debentures for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Exchange Debentures and may be in facsimile form. If an Officer whose signature is on an Exchange Debenture no longer holds that office at the time an Exchange Debenture is authenticated, the Exchange Debenture shall nevertheless be valid. An Exchange Debenture shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Exchange Debenture has been authenticated under this Exchange Debenture Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Exchange Debentures for 22 original issue up to the aggregate principal amount of $133,000,000. The aggregate principal amount of Exchange Debentures outstanding at any time may not exceed $133,000,000, except as provided in Section 2.7 hereof. Notwithstanding anything in this Exchange Debenture Indenture to the contrary or the execution and delivery of this Exchange Debenture Indenture on the date hereof, the terms and provisions of this Exchange Debenture Indenture shall not be effective until the consummation of an exchange pursuant to the Certificate of Designations relating to the Company's __% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 (the "Series A Preferred Stock"). The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Exchange Debentures. An authenticating agent may authenticate Exchange Debentures whenever the Trustee may do so. Each reference in this Exchange Debenture 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 or an Affiliate of the Company. Section 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York where (i) Exchange Debentures may be presented for registration of transfer or for exchange ("Registrar") and (ii) Exchange Debentures may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Exchange Debentures and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Exchange Debenture Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Exchange Debentures. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Exchange Debenture Custodian with respect to the Global Exchange Debentures. Section 2.4. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent, including the Trustee (who shall be deemed to have agreed by its execution 23 of this Exchange Debenture Indenture), to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee (unless the Paying Agent is the Trustee, in which case it shall hold in trust for the Holders) all money held by the Paying Agent for the payment of principal, premium, if any, or interest, on the Exchange Debentures, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as sole Paying Agent for the Exchange Debentures. Section 2.5. Holder 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 all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Exchange Debentures and the Company shall otherwise comply with TIA ss. 312(a). Section 2.6. Transfer and Exchange. Subject to the provisions of Section 2.13, when Exchange Debentures are presented to the Registrar with a request to register the transfer of such Exchange Debentures or to exchange such Exchange Debentures for an equal principal amount of Exchange Debentures of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Exchange Debentures surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof (or his attorney duly authorized in writing) in form satisfactory to the Company and to the Registrar. In order to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Exchange Debentures at the Registrar's written request. No service charge shall be made for any registration of transfer or exchange or of redemption, but the Company may, by notice to the Trustee, require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other governmental charge 24 payable upon exchanges or transfers pursuant to Sections 2.2, 2.3, 3.6, 3.7(b) or 3.9). The Registrar shall not be required to register the transfer of or exchange of any Exchange Debenture (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Exchange Debentures 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 Exchange Debenture being redeemed in part. Prior to due presentment for the registration of a transfer of any Exchange Debenture, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Exchange Debenture is registered as the absolute owner of such Exchange Debenture for the purpose of receiving payment of principal of and interest on such Exchange Debentures, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. Section 2.7. Replacement Exchange Debentures. If any mutilated Exchange Debenture is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Exchange Debenture, the Company shall issue and the Trustee, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, shall authenticate a replacement Exchange Debenture if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if an Exchange Debenture is replaced. The Company and the Trustee may charge for its expenses in replacing a Exchange Debenture. Every replacement Exchange Debenture is an additional obligation of the Company and shall be entitled to all of the benefits of this Exchange Debenture Indenture equally and proportionately with all other Exchange Debentures duly issued hereunder. Section 2.8. Outstanding Exchange Debentures. The Exchange Debentures outstanding at any time are all the Exchange Debentures authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Exchange Debenture effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Exchange Debenture does not cease to be outstanding because the Company or an Affiliate of the Company holds the Exchange Debenture. 25 If an Exchange Debenture is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Exchange Debenture is held by a bona fide purchaser. If the principal amount of any Exchange Debenture is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Exchange Debentures will also cease to be outstanding for certain purposes hereunder as provided in Article 8 hereof. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Exchange Debentures payable on that date, then on and after that date such Exchange Debentures shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.9. Treasury Exchange Debentures. In determining whether the Holders of the required principal amount of Exchange Debentures have concurred in any direction, waiver or consent, Exchange Debentures owned by the Company or by any Affiliate of the Company shall be considered as though 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 Exchange Debentures that a Trustee actually knows are registered in the names of the Company or any of their Affiliates or are certified as such by the Company in an Officer's Certificate delivered to the Trustee shall be so disregarded. When the Company or any of its Affiliates repurchases or otherwise acquires Exchange Debentures, the Company shall notify the Trustee, in writing, of the aggregate principal amount of such Exchange Debentures so repurchased or otherwise acquired. The Trustee may require an Officer's Certificate listing Exchange Debentures owned by the Company or any of its Affiliates. Section 2.10. CUSIP Number. The Company in issuing the Exchange Debentures may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Exchange Debentures and that reliance may be placed only on the other identification numbers printed on the Exchange Debentures. 26 Section 2.11. Cancellation. The Company at any time may deliver Exchange Debentures to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Exchange Debentures surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Exchange Debentures surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Exchange Debentures (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Exchange Debentures shall be delivered to the Company. The Company may not issue new Exchange Debentures to replace Exchange Debentures that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Exchange Debentures, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Exchange Debentures and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Exchange Debenture and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. Book-Entry Provisions for Global Exchange Debentures. (a) The Global Exchange Debentures initially shall (i) be registered in the name of Cede & Co., as the nominee of The Depository Trust Company, (ii) be delivered to the Registrar as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. (b) Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Exchange Debenture Indenture with respect to any Global Exchange Debenture held on their behalf by the Depository, or the Registrar or the Trustee as its custodian, or under the Global Exchange Debenture, 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 Exchange Debenture for all purposes whatsoever. 27 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 its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Exchange Debenture. (c) Transfers of Global Exchange Debentures 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 Exchange Debentures may be transferred or exchanged for Certificated Exchange Debentures in accordance with the rules and procedures of the Depository. In addition, Certificated Exchange Debentures shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Exchange Debentures if (i) the Company notifies the Registrar that the Depository is unwilling or unable to continue as Depository for any Global Exchange Debenture and a successor Depository is not appointed by the Company within 90 days of such notice or (ii) the Company, at its option, notifies the Registrar in writing that it elects to cause the issuance of Exchange Debentures in definitive form under this Exchange Debenture Indenture or (iii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Certificated Exchange Debentures. (d) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Exchange Debenture to beneficial owners pursuant to paragraph (c), the Registrar shall (if one or more Certificated Exchange Debentures are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Exchange Debenture in an amount equal to the principal amount of the beneficial interest in the Global Exchange Debenture to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Exchange Debentures of like tenor and amount. (e) In connection with the transfer of Global Exchange Debentures as an entirety to beneficial owners pursuant to the second sentence of paragraph (c), the Global Exchange Debentures shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Exchange Debentures, an equal aggregate principal amount of Certificated Exchange Debentures of authorized denominations. (f) The Holder of any Global Exchange Debenture may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent 28 Members, to take any action which a Holder is entitled to take under this Exchange Debenture Indenture or the Exchange Debentures. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.1. Notices to Trustee. If the Company elects to redeem Exchange Debentures pursuant to the optional redemption provisions of Section 3.7 hereof, then it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the paragraph of the Exchange Debentures and/or Section of this Exchange Debenture Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Exchange Debentures to be redeemed and (iv) the redemption price. Section 3.2. Selection of Exchange Debentures to Be Redeemed. If less than all of the Exchange Debentures are to be redeemed at any time, selection of Exchange Debentures for redemption shall be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Exchange Debentures are listed, or, if the Exchange Debentures 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 no Exchange Debentures of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Exchange Debentures to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Exchange Debentures not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Exchange Debentures selected for redemption and, in the case of any Exchange Debenture selected for partial redemption, the principal amount thereof to be redeemed. Exchange Debentures and portions of Exchange Debentures selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Exchange Debentures of a Holder are to be redeemed, the entire outstanding amount of Exchange Debentures held by such Holder, even if not a multiple of $1,000, shall be redeemed. A new Exchange Debenture in principal amount equal to the unredeemed portion thereof shall be issued in the name of the Holder thereof upon cancellation of the original Exchange Debenture. On and after the redemption date, unless the Company defaults in payment of the redemption price, interest ceases to accrue on Exchange Debentures or portions of them called for redemption. Except as provided in this Section 3.2, provisions 29 of this Exchange Debenture Indenture that apply to Exchange Debentures called for redemption also apply to portions of Exchange Debentures called for redemption. The provisions of the two preceding paragraphs of this Section 3.2 shall not apply with respect to any redemption affecting only a Global Exchange Debenture, whether such Global Exchange Debenture is to be redeemed in whole or in part. In case of any such redemption in part, the unredeemed portion of the principal amount of the Global Exchange Debenture shall be in an authorized denomination. Section 3.3. Notice of Redemption. Subject to the provisions of Section 3.9 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder of Exchange Debentures to be redeemed at such Holder's registered address, provided, however, that the Company shall provide notice to the Trustee in accordance with Section 3.1 hereof at least five days prior to the mailing of the notice pursuant to this Section 3.3. The notice shall identify the Exchange Debentures to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Exchange Debenture is being redeemed in part, the portion of the principal amount of such Exchange Debenture to be redeemed and that, after the redemption date upon surrender of such Exchange Debenture, a new Exchange Debenture or Exchange Debentures in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Exchange Debenture; (d) the name and address of the Paying Agent; (e) that Exchange Debentures called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Exchange Debentures called for redemption cease to accrue on and after the redemption date; (g) the paragraph of the Exchange Debentures and/or Section of this Exchange Debenture Indenture pursuant to which the Exchange Debentures called for redemption are being redeemed; and 30 (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Exchange Debentures. If any of the Exchange Debentures to be redeemed is in the form of a Global Exchange Debenture, then such notice shall be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to redemptions. At the Company's request and expense, the Trustee shall give the notice of redemption in the Company's name; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Exchange Debentures called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.5. Deposit of Redemption Price. On or prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Exchange Debentures to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of and accrued interest on, all Exchange Debentures to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Exchange Debentures or the portions of Exchange Debentures called for redemption. If an Exchange Debenture is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Exchange Debenture was registered at the close of business on such record date. If any Exchange Debenture called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Exchange Debentures and in Section 4.1 hereof. 31 Section 3.6. Exchange Debentures Redeemed in Part. Upon surrender of a Exchange Debenture that is redeemed in part, the Company shall issue and, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, the Trustee shall authenticate for the Holder at the expense of the Company a new Exchange Debenture equal in principal amount to the unredeemed portion of the Exchange Debenture surrendered. Section 3.7. Optional Redemption. (a) Except as described below, the Exchange Debentures will not be redeemable at the Company's option prior to ________ __, 2003. Thereafter, the Exchange Debentures will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on _________ __ of each of the years indicated below: Percentage of Year Principal Amount ---- ---------------- 2003................................. 2004................................. 2005................................. 2006................................. 2007 and thereafter.................. 100.0000% (b) Prior to _______ __, 2001, the Company may, at its option, on any one or more occasions, redeem up to 35% of the original aggregate principal amount of Exchange Debentures at a redemption price equal to ____% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date with all or a portion of the net proceeds of one or more Equity Offerings (as defined below); provided that at least 65% of the original aggregate principal amount of Exchange Debentures remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 90 days of the date after the closing of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any public or private sale of Common Stock of the Company pursuant to which the company receives net proceeds of at least $25.0 million, other than issuances of Common Stock of the Company pursuant to employee benefit plans or as compensation to employees. 32 (c) Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. Section 3.8. Mandatory Redemption. Except as set forth under Sections 4.10 and 4.13 hereof, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Exchange Debentures. Section 3.9. Offer to Purchase By Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders of Exchange Debentures and, to the extent required by the terms thereof, to all holders or lenders of other Exchange Debenture Pari Passu Debt, to purchase Exchange Debentures and any such Exchange Debenture Pari Passu Debt (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Exchange Debentures required to be purchased pursuant to Section 4.10 hereof, giving effect to any related offer for Exchange Debenture Pari Passu Debt pursuant to Section 4.10, (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Exchange Debentures tendered in response to the Asset Sale Offer. Payment for any Exchange Debentures so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name an Exchange Debenture is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Exchange Debentures pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Exchange Debentures pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: 33 (a) that the Asset Sale Offer is being made pursuant to this Section 3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Exchange Debenture not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Exchange Debenture accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have an Exchange Debenture purchased pursuant to an Asset Sale Offer may only elect to have all of such Exchange Debenture purchased and may not elect to have only a portion of such Exchange Debenture purchased; (f) that Holders electing to have a Exchange Debenture purchased pursuant to any Asset Sale Offer shall be required to surrender the Exchange Debenture, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Exchange Debenture completed, or transfer by book-entry transfer, to the Company, a Depository, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depository or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Exchange Debenture the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Exchange Debenture purchased; (h) that, if the aggregate principal amount of Exchange Debentures surrendered by Holders exceeds the Offer Amount, the Company shall select the Exchange Debentures to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Exchange Debentures in denominations of $1,000, or integral multiples thereof, shall be purchased) in the manner provided in Section 4.10; and (i) that Holders whose Exchange Debentures were purchased only in part shall be issued new Exchange Debentures equal in principal amount to the unpurchased 34 portion of the Exchange Debentures surrendered (or transferred by book-entry transfer). If any of the Exchange Debentures subject to an Asset Sale Offer is in the form of a Global Exchange Debenture, then such notice may be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to repurchases. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Exchange Debentures or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Exchange Debentures tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Exchange Debentures or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.9. The Company, the Depository or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Exchange Debentures tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Exchange Debenture, and the Trustee, upon receipt of a written authentication order of the Company signed by two Officers of the Company shall authenticate and mail or deliver such new Exchange Debenture to such Holder, in a principal amount equal to any unpurchased portion of the Exchange Debenture surrendered. Any Exchange Debenture not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.9, any purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. ARTICLE 4 COVENANTS Section 4.1. Payment of Exchange Debentures. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Exchange Debentures on the dates and in the manner provided in the Exchange Debentures. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all such amounts then due. 35 [The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Exchange Debentures to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.] Section 4.2. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where principal, premium, if any, and interest on the Exchange Debentures will be paid and where Exchange Debentures may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Exchange Debentures and this Exchange Debenture Indenture may be served. The Company shall give prompt written 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 Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Exchange Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the following office of an Affiliate of the Trustee as one such office or agency of the Company in accordance with Section 2.3. Section 4.3. Reports. Whether or not required by the rules and regulations of the Commission, so long as any Exchange Debentures are outstanding, the Company will furnish to the Holders of Exchange Debentures (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect 36 to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of such information and report with the Commission for public availability within the time periods set forth in the Commission's rules and regulations (unless the Commission will not accept such a filing). The Company shall at all times comply with TIA ss.314(a). Section 4.4. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Exchange Debenture Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Exchange Debenture Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Exchange Debenture Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest on the Exchange Debentures is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. As of the date hereof, the Company's fiscal year ends on December 31 of each calendar year. In the event the Company changes its fiscal year, it shall promptly notify the Trustee of such change. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the fiscal year-end financial statements delivered pursuant to Section 4.3(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants 37 shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Exchange Debentures are outstanding, deliver to the Trustee, within five Business Days of any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.5. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Exchange Debentures. Section 4.6. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Exchange Debenture Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.7. Restricted Payments. The Company shall not and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment to holders of the Company's Equity Interests in connection with any merger or consolidation involving the Company) to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any direct or indirect parent or other Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Exchange Debentures, except at final maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) 38 through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of Section 4.9 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Exchange Debenture Indenture (excluding Restricted Payments permitted by clauses (2), (3) and (5) of the next succeeding paragraph), is less than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the Company (or, in the event such Consolidated Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the period beginning on the first day of the Company's fiscal quarter commencing after the Issue Date and ending on the last day of the Company's most recent fiscal quarter for which financial information is available to the Company ending prior to the date of such proposed Restricted Payment, taken as one accounting period, less (B) 1.4 times Consolidated Interest Expense for the same period, plus (ii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the date hereof of Equity Interests of the Company or of debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company, other than Disqualified Stock or debt securities that have been converted into Disqualified Stock and other than the Common Stock issued in the Common Stock Offering), plus (iii) to the extent that any Restricted Investment that was made after the date hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the net proceeds of such sale, liquidation or repayment and (B) the amount of such Restricted Investment, plus (iv) $5.0 million. The foregoing provisions will not prohibit (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Exchange Debenture Indenture; (2) the redemption, repurchase, retirement 39 or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of subordinated Permitted Refinancing Debt or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any of the Company's (or any of its Subsidiaries') employees pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the Exchange Debenture Indenture in connection with the termination of such person's employment for any reason (including by reason of death or disability); provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any twelve-month period; and provided further that no Default or Event of Default shall have occurred and be continuing immediately after such transaction; and (5) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or the applicable Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than five days after the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.7 were computed. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and shall reduce the 40 amount available for Restricted Payments under clause (c) of the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of the fair market value or the book value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Section 4.8. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed by it to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any Restricted Subsidiaries of the Company, except for such encumbrances or restrictions existing under or by reason of (a) the Credit Facility as in effect as of the date of this Exchange Debenture Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof or any other Credit Agreement, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or any other Credit Agreements are no more restrictive taken as a whole with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the date of this Exchange Debenture Indenture, (b) this Exchange Debenture Indenture and the Exchange Debentures, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except, in the case of Indebtedness, to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired, provided that, such Indebtedness or Disqualified Stock was permitted by the terms of this Exchange Debenture Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases and customary provisions in other agreements that restrict assignment of such agreements or rights thereunder, entered into in the ordinary course of business and consistent with past practices, (f) purchase money obligations for property acquired in the ordinary course of business that impose 41 restrictions of the nature described in clause (iii) above on the property so acquired or (g) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. Section 4.9. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company will not, and will not permit any of its Restricted 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 (including Acquired Debt) and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage Ratio at the time of the incurrence of such indebtedness, after giving pro-forma effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1. Notwithstanding the foregoing, the Exchange Debenture Indenture will not prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness evidenced by the Exchange Debentures; (b) the incurrence by the Company of Indebtedness pursuant to Credit Agreements or the Company's __% Senior Subordinated Notes due 2008, so long as the aggregate principal amount of all Indebtedness outstanding under all Credit Agreements does not, at any one time, exceed $190.0 million, less the aggregate amount of all proceeds from all Asset Sales that have been applied since the date hereof to permanently reduce the outstanding amount of such Indebtedness pursuant to the provisions described under Section 4.10; (c) all Indebtedness of the Company and its Restricted Subsidiaries in existence as of the date hereof; (d) intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Exchange Debentures and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (e) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase 42 price, lease or cost of construction or improvement of property, plant or equipment used in a Permitted Business in an aggregate principal amount not to exceed $15.0 million at any time outstanding; (f) the incurrence by the Company or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Exchange Debenture Indenture to be incurred; (g) the incurrence by the Company or its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating or variable rate Indebtedness or for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, in each case in respect of Indebtedness that is permitted by the terms of this Exchange Debenture Indenture to be outstanding; provided, however, that in the case of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risks with respect to Indebtedness, the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates and in the case of Hedging Obligations incurred for the purpose of protecting against fluctuations in interest rates or the value of foreign currencies purchased or received, such Hedging Obligations do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness incurred solely in respect of performance, surety and similar bonds or completion guarantees, to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money to others; (i) Indebtedness arising out of standby letters of credit covering workers compensation, performance or similar obligations in an aggregate amount not to exceed $500,000 at any time outstanding; (j) any guarantee of the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of the Exchange Debenture Indenture; (k) the incurrence by the Company of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $10.0 million; and (l) the incurrence by the Company of Indebtedness in respect of Exchange Debentures issued as payment in kind interest on Exchange Debentures issued on the exchange of the Series A Preferred Stock, to the extent such interest payments are made pursuant to the terms hereof. The Company will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Company. 43 Section 4.10. Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company set forth in an Officer's Certificate delivered to the Trustee, which determination shall be conclusive evidence of compliance with this provision) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary, is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Exchange Debentures or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any non-cash consideration received by the Company or any such Restricted Subsidiary that are converted by the Company or such Restricted Subsidiary into cash within 30 days of closing such Asset Sale, shall be deemed to be cash for purposes of this provision (to the extent of the cash received). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at its option, (a) to permanently reduce Exchange Debenture Senior Debt (and to correspondingly permanently reduce commitments with respect thereto in the case of revolving borrowings), or (b) to an investment in any one or more businesses, capital expenditures or acquisition of other assets, in each case, used or useful in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Exchange Debenture Senior Debt that is revolving debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Exchange Debenture Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph will (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of the Exchange Debentures and, to the extent required by the terms thereof, to all holders or lenders of Exchange Debenture Pari Passu Debt (an "Asset Sale Offer") to purchase the maximum principal amount of the Exchange Debentures and any such Exchange Debenture Pari Passu Debt to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the 44 principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Exchange Debenture Indenture or the agreements governing the Exchange Debenture Pari Passu Debt, as applicable. To the extent that the aggregate principal amount of the Exchange Debentures and Exchange Debenture Pari Passu Debt tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of the Exchange Debentures surrendered by Holders thereof and other Exchange Debenture Pari Passu Debt surrendered by holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Exchange Debentures and the trustee or other lender representative for the Exchange Debenture Pari Passu Debt shall select the Exchange Debenture Pari Passu Debt to be purchased on a pro rata basis, based on the aggregate principal amount thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction or series of Affiliated Transactions complies with clause (i) above and that such Affiliate Transaction or series of Affiliated Transactions has been approved in good faith by a majority of the members of the Board of Directors who are disinterested with respect to such Affiliate Transaction or series of Affiliated Transactions, which resolution shall be conclusive evidence of compliance with this provision, and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, the Company delivers an Officer's Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (i) above and that such Affiliate Transaction or series of related Affiliate Transactions has been approved in good faith by a resolution adopted by a majority of the members of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction or 45 series of related Affiliate Transactions and an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an accounting, appraisal, engineering or investment banking firm of national standing (which resolution and fairness opinion shall be conclusive evidence of compliance with this provision); provided that the following shall not be deemed Affiliate Transactions: (1) transactions contemplated by any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (2) transactions between or among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments and Permitted Investments that are permitted by Section 4.7 of this Exchange Debenture Indenture, (4) indemnification payments made to officers, directors and employees of the Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or contractual provisions and (5) any agreement as in effect as of the Issue Date or any Transaction contemplated thereby. Section 4.12. Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any of its property or assets, now owned or hereafter acquired. Section 4.13. Offer to Repurchase Upon Change of Control. Change of Control Upon the occurrence of a Change of Control, each Holder of the Exchange Debentures will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Exchange Debentures pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount of the Exchange Debentures plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will (i) mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offer to repurchase the Exchange Debentures pursuant to the procedures required by this Exchange Debenture Indenture and described in such notice on a date no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date") and (ii) (a) offer to repay in full all Obligations under the Credit Facility and to repay in full all Obligations of each lender who has accepted such offer or (b) obtain the requisite consent under 46 agreements evidencing Exchange Debenture Senior Debt to permit the purchase of the Exchange Debentures as described herein. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Exchange Debentures as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Exchange Debentures or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all the Exchange Debentures or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the relevant Exchange Debentures so accepted together with an Officers' Certificate stating the aggregate principal amount of such Exchange Debentures or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of the Exchange Debentures so tendered the Change of Control Payment for such Exchange Debentures, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each tendering Holder a new Exchange Debenture equal in principal amount to any unpurchased portion of the Exchange Debentures surrendered, if any; provided that each such new Exchange Debenture will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company will not be required to make a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Exchange Debenture Indenture applicable to a Change of Control Offer made by the Company and purchases all Exchange Debentures (or portions thereof) validly tendered and not withdrawn under such Change of Control Offer. Section 4.14. Asset Swaps The Company will not, and will not permit any of its Restricted Subsidiaries to, in one or a series of related transactions, directly or indirectly, engage in any Asset Swaps, unless: (i) at the time of entering into the agreement to swap assets and immediately after giving effect to the proposed Asset Swap, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would, after giving pro forma effect to the proposed Asset Swap, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in Section 4.9 hereof; (iii) the respective fair market values of the assets being purchased and sold by the Company or any of its Restricted Subsidiaries (as determined in good faith by the management of 47 the Company or, if such Asset Swap includes consideration in excess of $_____ million by the Board of Directors of the Company, as evidenced by a Board Resolution) are substantially the same at the time of entering into the agreement to swap assets; and (iv) at the time of the consummation of the proposed Asset Swap, the percentage of any decline in the fair market value (determined as aforesaid) of the asset or assets being acquired by the Company and its Restricted Subsidiaries shall not be significantly greater than the percentage of any decline in the fair market value (determined as aforesaid) of the assets being disposed of by the Company or its Restricted Subsidiaries, calculated from the time the agreement to swap assets was entered into. Section 4.15. Corporate Existence. Subject to Article 5 hereof, the Company and the Subsidiaries shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of the Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter, partnership agreement and statutory), licenses and franchises of the Company and the Subsidiaries; provided, however, that the Company and the Subsidiaries shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of the Subsidiaries, if the Board of Directors of the relevant Person shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Exchange Debentures. Section 4.16. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.9 hereof, the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Exchange Debenture Senior Debt of the Company and senior in any respect in right of payment to the Exchange Debentures; provided, however, that the foregoing limitation shall not apply to distinctions between categories of Indebtedness that exist by reason of any Liens arising or created in respect of some but not all such Indebtedness. Section 4.17. Business Activities. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any material respect in any business other than a Permitted Business. 48 Section 4.18. Issuances and Sales of Capital Stock of Wholly Owned Restricted Subsidiaries. The Company (i) will not, and will not permit any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof and (ii) will not permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary; provided that the Company may, and may permit any Wholly Owned Restricted Subsidiary of the Company to, take any of the actions referred to in (i) and (ii) above so long as immediately after giving effect to such action no more than 10% of the Consolidated Net Tangible Assets of the Company and its Subsidiaries is owned by other than Wholly Owned Restricted Subsidiaries of the Company. Section 4.19. Payments for Consent. Neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Exchange Debentures for or as an inducement to any consent, waiver or amendment of any of the terms or provisions hereof or of the Exchange Debentures unless such consideration is offered to be paid or is paid to all Holders of the Exchange Debentures that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5 SUCCESSORS Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets. The Company will not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person, and the Company may not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions would, in the aggregate, result in a sale, 49 assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of the Company to another Person unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "Surviving Entity") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Entity (if the Company is not the continuing obligor under this Exchange Debenture Indenture) assumes all the obligations of the Company under the Exchange Debentures and this Exchange Debenture Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after giving effect to such transaction or series of transactions no Default or Event of Default exists; (iv) immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Subsidiary which becomes the obligation of the Company or any of its Subsidiary as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving Entity (if the Company is not the continuing obligor under this Exchange Debenture Indenture) is equal to or greater than the Consolidated Net Worth of the Company and its Subsidiaries immediately prior to such transaction or series of transactions and (v) the Company or Surviving Entity (if the Company is not the continuing obligor under this Exchange Debenture Indenture) will, at the time of such transaction or series of transactions and after giving pro forma effect thereto as if such transaction or series of transactions had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of Section 4.9 hereof. Notwithstanding the restrictions described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company, and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to another Wholly Owned Restricted Subsidiary. Section 5.2. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Exchange Debenture Indenture referring to the "Company" shall refer instead to the Surviving Entity and not to the Company), and may exercise every 50 right and power of the Company under this Exchange Debenture Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Exchange Debentures except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1 hereof. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if (i) a default for 30 days in the payment when due of interest on the Exchange Debentures (whether or not prohibited by the subordination provisions herein); (ii) a default in payment when due of the principal of or premium, if any, on the Exchange Debentures (whether or not prohibited by the subordination provisions herein); (iii) the failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under Article 4 hereof; (iv) failure by the Company for 30 days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Exchange Debentures then outstanding to comply with any of its other agreements in this Exchange Debenture Indenture or the Exchange Debentures; (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Exchange Debenture Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of $5.0 million, which judgments remain unpaid or discharged for a period of 60 days; (vii) the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding, (b) consents to the entry of an order for relief against it in an involuntary case or proceeding, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property or (d) makes a general 51 assignment for the benefit of its creditors; (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case or proceeding, (b) appoints a Custodian of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or (c) orders the liquidation of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Exchange Debenture Indenture, and the Company is required, within five business days of becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. Section 6.2. Acceleration. If an Event of Default (other than an Event of Default described in Section 6.1 (vii) or (viii) above) relating to the Company occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Exchange Debentures by written notice to the Company and the Trustee, may declare the unpaid principal amount of and any accrued and unpaid interest on all the Exchange Debentures to be due and payable immediately. If payment of the Exchange Debentures is accelerated because of an Event of Default, the Company or the Trustee shall notify the holders of Designated Exchange Debenture Senior Debt of such acceleration. Upon such declaration the principal and interest shall be due and payable immediately; provided, however, that so long as any Designated Exchange Debenture Senior Debt or any commitment therefor is outstanding, any such notice or declaration shall not become effective until the earlier of (a) five Business Days after such notice is delivered to the representative for the Designated Exchange Debenture Senior Debt or (b) the acceleration of any Designated Exchange Debenture Senior Debt and thereafter, payments on the Exchange Debentures pursuant to this Article 6 shall be made only to the extent permitted pursuant to Article 10 herein. Notwithstanding the foregoing paragraph, in the case of an Event of Default arising under Section 6.1 (vii) or (viii) 52 above, all outstanding Exchange Debentures will become due and payable without further action or notice. After a declaration of acceleration under this Exchange Debenture Indenture, but before a judgment or decree for payment of principal, premium, if any, and interest on the Exchange Debentures due under this Article 6 has been obtained by the Trustee, Holders of a majority in principal amount of the then outstanding Exchange Debentures by written notice to the Company and the Trustee may rescind an acceleration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the Trustee under this Exchange Debenture Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and (b) all overdue interest on the Exchange Debentures, if any, (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iii) all existing Events of Default (except nonpayment of principal, premium, if any, or interest that has become due solely because of the acceleration) have been cured or waived. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Exchange Debentures or to enforce the performance of any provision of the Exchange Debentures or this Exchange Debenture Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Exchange Debentures or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Exchange Debenture 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. All remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the Exchange Debentures then outstanding by notice to the Trustee may on behalf of the Holders of all of the Exchange Debentures waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of principal of, premium and liquidated damages, if any, or interest on, the Exchange Debentures (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Exchange Debentures may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any 53 Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Exchange Debenture Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.5. Control by Majority. Holders of a majority in principal amount of the then outstanding Exchange Debentures may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Exchange Debenture Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Exchange Debentures or that may involve the Trustee in personal liability it being understood that (subject to Section 7.1) the Trustee shall have no duty to ascertain whether or not such actions or forebearances are unduly prejudicial to such holders. Section 6.6. Limitation on Suits. A Holder of an Exchange Debenture may pursue a remedy with respect to this Exchange Debenture Indenture or the Exchange Debentures only if: (a) the Holder of an Exchange Debenture gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Exchange Debentures make a written request to the Trustee to pursue the remedy; (c) such Holder of an Exchange Debenture or Holders of Exchange Debentures offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Exchange Debentures do not give the Trustee a direction inconsistent with the request. A Holder of an Exchange Debenture may not use this Exchange Debenture Indenture to prejudice the rights of another Holder of an Exchange Debenture or to obtain a preference or priority over another Holder of an Exchange Debenture. 54 Section 6.7. Rights of Holders of Exchange Debentures to Receive Payment. Notwithstanding any other provision of this Exchange Debenture Indenture, the right of any Holder of an Exchange Debenture to receive payment of principal, premium, if any, and interest on the Exchange Debenture, on or after the respective due dates expressed in the Exchange Debenture (including in connection with an offer to purchase), 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 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Exchange Debentures and interest on overdue principal and, to the extent lawful, interest 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 6.9. Trustee May File Proofs of Claim. The Trustee is authorized to 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, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Exchange Debentures allowed in any judicial proceedings relative to the Company (or any other obligor upon the Exchange Debentures), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or 55 otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Exchange Debentures or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall, subject to the provisions of Article 10, pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Sections 6.8 and 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Exchange Debentures for amounts due and unpaid on the Exchange Debentures for principal, premium, if any, and accrued interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Exchange Debentures for principal, premium, if any, and accrued interest, as the case may be, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Exchange Debentures 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 Exchange Debenture Indenture or in any suit against the Trustee for any action taken or omitted by it as a 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 does not apply to a suit by the Trustee, a suit by a Holder of a Exchange Debenture pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Exchange Debentures. 56 ARTICLE 7 TRUSTEE Section 7.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Exchange Debenture Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Exchange Debenture Indenture and the Trustee need perform only those duties that are specifically set forth in this Exchange Debenture Indenture and no others, and no implied covenants or obligations shall be read into this Exchange Debenture Indenture against the Trustee; and (ii) 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 any notices, requests, statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Exchange Debenture Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Exchange Debenture Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) 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 6.5 hereof. (d) Whether or not therein expressly so provided, every provision of this Exchange Debenture Indenture that in any 57 way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Exchange Debenture Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Exchange Debenture Indenture at the request of any Holders, unless such Holder shall have furnished to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.2. Rights of Trustee. (a) The Trustee may conclusively rely 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 require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Exchange Debenture Indenture. (e) Unless otherwise specifically provided in this Exchange Debenture Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Exchange Debenture Indenture at the request or direction of any of the Holders unless such Holders shall have furnished to the Trustee reasonable security or indemnity against the costs, 58 expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except with respect to Sections 4.1 and 4.4 hereof, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. For the purposes of this clause (g) only, "actual knowledge" shall mean the actual fact or statement of knowing, without any duty to make investigation with regard thereto. (h) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (i) the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions, or agreements on the part of the Company, except as otherwise set forth herein, but the Trustee may require of the Company full information and advice as to the performance of the covenants, conditions and agreements contained herein and shall be entitled in connection herewith to examine the books, records and premises of the Company. (j) The permissive rights of the Trustee to perform the acts enumerated in this Exchange Debenture Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful misconduct. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Exchange Debentures and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Exchange Debenture Indenture or the Exchange Debentures, it shall not be accountable for the Company's use of the proceeds from the Exchange Debentures or any money paid to the Company or upon the Company's direction under any provision of this Exchange Debenture Indenture, it shall not be responsible for the use or 59 application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or in any certificate delivered pursuant hereto or any statement in the Exchange Debentures or any other document in connection with the sale of the Exchange Debentures or pursuant to this Exchange Debenture Indenture other than its certificate of authentication. Section 7.5. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to Holders of Exchange Debentures a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on, any Exchange Debenture, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Exchange Debentures. Section 7.6. Reports by Trustee to Holders of the Exchange Debentures. Within 60 days after each May 15 beginning with the May 15 following the date of this Exchange Debenture Indenture, and for so long as Exchange Debentures remain outstanding, the Trustee shall mail to the Holders of the Exchange Debentures a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2) and transmit by mail all reports as required by TIA ss. 313(c). A copy of each report at the time of its mailing to the Holders of Exchange Debentures shall be mailed to the Company and filed with the Commission and each stock exchange on which the Exchange Debentures are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Exchange Debentures are listed on any stock exchange. Section 7.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Exchange Debenture Indenture and services hereunder, including, without limitation, extraordinary services such as default administration. 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 promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such 60 expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Exchange Debenture Indenture, including the costs and expenses of enforcing this Exchange Debenture Indenture against the Company (including this Section 7.7) and investigating or defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of their obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.7 are joint and several and shall survive the satisfaction and discharge of this Exchange Debenture Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Exchange Debentures on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Exchange Debentures. Such Lien shall survive the satisfaction and discharge of this Exchange Debenture Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to the extent applicable. Section 7.8. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the 61 Company. The Holders of Exchange Debentures of a majority in principal amount of the then outstanding Exchange Debentures may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) 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 promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Exchange Debentures may appoint a successor Trustee to replace the successor Trustee appointed by the Company. 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 Exchange Debentures of at least 10% in principal amount of the then outstanding Exchange Debentures may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of an Exchange Debenture who has been a Holder of an Exchange Debenture for at least six months, fails to comply with Section 7.10, such Holder of an Exchange Debenture may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, 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 Exchange Debenture Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Exchange Debentures. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. 62 Section 7.9. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Exchange Debenture Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Exchange Debentures upon compliance with the conditions set forth below in this Article 8. Section 8.2. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Exchange Debentures on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the 63 outstanding Exchange Debentures, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Exchange Debenture Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Exchange Debentures and this Exchange Debenture Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Exchange Debentures to receive payments in respect of the principal of, premium, if any, and interest on such Exchange Debentures when such payments are due from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, (b) the Company's obligations with respect to such Exchange Debentures under Article 2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. Covenant Defeasance. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from their obligations under the covenants contained in Sections 4.3, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and in clause (iv) of Section 5.1 with respect to the outstanding Exchange Debentures on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Exchange Debentures shall thereafter be deemed not "outstanding" for the purposes of any compliance certificate, direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Exchange Debentures shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Exchange Debentures, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Exchange Debenture Indenture, such Exchange Debentures shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 64 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only with respect to the Company's failure to observe or perform the covenants, conditions and agreements of the Company under clause (iv) of Section 5.1), 6.1(4), 6.1(7) and 6.1(8) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Exchange Debentures: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Exchange Debentures, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest, on the outstanding Exchange Debentures on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Exchange Debentures are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Exchange Debenture 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 outstanding Exchange Debentures 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; (c) in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Exchange Debentures 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; 65 (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.1(9) or 6.1(10) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Exchange Debenture Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Exchange Debentures over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Exchange Debentures shall be held in trust and applied by the Trustee, in accordance with the provisions of such Exchange Debentures and this Exchange Debenture Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Exchange Debentures of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to 66 Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Exchange Debentures. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.6. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Exchange Debenture and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Exchange Debenture shall thereafter, as a general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.7. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Exchange Debenture Indenture, the Exchange Debentures shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be; provided, however, that if the Company makes any payment of principal of, premium, if any, or interest on any Exchange Debenture following the reinstatement of its obligations, the Company shall be 67 subrogated to the rights of the Holders of such Exchange Debentures to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.1. With Consent of Holders of Exchange Debentures. Except as provided below, this Exchange Debenture Indenture or the Exchange Debentures may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Exchange Debentures then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Exchange Debentures), and any existing default or compliance with any provision of this Exchange Debenture Indenture or the Exchange Debentures may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Exchange Debentures (including consents obtained in connection with a tender offer or exchange offer for the Exchange Debentures). Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company, authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Exchange Debentures as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Exchange Debentures under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Exchange Debentures 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 amended or supplemental indenture or waiver. 68 Section 9.2. Without Consent of Holders of Exchange Debentures. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Exchange Debentures held by a non-consenting Holder): (i) reduce the principal amount of the Exchange Debentures whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Exchange Debenture or alter the provisions with respect to the redemption of the Exchange Debentures (except as provided above in Sections 4.10 and 4.13 hereof), (iii) reduce the rate of or change the time for payment of interest on any Exchange Debenture, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Exchange Debentures (except a rescission of acceleration of the Exchange Debentures by the Holders of at least a majority in principal amount of such Exchange Debentures and a waiver of the payment default that resulted from such acceleration), (v) make any Exchange Debenture payable in money other than that stated in the Exchange Debentures, (vi) make any change in the provisions of this Exchange Debenture Indenture relating to waivers of past Defaults or the rights of Holders of the Exchange Debentures to receive payments of principal of or premium, if any, or interest on the Exchange Debentures or (vii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions contained in Sections 4.10 and 4.13 hereof or the provisions of Article 10 hereof will require the consent of the Holders of at least 66 2/3% in principal amount of the Exchange Debentures then outstanding if such amendment would adversely affect the rights of Holders of such Exchange Debentures. However, no amendment may be made to the subordination provisions of the Exchange Debenture Indenture that adversely affects the rights of any holder of Exchange Debenture Senior Debt then outstanding unless the holders of such Exchange Debenture Senior Debt (or any group or representative thereof authorized to give a consent) consents to such change. Notwithstanding the foregoing, without the consent of any Holder of the Exchange Debentures the Company and the Trustee may amend or supplement this Exchange Debenture Indenture or the Exchange Debentures to cure any ambiguity, defect or inconsistency, to provide for uncertificated Exchange Debentures in addition to or in place of certificated Exchange Debentures, to provide for the assumption of the Company's obligations to Holders of the Exchange Debentures in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Exchange Debentures or that does not adversely affect the legal rights under this Exchange Debenture Indenture of any such Holder, to secure the Exchange Debentures or to comply with requirements of the Commission in order to effect or maintain the qualification of the Exchange Debenture Indenture under the Trust Indenture Act. 69 Section 9.3. Compliance with Trust Indenture Act. Every amendment or supplement to this Exchange Debenture Indenture or the Exchange Debentures shall be set forth in an amended or supplemental Exchange Debenture Indenture that complies with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of an Exchange Debenture is a continuing consent by the Holder of an Exchange Debenture and every subsequent Holder of an Exchange Debenture or portion of an Exchange Debenture that evidences the same debt as the consenting Holder's Exchange Debenture, even if notation of the consent is not made on any Exchange Debenture. However, any such Holder of an Exchange Debenture or subsequent Holder of an Exchange Debenture may revoke the consent as to its Exchange Debenture if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.5. Notation on or Exchange of Exchange Debentures. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Exchange Debenture thereafter authenticated. The Company in exchange for all Exchange Debentures may issue and the Trustee shall authenticate new Exchange Debentures that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Exchange Debenture shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.6. Trustee to Sign Amendment, etc. The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Exchange Debenture Indenture until its respective Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.1) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Exchange Debenture Indenture and that there has been compliance with all conditions precedent. 70 ARTICLE 10 SUBORDINATION Section 10.1. Agreement to Subordinate. The Company agrees, and each Holder by accepting an Exchange Debenture agrees, that (i) the Indebtedness evidenced by the Exchange Debentures, including, but not limited to, the payment of principal of, premium, if any, and interest on the Exchange Debentures, and any other payment Obligation of the Company in respect of the Exchange Debentures (including any obligation to repurchase the Exchange Debentures) is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash of all Exchange Debenture Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) (ii) the subordination is for the benefit of the Holders of Exchange Debenture Senior Debt. Section 10.2. Certain Definitions. "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "Representative" means the indenture trustee or other trustee, agent or representative for any Exchange Debenture Senior Debt. A "distribution" may consist of cash, securities or other property, by set-off or otherwise. All Designated Exchange Debenture Senior Debt now or hereafter existing and all other Obligations relating thereto shall not be deemed to have been paid in full unless the holders or owners thereof shall have received payment in full in cash (or other form of payment consented to by the holders of such Designated Exchange Debenture Senior Debt) with respect to such Designated Exchange Debenture Senior Debt and all other Obligations with respect thereto. Section 10.3. Liquidation; Dissolution; Bankruptcy. (a) Upon any payment or distribution of property or securities to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, or in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) the holders of Exchange Debenture Senior Debt of the Company shall be entitled to receive payment in full in cash of all Obligations in respect of such Exchange Debenture Senior Debt (including interest after the 71 commencement of any such proceeding at the rate specified in the applicable Exchange Debenture Senior Debt, whether or not a claim for such interest would be allowed in such proceeding) before the Holders of Exchange Debentures shall be entitled to receive any payment with respect to the Exchange Debentures and related Obligations ; and (2) until all Obligations with respect to Exchange Debenture Senior Debt of the Company (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Holders of Exchange Debentures would be entitled shall be made to holders of Exchange Debenture Senior Debt of the Company (except that Holders of Exchange Debentures may receive securities that are subordinated at least to the same extent as the Exchange Debentures to Exchange Debenture Senior Debt and any securities issued in exchange for Exchange Debenture Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Exchange Debenture Indenture). Under the circumstances described in this Section 10.3, the Company or any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person making any payment or distribution of cash or other property or securities is authorized or instructed to make any payment or distribution to which the Holders of the Exchange Debentures would otherwise be entitled (other than securities that are subordinated at least to the same extent as the Exchange Debentures to Exchange Debenture Senior Debt and any securities issued in exchange for Exchange Debenture Senior Debt and payments made from any defeasance trust referred to in the second parenthetical of clause (a)(2) above, which shall be delivered or paid to the Holders of Exchange Debentures as set forth in such clauses) directly to the holders of the Exchange Debenture Senior Debt of the Company (pro rata to such holders on the basis of the respective amounts of Exchange Debenture Senior Debt of the Company held by such holders) or their Representatives, or to any trustee or trustees under any other indenture pursuant to which any such Exchange Debenture Senior Debt may have been issued, as their respective interests appear, to the extent necessary to pay all such Exchange Debenture Senior Debt in full, in cash or cash equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Exchange Debenture Senior Debt. To the extent any payment of or distribution in respect of Exchange Debenture Senior Debt, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such 72 payment or distribution is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Exchange Debenture Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Exchange Debenture Senior Debt is declared to be fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Exchange Debenture Senior Debt for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. Section 10.4. Default on Designated Exchange Debenture Senior Debt. The Company may not make any payment (whether by redemption, purchase, retirements, defeasance or otherwise) upon or in respect of the Exchange Debentures (other than securities that are subordinated at least to the same extent as the Exchange Debentures to Exchange Debenture Senior Debt and any securities issued in exchange for Exchange Debenture Senior Debt and payments and other distributions made from any defeasance trust created pursuant to Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10 of this Exchange Debenture Indenture) until all principal and other Obligations with respect to the Exchange Debenture Senior Debt of the Company have been paid in full if: (i) a default in the payment of any principal of, premium, if any, or interest on Designated Exchange Debenture Senior Debt occurs; or (ii) any other default occurs and is continuing with respect to Designated Exchange Debenture Senior Debt that permits, or with the giving of notice or passage of time or both (unless cured or waived) would permit, holders of the Designated Exchange Debenture Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Exchange Debenture Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until 360 days shall have elapsed since the date of commencement of the payment blockage period resulting from the immediately prior Payment Blockage Notice. No nonpayment default in respect of any Designated Exchange Debenture Senior Debt that existed or was continuing on the date of delivery of any Payment Blockage Notice to the 73 Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company shall resume payments on and distributions in respect of the Exchange Debentures upon: (1) in the case of a default referred to in Section 10.4(i) hereof the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.4(ii) hereof, the earliest of (1) the date on which such nonpayment default is cured or waived, (2) the date the applicable Payment Blockage Notice is retracted by written notice to the Trustee and (3) 179 days after the date on which the applicable Payment Blockage Notice is received unless (A) the maturity of any Designated Exchange Debenture Senior Debt has been accelerated or (B) a Default or Event of Default under Section 6.1(vii) or (viii) has occurred and is continuing, if this Article otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.5. Acceleration of Exchange Debentures. If payment of the Exchange Debentures is accelerated because of an Event of Default, the Company shall promptly notify holders of Exchange Debenture Senior Debt of the acceleration. Section 10.6. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment or distribution of or in respect of any Obligations with respect to the Exchange Debentures at a time when such payment or distribution is prohibited by Section 10.3 or Section 10.4 hereof, such payment or distribution shall be held by the Trustee (if the Trustee has actual knowledge that such payment or distribution is prohibited by Section 10.3 or 10.4) or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Exchange Debenture Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Exchange Debenture Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Exchange Debenture Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Exchange Debenture Senior Debt. With respect to the holders of Exchange Debenture Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in 74 this Article 10, and no implied covenants or obligations with respect to the holders of Exchange Debenture Senior Debt shall be read into this Exchange Debenture Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Exchange Debenture Senior Debt, and, except as provided in Section 10.12, shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders of Exchange Debentures or the Company or any other Person money or assets to which any holders of Exchange Debenture Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.7. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Exchange Debentures to violate this Article, but failure to give such notice shall not affect the subordination of the Exchange Debentures to the Exchange Debenture Senior Debt as provided in this Article. Section 10.8. Subrogation. After all Exchange Debenture Senior Debt is paid in full and until the Exchange Debentures are paid in full, Holders of Exchange Debentures shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Exchange Debentures) to the rights of holders of Exchange Debenture Senior Debt to receive distributions and payments applicable to Exchange Debenture Senior Debt to the extent that distributions and payments otherwise payable to the Holders of Exchange Debentures have been applied to the payment of Exchange Debenture Senior Debt. A payment or distribution made under this Article to holders of Exchange Debenture Senior Debt that otherwise would have been made to Holders of Exchange Debentures is not, as between the Company and Holders of Exchange Debentures, a payment by the Company on the Exchange Debentures. Section 10.9. Relative Rights. This Article defines the relative rights of Holders of Exchange Debentures and holders of Exchange Debenture Senior Debt. Nothing in this Exchange Debenture Indenture shall: (1) impair, as between the Company and Holders of Exchange Debentures, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Exchange Debentures in accordance with their terms; (2) affect the relative rights of Holders of Exchange Debentures and creditors of the Company other than their 75 rights in relation to holders of Exchange Debenture Senior Debt; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Exchange Debenture Senior Debt to receive distributions and payments otherwise payable to Holders of Exchange Debentures. If the Company fails because of this Article to pay principal of or interest on a Exchange Debenture on the due date, the failure is still a Default or Event of Default. Section 10.10. Subordination May Not Be Impaired by Company. No right of any present or future holders of any Exchange Debenture Senior Debt to enforce subordination as provided in this Article Ten will 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 noncompliance by the Company with the terms of this Exchange Debenture Indenture, regardless of any knowledge thereof that any such holder of Exchange Debenture Senior Debt may have or otherwise be charged with. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Exchange Debenture Senior Debt. Section 10.11. Payment, Distribution or Notice to Representative. Whenever a payment or distribution is to be made or a notice given to holders of Exchange Debenture Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets or securities of the Company referred to in this Article 10, the Trustee and the Holders of Exchange Debentures shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders of Exchange Debentures for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Exchange Debenture 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. 76 Section 10.12. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Exchange Debenture Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Exchange Debentures, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Exchange Debentures to violate this Article, which notice shall specifically refer to Section 10.3 or 10.4 hereof. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee in its individual or any other capacity may hold Exchange Debenture Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. Authorization to Effect Subordination. Each Holder by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.9 hereof at least 30 days before the expiration of the time to file such claim, each lender under the Credit Facility is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Exchange Debentures. Section 10.14. Amendments. No amendment may be made to the provisions of or the definitions of any terms appearing in this Article 10, or to the provisions of Section 6.2 relating to the Designated Exchange Debenture Senior Debt, that adversely affects the rights of any holder of Exchange Debenture Senior Debt then outstanding unless the holders of such Exchange Debenture Senior Debt (or any group or Representative authorized to give a consent) consent to such change. Section 10.15. No Waiver of Subordination Provisions. Without in any way limiting the generality of Section 10.9 of this Exchange Debenture Indenture, the holders of Exchange Debenture Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the 77 Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Exchange Debenture Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Exchange Debenture Senior Debt or any instrument evidencing the same or any agreement under which Exchange Debenture Senior Debt is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Exchange Debenture Senior Debt; (c) release any Person liable in any manner for the collection of Exchange Debenture Senior Debt; and (d) exercise or refrain from exercising any rights against the Company and any other Person. ARTICLE 11 MISCELLANEOUS Section 11.1. Trust Indenture Act Controls. If any provision of this Exchange Debenture Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. If any provisions of this Exchange Debenture Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the letter provision shall be deemed to apply to this Exchange Debenture Indenture as so modified or excluded, as the case may be. Section 11.2. Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Cumulus Media Inc. 330 E. Kilbourn Avenue Suite 250 Milwaukee, WI 53202 Attention: Richard W. Weening With a copy to: Paul, Hastings, Janofsky & Walker LLP 399 Park Avenue, 31st Floor New York, NY 10022-4697 Attention: William Schwitter 78 If to the Trustee: The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.3. Communication by Holders of Exchange Debentures with Other Holders of Exchange Debentures. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Exchange Debenture Indenture or the Exchange Debentures. The Company the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). Section 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Exchange Debenture Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include 79 the statements set forth in Section 11.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Exchange Debenture Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Exchange Debenture Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) 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; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.7. No Personal Liability of Directors, Officers, Employees and Stockholders. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Exchange Debentures or this Exchange Debenture Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. 80 Each Holder of Exchange Debentures, by accepting a Exchange Debenture, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Exchange Debentures. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. Section 11.8. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS EXCHANGE DEBENTURE INDENTURE AND THE EXCHANGE DEBENTURES. Section 11.9. No Adverse Interpretation of Other Agreements. This Exchange Debenture Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or their respective Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Exchange Debenture Indenture. Section 11.10. Successors. All agreements of the Company in this Exchange Debenture Indenture, the Exchange Debentures shall bind its respective successors. All agreements of the Trustee in this Exchange Debenture Indenture shall bind its successors. Section 11.11. Severability. In case any provision in this Exchange Debenture Indenture or in the Exchange Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.12. Counterpart Originals. The parties may sign any number of copies of this Exchange Debenture Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Exchange Debenture Indenture have been inserted for convenience of reference only, are not to be considered a part of this Exchange Debenture Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 81 SIGNATURES Dated as of _________, 1998 CUMULUS MEDIA INC. Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ [TRUSTEE] Attest: By:________________________________ Name:______________________________ __________________________ Title:_____________________________ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT A (Face of Exchange Debenture) _____% Subordinated Exchange Debentures due 2009 No. $__________ CUSIP Number: CUMULUS MEDIA INC. promises to pay to or registered assigns, the principal sum of DOLLARS on __________, 2009. Interest Payment Dates: ____________ and _________________ Record Dates: ______________________ and _________________ Dated: _______________, ____ CUMULUS MEDIA INC. By_______________________ Name: Title: By_______________________ Name: Title: This is one of the Exchange Debentures referred to in the within-mentioned (SEAL) Exchange Debenture Indenture: as Trustee By____________________________ Authorized Signatory - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Back of Exchange Debenture) ___% Subordinated Exchange Debentures due 2009 Capitalized terms used herein shall have the meanings assigned to them in the Exchange Debenture Indenture referred to below unless otherwise indicated. 1. Interest. Cumulus Media Inc., an Illinois corporation (the "Company"), promises to pay interest on the principal amount of this Exchange Debenture at the rate of ___% per annum, which interest shall be payable in cash semiannually in arrears on each _______________ and ___________, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"); provided that the first Interest Payment Date shall be _____________, 1998. Interest on the Exchange Debentures will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 2. Method of Payment. On each Interest Payment Date the Company will pay interest to the Person who is the Holder of record of this Exchange Debenture as of the close of business on the _____________ or ____________ immediately preceding such Interest Payment Date, even if this Exchange Debenture is cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Exchange Debenture Indenture with respect to defaulted interest. Principal, premium, if any, and interest on this Exchange Debenture will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, in the event the Exchange Debentures do not remain in book-entry form, at the option of the Company, payment of interest may be made by check mailed to the Holder of this Exchange Debenture at its address set forth in the register of Holders of Exchange Debentures; provided that all payments with respect to the Global Exchange Debentures and definitive Exchange Debentures having an aggregate principal amount of $5.0 million or more the Holders of which have given wire transfer instructions to the Company at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, ______________________, the Trustee under the Exchange Debenture Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any A-2 Holder. The Company or any of the Company's Subsidiaries may act in any such capacity. 4. Exchange Debenture Indenture. The Company issued the Exchange Debentures under an Exchange Debenture Indenture dated as of _____________, 1998, ("Exchange Debenture Indenture") between the Company and the Trustee. The terms of the Exchange Debentures include those stated in the Exchange Debenture Indenture and those made part of the Exchange Debenture Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Exchange Debentures are subject to all such terms, and Holders are referred to the Exchange Debenture Indenture and such Act for a statement of such terms. The Exchange Debentures are general unsecured obligations of the Company equal in an aggregate principal amount to $133,000,000 and will mature on ________________, 2009. 5. Optional Redemption. (a) Except as otherwise described below, the Exchange Debentures are not redeemable at the Company's option prior to ____________, 2003. Thereafter, the Exchange Debentures will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on ____________ of the years indicated below: Year Percentage 2003......................................... 2004......................................... 2005......................................... 2006......................................... 2007 and thereafter.......................... 100.0000% (b) Prior to ____________, 2001 the Company may, at its option, on any one or more occasions, redeem up to 35% of the original aggregate principal amount of Exchange Debentures at a redemption price equal to _______% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with the net proceeds of one or more Equity Offerings (as defined in the Exchange Debenture Indenture) of the Company; provided that at least 65% of the original aggregate principal amount of Exchange Debentures remain outstanding immediately after the occurrence of such redemption; and provided, further, that any such redemption shall occur within 90 days after the date of the closing of any such Equity Offering (as defined in the Exchange Debenture Indenture). A-3 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Exchange Debentures. 7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change of Control, each Holder of Exchange Debentures shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Exchange Debentures pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). The right of the Holders of the Exchange Debentures to require the Company to repurchase such Exchange Debentures upon a Change of Control may not be waived by the Trustee without the approval of the Holders of the Exchange Debentures required by Section 9.2 of the Exchange Debenture Indenture. Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Exchange Debentures pursuant to the procedures required by the Exchange Debenture Indenture and described in such notice. The Change of Control Payment shall be made on a business day not less than 30 days nor more than 60 days after such notice is mailed. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Exchange Debentures as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales permitted by the Exchange Debenture Indenture, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Exchange Debentures and any other Exchange Debenture Pari Passu Debt to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to, in the case of the Exchange Debentures, 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase or, in the case of any Exchange Debenture Pari Passu Debt, 100% of the principal amount thereof (or with respect to discount Exchange Debenture Pari Passu Debt, the accreted value thereof) on the date of purchase, in each case, in accordance with the procedures set forth in Section 3.9 of the Exchange Debenture Indenture or the agreements governing the Exchange Debenture Pari Passu Debt, as applicable. To the extent that the aggregate principal amount (or accreted value, as the case may be) of Exchange Debentures, and Exchange Debenture Pari Passu A-4 Debt tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the sum of (i) the aggregate principal amount of Exchange Debentures surrendered by Holders thereof and (ii) the aggregate principal amount or accreted value, as the case may be, of Exchange Debenture Pari Passu Debt surrendered by holders or lenders thereof exceeds the amount of Excess Proceeds, the Trustee and the trustee or other lender representative for the Exchange Debenture Pari Passu Debt shall select the Exchange Debentures and the other Exchange Debenture Pari Passu Debt to be purchased on a pro rata basis, based on the aggregate principal amount (or accreted value, as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 8. 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 whose Exchange Debentures are to be redeemed at its registered address. Exchange Debentures in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000, unless all of the Exchange Debentures held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on the aggregate principal amount of the Exchange Debentures called for redemption. 9. Denominations, Transfer, Exchange. The Exchange Debentures may be issued initially in the form of one or more fully registered Global Exchange Debentures. The Exchange Debentures may also be issued in registered form without coupons in minimum denominations of $1,000 and integral multiples of $1,000. The transfer of Exchange Debentures may be registered and Exchange Debentures may be exchanged as provided in the Exchange Debenture Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Exchange Debenture Indenture. The Company need not exchange or register the transfer of any Exchange Debenture or portion of a Exchange Debenture selected for redemption, except for the unredeemed portion of any Exchange Debenture being redeemed in part. Also, it need not exchange or register the transfer of any Exchange Debenture for a period of 15 days before a selection of Exchange Debentures to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of a Exchange Debenture may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Exchange Debenture Indenture or the Exchange Debentures may be amended or supplemented with the A-5 consent of the Holders of at least a majority in aggregate principal amount of the Exchange Debentures then outstanding (including, without limitation, consents obtained in connection with a purchase of, or the tender offer or exchange offer for, such Exchange Debentures), and any existing Default or Event of Default under, or compliance with any provision of the Exchange Debenture Indenture or the Exchange Debentures may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Exchange Debentures (including consents obtained in connection with a tender offer or exchange offer for the Exchange Debentures). Without the consent of any Holder of a Exchange Debenture, the Exchange Debenture Indenture or the Exchange Debentures may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Exchange Debentures in addition to or in place of certificated Exchange Debentures, to provide for the assumption of the Company's obligations to Holders of the Exchange Debentures in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Exchange Debentures or that does not adversely affect the legal rights under the Exchange Debenture Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Exchange Debenture Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: (i) default for 30 consecutive days in the payment when due of interest on the Exchange Debentures (whether or not prohibited by the provisions of Article 10 of the Exchange Debenture Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Exchange Debentures (whether or not prohibited by the provisions of Article 10 of the Exchange Debenture Indenture); (iii) failure by the Company to comply with the provisions of Article 4 of the Exchange Debenture Indenture; (iv) failure by the Company for 30 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Exchange Debentures then outstanding to comply with any of its other agreements in the Exchange Debenture Indenture or the Exchange Debentures; (v) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Exchange Debenture Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under A-6 which there is then existing a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final, non-appealable judgments aggregating in excess of $5.0 million, which judgments remain unpaid or discharged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. If any Event of Default (other than an Event of Default described in clause (vii) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Exchange Debentures may declare all the Exchange Debentures to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Exchange Debentures will become due and payable without further action or notice. Holders of the Exchange Debentures may not enforce the Exchange Debenture Indenture or the Exchange Debentures except as provided in the Exchange Debenture Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Exchange Debentures may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Exchange Debentures notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Exchange Debentures then outstanding by notice to the Trustee may on behalf of the Holders of all of the Exchange Debentures waive any existing Default or Event of Default and its consequences under the Exchange Debenture Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Exchange Debentures. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Exchange Debenture Indenture, and the Company is required, within 5 Business days after becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Subordination. The Exchange Debentures are subordinated to Exchange Debenture Senior Debt of the Company. To the extent provided in the Exchange Debenture Indenture, Exchange Debenture Senior Debt must be paid before the Exchange Debentures may be paid. The Company agrees, and each Holder by accepting a Exchange Debenture agrees, that the Indebtedness evidenced by the Exchange Debentures, including, but not limited to, the payment of principal of, premium, if any, and interest on the Exchange Debentures, and any other payment Obligation of the Company in respect of the Exchange Debentures is subordinated in A-7 right of payment, to the extent and in the manner provided in the Exchange Debenture Indenture, to the prior payment in full in cash of all Exchange Debenture Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) and authorizes the Trustee to give effect and appoints the Trustee as attorney-in-fact for such purpose. 14. Trustee Dealings with Company. The Exchange Debenture 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 acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 15. No Recourse Against Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Exchange Debentures or the Exchange Debenture Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Exchange Debentures, by accepting a Exchange Debenture, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Exchange Debentures. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 16. Authentication. This Exchange Debenture shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. Abbreviations. Customary abbreviations may be used in the name of a Holder 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. 18. 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 Exchange Debentures and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Exchange Debentures or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-8 The Company will furnish to any Holder upon written request and without charge a copy of the Exchange Debenture Indenture. Requests may be made to: Cumulus Media, Inc. 330 E. Kilbourn Avenue Suite 250 Milwaukee, WI 53202 Attention: Secretary A-9 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to ________________________________________________________________________________ (Insert assignee's Social Security or tax I.D. No.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: __________________ Your Signature: ________________________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:*__________________________________________ - ---------- (*) Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Exchange Debenture purchased by the Company pursuant to Section 4.10 or 4.13 of the Exchange Debenture Indenture, check the box below: |_| Section 4.10 |_| Section 4.13 If you want to elect to have only part of the Exchange Debenture purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Exchange Debenture Indenture, state the principal amount you elect to have purchased: $______________ Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guarantee:*___________________________________________ - ---------- (*) Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-11 EXHIBIT B (Form of Legend for Global Exchange Debenture) Unless and until it is exchanged in whole or in part for Exchange Debentures in definitive form, this Exchange Debenture may not be transferred except 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 or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be 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. B-1 SCHEDULE OF EXCHANGES OF DEFINITIVE EXCHANGE DEBENTURES [To be attached to Global Exchange Debenture] The following exchanges of a part of this Global Exchange Debenture for definitive Exchange Debentures have been made:
Principal Amount of Amount of decrease in Amount of increase in this Global Exchange Signature of authorized Principal Amount Principal Amount Debenture following officer of Trustee of this Global of this Global such decrease (or or Exchange Debenture Date of Exchange Exchange Debenture Exchange Debenture increase) Custodian ---------------- ------------------ ------------------ --------- ---------
B-2 CROSS-REFERENCE TABLE* Trust Exchange Debenture Indenture Exchange Debenture Indenture Act Section Section 310 (a)(1) ................................................. 7.10 (a)(2) ................................................. 7.10 (a)(3) ................................................. N.A. (a)(4) ................................................. N.A. (a)(5) ................................................. 7.10 (b) ................................................. 7.10 (c) ................................................. N.A. 311 (a) ................................................. 7.11 (b) ................................................. 7.11 (c) ................................................. N.A. 312 (a) ................................................. 2.5 (b) ................................................. 12.3 (c) ................................................. 12.3 313 (a) ................................................. 7.6 (b)(1) ................................................. N.A. (b)(2) ................................................. 7.7 (c) ................................................. 7.6; 12.2 (d) ................................................. 7.6 314 (a) ................................................. 4.3; 12.2 (b) ................................................. N.A. (c)(1) ................................................. 12.4 (c)(2) ................................................. 12.4 (c)(3) ................................................. N.A. (d) ................................................. 10.3-10.5 (e) ................................................. 12.5 (f) ................................................. N.A. 315 (a) ................................................. 7.1 (b) ................................................. 7.5; 12.2 (c) ................................................. 7.1 (d) ................................................. 7.1 (e) ................................................. 6.11 316 (a)(last sentence)....................................... 2.9 (a)(1)(A)................................................ 6.5 (a)(1)(B)................................................ 6.4 (a)(2) .................................................. N.A. (b) .................................................. 6.7 (c) .................................................. 2.12 317 (a)(1) .................................................. 6.8 (a)(2) .................................................. 6.9 (b) .................................................. 2.4 318 (a) .................................................. 12.1 (b) .................................................. N.A. (c) .................................................. 12.1 - ------------- N.A. means not applicable. B-3 *This Cross-Reference Table is not part of the Exchange Debenture Indenture. B-4 TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.............................. 1 Section 1.1. Definitions.......................................... 1 Section 1.2. Other Definitions.................................... 19 Section 1.3. Incorporation By Reference of Trust Indenture Act.... 19 Section 1.4. Rules of Construction................................ 20 ARTICLE 2 THE EXCHANGE DEBENTURES......................... 20 Section 2.1. Form and Dating...................................... 20 Section 2.2. Execution and Authentication......................... 21 Section 2.3. Registrar and Paying Agent........................... 22 Section 2.4. Paying Agent to Hold Money in Trust.................. 22 Section 2.5. Holder Lists......................................... 23 Section 2.6. Transfer and Exchange................................ 23 Section 2.7. Replacement Exchange Debentures...................... 24 Section 2.8. Outstanding Exchange Debentures...................... 24 Section 2.9. Treasury Exchange Debentures......................... 25 Section 2.10. CUSIP Number......................................... 25 Section 2.11. Cancellation......................................... 26 Section 2.12. Defaulted Interest................................... 26 Section 2.13. Book-Entry Provisions for Global Exchange Debentures........................................ 26 ARTICLE 3 REDEMPTION AND PREPAYMENT........................ 28 Section 3.1. Notices to Trustee................................... 28 Section 3.2. Selection of Exchange Debentures to Be Redeemed...... 28 Section 3.3. Notice of Redemption................................. 29 Section 3.4. Effect of Notice of Redemption....................... 30 Section 3.5. Deposit of Redemption Price.......................... 30 Section 3.6. Exchange Debentures Redeemed in Part................. 31 Section 3.7. Optional Redemption.................................. 31 Section 3.8. Mandatory Redemption................................. 32 Section 3.9. Offer to Purchase By Application of Excess Proceeds.......................................... 32 ARTICLE 4 COVENANTS................................ 34 Section 4.1. Payment of Exchange Debentures....................... 34 Section 4.2. Maintenance of Office or Agency...................... 35 Section 4.3. Reports.............................................. 35 Section 4.4. Compliance Certificate............................... 36 Section 4.5. Taxes................................................ 37 -i- Page ---- Section 4.6. Stay, Extension and Usury Laws....................... 37 Section 4.7. Restricted Payments.................................. 37 Section 4.8. Dividend and Other Payment Restrictions Affecting Subsidiaries...................................... 40 Section 4.9. Incurrence of Indebtedness and Issuance of Preferred Stock................................... 41 Section 4.10. Asset Sales.......................................... 43 Section 4.11. Transactions with Affiliates......................... 44 Section 4.12. Liens................................................ 45 Section 4.13. Offer to Repurchase Upon Change of Control........... 45 Section 4.14. Asset Swaps.......................................... 46 Section 4.15. Corporate Existence.................................. 47 Section 4.16. No Senior Subordinated Debt.......................... 47 Section 4.17. Business Activities.................................. 47 Section 4.18. Issuances and Sales of Capital Stock of Wholly Owned Restricted Subsidiaries..................... 48 Section 4.19. Payments for Consent................................. 48 ARTICLE 5 SUCCESSORS................................ 48 Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets........................................ 48 Section 5.2. Successor Corporation Substituted.................... 49 ARTICLE 6 DEFAULTS AND REMEDIES.......................... 50 Section 6.1. Events of Default.................................... 50 Section 6.2. Acceleration......................................... 51 Section 6.3. Other Remedies....................................... 52 Section 6.4. Waiver of Past Defaults.............................. 52 Section 6.5. Control by Majority.................................. 53 Section 6.6. Limitation on Suits.................................. 53 Section 6.7. Rights of Holders of Exchange Debentures to Receive Payment................................... 54 Section 6.8. Collection Suit by Trustee........................... 54 Section 6.9. Trustee May File Proofs of Claim..................... 54 Section 6.10. Priorities........................................... 55 Section 6.11. Undertaking for Costs................................ 55 ARTICLE 7 TRUSTEE................................. 56 Section 7.1. Duties of Trustee.................................... 56 Section 7.2. Rights of Trustee.................................... 57 Section 7.3. Individual Rights of Trustee......................... 58 Section 7.4. Trustee's Disclaimer................................. 58 Section 7.5. Notice of Defaults................................... 59 Section 7.6. Reports by Trustee to Holders of the Exchange Debentures........................................ 59 Section 7.7. Compensation and Indemnity........................... 59 -ii- Page ---- Section 7.8. Replacement of Trustee.............................. 60 Section 7.9. Successor Trustee by Merger, etc. .................. 62 Section 7.10. Eligibility; Disqualification....................... 62 Section 7.11. Preferential Collection of Claims Against Company... 62 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE................. 62 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance....................................... 62 Section 8.2. Legal Defeasance and Discharge...................... 62 Section 8.3. Covenant Defeasance................................. 63 Section 8.4. Conditions to Legal or Covenant Defeasance.......... 64 Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.... 65 Section 8.6. Repayment to Company................................ 66 Section 8.7. Reinstatement....................................... 66 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER..................... 67 Section 9.1. With Consent of Holders of Exchange Debentures...... 67 Section 9.2. Without Consent of Holders of Exchange Debentures... 68 Section 9.3. Compliance with Trust Indenture Act................. 69 Section 9.4. Revocation and Effect of Consents................... 69 Section 9.5. Notation on or Exchange of Exchange Debentures...... 69 Section 9.6. Trustee to Sign Amendment, etc. .................... 69 ARTICLE 10 SUBORDINATION.............................. 70 Section 10.1. Agreement to Subordinate............................ 70 Section 10.2. Certain Definitions................................. 70 Section 10.3. Liquidation; Dissolution; Bankruptcy................ 70 Section 10.4. Default on Designated Exchange Debenture Senior Debt............................................. 72 Section 10.5. Acceleration of Exchange Debentures................. 73 Section 10.6. When Distribution Must Be Paid Over................. 73 Section 10.7. Notice by Company................................... 74 Section 10.8. Subrogation......................................... 74 Section 10.9. Relative Rights..................................... 74 Section 10.10. Subordination May Not Be Impaired by Company........ 75 Section 10.11. Payment, Distribution or Notice to Representative... 75 Section 10.12. Rights of Trustee and Paying Agent.................. 76 Section 10.13. Authorization to Effect Subordination............... 76 Section 10.14. Amendments.......................................... 76 Section 10.15. No Waiver of Subordination Provisions............... 76 ARTICLE 11 MISCELLANEOUS.............................. 77 Section 11.1. Trust Indenture Act Controls........................ 77 -iii- Page ---- Section 11.2. Notices............................................. 77 Section 11.3. Communication by Holders of Exchange Debentures with Other Holders of Exchange Debentures........... 78 Section 11.4. Certificate and Opinion as to Conditions Precedent........................................ 78 Section 11.5. Statements Required in Certificate or Opinion....... 79 Section 11.6. Rules by Trustee and Agents......................... 79 Section 11.7. No Personal Liability of Directors, Officers, Employees and Stockholders....................... 79 Section 11.8. Governing Law....................................... 80 Section 11.9. No Adverse Interpretation of Other Agreements....... 80 Section 11.10. Successors.......................................... 80 Section 11.11. Severability........................................ 80 Section 11.12. Counterpart Originals............................... 80 Section 11.13. Table of Contents, Headings, Etc.................... 80 EXHIBITS Exhibit A FORM OF EXCHANGE DEBENTURE EXHIBIT B FORM OF LEGEND FOR GLOBAL EXCHANGE DEBENTURE -iv- EX-10.7 13 EXHIBIT 10.7 Exhibit 10.7 September 3, 1996 Mr. William Bungeroth 1216 Scott Street Winnetka, IL 60093 Dear Bill: As we have discussed, we are pleased to offer you the position of President and Chief Executive Officer of Cumulus Media, L.L.C., with the following terms and responsibilities: Position and Duties You will serve as President and Chief Executive Officer of Cumulus Media, L.L.C., reporting to QUAESTUS Management Corporation, the Manager of Cumulus. You will also serve on the Executive Board of Cumulus. Your primary responsibility will be to develop, in consultation with the Manager, and implement a program for acquiring and enhancing the performance of small market radio stations based on the strategy and with the objectives we have discussed. In addition, you will fulfill the standard responsibilities of a chief executive officer in a broadcasting business, including hiring and management of personnel; development and implementation of budgets both for Cumulus operations and for purchase and operation of stations to be acquired; development of business opportunities in the form of station purchases and divestitures; hiring and management of Cumulus employees and employees of member stations; development and oversight of sales and promotional programs; and monitoring of station performance. It is not currently anticipated that you will be responsible for Cumulus' operations in the Eastern Caribbean, which will have a separate general manager. Start Date The position and all of the terms of this offer (except this paragraph and the confidentiality and competition paragraphs below) are contingent upon, and will take effect upon, a closing of additional equity financing for Cumulus Media in the amount of at least $25 million. QUAESTUS undertakes to use its best efforts to raise the financing and to take other steps as may reasonably be necessary to promote the success of the venture. Before the closing, you will be required to contribute reasonable effort to the fundraising process, in the form of advising on the content of offering materials, participating in the refinement of the strategy, and making personal visits with prospective investors as may reasonably be required. Compensation: Base Salary: $250,000 per year. Bonus: You will be eligible to receive an annual bonus based on the assessment of your performance by the Manager. The amount and whether such bonuses will be paid will be determined in the sole discretion of the Manager, but it is anticipated that you could achieve a maximum of an additional 50% of your base salary based on goals agreed upon between you and the Manager. Profits Interest: You will receive a profits interest (analogous to stock options) of 2% in the profits of Cumulus. Additional profits interest points may be added for exceptional performance determined in the sole discretion of the Manager. The interest will vest in five equal segments over a five-year period, once per year on the anniversary of the Fund's closing. Interests will vest 100% upon sale of the properties. Location: The parties expect that you will be capable of fulfilling your duties from your current residence. Benefits: You will receive a standard package of health and life insurance benefits comparable to those received by senior executives of QUAESTUS. Competition: Both before and after the closing of the equity financing, you agree not to assist or participate in any ventures or companies that may be competitive with the current or planned business strategy of Cumulus. Confidentiality: You agree to keep confidential all non-public information regarding Cumulus which you receive during your association with Cumulus. Termination: These arrangements are terminable by you at any time, except that you will receive (1) your cash compensation through the date of termination, and (2) any vested profits interest to which you are entitled through the date of notice of termination. You may be terminated by the Manager at any time. In such cases, you would receive (1) one year's cash compensation, payable over time as if you remained an employee, and (2) any vested profits interest to which you are entitled through the date of notice of termination. 2 Bill, if these terms are acceptable, please sign below and return a faxed copy to me. We look forward to working with you to build a successful enterprise. Very truly yours, Richard W. Weening ACCEPTED: ------------------------- Date: ----------------------------- 3 EX-10.8 14 EXHIBIT 10.8 EXHIBIT 10.8 September 3, 1996 Mr. Richard Bonick 9438 Ridgeway Evanston, IL 60203 Dear Rick: As we have discussed, we are pleased to offer you the position of Vice President and Chief Financial Officer of Cumulus Media, L.L.C., with the following terms and responsibilities: Position and Duties You will serve as Vice President and Chief Financial Officer of Cumulus Media, L.L.C., reporting to the Chief Executive Officer and ultimately to QUAESTUS Management Corporation, the Manager of Cumulus. Your primary responsibility will be to work with the CEO to develop, in consultation with the Manager, and implement a program for acquiring and enhancing the performance of small market radio stations based on the strategy and with the objectives we have discussed. In addition, you will fulfill the standard responsibilities of a chief financial officer in a broadcasting business, including preparation and administration of operating budgets; management of cash requirements; representing the Company in dealings with sources of capital; providing advice as to the best ways to finance acquisitions; review of financial condition of prospective acquisition targets; oversight of accounting and bookkeeping functions; preparation of financial statements in coordination with outside accountants; and other standard financial matters. It is currently anticipated that you also will be responsible for oversight of the financial matters of Cumulus' operations in the Eastern Caribbean, which will have a separate general manager. Start Date: The position and all of the terms of this offer (except this paragraph and the confidentiality and competition paragraphs below) are contingent upon, and will take effect upon, a closing of additional equity financing for Cumulus in the amount of at least $25 million. QUAESTUS undertakes to use its best efforts to raise the financing and to take other steps as may reasonably be necessary to promote the success of the venture. Before the closing, you will be required to contribute reasonable effort to the fundraising process, in the form of advising on the content of offering materials, participating in the refinement of the strategy, and making personal visits with prospective investors as may reasonably be required. Compensation: Base Salary: $250,000 per year. Bonus: You will be eligible to receive an annual bonus based on the assessment of your performance by the Manager. The amount and whether such bonuses will be paid will be determined in the sole discretion of the Manager, but it is anticipated that you could achieve a maximum of an additional 50% of your base salary based on goals agreed between you and the Manager. Profits Interest: You will receive a profits interest (analogous to stock options) of 2% in the profits of Cumulus. Additional profits interest points maya be added for exceptional performance, determined in the sole discretion of the Manager. The interest will vest in five equal segments over a five-year period, once per year on the anniversary of the Fund's closing. The interest will vest 100% upon sale of the properties. Location: The parties expect that you will be capable of fulfilling your duties from your current residence. Benefits: You will receive a standard package of health and life insurance benefits comparable to those received by senior executives of QUAESTUS. Competition: Both before and after the closing of the equity financing, you agree not to assist or participate in any ventures or companies that may be competitive with the current or planned business strategy of Cumulus. Confidentiality: You agree to keep confidential all non-public information regarding Cumulus which you receive during your association with Cumulus. Termination: These arrangements are terminable by you at any time, except that you will receive (1) your cash compensation through the date of termination, and (2) any vested profits interest to which you are entitled through the date of notice of termination. You may be terminated by the Manager at any time. In such cases, you would receive (1) one year's cash compensation, payable over time as if you had remained an employee, and (2) any vested options to which you are entitled through the date of notice of termination. 2 If these terms are acceptable, please sign below and return a faxed copy to me. Rick, we are looking forward to working with you to build a successful company. Very truly yours, Richard W. Weening ACCEPTED:________________________ Date:______________________________ 3 EX-10.69 15 EXHIBIT 10.69 EXHIBIT 10.69 ASSET PURCHASE AGREEMENT This Agreement ("Agreement") is entered into as of February 26, 1998, by and among Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Mustang Broadcasting Company, a Colorado corporation (the "Seller"). Broadcasting and Licensing are referred to collectively herein as the "Buyers." The Buyers and the Seller are referred to individually as the "Party" or collectively as the "Parties." Capitalized terms used in this Agreement are defined in Section 8 hereof. Subject to the terms and conditions of this Agreement, the Buyers hereby agree to purchase substantially all of the assets (and assume certain of the liabilities) of the Seller that are used or useful in the operation of radio stations KKNN(FM) licensed to Delta, Colorado, and KEXO(AM) and KQIL(AM) licensed to Grand Junction, Colorado (the "Stations") in return for cash. Now, therefore, in consideration of the above premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Basic Transaction. a. Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, the Seller agrees to sell, transfer, convey and deliver to (i) Licensing, and Licensing agrees to purchase from the Seller, all of the FCC Licenses listed in Section 2(k) of the disclosure schedule ("Disclosure Schedule"); and (ii) Broadcasting, and Broadcasting agrees to purchase from the Seller, all of the Acquired Assets other than the FCC Licenses. Both such sales shall take place at the Closing for the consideration specified below in this Section 1. b. Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, Broadcasting agrees to assume and become responsible for all of the Assumed Liabilities at the Closing. The Buyers will not assume or have any responsibility, however, with respect to any other obligation or Liability of the Seller not included within the definition of Assumed Liabilities and assumed by Broadcasting, and the Seller agrees to pay and discharge all Liabilities and obligations of the Seller other than the Assumed Liabilities. c. Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets, the purchase price (the "Purchase Price") described in Schedule A to this Agreement, and agrees to make the escrow deposit (the "Escrow Deposit") in the form and manner described in Schedule A and more particularly in the earnest money escrow agreement ("Earnest Money Escrow Agreement") attached hereto as Exhibit A. d. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Stations in Grand Junction, Colorado, or another mutually determined location, commencing at 9:00 a.m. local time promptly after the FCC approval of the Assignment Application becomes a Final Order, by which date all other conditions to the obligations of the Parties to consummate the transactions contemplated hereby will have been satisfied, or such other date as the Parties may mutually determine (the "Closing Date"). e. Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyers the various certificates, instruments, and documents referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various certificates, instruments, and documents referred to in Section 5(b) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyers (A) assignments (including Lease and other Assumed Contract assignments and Intellectual Property transfer documents), bills of sale and warranty deeds in form reasonably acceptable to the Buyers, (B) such affidavits, transfer tax returns, memorandums of lease, and other additional documents as may be required by the terms of the title insurance commitments described in Section 4(o) hereof, as necessary to furnish title insurance as required by such section or as may be necessary to convey title to the Real Estate to the Buyers in the condition required herein or provide public notice of existence of the Leases, and (C) such other instruments of sale, transfer, conveyance, and assignment as the Buyers and their counsel reasonably may request; (iv) the Buyers will execute, acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the form attached hereto as Exhibit B and (B) such other instruments of assumption as the Seller and its counsel reasonably may request; and (v) the Buyers will deliver to the Seller the consideration specified in Section 1(c) above. f. Postclosing Agreement. On the Closing Date, the Seller shall execute, and shall cause its shareholder to execute, a Postclosing Agreement with the Buyers including a covenant not to compete with the Buyers in the markets served by the Stations and agreements to indemnify the Buyers in the form of Exhibit C attached hereto. A portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be paid to the Seller by the Buyers on the Closing Date as consideration for the agreements set forth in the Postclosing Agreement. 2. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyers that the statements contained in this Section 2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date, except as set forth in the Disclosure Schedule. 2 a. Organization of the Seller. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. The Seller does not have any Subsidiaries. The Seller has the power and authority to own or lease its properties and to carry on all business activities now conducted by it. The sole shareholder of the Seller is Paul Fee. b. Authorization of Transaction. The Seller has full power and authority to execute and deliver this Agreement and all agreements and instruments to be executed and delivered by Seller pursuant to this Agreement (collectively, the "Ancillary Agreements") and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Board of Directors of the Seller has duly authorized the execution, delivery, and performance of this Agreement and the Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligation of the Seller, enforceable in accordance with their respective terms and conditions. c. Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of the charter or bylaws of the Seller; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other agreement, arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). Other than with respect to the Assignment Application described in Section 4(b) the Seller does not need to give any notice to, make any filing with, or obtain any Licenses, consent, or approval of any court or government or governmental agency in order for the Parties to enter into this agreement or the Ancillary Agreements or to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). d. Title to Acquired Assets. Other than the Security Interests set forth on Section 2(d) of the Disclosure Schedule (which shall be released at or before the Closing) the Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. 3 e. Financial Statements. Included in Section 2(e) of the Disclosure Schedule are the following financial statements (collectively the "Financial Statements"): (i) statements of assets, liabilities and shareholder equity as of December 31, 1995, and December 31, 1996 for the Seller; and (ii) internally prepared balance sheets and statements of income, as of and for each month during 1995, 1996, and each month to date in 1997 for the Seller. The Financial Statements have been prepared on the accounting basis used by the Seller for income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. This accounting basis has been consistently applied during the periods covered and are consistent with the books and records of the Seller. The Financial Statements accurately state the revenues of the Stations for the period indicated therein and include an accurate breakout of cash and trade revenues. f. Events Subsequent to January 1, 1998. Since January 1, 1998, except as set forth in Section 2(f) of the Disclosure Schedule, there has not been any material adverse change in the assets of the Stations. Without limiting the generality of the foregoing and with respect to the operation of the Stations since January 1, 1998: (i) other than this Agreement, the Seller has not entered into any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business; (ii) the Seller has not delayed or postponed (beyond its normal practice in the Ordinary Course of Business) the payment of accounts payable and other Liabilities; (iii) the Seller has not altered its credit and collection policies or its accounting policies; (iv) the Seller has not entered into or terminated any employment arrangement, employment contract, consulting contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (v) there have been no changes and, to Seller's knowledge, any threatened changes in employment terms for any of its directors, officers, and employees; (vi) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Seller; 4 (vii) the Seller has not materially altered the programming, format or call letters of the Stations, or its promotional and marketing activities; (viii) the Seller has not applied to the FCC for any modification of the FCC Licenses or failed to take any action necessary to preserve the FCC Licenses and has operated the Stations in compliance therewith and with all FCC rules and regulations; (ix) the Seller has not terminated or received notice of termination for any syndicated programming; and (x) the Seller has not committed to any of the foregoing. g. Tax Matters. The Seller has timely and properly filed all Tax Returns that it was required to file with respect to the Seller's operations. All such Tax Returns were correct and complete and properly reflect the tax liability of the Seller. No Tax deficiencies have been proposed or assessed against the Seller. All Taxes owed by the Seller with respect to its operations (whether or not shown on any Tax Return) have been paid. The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. No claim has ever been made by any authority in any jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. h. Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a listing of all transmitter and station equipment, vehicles and other material tangible personal property used in conducting the operation and business of the Stations. The Seller owns or leases all tangible assets necessary for the conduct of the operation and business of the Stations as presently conducted and as presently proposed to be conducted and all leased assets are specifically identified as such in Section 2(h) of the Disclosure Schedule. i. Real Property. Section 2(i) of the Disclosure Schedule lists and describes briefly all Owned Real Estate and real property leased to the Seller (including, without limitation, complete legal descriptions for all of the Real Estate). The Seller has delivered to the Buyers correct and complete copies of the Leases. With respect to the Real Estate: (i) the Seller has good and marketable title to all of the Owned Real Estate free and clear of all liens, charges, mortgages, security interests, easements, restrictions or other encumbrances of any nature whatsoever except real estate taxes for the year of Closing and municipal and zoning ordinances and recorded utility easements 5 which do not impair the current use, occupancy or value or the marketability of title of the property and which are disclosed in Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real Estate Encumbrances"); (ii) the Leases are and, following the Closing will continue to be, legal, valid, binding, enforceable, and in full force and effect; (iii) no party to any Lease is in breach or default (or has repudiated any provision thereof), and no event has occurred which, with notice or lapse of time, would constitute a breach or default thereunder or permit termination, modification, or acceleration thereunder; (iv) there are no disputes, oral agreements, or forbearance programs in effect as to any Lease; (v) none of the Owned Real Estate and to the Seller's Knowledge, none of the properties subject to the Leases is subject to any lease (other than Leases), option to purchase or rights of first refusal; (vi) except for Permitted Real Estate Encumbrances, there are no (i) actual or, to the Seller's Knowledge, proposed special assessments with respect to any of the Real Estate; (ii) pending or, to the Seller's Knowledge, threatened condemnation proceedings with respect to any of the Real Estate; (iii) structural or mechanical defects in any of the buildings or improvements located on the Real Estate; (iv) any pending or, to the Seller's Knowledge, threatened changed in any zoning laws or ordinances which may materially adversely affect any of the Real Estate or Seller's use thereof; (vii) the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or its rights thereunder; (viii) to the Seller's Knowledge, all facilities on the Real Estate have received all approvals of governmental authorities (including licenses, permits and zoning approvals) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; and (ix) to the Seller's Knowledge, the owner of each leased facility has good and marketable title to the underlying parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for Permitted Real 6 Estate Encumbrances and Seller's leasehold interest in each Lease has priority over any other interest except for the fee interest therein and Permitted Real Estate Encumbrances. j. Contracts. Section 2(j) of the Disclosure Schedule lists any written arrangement (or group of related written arrangements) either involving more than $5,000 or not entered into in the Ordinary Course of Business. The Seller has delivered to the Buyers a correct and complete copy of each written arrangement listed in Section 2(j) of the Disclosure Schedule (as amended to date). With respect to each written arrangement so listed which constitutes an Assumed Contract: (A) the written arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing (if the arrangement has not expired according to its terms); (C) no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) no party has repudiated any provision of the written arrangement. The Seller is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in Section 2(j) of the Disclosure Schedule under the terms of this Section 2(j). Except for the Assumed Contracts, the Buyers shall not have any Liability or obligations for or in respect of any of the contracts set forth in Section 2(j) of the Disclosure Schedule. k. Commission Licenses and Compliance with Commission Requirements. (i) All licenses, permits, authorizations, franchises, certificates of compliance, and consents of governmental bodies, including, without limitation, the FCC Licenses, used or useful in the operation of the Stations as they are now being operated are (A) in full force and effect, (B) unimpaired by any acts or omissions of the Seller or the Seller's employees or agents, (C) free and clear of any restrictions which might limit the full operation of the Stations, and (D) detailed in Section 2(k) of the Disclosure Schedule. With respect to the licenses, permits, authorizations, franchises, certificates of compliance and consents referenced in the preceding sentence, Section 2(k) of the Disclosure Schedule also sets forth, without limitation, the date of the last renewal, the expiration date thereof, and any conditions or contingencies related thereto. Except as set forth in 7 Section 2(k) of the Disclosure Schedule, no condition exists or event has occurred that permits, or after notice or lapse of time, or both, would permit, the revocation or termination of any such license, permit, consent, franchise, or authorization (other than pursuant to their express expiration date) or the imposition of any material restriction or limitation upon the operation of the Stations as now conducted. Except as set forth in Section 2(k) of the Disclosure Schedule, the Seller is not aware of any reason why the FCC Licenses might not be renewed in the ordinary course or revoked. (ii) The Stations are in compliance with the FCC's policy on exposure to radio frequency radiation. No renewal of any FCC License would constitute a major environmental action under the FCC's rules or policies. Access to the Stations' transmission facilities is restricted in accordance with the policies of the FCC. (iii) Except as set forth in Section 2(k) of the Disclosure Schedule, to the Seller's Knowledge, the Seller is not the subject of any FCC or other governmental investigation or any notice of violation or order, or any material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorization for the Stations, and there are no proceedings (other than rulemaking proceedings of general applicability) before the FCC or any other governmental authority that could adversely affect any of the FCC Licenses or the authorizations listed in Section 2(k) of the Disclosure Schedule. (iv) The Seller has filed with the FCC and all other governmental authorities having jurisdiction over the Stations all material reports, applications, documents, instruments, and other information required to be filed, and will continue to make such filings through the Closing Date. (v) The Seller is not aware of any information concerning the Stations that could cause the FCC or any other regulatory authority not to issue to the Buyers all regulatory certificates and approvals necessary for the consummation of the transactions contemplated hereunder or the Buyer's operation and/or ownership of the Stations. Except as set forth in Section 2(k) of the Disclosure Schedule, Seller is not aware of any pending FCC applications which, if approved, would allow for the operation of a new radio station with a signal reaching the signal area of the Stations and, in addition, Seller is not aware of any plans or proposals by any existing radio station with a signal reaching the signal area of the Stations to alter or change their format to a format similar to that of the Stations. l. Intellectual Property. The Seller owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property necessary for the operation of the businesses of the Seller as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Seller immediately prior to the Closing hereunder is set forth on Section 2(l) of the Disclosure Schedule and each item listed will be owned or available for use the by the Buyers on identical terms and conditions immediately 8 subsequent to the Closing hereunder. To the Seller's knowledge, the Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Seller has never received any charge, complaint, or notice alleging any such interference, infringement, misappropriation, or violation. To the Knowledge of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. m. Insurance. Section 2(m) of the Disclosure Schedule sets forth a complete and accurate description of all Seller's insurance coverage. With respect to each such insurance policy: (A) the policy is legal, valid, binding, and enforceable and in full force and effect; and (B) the policy will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms through the Closing Date. n. Litigation. Except for administrative rule making or other proceedings of general applicability to the broadcast industry, there is no litigation, proceeding, judgment, claim, action, investigation or complaint, before the Commission, other governmental body, or court, of any nature pending or, to the best of Seller's knowledge, threatened against or affecting it which would affect Seller's authority or ability to carry out this Agreement. Section 2(n) of the Disclosure Schedule sets forth each instance in which the Seller: (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasijudicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the charges, complaints, actions, suits, proceedings, hearings, and investigations set forth in Section 2(n) of the Disclosure Schedule could result in any adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations taken as a whole. The Seller has no Knowledge of any Basis for any such charge, complaint, action, suit, proceeding, hearing, or investigation against the Seller. o. Employees. Section 2(o) of the Disclosure Schedule sets forth a listing of the names, positions, job descriptions, salary or wage rates and all other forms of compensation paid for work at the Stations of each employee. To the Knowledge of the Seller, no key employee or group of employees has any plans to terminate employment with the Seller. The Seller is not a party to or bound by any collective bargaining or similar agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Seller has no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to the employees of the Seller. The Seller has no Knowledge of any Basis for any claim by past or current employees of the Seller or applicants for employment that the Seller or its management has discriminated 9 based on each individual's race, sex, national origin, religion, ethnicity, handicap or any other protected characteristic under applicable law. p. Employee Benefits. Section 2(p) of the Disclosure Schedule lists all Employee Benefit Plans that the Seller maintains or to which the Seller contributes or is required to contribute for the benefit of any current or former employee of the Seller and true and correct copies of each such Employee Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and each related trust or insurance contract) complies and at all times has complied in form and in operation in all material respects with the applicable requirements of ERISA and the Code. The Seller does not have any commitment to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee or terminated employee of the Seller. There are no pending or, to the Knowledge of the Seller, threatened claims under, by or on behalf of any of the Employee Benefit Plans, by any employee or beneficiary covered by any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits), nor have there been any Reportable Events or Prohibited Transactions with respect to any Employee Benefit Plan. q. Environment, Health, and Safety. (i) With respect to the operation of the Stations and the Real Estate, the Seller is, and at all times in the past has been, in compliance in all material respects with all Environmental Laws and all laws (including rules and regulations thereunder) of federal, state, and local governments (and all agencies thereof) concerning employee health and safety, and the Seller has no Liability (and to Seller's Knowledge there is no Basis related to the past or present operations of the Seller or its predecessors for any present or future Liability) under any Environmental Law. The Seller has no Liability (and to Seller's Knowledge there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety, or for any illness of or personal injury to any employee. (ii) The Seller has obtained and at all times has been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental Laws or law of any federal, state, or local or foreign government relating to worker health and safety. 10 (iii) All properties and equipment used in the Stations and the Acquired Assets have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2- trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. To Seller's knowledge, no pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or waste ever has been buried, stored, spilled, leaked, discharged, emitted, or released on any of the Real Estate. No above ground or underground storage tanks have ever been located at, on or under the Real Estate. The Seller has delivered to the Buyers a complete copy of all environmental claims, reports, studies, compliance actions or the like of the Seller or which are available to the Seller with respect to any of the Real Estate or any of the Acquired Assets. r. Legal Compliance. The Seller has complied in all material respects with all laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof). The Seller has filed in a timely manner all material reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all material respects) under all applicable laws. s. Advertising Contracts. Section 2(s) of the Disclosure Schedule lists all arrangements for the sale of air time or advertising on the Stations in excess of $1000, and the amount to be paid to the Seller therefor. The Seller has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or third parties to material contracts of the Seller to cease doing business or to reduce in any material respect the business transacted with the Seller or to terminate or modify any agreements with the Seller (whether as a result of consummation of the transactions contemplated hereby or otherwise). t. Brokers' Fees. The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. u. Undisclosed Commitments or Liabilities. There are no material commitments, liabilities or obligations relating to the Stations, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by the Seller of the liabilities of third parties, for which specific and adequate provisions have not been made on the Financial Statements except those incurred in or as a result of the Ordinary Course of Business since January 1, 1998. 11 v. Disclosure. The representations and warranties contained in this Section 2 do not contain any untrue statement of a fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 2 not misleading. 3. Representations and Warranties of the Buyers. Buyers represent and warrant to the Seller that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date except as set forth in the Disclosure Schedule. a. Organization of the Buyers. Broadcasting and Licensing are corporations duly organized, validly existing, and in good standing under the laws of Nevada. b. Authorization of Transaction. Buyers have full power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform their obligations hereunder and thereunder. This Agreement and the Ancillary Agreements constitute legally binding obligations of the Buyers, enforceable against the Buyers in accordance with their respective terms and conditions. c. Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyers are subject or any provision of their articles of organization or other charter documents, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyers are a party or by which they are bound or to which any of their assets is subject. Other than the Assignment Application described in Section 4(b), the Buyers do not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any court or government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1 (e) above). d. Brokers' Fees. Other than the fee payable to McCoy Broadcast Brokerage, which shall be the exclusive responsibility of the Buyers, the Buyers have no 12 Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. e. Disclosure. The representations and warranties contained in this Section 3 do not contain any untrue statement of fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 3 not misleading. f. Litigation. Except for administrative rule making or other proceedings of general applicability to the broadcast industry, there is no litigation, proceeding, judgment, claim, action, investigation or complaint, before the Commission, other governmental body, or court, of any nature pending or, to the best of Buyer's knowledge, threatened against or affecting it which would affect Buyer's authority or ability to carry out this agreement. g. Buyers' Qualifications. There is no fact that would, under present law (including the Communications Act of 1934, as amended) and the present rules and regulations of the Commission, disqualify Buyers from being the assignee of the Stations or that would delay Commission approval of the Assignment Application. Should Buyers become aware of any such fact, they will so inform Seller. Buyers will not take any action that Buyers know, or have reason to believe, would result in such disqualification. h. Reliance. Neither Buyers nor any person acting as Buyers' representative or on Buyers' behalf have relied on any representation or statement of Seller or any other person except as expressly set forth in this Agreement, the Disclosure Schedule and accompanying exhibits. 4. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: a. General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 5 below). b. Assignment Applications. Within five (5) days after the execution of this Agreement, the Seller and the Buyers shall jointly file with the FCC an application for assignment of the FCC Licenses, permits and authorizations pertaining to the Stations from the 13 Seller to Licensing (the "Assignment Application"). The costs of the FCC filing fees in connection with the Assignment Application shall be divided equally between the Parties. Each party shall pay its own attorneys' fees. The Seller and the Buyers shall thereafter prosecute the Assignment Application with all reasonable diligence and otherwise use commercially reasonable efforts to obtain the grant of the Assignment Application as expeditiously as practicable (but neither the Seller nor the Buyers shall have any obligation to satisfy complainants or the FCC by taking any steps which would have a material adverse effect upon the Stations or impose significant costs on such party). If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercially reasonable efforts to comply with such condition, provided, that neither party shall be required hereunder to comply with any condition that would have a material adverse effect upon the Stations or any Affiliate. The Seller and the Buyers shall jointly oppose any requests for reconsideration or judicial review of FCC approval of the Assignment Application and shall jointly request from the FCC extension of the effective period of FCC approval of the Assignment Application if the Closing shall not have occurred prior to the expiration of the original effective period of the FCC Consent. Nothing in this Section 4(b) shall be construed to limit either party's right to terminate this Agreement pursuant to Section 9 of this Agreement. c. Employment Offers. Upon notice to the Seller, and at mutually agreeable times, the Seller will permit the Buyers to meet with its employees prior to the Closing Date. The Buyers may, at their option, extend offers of employment to all or any of the Seller's employees effective on the Closing Date. From and after the execution of this Agreement, the Seller shall use its best efforts to assist Buyers in retaining those employees of the Stations which the Buyers wish to hire in connection with the operation of the Stations by the Buyers subsequent to the Closing, and the Seller will not take any action to preclude or discourage any of the Seller's employees from accepting any offer of employment extended by the Buyers. d. Notices and Consents. The Seller will give all notices to third parties and shall have obtained all third party consents, that the Buyers reasonably may request. Each of the Parties will file any notification and report forms and related material that it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Act, will use its best efforts to obtain an early termination of the applicable waiting period, and will make any further filings pursuant thereto that may be necessary, proper or advisable. Each of the Parties will take any additional action that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that it may be required to give, make, or obtain. 14 e. Advertising Obligations. The Seller shall satisfy its air time obligations under its agreements for sale of air time and advertising on the Stations for goods or services ("Barter Agreements") such that the outstanding aggregate balance owing under all Barter Agreements as of the Closing Date shall not exceed Five Thousand Dollars ($5,000) worth of air time without the Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a schedule, certified by an officer of the Seller, reflecting the aggregate outstanding balances under all Barter Agreements in existence as of the Closing Date. f. Operating Statements. The Seller shall deliver to the Buyers, for the Buyers' informational purposes only, monthly internally prepared balance sheets and statements of income of the Seller within ten (10) days after each such statement is prepared by or for the Seller. g. Contracts. The Seller will not without the prior written consent of the Buyers amend, change, or modify any of the contracts listed on Section 2(i) of the Disclosure Schedule in any material respect. The Seller will not without prior written consent of the Buyers enter into any contract outside the Ordinary Course of Business which involves more than Five Thousand Dollars ($5,000). h. Operation of Stations. The Seller will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. The Seller shall operate the Stations in compliance in all material respects with the FCC Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at all times remain in full force and effect. The Seller shall file with the FCC all material reports, applications, documents, instruments and other information required to be filed in connection with the operation of the Stations. i. Credit and Receivables. The Seller will follow its usual and customary policies with respect to extending credit for sales of air time and advertising on the Stations and with respect to collecting accounts receivable arising from such extension of credit. j. Preservation of Stations and the Acquired Assets. The Seller will use its best efforts to keep its Stations and the Acquired Assets and properties substantially intact, including its present operations, physical facilities, working conditions, relationships with lessors, licensors, advertisers, suppliers, customers, and employees, all of the Confidential Information, call letters and trade secrets of the Stations, and the FCC Licenses. k. Full Access and Consultation. The Seller will permit representatives of the Buyers to have full access at all reasonable times, and in a manner so as not to interfere with 15 the normal business operations of the Stations, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Seller. The Seller will consult with the Buyers' management with a view to informing Buyers' management as to the operations, management and business of the Stations. l. Notice of Developments. The Seller will give prompt written notice to the Buyers of any material development affecting business, operations or prospects of the Stations or the Acquired Assets or the ability of the Seller to perform hereunder. m. Exclusivity. The Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) merger or consolidation, (B) acquisition or purchase of securities or assets, or (C) similar transaction or business combination involving the Seller, or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Seller will notify the Buyers immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. n. Title Insurance, Surveys and Environmental Assessments. The Buyers will obtain with respect to each parcel of Real Estate subject to the Leases, a leasehold owner's policy issued by a title insurer reasonably satisfactory to the Sellers, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring leasehold title to such Real Estate in the Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or their lender reasonably request, (ii) with respect to each parcel of Owned Real Estate, an owner's policy of title insurance by a title insurer reasonably satisfactory to the Buyers, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring title to the Owned Real Estate to be vested in the Buyers as of the Closing free and clear of all liens and encumbrances except Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or its lender reasonably request, (iii) a current survey of each parcel of Real Estate certified to the Buyers and its lender, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Surveys') which shall not disclose any survey defect or encroachment from or onto any of the Real Estate which has not been cured or insured over prior to the Closing; and (iv) with respect to each parcel of Real Estate, the Buyers 16 may obtain a current Phase I environmental site assessment from an environmental consultant or engineer reasonably satisfactory to the Sellers which does not indicate that the Seller and the Real Estate are not in compliance in any material respect with any Environmental Law and which shall not disclose or recommend any action with respect to any condition to be remediated or investigated or any contamination on the site assessed. o. Control of Stations. The transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, the Buyers and their employees or agents shall not directly or indirectly control, supervise, or direct, or attempt to control, supervise, or direct, the operation of the Stations, and such operation shall be the sole responsibility of and in the control of the Seller. p. Risk of Loss. The risk of loss, damage, or destruction to any of the Acquired Assets shall remain with the Seller until the Closing. In the event of any such loss, damage, or destruction the Seller will promptly notify the Buyers of all particulars thereof, stating the cause thereof (if known) and the extent to which the cost of restoration, replacement and repair of the Acquired Assets lost, damaged or destroyed will be reimbursed under any insurance policy with respect thereto. The Seller will, at Seller's expense, repair or replace such Acquired Assets to their former condition as soon as possible after loss, damage or destruction thereof and shall use its best efforts to restore as promptly as possible transmissions as authorized in the FCC Licenses. The Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the date of the Seller's notice to the Buyers and the Buyers determine that the Seller's failure to repair or replace would have a material adverse effect on the operation of the Stations: (i) the Buyers may elect to terminate this Agreement; or (ii) the Buyers may postpone the Closing Date until such time as the property has been repaired, replaced or restored in a manner and to an extent reasonably satisfactory to the Buyers, unless the same cannot be reasonably effected within ninety (90) days of the date of the Seller's notice to the Buyers, in which case either party may terminate this Agreement; or (iii) the Buyers may choose to accept the Acquired Asset in their "then" condition, together with the Seller's assignment to the Buyers of all rights under any insurance claims covering the loss, damage or destruction and payment over to the Buyers of any proceeds under any such insurance policies previously received by the 17 Seller with respect thereto plus an amount equal to the amount of any deductible or self-insurance maintained by Seller on such Acquired Assets. In the event the Closing Date is postponed pursuant to this Section 4(p), the parties hereto will cooperate to extend the time during which this Agreement must be closed as specified in the consent of the FCC. q. Information Held in Confidence. Except with respect to Buyers' prospective lenders, if any, from the date hereof until the Closing Date, Buyer and other representatives of Buyers will hold in strict confidence, and will not disclose to any third party, any data and information obtained in connection with this transaction with respect to the business of Seller, except insofar as any of such data and information may be required by law to be publicly disclosed or submitted to the Commission. If the transactions contemplated by this Agreement are not consummated, Buyers will return to Seller all such data and information, including, but not limited to, all documents, copies of documents and memoranda or other materials prepared by Buyers which incorporate data or information obtained from Seller and all other data and information made available to Buyers in connection with this transaction, except that which may be required to be submitted to the Commission. 5. Conditions to Obligation to Close. a. Conditions to Obligation of the Buyers. The obligation of Buyers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 2 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Seller shall have performed and complied with all of its covenants hereunder in all respects through the Closing; (iii) the Seller shall have procured all of the third party consents specified in Section 4(d) above and all of the title insurance commitments (and endorsements), and Surveys described in Section 4(o) above and the environmental site assessments described in Section 4(a) above shall have been procured by Buyers, if necessary. (iv) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasijudicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, 18 decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the parties if such transactions are consummated, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyers to own, operate, or control the Acquired Assets (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (v) the Seller shall have delivered to the Buyers a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Sections 5(a)(i) through (iv) is satisfied in all respects; (vi) each of the Assignment Applications shall have been approved by a Final Order of the FCC, all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or been terminated and the Buyers shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vii) the relevant parties shall have entered into the Postclosing Agreement; (viii) the Buyers shall have received from counsel to the Seller an opinion with respect to the matters set forth in Exhibit E attached hereto, addressed to the Buyers and its lender and dated as of the Closing Date; (ix) the Parties shall have agreed to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with an allocation schedule to be delivered at closing; and (x) all actions to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyers. b. Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: 19 (i) the representations and warranties set forth in Section 3 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Buyers shall have performed and complied with all of their covenants hereunder in all respects through the Closing; (iii) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the Parties if such transactions are consummated, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (iv) the Buyers shall have delivered to the Seller a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Buyers which shall survive the Closing; (v) each of the Assignment Applications shall have been approved by a Final Order of the FCC and the Buyers shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vi) the relevant parties shall have entered into the Postclosing Agreement; and (vii) all actions to be taken by the Buyers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing: 20 a. General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). b. Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Stations, each of the other Parties will reasonably cooperate with the contesting or defending Party and its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below); provided, however, that such access and cooperation does not unreasonably disrupt the normal operations of the cooperating party. c. Adjustments. Operation of the Stations and the income and expenses attributable thereto up through the close of business on the day before the Closing Date shall be for the account of the Seller and thereafter for the account of the Buyers. Such items as employee salaries, vacation, sick day and personal time accruals, and fringe benefits, power and utilities charges, insurance, real and personal property taxes, prepaid expenses, deposits, music license fees, and rents and payments pertaining to the Assumed Contracts (including any contracts for the sale of time for cash, trade or barter so assigned) shall be prorated between the Seller and the Buyers as of the Closing Date in accordance with the foregoing principle. In addition, all commissions payable with respect to the accounts receivable of the Seller (whether due before or after Closing) shall be solely for the account and responsibility of the Seller. Contractual arrangements that do not reflect an equal rate of compensation to a Station over the term of the agreement shall be equitably adjusted as of the Closing Date. The prorations and adjustments hereunder shall be made and paid insofar as feasible on the Closing Date, with a final settlement sixty (60) days after the Closing Date. In the event of any disputes between the Parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at such time and such disputes shall be determined by an independent accounting firm mutually acceptable to both parties and the fees and expenses of such accounting firm shall be paid one-half (1/2) by the Seller and one-half (1/2) by the Buyers. 21 d. Collection of Accounts Receivable. At the Closing, the Seller will turn over to the Buyers, for collection only, the accounts receivable of the Stations owing to the Seller as of the close of business on the day before the Closing Date. A schedule of such accounts receivable will be delivered by the Seller to the Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree to use commercially reasonable efforts in the ordinary course of business (but without responsibility to institute legal or collection proceedings) to collect such accounts receivable during the 120-day period following the Closing Date, and will remit all payments received on such accounts during this 120-day period on the one hundred twentieth (120th) day together with an accounting of all payments received within such period. The Buyers shall have the sole right to collect such accounts receivable during such one hundred twenty (120) day period. In the event the Buyers receive monies during the 120-day period following the Closing Date from an advertiser who, after the Closing Date, is advertising on the Stations, and that advertiser was included among the accounts receivable as of the Closing Date, the Buyers shall apply said monies to the oldest outstanding balance due on the particular account, except in the case of a "disputed" account receivable. For purposes of this Section 6(d), a "disputed" account receivable means one which the account debtor refuses to pay because he asserts that the money is not owed or the amount is incorrect. In the case of such a disputed account, the Buyers shall immediately return the account to the Seller prior to expiration of the 120-day period following the Closing Date. If the Buyers return a disputed account to the Seller, the Buyers shall have no further responsibility for its collection and may accept payment from the account debtor for advertising carried on the Stations after the Closing Date. At the end of the 120-day period following the Closing Date, the Buyers will turn back to the Seller all of the accounts receivable of the Stations as of the Closing Date owing to the Seller which have not yet been collected, and the Buyers will thereafter have no further responsibility with respect to the collection of such receivables. During the 120-day period following the Closing Date, the Buyers shall afford the Seller reasonable access to the accounts receivable "aging list." The Seller acknowledges and agrees that the Buyers are acting as collection agent hereunder for the sole benefit of the Seller and that Buyers have accepted such responsibility for the accommodation of the Seller. The Buyers shall not have any duty to inquire as to the form, manner of execution or validity of any item, document, instrument or notice deposited, received or delivered in connection with such collection efforts, nor shall the Buyers have any duty to inquire as to the identity, authority or rights of the persons who executed the same. The Seller shall indemnify Buyers and hold them harmless from and against any judgments, expenses (including attorney's fees) costs or liabilities which the Buyers may incur or sustain as a result of or by reason of such collection efforts. e. Consents. In the event any of the Assumed Contracts are not assignable or any consent to such assignment is not obtained on or prior to the Closing Date, and the Buyers elect to consummate the transactions contemplated herein despite such failure or inability to 22 obtain such consent, the Seller shall continue to use commercially reasonable efforts to obtain any such assignment or consent after the Closing Date. Until such time as such assignment or approval has been obtained, the Seller will cooperate with Buyers in any lawful and economically feasible arrangement to provide that the Buyers shall receive the Seller's interest in the benefits under any such Assumed Contract, including performance by the Seller as agent, if economically feasible; provided, however, that the Buyers shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent that Buyers would have been responsible therefor if such consent or assignment had been obtained. f. Access. Seller and its authorized representatives shall have, after the Closing Date, the right to obtain, upon prior request, access to originals or copies of all logs, books, relevant records, contracts and documents relating to ownership of the Stations by Seller to the extent necessary for the preparation and filing of government returns or reports by the Seller. g. Facilities of KQIX(FM). Buyers agree to provide the licensee of Station KQIX(FM), Grand Junction, Colorado, with access to and use of the studio facilities and antenna site of Station KQIL(AM) upon commercially reasonable terms and conditions. 7. Remedies for Breaches of this Agreement. a. Survival. All of the representations and warranties of the Seller contained in Section 2 of this Agreement (other than the representations and warranties of the Seller contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to the Acquired Assets) shall survive the Closing and continue in full force and effect for a period until 90 days after the applicable statute of limitations has expired with respect to any claim by the Buyers based on a claim or action by a third party and for a period of three (3) years following Closing with respect to any claim by the Buyers not based on a claim or action by a third party. All of the other representations and warranties (including the representations and warranties Seller contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to the Acquired Assets) and all covenants of the Buyers and the Seller contained in this Agreement shall survive the Closing and continue in full force and effect forever thereafter. b. Indemnification Provisions for the Benefit of the Buyers. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Seller agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by: 23 (i) any misrepresentation or breach of any of the Seller's representations or warranties, and covenants contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Seller (so long as the Buyers make a written claim for indemnification within the applicable survival period); (ii) any breach or nonfulfillment of any agreement or covenant of the Seller contained herein or in any Ancillary Agreement; (iii) any Liability of the Seller which is not an Assumed Liability; and/or (iv) any Liability of the Buyers arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not an Assumed Liability. c. Indemnification Provisions for the Benefit of the Seller. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Buyers agree to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of, or caused by (i) any misrepresentation or breach of any of the Buyers' representations or warranties contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Buyers (so long as the Seller makes a written claim for indemnification within the applicable survival period) or (ii) any breach or nonfulfillment of any agreement or covenant of the Buyers contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability. d. Specific Performance. Each of the Parties acknowledges and agrees that the Buyers would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the Buyers shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(o) below), in addition to any other remedy to which it may be entitled, at law or in equity. Each of the Parties acknowledges and agrees that not withstanding the provision in Section 7(e) with respect to the remedy of liquidated damages upon a breach of a warranty or covenant of this Agreement prior to the Closing, money damages would not be an adequate remedy for Buyers for a breach of any provision of this Agreement. 24 e. Liquidated Damages. The Buyers and the Seller acknowledge that in the event that the transactions contemplated by this Agreement are not closed because of a default by the Buyers, the Adverse Consequences to the Seller as a result of such default may be difficult, if not impossible, to ascertain. Accordingly, in lieu of indemnification pursuant to Section 7(c), the Seller shall be entitled to receive from the defaulting Party for such default the Earnest Money Deposit as liquidated damages without the need for proof of damages, subject only to successfully proving in a court of competent jurisdiction that the Buyer materially breached this Agreement and that the transactions contemplated thereby have not occurred. The Seller shall proceed against the Earnest Money Deposit as full satisfaction of liquidated damages owed by the Buyers and as its sole remedy for a failure of the transactions contemplated hereby to occur as a result of a material breach of the terms of this Agreement by the Buyers. f. Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall notify the Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such failure. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co- counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party reasonably concludes that the counsel the Indemnifying Party has selected has a conflict of interest), (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event the Indemnifying Party does not notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, and/or in the event the Indemnifying Party shall fail to defend such claim actively and in good faith, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. 25 g. Limitation of Liability. Notwithstanding anything in this Agreement to the contrary, after the Closing neither party shall indemnify or otherwise be liable to the other party from and after the Closing Date except to the extent that the Adverse Consequences suffered by the Identified Party, in the aggregate from all indemnifiable events shall exceed Ten Thousand Dollars ($10,000) and indemnification shall be made by the indemnifying party only to the extent of such excess over Ten Thousand Dollars ($10,000); provided, however, that the foregoing limitation shall not be applicable to (i) the obligations of the Buyers to pay and discharge any Liability of the Seller to third parties from and after the Closing Date assumed by the Buyers under the terms of this Agreement; (ii) the obligation of the Seller to pay and discharge any Liability to third parties not assumed by the Buyers under the terms of this Agreement; or (iii) the Seller's obligation to deliver clear title to the Acquired Assets. 8. Definitions. "Acquired Assets" means all right, title, and interest in and to all of the assets of the Seller, other than Retained Assets that are used or useful in the operation of the Stations, wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of-way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles) and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those Barter Agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for the sale of advertising time on the Stations; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters of the Stations, jingles, logos, slogans, and business goodwill of the Stations; (g) claims, deposits, prepayments, refunds, causes of action, chooses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (h) Licenses and similar rights obtained from governments and governmental agencies; (i) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (j) goodwill of the Stations. 26 "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. "Advertising Contracts" has the meaning set forth in Section 2(s), above. "Affiliate" means with reference to any person or entity, another person or entity controlled by, under the control of or under common control with that person or entity. "Assignment Application" has the meaning set forth in Section 4(b) above. "Assumed Contracts" means the Leases, the Barter Agreements, the Advertising Contracts and those contracts identified on Section 2(k) of the Disclosure Schedule as those to be assumed by Broadcasting. "Assumed Liabilities" means (a) obligations of the Seller which accrue after the Closing Date under the Assumed Contract either: (i) to furnish services, and other non-Cash benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. The Assumed Liabilities shall not include any Retained Liabilities. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyers" has the meaning set forth in the preface above. "Cash" means cash, cash equivalents or similar types of investments such as certificates of deposit, treasury bills and other marketable securities on hand and/or in banks; "Closing" has the meaning set forth in Section 1(d) above. "Closing Date" has the meaning set forth in Section 1(d) above. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the businesses and affairs of the Seller. 27 "Disclosure Schedule" has the meaning set forth in Section 1 above. "Earnest Money Deposit" has the meaning set forth in Section 1(c) above. "Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c) above. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multi-employer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act of 1986 (each as amended), or any other law of any federal, state, local, or foreign government or agency thereof (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, or pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means McCoy Broadcast Brokerage. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. 28 "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means the licenses, permits and other authorizations, including any temporary waiver or special temporary authorization, issued by the FCC to the Seller in connection with the conduct of the business and operation of the Stations. "Final Order" means an action by the FCC as to which: (a) no request for stay by the FCC is pending, no such stay is in effect, and any deadline for filing a request for any such stay has passed; (b) no appeal, petition for rehearing or reconsideration, or application for review is pending before the FCC and the deadline for filing any such appeal, petition or application has passed; (c) the FCC has not initiated reconsideration or review on its own motion and the time in which such reconsideration or review is permitted has passed; and (d) no appeal to a court, or request for stay by a court, of the FCC's action is pending or in effect, and the deadline for filing any such appeal or request has passed. "Financial Statements" has the meaning set forth in Section 2(e) above. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnified Party" has the meaning set forth in Section 7(d) above. "Indemnifying Party" has the meaning set forth in Section 7(d) above. "Intellectual Property" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, call letters, logos, trade names, and corporate names and registrations and applications for registration thereof, (c) all programs, programming materials, copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, market and other research information, drawings, specifications, designs, plans proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (g) other proprietary rights, and (h) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. 29 "Leases" means those real estate leases to which Seller is a party governing Seller's studios and FM tower sites, as described in Section 2(i) of the Disclosure Schedule. "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" means all FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Seller with respect to the operations of the Stations and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. "Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Owned Real Estate" means the real property owned by the Seller as described in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and improvements located thereon. "Party" has the meaning set forth in the preface above. "Permitted Real Estate Encumbrances" shall have the meaning set forth in Section 2(i), above. "Post-Closing Agreement" means the Post-Closing Agreement with Seller's owners in the form attached hereto as Exhibit C. "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price " has the meaning set forth in Section 1(c) above. "Real Estate" means the Owned Real Estate and the real estate, building, fixtures and improvements which are the subject of the Leases. "Reportable Event" has the meaning set forth in ERISA Section 4043. 30 "Retained Assets" means (i) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of the Seller as a corporation; (ii) any of the rights of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement); (iii) accounts, notes and other receivables of the Seller; (iv) Cash; and (v) contracts of insurance, 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 the Seller prior to the Closing Date. "Retained Liabilities" means any other obligations or Liabilities of the Seller, including but not limited to: (i) any Liability relating to the ownership or operation of the Stations prior to the Closing; (ii) any Liability of the Seller for income, transfer, sales, use, and other Taxes arising in connection with the consummation contemplated hereby; (iii) any Liability of the Seller for costs and expenses incurred in connection with this Agreement or the consummation of the transactions contemplated hereby (except as set forth in Section 4(n) relating to Surveys, title commitments and environmental audits and Section 4(b) with regard to the Assignment Application; or (iv) any Liability or obligation of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement). "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due and payable; and (b) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation. "Seller" has the meaning set forth in the preface above. "Stations" means the radio broadcast stations having the call letters KKNN(FM) licensed to Delta, Colorado, and KEXO(AM) and KQIL(AM) licensed to Grand Junction, Colorado. "Subsidiary," with respect to any person, means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which ) 50% or more of (i) the outstanding capital stock or other equity interest having voting power to elect a majority of the Board of Directors of such corporation or persons having a similar role as to an entity that is not a corporation, (ii) the interest in the profits of such partnership or joint venture, or (iii) the beneficial interest of such trust or estate are at such time directly or indirectly owned by such person or one or more of such person's Subsidiaries. 31 "Surveys" has the meaning set forth in Section 4(o) above. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 9. Termination. a. Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyers and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event the Seller is in breach of any representation, warranty, or covenant contained in this Agreement; provided, however, that if such breach is capable of being cured, such breach also remains uncured for twenty (20) days after notice of breach is received by the Seller from the Buyers; (iii) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing in the event the Buyers are in breach of any representation, warranty, or covenant contained in this Agreement; provided, however that if such breach is capable being cured, such breach remains uncured for twenty (20) days after notice of breach is received by the Buyers from the Seller; (iv) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(a) hereof (unless the failure results primarily from 32 the Buyers themselves breaching any representation, warranty, or covenant contained in this Agreement); (v) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(b) hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement); (vi) the Buyers or the Seller may terminate this Agreement if any Assignment Application is denied by Final Order. b. Effect of Termination. If any Party terminates this Agreement pursuant to Section 9(a) above, all obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 10. Miscellaneous. a. Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). b. No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. c. Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. d. Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party, provided that (i) the Buyers may assign all of their right, title and interest in, to and under this Agreement to one or more 33 Affiliates, who shall then, subject to the terms and conditions of this Agreement, have the right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay to the Seller the Purchase Price therefor or to any successor to the Buyers in the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers may assign their indemnification claims and their rights under the warranties and representations of the Sellers to the financial institution(s) providing financing to the Buyers in connection with this transaction. e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. f. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. g. Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be considered to be given and received in all respects when hand delivered, when delivered via prepaid express or courier delivery service, when sent by facsimile transmission actually received by the receiving equipment or three (3) days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, in each case addressed to the intended recipient as set forth below: If to the Seller: Mustang Broadcasting Company 715 Horizon Drive, Suite 430 Grand Junction, CO 81506 Attn: Mr. Paul Fee Fax: (970) 245-5858 Copy to: Erwin Krasnow, Esquire Verner, Liipfert, Bernhard, McPherson and Hand 901 15th Street, N.W. Washington, D.C. 20005 Fax: (202) 371-6279 (which copy shall not constitute notice to Seller) 34 If to the Buyers: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. c/o QUAESTUS Management Corp. 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Attn: Terrence J. Leahy Fax: (414) 283-4505 With a copy to: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Avenue Suite 3650 Chicago, Illinois 60611 Attn: Richard J. Bonick Fax: (312) 867-0098 Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. h. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Colorado. i. Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 35 j. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. k. Expenses. The Buyers and the Seller, will each bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, other than as set forth in Section 4(n) with regard to the Assignment Applications and as set forth in Section 4(o) with respect to Surveys, title commitments and environmental audits. The Seller will pay all income taxes. The Seller and the Buyers will each pay one-half (1/2) of any transfer or sales taxes and other recording or similar fees necessary to vest title to each of the Acquired Assets in the Buyers. l. Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. m. Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. n. Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Grand Junction, Colorado in any action or proceeding arising 36 out of or relating to this Agreement, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on the other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 10(g) above. Nothing in this Section 10(n), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the date first above written. CUMULUS BROADCASTING, INC. By: ------------------------------ (printed) - --------------------------------- Title: ---------------------------- CUMULUS LICENSING CORPORATION By: ------------------------------- (printed) - --------------------------------- Title: ---------------------------- MUSTANG BROADCASTING COMPANY By: ------------------------------- (printed) - --------------------------------- Title: ---------------------------- 37 38 SCHEDULE A Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets of Stations KKNN(FM), KEXO(AM) and KQIL(AM), the amount of Two Million Dollars ($2,000,000), payable as follows: (i) on the date of this Agreement, the Buyers will deposit with the Escrow Agent the amount of One Hundred Thousand Dollars ($100,000) (the "Earnest Money Deposit") in the form of an irrevocable letter of credit from NationsBank; and (ii) on the Closing Date, the Buyers shall pay to the Seller the amount of Two Million Dollars ($2,000,000), with adjustments as provided specifically in this Agreement. The Earnest Money Deposit referenced in this Schedule A shall be placed in escrow with the Escrow Agent pursuant to an escrow agreement in the form attached hereto as Exhibit A (the "Earnest Money Escrow Agreement"), and shall be disbursed to Seller or returned to Buyer as provided in the Earnest Money Escrow Agreement. 39 EXHIBIT A ESCROW AGREEMENT THIS ESCROW AGREEMENT is made and entered into as of February 26, 1998, by and among MUSTANG BROADCASTING CORPORATION, a Colorado corporation ("Seller"); CUMULUS BROADCASTING, INC., a Nevada corporation; CUMULUS LICENSING CORP., a Nevada corporation (Cumulus Broadcasting, Inc. and Cumulus Licensing Corp. collectively shall be referred to as "Buyers"); and MCCOY BROADCAST BROKERAGE, INC. ("Escrow Agent"). Capitalized terms that are used but not defined herein shall have that meaning assigned to them in the Purchase Agreement. WITNESSETH: WHEREAS, Seller and Buyer are parties to that certain Asset Purchase Agreement executed as of February 26, 1998 (the "Purchase Agreement"), providing for the purchase by Buyers of the Acquired Assets from Seller; and WHEREAS, Section 1(c) and Schedule A of the Purchase Agreement provide that an irrevocable letter of credit issued by NationsBank and in favor of Escrow Agent in the amount of One Hundred Thousand and no/100 Dollars ($100,000.00) shall be placed with the Escrow Agent pending the Closing of the Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions set forth in the Purchase Agreement and herein, Seller, Buyers and Escrow Agent agree as follows: 1. Seller and Buyers hereby establish this Escrow Agreement and mutually appoint McCoy Broadcast Brokerage, Inc. as escrow agent pursuant to the terms and conditions of the Purchase Agreement. Escrow Agent hereby accepts this appointment. 2. Upon the execution of this Escrow Agreement by all parties hereto, Buyers shall deposit with Escrow Agent an irrevocable letter of credit issued by NationsBank and in favor of Escrow Agent (the "Letter of Credit") in the amount of One Hundred Thousand and no/100 Dollars ($100,000.00) (the "Earnest Money Deposit"). 3. Subject to the terms of this Agreement, Escrow Agent agrees to act as Escrow Agent and immediately upon receipt thereof, to use said Earnest Money Deposit, consistent with the terms of the Purchase Agreement. In the event the Escrow Agent draws under the Letter of Credit and does not immediately deliver the proceeds thereof to the Seller, the Escrow Agent shall place the Earnest Money Deposit in an FDIC-insured interest-bearing account with a bank having total assets of at least $100,000,000.00. The Escrow Agent, subject to the terms of the Purchase Agreement, shall release from Escrow the Letter of Credit or the Earnest Money Deposit and deliver the same in accordance with one of the following notices: A. The Letter of Credit by its terms expires on ______, 1998. If by _______, 1998, the Letter of Credit has not been extended for an additional period of one year, the Escrow Agent shall immediately draw on the Letter of Credit and treat the proceeds of such draw as the Escrow Deposit. B. If the Closing of the transaction contemplated by the Purchase Agreement occurs, Escrow Agent shall, upon receipt of joint written notice from Buyers and Seller, deliver the Letter of Credit to the issuer thereof for cancellation; or if the Escrow Agent holds the Earnest Money Deposit, shall deliver in immediately available funds: i. to the Seller, the principal amount of the Earnest Money Deposit, to be applied by the Seller as a portion of the Purchase Price; and ii. to the Buyers, the interest earned on the Earnest Money Deposit. C. If the Closing of the transaction contemplated by the Purchase Agreement does not occur due to a material breach of the Purchase Agreement by Buyers, and the Seller is not in material breach of the Purchase Agreement, Escrow Agent shall, upon ten (10) business days advance written notification from Seller or ten (10) business days after receipt of a final order of a state or federal court of competent jurisdiction ordering payment, shall draw upon the letter of credit and release to Seller the Earnest Money Deposit and all interest earned thereon. D. If the Closing of the transaction contemplated by the Purchase Agreement does not occur due to any cause or event other than a material breach of the Purchase Agreement by the Buyers, or if the Seller is in material breach of the Purchase Agreement, Escrow Agent shall, upon ten (10) business days advance written notification from Buyers or ten (10) business days after receipt of a final order of a state or federal court of competent jurisdiction ordering payment, shall deliver the Letter of Credit to the issuer thereof for cancellation; or, if the Escrow Agent holds the Earnest Money Deposit, shall deliver to the Buyer in immediately available funds the Earnest Money Deposit and all interest earned thereon. Any notice or order provided to Escrow Agent by Buyers will be simultaneously provided to Seller and any notice or order provided to Escrow Agent by Seller will be simultaneously provided to Buyers. In the event that during the ten business day period following the delivery by Buyers or Seller (as the case may be) to Escrow Agent of a notice that it is entitled under this Section 3 to receive payment of the Letter of Credit or Earnest Money Deposit the other Party delivers notice to Escrow Agent that it disputes that Party's right to payment, then the provisions of Section 4 will apply. 4. If at any time a dispute or disagreement shall exist or arise as to the duties of Escrow Agent under the terms hereof or if a disagreement between the parties hereto results in conflicting or adverse claims or demands being made in connection with the Letter of Credit and the Earnest Money Deposit, Escrow Agent is authorized and directed to retain all or any part of the Letter of Credit and Earnest Money Deposit and in so doing Escrow Agent shall not become liable in any way to any person for its failure or refusal to comply with such conflicting or adverse claims or demands unless or until: A. the rights of all claimants have been duly adjudicated by a court of competent jurisdiction evidenced by a certified copy of such final judgment, together with written evidence that any right of appeal has expired, or B. a written agreement is reached by and between all disputing parties, satisfactory to Escrow Agent, and a copy of such agreement signed by all disputing parties is delivered to Escrow Agent. 5. Escrow Agent undertakes to perform only such duties as are expressly set forth herein. 6. Escrow Agent may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. Escrow Agent may conclusively presume that the undersigned representatives of Seller or Buyers individually have full power and authority to instruct Escrow Agent on behalf of that party unless written notice to the contrary is delivered to Escrow Agent. 7. Except for its gross negligence or willful misconduct, Escrow Agent shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the rights or powers conferred upon it by this Escrow Agreement. Escrow Agent may consult with counsel of its own choice and shall have full and complete 2 authorization and protection of any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. 8. Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving notice in writing of such resignation specifying a date upon which such resignation shall take effect, whereupon a successor Escrow Agent shall be appointed by Seller and Buyers (or, if no agreement is reached between Buyers and Seller as to a successor, then the Grand Junction, Colorado agent of the title insurance company which issues title insurance policies at the Closing). 9. Escrow Agent shall be entitled to be reimbursed for all losses, liabilities or expense, including reasonable attorneys' fees, incurred or made by it arising out of or in connection with its entering into this Escrow Agreement or carrying out its duties hereunder, but shall receive no compensation for its services. Any such reimbursement to which Escrow Agent is entitled shall be borne jointly by Seller and Buyers, unless otherwise ordered by a court which adjudicates a dispute or disagreement under Section 4 above. 10. This Escrow Agreement expressly sets forth all the duties of Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Escrow Agreement against Escrow Agent. Escrow Agent shall not be bound by the provisions of any agreement among the parties hereto except this Escrow Agreement. 11. This Escrow Agreement shall inure to the benefit of and be binding upon the parties and their respective heirs, successors, assigns and legal representatives. This Escrow Agreement shall be governed by and construed in accordance with the laws of Colorado. This Escrow Agreement cannot be modified, amended or terminated except in writing signed by Seller, Buyers and Escrow Agent. 12. All notice and other communications under this Escrow Agreement shall be in writing and shall be given (and shall be deemed to have been duly given if so given) in the manner specified in the Purchase Agreement, if to Seller or the Buyers, at the addresses specified therein (and with the copies), and if to the Escrow Agent at : McCoy Broadcast Brokerage, Inc. 2910 Electra Drive Colorado Springs, Colorado 80906 Fax: (719) 630-1871 Attn: Mr. Jody McCoy . or to such other person or address as any of the parties hereto shall specify by notice in writing to all the other parties hereto. 13. This Escrow Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute a single agreement. * * * * * 3 IN WITNESS WHEREOF, each of the parties hereto has duly executed this Escrow Agreement on the date first above written. MUSTANG BROADCASTING CORPORATION By: ------------------------------- Its: ------------------------------ "Seller" CUMULUS BROADCASTING, INC. By: ------------------------------- Its: ------------------------------ CUMULUS LICENSING CORP. By: ------------------------------- Its: ------------------------------ "Buyers" MCCOY BROADCAST BROKERAGE, INC. By: ------------------------------- Its: ------------------------------ "Escrow Agent" 4 EXHIBIT B INSTRUMENT OF ASSUMPTION THIS INSTRUMENT OF ASSUMPTION, dated as of ______________________, 1998 from Cumulus Broadcasting, Inc., a Nevada corporation ("Assignee"), to Mustang Broadcasting Corporation ("Assignor"); is delivered pursuant to Section 1(e) of that certain Asset Purchase Agreement, dated as of February 26, 1998 (the "Asset Purchase Agreement"), among Assignee and Assignor. Defined terms used herein without definition have the meanings assigned to such terms in the Asset Purchase Agreement. WHEREAS, by a General Assignment being executed and delivered by Assignor to Assignee simultaneously herewith pursuant to the Asset Purchase Agreement, Assignor is selling, transferring, assigning, conveying and delivering to Assignee substantially all of the assets of Assignor (the "Assets"); NOW THEREFORE, in partial consideration of such sale, transfer, assignment, conveyance and delivery on and as of the date hereof, subject to and in accordance with the terms and conditions of the Asset Purchase Agreement, Assignee hereby assumes and becomes responsible for the following Assumed Liabilities: Obligations of the Seller which accrue after the Closing Date under the Assumed Contracts either: (i) to furnish services, and other non-Cash benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. provided, however, that the Assumed Liabilities shall not include any other obligations or liabilities of Assignor, including but not limited to: (i) any Liability relating to the ownership or operation of the Stations prior to the Closing; (ii) any Liability of Assignor for income, transfer, sales, use, and other Taxes arising in connection with the consummation contemplated by the Asset Purchase Agreement; (iii) any Liability of Assignor for costs and expenses incurred in connection with the Asset Purchase Agreement or the consummation of the transactions contemplated hereby; or (iv) any Liability or obligation of Assignor under the Asset Purchase Agreement (or under any side agreement between Assignor on the one hand and Assignee on the other hand). Other than as specifically stated in this Instrument of Assignment, Assignee assumes no obligation of Assignor. As to any lease, contract, agreement, permit or other authorization included in the Acquired Assets which may be assigned only with the consent of the other party thereto, this Instrument of Assumption shall be of no force and effect until such requisite consents shall have been obtained, whereupon it shall become of full force and effect as of the date of such consent. IN WITNESS WHEREOF, Assignee has caused this instrument to signed in its name by its officers thereunto duly authorized on the date first above written. ASSIGNOR: MUSTANG BROADCASTING CORPORATION By: ------------------------------- Its: ------------------------------ ASSIGNEE: CUMULUS BROADCASTING, INC. By: ------------------------------- Its: ------------------------------ 2 EXHIBIT B-1 GENERAL ASSIGNMENT THIS GENERAL ASSIGNMENT, dated as of ___________________, 1998 from MUSTANG BROADCASTING CORPORATION, a Colorado corporation (the "Assignor"), to CUMULUS BROADCASTING, INC., a Nevada corporation (together with its successors and assigns, the "Assignee"), is delivered pursuant to Section 1(e) of that certain Asset Purchase Agreement, dated as of February 26, 1998 (the "Asset Purchase Agreement"), by and among Assignor and Assignee. Defined terms used herein without definition have the meanings assigned to such terms in the Asset Purchase Agreement. KNOW ALL PERSONS BY THESE PRESENTS that, pursuant to the terms and conditions of the Asset Purchase Agreement and for the considerations set forth therein, the receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor hereby sells, transfers, assigns, conveys and delivers to Assignee forever all of Assignor's right, title and interest in and to the following Acquired Assets: All right, title, and interest in and to all of the assets of the Assignor, (other than Retained Assets) that are used or useful in the operation of the Station, wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of-way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles) and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those barter agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for the sale of advertising time on the Station; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters of the Station, jingles, logos, slogans, and business goodwill of the Station; (g) claims, deposits, prepayments, refunds, causes of action, choses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (h) Licenses and similar rights obtained from governments and governmental agencies; and (i) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (j) goodwill of the Station. provided, however, that the Acquired Assets shall not include (i) the corporate charters, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of the Assignor as corporations; (ii) any of the rights of Assignor under the Asset Purchase Agreement (or under any side agreement between Assignor on the one hand and Assignee on the other hand entered into on or after the date of the Asset Purchase Agreement); (iii) accounts, notes and other receivables; and (v) Cash. TO HAVE AND TO HOLD the same unto Assignee forever. All of the terms and provisions of this General Assignment will be binding upon Assignor and its successors and assigns and will enure to the benefit of Assignee; provided, that nothing in this General Assignment, express or implied, is intended or shall be construed to confer upon or give to any person, firm, partnership, corporation or other entity other than Assignee any rights or remedies under or by reason of this General Assignment. IN WITNESS WHEREOF, Assignor has caused this instrument to be signed in its name by their representatives thereunto duly authorized on the date first written above. MUSTANG BROADCASTING CORPORATION By: ------------------------------- Its: ------------------------------ ACCEPTED AND AGREED: CUMULUS BROADCASTING, INC. 2 By: ------------------------------- Its: ------------------------------ 3 EXHIBIT B-2 GENERAL ASSIGNMENT THIS GENERAL ASSIGNMENT, dated as of ___________________, 1998 from MUSTANG BROADCASTING CORPORATION, a Colorado corporation (the "Assignor"), to CUMULUS LICENSING CORPORATION, a Nevada corporation (together with its successors and assigns, the "Assignee"), is delivered pursuant to Section 1(e) of that certain Asset Purchase Agreement, dated as of February 26, 1998 (the "Asset Purchase Agreement"), by and among Assignor and Assignee. Defined terms used herein without definition have the meanings assigned to such terms in the Asset Purchase Agreement. KNOW ALL PERSONS BY THESE PRESENTS that, pursuant to the terms and conditions of the Asset Purchase Agreement and for the considerations set forth therein, the receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor hereby sells, transfers, assigns, conveys and delivers to Assignee forever all of Assignor's right, title and interest in and to the following Acquired Assets: All FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Sellers with respect to the operations of the Station and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. TO HAVE AND TO HOLD the same unto Assignee forever. All of the terms and provisions of this General Assignment will be binding upon Assignor and its successors and assigns and will enure to the benefit of Assignee; provided, that nothing in this General Assignment, express or implied, is intended or shall be construed to confer upon or give to any person, firm, partnership, corporation or other entity other than Assignee any rights or remedies under or by reason of this General Assignment. * * * * * IN WITNESS WHEREOF, Assignor has caused this instrument to be signed in its name by its representative thereunto duly authorized on the date first written above. MUSTANG BROADCASTING CORPORATION By: ------------------------------- Its: ------------------------------ ACCEPTED AND AGREED: CUMULUS LICENSING CORPORATION By: ------------------------------- Its: ------------------------------ 2 EXHIBIT C POST-CLOSING AGREEMENT Agreement dated as of ____, 1998 among CUMULUS BROADCASTING, INC., a Nevada corporation, CUMULUS LICENSING CORP., a Nevada corporation (collectively the "Buyers"), MUSTANG BROADCASTING CORPORATION, a Colorado corporation (the "Seller"), and Paul Fee (the "Seller's Owner"). The Buyers, the Seller, and the Seller's Owners are referred to collectively herein as the "Parties." The Buyers and the Seller are concurrently herewith concluding a transaction in which the Buyers will purchase the "Acquired Assets" (and accept responsibility for the "Assumed Liabilities") of the Seller in return for cash pursuant to the terms of an Asset Purchase Agreement dated February 26, 1998 (the "Asset Purchase Agreement"). Certain terms used herein without definition are used herein as defined in the Asset Purchase Agreement. The Buyers and the Seller have made certain representations, warranties, and covenants in the Asset Purchase Agreement which will survive the Closing for purposes of potential indemnification. The Seller's Owner, however, intends to cause the Seller to liquidate and dissolve immediately after the Closing. The Buyers and the Seller's Owner therefore wish to provide for post- Closing indemnification against breaches of these representations, warranties, and covenants and to make certain other covenants among themselves. Now, therefore, in consideration of the premises and the mutual promises herein made, the Buyers and the Seller's Owners agree as follows. 1. Representations and Warranties of Seller's Owner. The Seller's Owner represents and warrants to the Buyers that the statements contained in this Section 1 are correct and complete as of the date of this Agreement. (a) Enforceability. The Seller's Owner has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller's Owner, enforceable in accordance with its terms and conditions. (b) Absence of Conflicts. Neither the execution and the delivery of this Agreement by the Seller's Owner, nor their performance of their obligations hereunder, will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which they are subject or (ii ) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instru ment of indebtedness, Security Interest, or other arrangement to which they are a party or by which they are bound or to which any of their assets is subject. 2. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. a. General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of the Asset Purchase Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 4 below.) b. Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under the Asset Purchase Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occur rence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Sellers, each of the other Parties will cooperate with the contesting or defending Party and his or its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to his or its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 3 below.) c. Transition. Neither the Seller's Owner nor any of his Affiliates will take any action that primarily is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of the Seller from maintaining the same business relationships with the Buyers after the Closing as it maintained with the Seller prior to the Closing. The Seller's Owner will refer all customer inquiries relating to the Stations or to the business of the Seller to the Buyers from and after the Closing. Except with the Buyers' prior written consent, neither of the Seller's Owner nor any of his respective Affiliates will employ or offer to employ any employee of the Seller for a period of three (3) years after the Closing Date. d. Confidentiality. The Seller's Owner and his Affiliates will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyers or destroy, at the request and option of the Buyers, all tangible embodiments (and all copies) of the Confidential Information which are in his or its possession. In the event that the Seller's Owner or any Affiliate is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that person will notify the Buyers promptly of the request or requirement so that the Buyers may seek an appropriate protective order or waive compliance with the provisions of this Section 2(d). If, in the absence of a protective order or the receipt of a waiver hereunder, the Seller's Owner or any Affiliate is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that person may disclose the Confidential Information to the tribunal; provided, however, that the disclosing Person shall use his or its best efforts to obtain, at the reasonable request of the Buyers, an order or other assurance that confidential 2 treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyers shall designate. The foregoing provisions shall not apply to any Confidential Informa tion which is generally available to the public immediately prior to the time of disclosure. e. Covenant Not to Compete. For a period of three (3) years from and after the Closing Date, neither the Seller's Owner nor any of his Affiliates will engage directly or indirectly in any business that the Seller conducts as of the Closing Date in the Grand Junction, Colorado MSA; provided, however, that no owner of less than 1% of the outstanding stock of any publicly traded corporation shall be deemed to engage solely by reason thereof in any of its businesses. 3. Remedies for Breaches of This Agreement and the Asset Purchase Agreement. a. Survival. All of the representations, warranties, and covenants of the Buyers, the Seller, and the Seller's Owner contained in the Asset Purchase Agreement and in this Agreement shall survive the Closing (even if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty or covenant at the time of Closing) and continue in full force and effect to the extent set forth in the Asset Purchase Agreement. b. Indemnification Provisions for Benefit of the Buyers. i. The Seller's Owner agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer in excess of the limitation of liability set forth in Section 7(e) of the Asset Purchase Agreement, to the extent applicable, resulting from, arising out of, relating to, in the nature of, or caused by: (A) any breach of any of the Seller's representations, warranties, and covenants contained in the Asset Purchase Agreement (so long as the particular representation, warranty, or covenant survives the Closing and the Buyers makes a written claim for indemnification pursuant to Section 3(d) below within the applicable survival period); (B) any Liability of the Seller which is not an Assumed Liability; or (C) any Liability of the Buyers arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not an Assumed Liability. (ii) The Seller's Owner agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by the breach of any of the Seller's Owner representations, warranties, and covenants contained in Section 1 and Section 2 above (so long as the particular representation, warranty, or covenant survives the Closing and the 3 Buyers make a written claim for indemnification pursuant to Section 3(d) below within the applicable survival period). (c) Indemnification Provisions for Benefit of the Seller's Owner. The Buyers agree to indemnify the Seller's Owner from and against the entirety of any Adverse Consequences they may suffer in excess of the limitation of liability set forth in Section 7(e) of the Asset Purchase Agreement, to the extent applicable, resulting from, arising out of, relating to, in the nature of, or caused by (i) the breach of any of the Buyers' representations, warranties, and covenants contained in the Asset Purchase Agreement and this Agreement (so long as the particular representation, warranty, or covenant survives the Closing and the Seller's Owner makes a written claim for indemnification pursuant to Section 3(d) below within the applicable survival period) or (ii) any Assumed Liability. (d) Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 3, then the Indemnified Party shall notify each Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (A) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (B) the Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party concludes reasonably that the counsel the Indemnifying Party has selected has a conflict of interest), (C) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (D) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event no Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it may deem appropriate. (e) Other Indemnification Provisions. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory or common law remedy any Party may have for breach of representation, warranty, or covenant. 4. Miscellaneous. 4 a. Press Releases and Announcements. Neither of the Seller's Owner nor any of his respective Affiliates shall issue any press release or announcement relating to the subject matter of the Asset Purchase Agreement without the prior written approval of the Buyers; provided, however, that the Seller's Owner may make any public disclosure they believe in good faith is required by law or regulation (in which case the Seller's Owner will advise the Buyers prior to making the disclosure). b. No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. c. Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, that may have related in any way to the subject matter hereof. d. Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Buyers and the Seller's Owner; provided, however, that the Buyers may (i) assign any or all of their rights and interests hereunder to one or more of their Affili ates and (ii) designate one or more of their Affiliates to perform their obligations hereunder (in any or all of which cases the Buyers nonetheless shall remain liable and responsible for the performance of all of their obligations hereunder). e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. f. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. g. Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, or if (and then the next business day after) it is sent by reputable overnight courier, in each case addressed to the intended recipient at the address for notices (and copies thereof) set forth in the Asset Purchase Agreement. Any Party may give any notice, request, demand, claim, or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. h. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Colorado. i. Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller's Owner. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, 5 whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepre sentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. j. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. k. Expenses. Each of the Parties will bear his or its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby (except as otherwise provided herein). l. Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. m. Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 4(o) below), in addition to any other remedy to which they may be entitled, at law or in 6 equity. Each of the Parties acknowledges and agrees that notwithstanding the provision in Section 4(n) with respect to liquidated damages upon a breach of a covenant of this Agreement, money damages would not be an adequate remedy for a breach of any provision of this Agreement. n. Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Grand Junction, Colorado in any action or proceeding arising out of or relating to this Agreement, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 4(g) above. Nothing in this Section 4(o), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. * * * * * 7 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. CUMULUS BROADCASTING CORPORATION By: ------------------------------- Its: ------------------------------ CUMULUS LICENSING CORP. By: ------------------------------- Its: ------------------------------ MUSTANG BROADCASTING CORPORATION By: ------------------------------- Its: ------------------------------ SELLER'S OWNER: --------------------------------- PAUL FEE EXHIBIT D [Letterhead of Seller's Counsel] _____________, 1998 Cumulus Broadcasting, Inc. Cumulus Licensing Corporation c/o QUAESTUS Management Corporation 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Gentlemen: We have acted as counsel to Mustang Broadcasting Corporation in connection with the preparation of the Asset Purchase Agreement dated February 26, 1998 (the "Agreement"), and have participated on its behalf in connection with the purchase and sale to be made by you with the Company pursuant to the Agreement (the "Transaction") and the transfer of control thereby of radio stations KKNN-FM (Delta, Colorado), KEXO-AM and KQIL-AM (licensed to Grand Junction, Colorado) (collectively the"Stations"). We have also acted as counsel to Paul Fee (the "Shareholder") in connection with the preparation of the Post-Closing Agreement dated the date hereof between you and each of them (the "Post-Closing Agreement"). The Agreement, the Post- Closing Agreement, the Warranty Deeds, the Assignment of Lease, the General Assignment and the Instrument of Assumption are referred to in this Opinion Letter as the Transaction Documents. In connection with this Opinion Letter, we have examined signed copies of the Transaction Documents and a certificate as to certain objective facts executed by an officer of the Company (the "Officer's Certificate"). We have considered such matters of law and fact, and relied upon such certificates and other information furnished to us, as we have deemed appropriate as a basis for our opinions set forth below. We have also relied upon the representations of the Company made in the Agreement. We have not conducted any field inspection of the Acquired Assets of the Stations in Grand Junction and Delta, Colorado. Moreover, with respect to paragraphs 1 through 6 of this Opinion Letter, we have relied upon the opinion of Fairfield and Woods, P.C., Denver, Colorado (a copy of which is attached hereto), and we believe that you and we are justified in relying thereon. This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. The law covered by the opinions expressed herein is limited to the Federal law of the United States and with respect to paragraphs 1 through 6 of this Opinion Letter, the law of the State of Colorado. Based upon the foregoing, and subject to the qualifications and exceptions set forth below, we are of the opinion that: 1. The Company is a corporation organized and existing under the laws of the State of Colorado and is authorized to do business in the State of Colorado. 2. The Company has the requisite corporate power to enter into the Transaction Documents, perform its obligations thereunder and to own its properties and carry on its business as presently conducted in the State of Colorado. 3. The Agreement and each of the other Transaction Documents contemplated thereby to which the Company is a party have been duly authorized, executed and delivered by the Company and each is enforceable against the Company in accordance with its material terms. 4. The execution and delivery by the Company of, and performance of its obligations under the Transaction Documents do not violate the Company's articles of incorporation or bylaws, or based and relying upon the Officer's Certificate, breach, or result in a default under, any of the agreements or instruments identified therein or require the consent or other action of or filing with any governmental body or agency which has not been obtained or which has not been made. 5. The Post-Closing Agreement has been duly executed and delivered by the Company and its Shareholder and is enforceable against each of them in accordance with its terms. 6. The Assignment of Leases and the General Assignment is enforceable against the Company in accordance with its terms and the Assignment of Leases is in appropriate form under the laws of the State of Colorado for recording. 7. The Seller has obtained and validly holds the FCC Licenses listed in Attachment 1 to this opinion letter. The FCC Licenses listed in Attachment 1 constitute the only authorizations, licenses, and permits of the FCC required by the FCC or necessary in connection with the present operation of Stations. The FCC Licenses relating to the Station listed in Attachment 1 are in full force and effect and are duly issued in the name of, or validly assigned to, the Seller. The FCC has approved the assignment of the Licenses to operate the Station from the Seller to the Buyer, and such approval is in full force and effect, and is no longer subject to administrative or judicial review. Upon execution and delivery of the General Assignment, the Buyer will validly hold the FCC Licenses to operate the Stations. 8. The Seller has filed with the FCC all material reports, documents, instruments, information, and applications required to be filed in connection with the operation of the Station pursuant to FCC rules, regulations and requests. No notice has been issued by the FCC which permits, or after notice or lapse of time or both, would permit, revocation or termination of any of the FCC Licenses prior to the respective expiration dates thereof, or which results or would result in any other material impairment of any rights thereunder. 2 9. To our knowledge, the Station is now operating, and prior to the date hereof were operating, in compliance in all material respects with the Communications Act of 1934, as amended, and the rules and regulations of the FCC promulgated thereunder. There is not now issued or outstanding, pending or threatened, any Notice of Violation, Order to Show Cause, or to the best of our knowledge based upon a review of publicly available files of the FCC, complaint or investigation or rulemaking proceeding by or before the FCC which might materially threaten or adversely affect any of the FCC Licenses or result in any substantial adverse effect upon the operation of the Station, nor is there any reason to believe, as of the date hereof, that any of the FCC Licenses will not be renewed in the ordinary course. 10. The execution, delivery and performance by the Seller of its obligations under the Transaction Documents (a) is not contrary to the Communications Act of 1934, as amended, or any of the rules, regulations or policies of the FCC promulgated thereunder; (b) will not result in any violation of the present rules, regulations or policies of the FCC; and (c) will not cause any forfeiture or impairment of any of the FCC Licenses. 11. This Opinion Letter may be relied upon by you only in connection with the Transaction and may not be used or relied upon by any other person for any purpose whatsoever without this firm's prior written consent. Very truly yours, 3 EX-10.70 16 EXHIBIT 10.70 Exhibit 10.70 ASSET PURCHASE AGREEMENT This Agreement ("Agreement") is entered into as of March __________ , 1998, by and between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), Robert Brooks d/b/a/ Brooks Broadcasting Company, an individual resident of Georgia ("Brooks"), and K-Country, Inc., a Georgia corporation ("K-Country"). Broadcasting and Licensing are referred to collectively herein as the "Buyers." Brooks and K-Country are referred to collectively herein as the "Seller." The Buyers and the Seller are referred to individually as the "Party" or collectively as the "Parties." Capitalized terms used in this Agreement are defined in Section 8 hereof. Subject to the terms and conditions of this Agreement, the Buyers hereby agree to purchase substantially all of the assets (and assume certain of the liabilities) of the Seller that are used or useful in the operation of radio stations WKAK-FM and WALG-AM licensed to Albany, Georgia; WEGC-FM licensed to Sasser, Georgia; and WJAD-FM licensed to Leesburg, Georgia (the "Stations") in return for cash. Now, therefore, in consideration of the above premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Basic Transaction. a. Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, the Seller agrees to sell, transfer, convey and deliver to (i) Licensing, and Licensing agrees to purchase from the Seller, all of the FCC Licenses listed in Section 2(k) of the disclosure schedule ("Disclosure Schedule"); and (ii) Broadcasting, and Broadcasting agrees to purchase from the Seller, all of the Acquired Assets other than the FCC Licenses. Both such sales shall take place at the Closing for the consideration specified below in this Section 1. b. Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, Broadcasting agrees to assume and become responsible for all of the Assumed Liabilities at the Closing. The Buyers will not assume or have any responsibility, however, with respect to any other obligation or Liability of the Seller not included within the definition of Assumed Liabilities and assumed by Broadcasting, and the Seller agrees to pay and discharge all Liabilities and obligations of the Seller other than the Assumed Liabilities. c. Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets, the purchase price (the "Purchase Price") described in Schedule A to this Agreement, and agrees to make the escrow deposit (the "Escrow Deposit") in the form and manner described in Schedule A and more 1 particularly in the earnest money escrow agreement ("Earnest Money Escrow Agreement") attached hereto as Exhibit A. d. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at a mutually agreed location, commencing at 9:00 a.m. local time promptly after the FCC approval of the Assignment Application becomes a Final Order, by which date all other conditions to the obligations of the Parties to consummate the transactions contemplated hereby will have been satisfied, or such other date as the Parties may mutually determine (the "Closing Date"). e. Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyers the various certificates, instruments, and documents referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various certificates, instruments, and documents referred to in Section 5(b) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyers (A) assignments (including Lease and other Assumed Contract assignments and Intellectual Property transfer documents), bills of sale and warranty deeds in form acceptable to the Buyers, (B) such affidavits, transfer tax returns, memorandums of lease, and other additional documents as may be required by the terms of the title insurance commitments described in Section 4(o) hereof, as necessary to furnish title insurance as required by such section or as may be necessary to convey title to the Real Estate to the Buyers in the condition required herein or provide public notice of existence of the Leases, and (C) such other instruments of sale, transfer, conveyance, and assignment as the Buyers and their counsel reasonably may request; (iv) the Buyers will execute, acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the form attached hereto as Exhibit B and (B) such other instruments of assumption as the Seller and its counsel reasonably may request; and (v) the Buyers will deliver to the Seller the consideration specified in Section 1(c) above. f. Noncompetition Agreement. On the Closing Date, the Seller shall execute, and shall cause each of its shareholders to execute, a Noncompetition Agreement with the Buyers including covenants not to compete with the Buyers in the markets served by the Stations in the form of Exhibit C attached hereto. A portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be paid to the Seller by the Buyers on the Closing Date as consideration for the agreements set forth in the Postclosing Agreement. 2. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyers that the statements contained in this Section 2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date, except as set forth in the Disclosure Schedule. a. Organization of the Seller. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. The Seller does not have any Subsidiaries. The Seller has the power and 2 authority to own or lease its properties and to carry on all business activities now conducted by it. The shareholders of K-Country are Robert N. Brooks and Dean Burke. b. Authorization of Transaction. The Seller has full power and authority (including full partnership power and authority) to execute and deliver this Agreement and all agreements and instruments to be executed and delivered by Seller pursuant to this Agreement (collectively, the "Ancillary Agreements") and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Board of Directors of the Seller has duly authorized the execution, delivery, and performance of this Agreement and the Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligation of the Seller, enforceable in accordance with their respective terms and conditions. c. Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of the charter or bylaws of the Seller; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other agreement, arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). Other than with respect to the Assignment Application described in Section 4(b) the Seller does not need to give any notice to, make any filing with, or obtain any Licenses, consent, or approval of any court or government or governmental agency in order for the Parties to enter into this agreement or the Ancillary Agreements or to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). d. Title to Acquired Assets. Other than the Security Interests set forth on Section 2(d) of the Disclosure Schedule (which shall be released at or before the Closing) the Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. e. Financial Statements. Included in Section 2(e) of the Disclosure Schedule are the following financial statements (collectively the "Financial Statements"): (i) unaudited balance sheets and statements of income, and cash flow as of and for the fiscal years ended December 31, 1994, December 31, 1995, December 31, 1996, and December 31, 1997 for the Seller; and (ii) unaudited balance sheets and statements of income, as of and for each month during 1996, 1997 and to date in 1998 for the Seller. 3 The Financial Statements have been prepared in conformity with the Seller's normal accounting policies, practices and procedures applied on a consistent basis, throughout the periods covered thereby, are correct and complete, fairly present the financial condition of the Seller and the results of operation of Seller at the dates and for the periods indicated, and are consistent with the books and records of the Seller (which books and records are correct and complete). The Financial Statements accurately state the revenues of the Stations for the period indicated therein and include an accurate breakout of cash and trade revenues. f. Events Subsequent to January 1, 1998. Since January 1, 1998, except as set forth in Section 2(f) of the Disclosure Schedule, there has not been any material adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller with respect to the operation of the Stations. Without limiting the generality of the foregoing and with respect to the operation of the Stations since January 1, 1998: (i) other than this Agreement, the Seller has not entered into any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business; (ii) the Seller has not delayed or postponed (beyond its normal practice in the Ordinary Course of Business) the payment of accounts payable and other Liabilities; (iii) the Seller has not altered its credit and collection policies or its accounting policies; (iv) the Seller has not entered into or terminated any employment arrangement, employment contract, consulting contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (v) there have been no changes and, to Seller's knowledge, any threatened changes in employment terms for any of its directors, officers, and employees; (vi) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Seller; (vii) the Seller has not materially altered the programming, format or call letters of the Stations, or its promotional and marketing activities; (viii) the Seller has not applied to the FCC for any modification of the FCC Licenses or failed to take any action necessary to preserve the FCC 4 Licenses and has operated the Stations in compliance therewith and with all FCC rules and regulations; (ix) the Seller has not terminated or received notice of termination for any syndicated programming; and (x) the Seller has not committed to any of the foregoing. g. Tax Matters. The Seller has timely and properly filed all Tax Returns that it was required to file with respect to the Seller's operations. All such Tax Returns were correct and complete and properly reflect the tax liability of the Seller. No Tax deficiencies have been proposed or assessed against the Seller. All Taxes owed by the Seller with respect to its operations (whether or not shown on any Tax Return) have been paid. The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. No claim has ever been made by any authority in any jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. h. Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a listing of all transmitter and Stations equipment, vehicles and other tangible personal property used in conducting the operation and business of the Stations. The Seller owns or leases all tangible assets necessary for the conduct of the operation and business of the Stations as presently conducted and as presently proposed to be conducted and all leased assets are specifically identified as such in Section 2(h) of the Disclosure Schedule. i. Real Property. Section 2(i) of the Disclosure Schedule lists and describes briefly all Owned Real Estate and real property leased to the Seller (including, without limitation, complete legal descriptions for all of the Real Estate). The Seller has delivered to the Buyers correct and complete copies of the Leases. With respect to the Real Estate: (i) the Seller has good and marketable title to all of the Owned Real Estate free and clear of all liens, charges, mortgages, security interests, easements, restrictions or other encumbrances of any nature whatsoever except real estate taxes for the year of Closing and municipal and zoning ordinances and recorded utility easements which do not impair the current use, occupancy or value or the marketability of title of the property and which are disclosed in Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real Estate Encumbrances"); (ii) the Leases are and, following the Closing will continue to be, legal, valid, binding, enforceable, and in full force and effect; (iii) no party to any Lease is in breach or default (or has repudiated any provision thereof), and no event has occurred which, with notice 5 or lapse of time, would constitute a breach or default thereunder or permit termination, modification, or acceleration thereunder; (iv) there are no disputes, oral agreements, or forbearance programs in effect as to any Lease; (v) none of the Owned Real Estate and to the Seller's Knowledge, none of the properties subject to the Leases is subject to any lease (other than Leases), option to purchase or rights of first refusal; (vi) except for Permitted Real Estate Encumbrances, there are no (i) actual or, to the Seller's Knowledge, proposed special assessments with respect to any of the Real Estate; (ii) pending or, to the Seller's Knowledge, threatened condemnation proceedings with respect to any of the Real Estate; (iii) structural or mechanical defects in any of the buildings or improvements located on the Real Estate; (iv) any pending or, to the Seller's Knowledge, threatened changed in any zoning laws or ordinances which may materially adversely affect any of the Real Estate or Seller's use thereof; (vii) the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or its rights thereunder; (viii) to the Seller's Knowledge, all facilities on the Real Estate have received all approvals of governmental authorities (including licenses, permits and zoning approvals) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; and (ix) to the Seller's Knowledge, the owner of each leased facility has good and marketable title to the underlying parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for Permitted Real Estate Encumbrances and Seller's leasehold interest in each Lease has priority over any other interest except for the fee interest therein and Permitted Real Estate Encumbrances. j. Contracts. Section 2(j) of the Disclosure Schedule lists any written arrangement (or group of related written arrangements) either involving more than $5,000 or not entered into in the Ordinary Course of Business. The Seller has delivered to the Buyers a correct and complete copy of each written arrangement listed in Section 2(j) of the Disclosure Schedule (as amended to date). With respect to each written arrangement so listed which constitutes an Assumed Contract: (A) the written arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing (if the arrangement has not expired according to its terms); (C) no party is in breach or default, and no event has occurred which with notice 6 or lapse of time would constitute a breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) no party has repudiated any provision of the written arrangement. The Seller is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in Section 2(j) of the Disclosure Schedule under the terms of this Section 2(j). Except for the Assumed Contracts, the Buyers shall not have any Liability or obligations for or in respect of any of the contracts set forth in Section 2(j) of the Disclosure Schedule or any other contracts or agreements of the Seller. k. Commission Licenses and Compliance with Commission Requirements. (i) All licenses, permits, authorizations, franchises, certificates of compliance, and consents of governmental bodies, including, without limitation, the FCC Licenses, used or useful in the operation of the Stations as they are now being operated are (A) in full force and effect, (B) unimpaired by any acts or omissions of the Seller or the Seller's employees or agents, (C) free and clear of any restrictions which might limit the full operation of the Stations, and (D) detailed in Section 2(k) of the Disclosure Schedule. With respect to the licenses, permits, authorizations, franchises, certificates of compliance and consents referenced in the preceding sentence, Section 2(k) of the Disclosure Schedule also sets forth, without limitation, the date of the last renewal, the expiration date thereof, and any conditions or contingencies related thereto. Except as set forth in Section 2(k) of the Disclosure Schedule, no condition exists or event has occurred that permits, or after notice or lapse of time, or both, would permit, the revocation or termination of any such license, permit, consent, franchise, or authorization (other than pursuant to their express expiration date) or the imposition of any material restriction or limitation upon the operation of the Stations as now conducted. Except as set forth in Section 2(k) of the Disclosure Schedule, the Seller is not aware of any reason why the FCC licenses might not be renewed in the ordinary course or revoked. (ii) The Stations are in compliance with the FCC's policy on exposure to radio frequency radiation. No renewal of any FCC License would constitute a major environmental action under the FCC's rules or policies. Access to the Stations' transmission facilities is restricted in accordance with the policies of the FCC. (iii) Except as set forth in Section 2(k) of the Disclosure Schedule, to the Seller's Knowledge, the Seller is not the subject of any FCC or other governmental investigation or any notice of violation or order, or any material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorization for the Stations, and there are no proceedings (other than rule making proceedings of general applicability) before the FCC or any 7 other governmental authority that could adversely affect any of the FCC Licenses or the authorizations listed in Section 2(k) of the Disclosure Schedule. (iv) The Seller has filed with the FCC and all other governmental authorities having jurisdiction over the Stations all material reports, applications, documents, instruments, and other information required to be filed, and will continue to make such filings through the Closing Date. (v) The Seller is not aware of any information concerning the Stations that could cause the FCC or any other regulatory authority not to issue to the Buyers all regulatory certificates and approvals necessary for the consummation of the transactions contemplated hereunder or the Buyer's operation and/or ownership of the Stations. Seller is not aware of any pending FCC applications which, if approved, would allow for the operation of a new radio stations with a signal reaching the signal area of the Stations and, in addition, Seller is not aware of any plans or proposals by any existing radio stations with a signal reaching the signal area of the Stations to alter or change their format to a format similar to that of the Stations. l. Intellectual Property. The Seller owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property necessary for the operation of the businesses of the Seller as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Seller immediately prior to the Closing hereunder is set forth on Section 2(l) of the Disclosure Schedule and each item listed will be owned or available for use the by the Buyers on identical terms and conditions immediately subsequent to the Closing hereunder. The Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Seller has never received any charge, complaint, or notice alleging any such interference, infringement, misappropriation, or violation. To the Knowledge of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. m. Insurance. Section 2(m) of the Disclosure Schedule sets forth a complete and accurate description of all Seller's insurance coverage. With respect to each such insurance policy: (A) the policy is legal, valid, binding, and enforceable and in full force and effect; (B) the policy will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms through the Closing Date. n. Litigation. Section 2(n) of the Disclosure Schedule sets forth each instance in which the Seller: (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasijudicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the charges, complaints, actions, suits, proceedings, hearings, and investigations set forth in Section 8 2(n) of the Disclosure Schedule could result in any adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations taken as a whole. The Seller has no Knowledge of any Basis for any such charge, complaint, action, suit, proceeding, hearing, or investigation against the Seller. o. Employees. Section 2(o) of the Disclosure Schedule sets forth a listing of the names, positions, job descriptions, salary or wage rates and all other forms of compensation paid for work at the Stations of each employee. To the Knowledge of the Seller, no key employee or group of employees has any plans to terminate employment with the Seller. The Seller is not a party to or bound by any collective bargaining or similar agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Seller has no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to the employees of the Seller. The Seller has no Knowledge of any Basis for any claim by past or current employees of the Seller or applicants for employment that the Seller or its management has discriminated based on each individuals race, sex, national origin, religion, ethnicity, handicap or any other protected characteristic under applicable law. p. Employee Benefits. Section 2(p) of the Disclosure Schedule lists all Employee Benefit Plans that the Seller maintains or to which the Seller contributes or is required to contribute for the benefit of any current or former employee of the Seller and true and correct copies of each such Employee Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and each related trust or insurance contract) complies and at all times has complied in form and in operation in all respects with the applicable requirements of ERISA and the Code. The Seller does not have any commitment to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee or terminated employee of the Seller. There are no pending or, to the Knowledge of the Seller, threatened claims under, by or on behalf of any of the Employee Benefit Plans, by any employee or beneficiary covered by any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits), nor have there been any Reportable Events or Prohibited Transactions with respect to any Employee Benefit Plan. q. Environment, Health, and Safety. (i) With respect to the operation of the Stations and the Real Estate, the Seller is, and at all times in the past has been, in compliance in all material respects with all Environmental Laws and all laws (including rules and regulations thereunder) of federal, state, and local governments (and all agencies thereof) concerning employee health and safety, and the Seller has no Liability (and to Seller's Knowledge there is no Basis related to the past or present operations of the Seller or its predecessors for any present or future Liability) under any Environmental Law. The Seller has no Liability (and to Seller's Knowledge there is no Basis for any present or future charge, complaint, action, 9 suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety, or for any illness of or personal injury to any employee. (ii) The Seller has obtained and at all times has been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental Laws or law of any federal, state, or local or foreign government relating to worker health and safety. (iii) All properties and equipment used in the Stations and the Acquired Assets have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. No pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or waste ever has been buried, stored, spilled, leaked, discharged, emitted, or released on any of the Real Estate. No above ground or underground storage tanks have ever been located at, on or under the Real Estate. The Seller has delivered to the Buyers a complete copy of all environmental claims, reports, studies, compliance actions or the like of the Seller or which are available to the Seller with respect to any of the Real Estate or any of the Acquired Assets. r. Legal Compliance. The Seller has complied in all material respects with all laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof. The Seller has filed in a timely manner all reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all material respects) under all applicable laws. s. Advertising Contracts. Section 2(s) of the Disclosure Schedule lists all arrangements for the sale of air time or advertising on the Stations in excess of $1000, and the amount to be paid to the Seller therefor. The Seller has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or third parties to material contracts of the Seller to cease doing business or to reduce in any material respect the business transacted with the Seller or to terminate or modify any agreements with the Seller (whether as a result of consummation of the transactions contemplated hereby or otherwise). t. Undisclosed Commitments or Liabilities. There are no material commitments, liabilities or obligations relating to the Stations, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by the Seller of the liabilities of third parties, for which specific and adequate provisions have not been made 10 on the Financial Statements except those incurred in or as a result of the Ordinary Course of Business since January 1, 1998. u. Disclosure. The representations and warranties contained in this Section 2 do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained in this Section 2 not misleading. 3. Representations and Warranties of the Buyer. Buyers represent and warrant to the Seller that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date except as set forth in the Disclosure Schedule. a. Organization of the Buyers. Broadcasting and Licensing are corporations duly organized, validly existing, and in good standing under the laws of Nevada. b. Authorization of Transaction. Buyers have full power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform their obligations hereunder and thereunder. This Agreement and the Ancillary Agreements constitute legally binding obligations of the Buyers, enforceable against the Buyers in accordance with their respective terms and conditions. c. Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyers are subject or any provision of their articles of organization or other charter documents, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyers are a party or by which they are bound or to which any of their assets is subject. Other than the Assignment Application described in Section 4(b), the Buyers do not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any court or government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1 (e) above). 4. Pre-Closing Covenants. 11 The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: a. General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 5 below). b. Assignment Applications. Within ten (10) business days after the execution of this Agreement, the Seller and the Buyers shall jointly file with the FCC an application for assignment of the FCC Licenses, permits and authorizations pertaining to the Stations from the Seller to Licensing (the "Assignment Application"). The costs of the FCC filing fees in connection with the Assignment Application shall be divided equally between the Parties. Each party shall pay its own attorneys' fees. The Seller and the Buyers shall thereafter prosecute the Assignment Application with all reasonable diligence and otherwise use commercially reasonable efforts to obtain the grant of the Assignment Application as expeditiously as practicable (but neither the Seller nor the Buyers shall have any obligation to satisfy complainants or the FCC by taking any steps which would have a material adverse effect upon the Stations or impose significant costs on such party). If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercially reasonable efforts to comply with such condition, provided, that neither party shall be required hereunder to comply with any condition that would have a material adverse effect upon the Stations or any Affiliate. The Seller and the Buyers shall jointly oppose any requests for reconsideration or judicial review of FCC approval of the Assignment Application and shall jointly request from the FCC extension of the effective period of FCC approval of the Assignment Application if the Closing shall not have occurred prior to the expiration of the original effective period of the FCC Consent. Nothing in this Section 4(b) shall be construed to limit either party's right to terminate this Agreement pursuant to Section 9 of this Agreement. c. Employment Offers. Upon notice to the Seller, and at mutually agreeable times, the Seller will permit the Buyers to meet with its employees prior to the Closing Date. The Buyers may, at their option, extend offers of employment to all or any of the Seller's employees effective on the Closing Date. From and after the execution of this Agreement, the Seller shall use its best efforts to assist Buyers in retaining those employees of the Stations which the Buyers wish to hire in connection with the operation of the Stations by the Buyers subsequent to the Closing, and the Seller will not take any action to preclude or discourage any of the Seller's employees from accepting any offer of employment extended by the Buyers. d. Notices and Consents. The Seller will give all notices to third parties and shall have obtained all third party consents that the Buyers reasonably may request. Each of the Parties will file any notification and report forms and related material that it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Act, will use its best efforts to obtain an early termination of the applicable waiting period, and will make any 12 further filings pursuant thereto that may be necessary, proper or advisable. Each of the Parties will take any additional action that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that it may be required to give, make, or obtain. e. Advertising Obligations. The Seller shall satisfy its air time obligations under its agreements for sale of air time and advertising on the Stations for goods or services ("Barter Agreements") such that the outstanding aggregate balance owing under all Barter Agreements as of the Closing Date shall not exceed Five Thousand Dollars ($5,000.00) worth of air time without the Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a schedule, certified by an officer of the Seller, reflecting the aggregate outstanding balances under all Barter Agreements in existence as of the Closing Date. f. Operating Statements. The Seller shall deliver to the Buyers, for the Buyers' informational purposes only, monthly unaudited statements of operating revenues and operating expenses of the Stations within ten (10) days after each such statement is prepared by or for the Seller. g. Contracts. The Seller will not without the prior written consent of the Buyers amend, change, or modify any of the contracts listed on Section 2(k) of the Disclosure Schedule in any material respect. The Seller will not without prior written consent of the Buyers enter into any contract outside the Ordinary Course of Business which involves more than Five Thousand Dollars ($5,000). h. Operation of Stations. The Seller will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. The Seller shall operate the Stations in compliance with the FCC Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at all times remain in full force and effect. The Seller shall file with the FCC all material reports, applications, documents, instruments and other information required to be filed in connection with the operation of the Stations. i. Credit and Receivables. The Seller will follow its usual and customary policies with respect to extending credit for sales of air time and advertising on the Stations and with respect to collecting accounts receivable arising from such extension of credit. j. Preservation of Stations and the Acquired Assets. The Seller will keep its Stations and the Acquired Assets and properties substantially intact, including its present operations, physical facilities, working conditions, relationships with lessors, licensors, advertisers, suppliers, customers, and employees, all of the Confidential Information, call letters and trade secrets of the Stations, and the FCC Licenses. 13 k. Full Access and Consultation. The Seller will permit representatives of the Buyers to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Stations, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Seller. The Seller will consult with the Buyers' management with a view to informing Buyers' management as to the operations, management and business of the Stations. l. Notice of Developments. The Seller will give prompt written notice to the Buyers of any material development affecting business, operations or prospects of the Stations or the Acquired Assets or the ability of the Seller to perform hereunder. m. Exclusivity. The Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) merger or consolidation, (B) acquisition or purchase of securities or assets, or (C) similar transaction or business combination involving the Seller, or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Seller will notify the Buyers immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. n. Title Insurance, Surveys and Environmental Assessments. The Sellers will obtain with respect to each parcel of Real Estate subject to the Leases, a leasehold owner's policy issued by a title insurer reasonably satisfactory to the Buyers, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring leasehold title to such Real Estate in the Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or their lender reasonably request; (ii) with respect to each parcel of Owned Real Estate, an owner's policy of title insurance by a title insurer reasonably satisfactory to the Buyers, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring title to the Owned Real Estate to be vested in the Buyers as of the Closing free and clear of all liens and encumbrances except Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or its lender reasonably request; (iii) a current survey of each parcel of Real Estate certified to the Buyers and its lender, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Surveys') which shall not disclose any survey defect or encroachment from or onto any of the Real Estate which has not been cured or insured over prior to the Closing; and (iv) with respect to each parcel of Real Estate, a current Phase I environmental site assessment from an environmental consultant or engineer reasonably satisfactory to the Sellers which does not indicate that the Seller and the Real Estate are not in compliance with any Environmental Law and which shall not disclose or recommend any action with 14 respect to any condition to be remediated or investigated or any contamination on the site assessed. Buyers will be responsible for the cost of such title insurance policies, and Seller and Buyers shall each bear one-half of the cost of such surveys and environmental assessments. o. Control of Stations. The transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, the Buyers and their employees or agents shall not directly or indirectly control, supervise, or direct, or attempt to control, supervise, or direct, the operation of the Stations, and such operation shall be the sole responsibility of and in the control of the Seller. p. Risk of Loss. The risk of loss, damage, or destruction to any of the Acquired Assets shall remain with the Seller until the Closing. In the event of any such loss, damage, or destruction the Seller will promptly notify the Buyers of all particulars thereof, stating the cause thereof (if known) and the extent to which the cost of restoration, replacement and repair of the Acquired Assets lost, damaged or destroyed will be reimbursed under any insurance policy with respect thereto. The Seller will, at Seller's expense, repair or replace such Acquired Assets to their former condition as soon as possible after loss, damage or destruction thereof and shall use its best efforts to restore as promptly as possible transmissions as authorized in the FCC Licenses. The Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the date of the Seller's notice to the Buyers and the Buyers determine that the Seller's failure to repair or replace would have a material adverse effect on the operation of the Stations: (i) the Buyers may elect to terminate this Agreement; or (ii) the Buyers may postpone the Closing Date until such time as the property has been repaired, replaced or restored in a manner and to an extent reasonably satisfactory to the Buyers, unless the same cannot be reasonably effected within ninety (90) days of the date of the Seller's notice to the Buyers, in which case either party may terminate this Agreement; or (iii) the Buyers may choose to accept the Acquired Asset in their "then" condition, together with the Seller's assignment to the Buyers of all rights under any insurance claims covering the loss, damage or destruction and payment over to the Buyers of any proceeds under any such insurance policies, previously received by the Seller with respect thereto plus an amount equal to the amount of any deductible or self-insurance maintained by Seller on such Acquired Assets. In the event the Closing Date is postponed pursuant to this Section 4(p), the parties hereto will cooperate to extend the time during which this Agreement must be closed as specified in the consent of the FCC. 15 5. Conditions to Obligation to Close. a. Conditions to Obligation of the Buyers. The obligation of Buyers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 2 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Seller shall have performed and complied with all of its covenants hereunder in all respects through the Closing; (iii) the Seller shall have procured all of the third party consents specified in Section 4(d) above and all of the title insurance commitments (and endorsements), Surveys and environmental site assessments described in Section 4(n) above; (iv) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasijudicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the parties if such transactions are consummated, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyers to own, operate, or control the Acquired Assets (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (v) the Seller shall have delivered to the Buyers a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Sections 5(a)(i) through (iv) is satisfied in all respects; (vi) each of the Assignment Applications shall have been approved by a Final Order of the FCC all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or been terminated and the Buyers shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vii) the relevant parties shall have entered into the Postclosing Agreement; 16 (viii) the Buyers shall have received from counsel to the Seller an opinion with respect to the matters set forth in Exhibit D attached hereto, addressed to the Buyers and its lender and dated as of the Closing Date; (ix) the Parties shall have agreed to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with an allocation schedule to be delivered at closing; and (x) all actions to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyers. b. Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Buyers shall have performed and complied with all of their covenants hereunder in all respects through the Closing; (iii) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the Parties if such transactions are consummated, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (iv) the Buyers shall have delivered to the Seller a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Buyers which shall survive the Closing; (v) each of the Assignment Applications shall have been approved by a Final Order of the FCC and the Buyers shall have received all governmental approvals required to transfer all other authorizations, consents, and 17 approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vi) the relevant parties shall have entered into the Noncompetition Agreement; and (vii) all actions to be taken by the Buyers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing: a. General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). b. Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Stations, each of the other Parties will reasonably cooperate with the contesting or defending Party and its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below); provided, however, that such access and cooperation does not unreasonably disrupt the normal operations of the cooperating party. c. Adjustments. Operation of the Stations and the income and expenses attributable thereto up through the close of business on the day before the Closing Date shall be for the account of the Seller and thereafter for the account of the Buyers. Such items as power and utilities charges, insurance, real and personal property taxes, prepaid expenses, deposits, music license fees, and rents and payments pertaining to the Assumed Contracts (including any contracts for the sale of time for cash, trade or barter so assigned) shall be prorated between the Seller and the Buyers as of the Closing Date in accordance with the foregoing principle. In addition, all commissions payable with 18 respect to the accounts receivable of the Seller (whether due before or after Closing) shall be solely for the account and responsibility of the Seller. Contractual arrangements that do not reflect an equal rate of compensation to a Stations over the term of the agreement shall be equitably adjusted as of the Closing Date. The prorations and adjustments hereunder shall be made and paid insofar as feasible on the Closing Date, with a final settlement sixty (60) days after the Closing Date. In the event of any disputes between the Parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at such time and such disputes shall be determined by an independent accounting firm mutually acceptable to both parties and the fees and expenses of such accounting firm shall be paid one-half (1/2) by the Seller and one-half (1/2) by the Buyer. d. Collection of Accounts Receivable. At the Closing, the Seller will turn over to the Buyers, for collection only, the accounts receivable of the Stations owing to the Seller as of the close of business on the day before the Closing Date. A schedule of such accounts receivable will be delivered by the Seller to the Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree to use commercially reasonable efforts in the ordinary course of business (but without responsibility to institute legal or collection proceedings) to collect such accounts receivable during the 120-day period following the Closing Date, and will remit all payments received on such accounts during this 120-day period on the one hundred twentieth (120th) day together with an accounting of all payments received within such period. The Buyers shall have the sole right to collect such accounts receivable during such one hundred twenty (120) day period. In the event the Buyers receive monies during the 120-day period following the Closing Date from an advertiser who, after the Closing Date, is advertising on the Stations, and that advertiser was included among the accounts receivable as of the Closing Date, the Buyers shall apply said monies to the oldest outstanding balance due on the particular account, except in the case of a "disputed" account receivable. For purposes of this Section 6(d), a "disputed" account receivable means one which the account debtor refuses to pay because he asserts that the money is not owed or the amount is incorrect. In the case of such a disputed account, the Buyers shall immediately return the account to the Seller prior to expiration of the 120-day period following the Closing Date. If the Buyers return a disputed account to the Seller, the Buyers shall have no further responsibility for its collection and may accept payment from the account debtor for advertising carried on the Stations after the Closing Date. At the end of the 120-day period following the Closing Date, the Buyers will turn back to the Seller all of the accounts receivable of the Stations as of the Closing Date owing to the Seller which have not yet been collected, and the Buyers will thereafter have no further responsibility with respect to the collection of such receivables. During the 120-day period following the Closing Date, the Buyers shall afford the Seller reasonable access to the accounts receivable "aging list." The Seller acknowledges and agrees that the Buyers are acting as collection agent hereunder for the sole benefit of the Seller and that Buyers have accepted such responsibility for the accommodation of the Seller. The Buyers shall not have any duty to inquire as to the form, manner of execution or validity of any item, document, instrument or notice deposited, received or delivered in connection with such collection efforts, nor shall the Buyers have any duty to inquire as to the identity, authority or rights of the persons who executed the same. The Seller shall indemnify Buyers and hold them harmless from and 19 against any judgments, expenses (including attorney's fees) costs or liabilities which the Buyers may incur or sustain as a result of or by reason of such collection efforts. e. Consents. In the event any of the Assumed Contracts are not assignable or any consent to such assignment is not obtained on or prior to the Closing Date, and the Buyers elect to consummate the transactions contemplated herein despite such failure or inability to obtain such consent, the Seller shall continue to use commercially reasonable efforts to obtain any such assignment or consent after the Closing Date. Until such time as such assignment or approval has been obtained, the Seller will cooperate with Buyers in any lawful and economically feasible arrangement to provide that the Buyers shall receive the Seller's interest in the benefits under any such Assumed Contract, including performance by the Seller as agent, if economically feasible; provided, however, that the Buyers shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent that Buyers would have been responsible therefor if such consent or assignment had been obtained. 7. Remedies for Breaches of this Agreement. a. Survival. All of the representations and warranties of the Seller contained in Section 2 of this Agreement (other than the representations and warranties of the Seller contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to the Acquired Assets) shall survive the Closing and continue in full force and effect for a period until 90 days after the applicable statute of limitations has expired with respect to any claim by the Buyers based on a claim or action by a third party and for a period of three (3) years following Closing with respect to any claim by the Buyers not based on a claim or action by a third party. All of the other representations and warranties (including the representations and warranties Seller contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to the Acquired Assets) and all covenants of the Buyers and the Seller contained in this Agreement shall survive the Closing and continue in full force and effect forever thereafter. b. Indemnification Provisions for the Benefit of the Buyers. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Seller agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by: (i) any misrepresentation or breach of any of the Seller's representations or warranties, and covenants contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Seller (so long as the Buyers make a written claim for indemnification within the applicable survival period); (ii) any breach or nonfulfillment of any agreement or covenant of the Seller contained herein or in any Ancillary Agreement; 20 (iii) any Liability of the Seller which is not an Assumed Liability; and/or (iv) any Liability of the Buyers arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not an Assumed Liability. c. Indemnification Provisions for the Benefit of the Seller. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Buyers agree to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of, or caused by (i) any misrepresentation or breach of any of the Buyers' representations or warranties contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Buyers (so long as the Seller makes a written claim for indemnification within the applicable survival period) or (ii) any breach or nonfulfillment of any agreement or covenant of the Buyers contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability. d. Specific Performance. Each of the Parties acknowledges and agrees that the Buyers would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the Buyers shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(o) below), in addition to any other remedy to which it may be entitled, at law or in equity. Each of the Parties acknowledges and agrees that not withstanding the provision in Section 7(e) with respect to the remedy of liquidated damages upon a breach of a warranty or covenant of this Agreement prior to the Closing, money damages would not be an adequate remedy for Buyers for a breach of any provision of this Agreement. e. Liquidated Damages. The Buyers and the Seller acknowledge that in the event that the transactions contemplated by this Agreement are not closed because of a default by the Buyers, the Adverse Consequences to the Seller as a result of such default may be difficult, if not impossible, to ascertain. Accordingly, in lieu of indemnification pursuant to Section 7(c), the Seller shall be entitled to receive from the defaulting Party for such default the Earnest Money Deposit as liquidated damages without the need for proof of damages, subject only to successfully proving in a court of competent jurisdiction that the Buyer materially breached this Agreement and that the transactions contemplated thereby have not occurred. The Seller shall proceed against the Earnest Money Deposit as full satisfaction of liquidated damages owed by the Buyers and as its sole remedy for a failure of the transactions contemplated hereby to occur as a result of a material breach of the terms of this Agreement by the Buyers. 21 f. Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall notify the Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such failure. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party reasonably concludes that the counsel the Indemnifying Party has selected has a conflict of interest), (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event the Indemnifying Party does not notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, and/or in the event the Indemnifying Party shall fail to defend such claim actively and in good faith, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. 8. Definitions. "Acquired Assets" means all right, title, and interest in and to all of the assets of the Seller, other than Retained Assets that are used or useful in the operation of the Stations, wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of-way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles) and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those Barter Agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for 22 the sale of advertising time on the Stations; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters of the Stations, jingles, logos, slogans, and business goodwill of the Stations; (g) claims, deposits, prepayments, refunds, causes of action, chooses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (h) Licenses and similar rights obtained from governments and governmental agencies; and (i) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (j) goodwill of the Stations. "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. "Advertising Contracts" has the meaning set forth in Section 2(s), above. "Affiliate" means with reference to any person or entity, another person or entity controlled by, under the control of or under common control with that person or entity. "Assignment Application" has the meaning set forth in Section 4(b) above. "Assumed Contracts" means the Leases, the Barter Agreements, the Advertising Contracts and those contracts identified on Section 2(k) of the Disclosure Schedule as those to be assumed by Broadcasting. "Assumed Liabilities" means (a) obligations of the Seller which accrue after the Closing Date under the Assumed Contract either: (i) to furnish services, and other non-Cash benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. The Assumed Liabilities shall not include any Retained Liabilities. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyers" has the meaning set forth in the preface above. "Cash" means cash and cash equivalents determined in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements. "Closing" has the meaning set forth in Section 1(d) above. 23 "Closing Date" has the meaning set forth in Section 1(d) above. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the businesses and affairs of the Seller. "Disclosure Schedule" has the meaning set forth in Section 1 above. "Earnest Money Deposit" has the meaning set forth in Section 1(c) above. "Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c) above. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multi-employer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act of 1986 (each as amended), or any other law of any federal, state, local, or foreign government or agency thereof (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, or pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means Bank One Trust Company, N.A. 24 "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means the licenses, permits and other authorizations, including any temporary waiver or special temporary authorization, issued by the FCC to the Seller in connection with the conduct of the business and operation of the Stations. "Final Order" means an action by the FCC as to which: (a) no request for stay by the FCC is pending, no such stay is in effect, and any deadline for filing a request for any such stay has passed; (b) no appeal, petition for rehearing or reconsideration, or application for review is pending before the FCC and the deadline for filing any such appeal, petition or application has passed; (c) the FCC has not initiated reconsideration or review on its own motion and the time in which such reconsideration or review is permitted has passed; and (d) no appeal to a court, or request for stay by a court, of the FCC's action is pending or in effect, and the deadline for filing any such appeal or request has passed. "Financial Statements" has the meaning set forth in Section 2(e) above. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnified Party" has the meaning set forth in Section 7(d) above. "Indemnifying Party" has the meaning set forth in Section 7(d) above. "Intellectual Property" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, call letters, logos, trade names, and corporate names and registrations and applications for registration thereof, (c) all programs, programming materials, copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, market and other research information, drawings, specifications, designs, plans proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (g) other proprietary rights, and (h) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. 25 "Leases" means those real estate leases to which Seller is a party governing Seller's studios and FM tower sites, as described in Section 2(i) of the Disclosure Schedule. "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" means all FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Seller with respect to the operations of the Stations and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. "Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Owned Real Estate" means the real property owned by the Seller as described in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and improvements located thereon. "Party" has the meaning set forth in the preface above. "Permitted Real Estate Encumbrances" shall have the meaning set forth in Section 2(i), above. "Post-Closing Agreement" means the Post-Closing Agreement with Seller's owners in the form attached hereto as Exhibit C. "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price " has the meaning set forth in Section 1(c) above. "Real Estate" means the Owned Real Estate and the real estate, building, fixtures and improvements which are the subject of the Leases. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Retained Assets" means (i) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of the Seller as a corporation; (ii) any of the rights of the 26 Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement); (iii) accounts, notes and other receivables of the Seller; and (iv) Cash. "Retained Liabilities" means any other obligations or Liabilities of the Seller, including but not limited to: (i) any Liability relating to the ownership or operation of the Stations prior to the Closing; (ii) any Liability of the Seller for income, transfer, sales, use, and other Taxes arising in connection with the consummation contemplated hereby; (iii) any Liability of the Seller for costs and expenses incurred in connection with this Agreement or the consummation of the transactions contemplated hereby (except as set forth in Section 4(i) relating to Surveys, title commitments and environmental audits and Section 4(b) with regard to the Assignment Application; or (iv) any Liability or obligation of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement). "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due and payable; and (b) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation. "Seller" has the meaning set forth in the preface above. "Stations" means the radio broadcast Stations WKAK-FM and WALG-AM licensed to Albany, Georgia; WEGC-FM licensed to Sasser, Georgia; and WJAD-FM licensed to Leesburg, Georgia. "Subsidiary," with respect to any person, means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which ) 50% or more of (i) the outstanding capital stock or other equity interest having voting power to elect a majority of the Board of Directors of such corporation or persons having a similar role as to an entity that is not a corporation, (ii) the interest in the profits of such partnership or joint venture, or (iii) the beneficial interest of such trust or estate are at such time directly or indirectly owned by such person or one or more of such person's Subsidiaries. "Surveys" has the meaning set forth in Section 4(o) above. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. 27 "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 9. Termination. a. Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyers and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event the Seller is in breach of any representation, warranty, or covenant contained in this Agreement; provided, however, that if such breach is capable of being cured, such breach also remains uncured for twenty (20) days after notice of breach is received by the Seller from the Buyers; (iii) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing in the event the Buyers are in breach of any representation, warranty, or covenant contained in this Agreement; provided, however that if such breach is capable being cured, such breach remains uncured for twenty (20) days after notice of breach is received by the Buyers from the Seller; (iv) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(a) hereof (unless the failure results primarily from the Buyers themselves breaching any representation, warranty, or covenant contained in this Agreement); (v) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(b) hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement); (vi) the Buyers or the Seller may terminate this Agreement if any Assignment Application is denied by Final Order. b. Effect of Termination. If any Party terminates this Agreement pursuant to Section above, all obligations of the Parties hereunder shall terminate without 28 any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 10. Miscellaneous. a. Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). b. No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. c. Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. d. Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party, provided that (i) the Buyers may assign all of their right, title and interest in, to and under this Agreement to one or more Affiliates, who shall then, subject to the terms and conditions of this Agreement, have the right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay to the Seller the Purchase Price therefor or to any successor to the Buyers in the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers may assign their indemnification claims and their rights under the warranties and representations of the Sellers to the financial institution(s) providing financing to the Buyers in connection with this transaction. e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. f. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. g. Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be considered to be given and received in all respects when hand delivered, when delivered via prepaid express or courier delivery service, when sent by facsimile transmission actually received by the 29 receiving equipment or three (3) days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, in each case addressed to the intended recipient as set forth below: If to the Seller: Mr. Robert Brooks d/b/a/ Brooks Broadcasting Company 1104 W. Broad Ave P.O. Box 2407 Albany, GA 31702 Copy to: Douglas Devine, Esquire P.O. Box 64 Albany, Georgia 31702 Phone: (912) 883-1610 Fax: (912) 883-1610 (which copy shall not constitute notice to Seller) If to the Buyers: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. c/o QUAESTUS Management Corp. 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Attn: Terrence J. Leahy Phone: (414) 283-4500 Fax: (414) 283-4505 With a copy to: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Avenue Suite 3650 Chicago, Illinois 60611 Attn: Richard J. Bonick Phone: (312) 867-0091 Fax: (312) 867-0098 (which copy shall not constitute notice to Buyers) Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including telex, ordinary mail, or electronic mail), but 30 no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. h. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Georgia. i. Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. j. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. k. Expenses. The Buyers and the Seller, will each bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, other than as set forth in Section 4(b) with regard to the Assignment Applications and as set forth in Section 4(o) with respect to Surveys, title commitments and environmental audits. The Seller will pay all income taxes. The Seller and the Buyers will each pay one-half (1/2) of any transfer or sales taxes and other recording or similar fees necessary to vest title to each of the Acquired Assets in the Buyers. l. Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with 31 reasonable particularity and describes the relevant facts in reasonable detail. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. m. Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. n. Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Albany, Georgia in any action or proceeding arising out of or relating to this Agreement, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on the other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 10(g) above. Nothing in this Section 10(n), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. * * * * * 32 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the date first above written. CUMULUS BROADCASTING, INC. By: ------------------------- (printed) - --------------------------- Title: ---------------------- CUMULUS LICENSING CORPORATION By: ------------------------- (printed) - --------------------------- Title: ---------------------- ROBERT BROOKS d/b/a BROOKS BROADCASTING COMPANY By: ------------------------- (printed) - --------------------------- Title: ---------------------- K-COUNTRY, INC. By: ------------------------- (printed) - --------------------------- Title: ---------------------- 33 SCHEDULE A Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets (other than the studio/office building and land located at 1104 W. Broad Avenue and identified in Section 2(i) of the Disclosure Schedule), the amount of Three Million Three Hundred Thousand Dollars ($3,300,000). In addition, on the Closing Date, the Buyers shall pay to the Seller the amount of Seven Hundred Thousand Dollars ($700,000) for the Owned Real Estate consisting of the studio/office building and land located at 1104 W. Broad Avenue and identified with more particularity in Section 2(i) of the Disclosure Schedule. Such amounts shall be payable as follows: (i) on the date of this Agreement, the Buyers will deposit with the Escrow Agent the amount of One Hundred Sixty-Five Thousand Dollars ($165,000) (the "Earnest Money Deposit") in the form of an irrevocable letter of credit from NationsBank; and (ii) on the Closing Date, the Buyers shall pay to the Seller the amount of Three Million Three Hundred Thousand Dollars ($3,300,000) for the Acquired Assets other than the Owned Real Estate, and Seven Hundred Thousand Dollars ($700,000) for the Owned Real Estate, with adjustments as provided specifically in this Agreement. The Earnest Money Deposit referenced in this Schedule A shall be placed in escrow with the Escrow Agent pursuant to an escrow agreement in the form attached hereto as Exhibit A (the "Earnest Money Escrow Agreement"), and shall be disbursed to Seller or returned to Buyer as provided in the Earnest Money Escrow Agreement. 34 EX-10.71 17 EXHIBIT 10.71 Exhibit 10.71 ASSET PURCHASE AGREEMENT This Purchase Agreement (the "Agreement"), dated as of March24, 1998, made and entered into by and between WSEA, Inc. ("Seller"), a South Carolina corporation, Cumulus Broadcasting, Inc. ("Broadcasting"), a Nevada corporation, and Cumulus Licensing Corporation, a Nevada corporation ("Licensing"). Broadcasting and Licensing are referred to collectively herein as the "Buyer". R E C I T A L S: 1. Seller is the licensee of Radio Station WSEA(FM), Atlantic Beach, South Carolina, (the "Station") and holds the license and other authorizations issued by the Federal Communications Commission (the "FCC") for the operation of the Station. Seller also owns or leases all tangible and intangible assets used or useful in the business and operations of the Station. 2. Buyer desires to acquire all of the assets of Seller used or useful in the operation of the Station, and Seller is willing to convey such assets to Buyer, subject to the terms and conditions set forth in this Agreement. 3. The purchase and sale contemplated herein is subject to prior approval by the FCC. NOW THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained herein, Seller and Buyer hereby agree as follows: ARTICLE I TERMINOLOGY 1.1 Acquired Assets. The FCC Authorizations and the Assets as defined herein. 1.2 Act. The Communications Act of 1934, as amended. 1.3 Closing. The closing with respect to the transactions contemplated by this Agreement. 1.4 Closing Date. The date on which the transactions contemplated by this Agreement shall be consummated as provided in Section 11.1. 1.5 Commencement Date of the TBA. The date on which Buyer begins providing programming to Seller for broadcast on the Station, as defined in Section 8. 1.6 Documents. This Agreement and all Exhibits and Schedules hereto, and each other agreement, certificate, or instrument delivered pursuant to or in connection with this 1 Agreement, including amendments thereto that are expressly permitted under, or agreed upon by the parties pursuant to, the terms of this Agreement. 1.7 FCC Authorizations. All license, permits and other authorizations, including any temporary waiver or special temporary authorization issued by the FCC to Seller in connection with the conduct of the business and operation of the Station, as set forth on Schedule 3.3. 1.8 FCC Order. An order or decision of the FCC granting its consent to the assignment of the FCC Authorizations to Buyer. 1.9 Final Action. An action of the FCC that has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which no timely petition for reconsideration or administrative or judicial appeal or sua sponte action of the FCC with comparable effect is pending and as to which the time for filing any such petition or appeal (administrative or judicial) or for the taking of any such sua sponte action of the FCC has expired. 1.10 Lien. Any mortgage, deed or trust, pledge, hypothecation, security interest, encumbrance, claim, lien, lease or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any assets or property including any written or oral agreement to give or grant any of the foregoing, any conditional sale or other title retention agreement, and the filing of or agreement to give any financing statement with respect to any assets or property under the Uniform Commercial Code or comparable law of any jurisdiction. 1.11 Permitted Lien. Any statutory lien which secures a payment not yet due that arises, and is customarily discharged, in the ordinary course of the Station's business; any easement, right-of-way or similar imperfection in the Seller's title to its Assets or properties that, as reasonably perceived by Buyer individually and in the aggregate, are not material in character or amount and do not and are not reasonably expected to materially impair the value or materially interfere with the use of any asset or property of the Station material to the operation of its business as it has been and is now conducted; liens in favor of Seller's lenders which shall be removed at or prior to the Closing and any other claims which will be removed at or prior to the Closing, in each case solely at Seller's expense. 1.12 Station Agreements. The agreements, leases, commitments, contracts, and other items described in Schedule 2.1.3. 1.13 TBA. The Time Brokerage Agreement which Seller and Buyer will enter into simultaneously with this Agreement. ARTICLE II PURCHASE AND SALE OF ASSETS 2.1 Sale and Purchase of Assets. On the terms and conditions herein set forth, at Closing, Seller shall sell, assign, transfer, and convey to (i) Licensing, and Licensing shall 2 purchase and acquire from Seller, all of the FCC Authorizations listed on Schedule 3.3; and (ii) Broadcasting, and Broadcasting agrees to purchase and acquire from Seller all of the assets (except the FCC Authorizations and as otherwise expressly excluded) now owned or hereafter acquired and used by Seller or useful in operating the Station (the "Assets"), free and clear of all Liens (except Permitted Liens), including without limitation the following: 2.1.1 Personal Property. Title or assignment of leases to all tangible personal property, whether owned or leased, of Seller used or useful in the operation of the Station, including all broadcasting and office equipment, furniture, furnishings, equipment, machinery, installations and fixtures, including but not limited to, all replacements and additions thereto and deletions therefrom arising in the ordinary course of business between the date of this Agreement and the Closing Date as listed on Schedule 3.4 hereto. 2.1.2 Station Agreements. All Station Agreements which are set forth on Schedule 2.1.3 hereto. Material Station Agreements shall be marked on Schedule 2.1.3 with an asterisk. 2.1.3 FCC Reports/Files. Copies of all documents required by the FCC to be maintained by the Seller relating to the operation of the Station, including but not limited to, the local public inspection files, and all books of account (other than those covered by section 2.2.5), logs, and records necessary for the Buyer's operation of the Station; 2.1.4 Intangible Assets. The call signs "WSTU", logos, jingles, music formats and music libraries used by Seller or useful in Station's operations, together with the goodwill associated therewith and other intangible property listed and described in Schedule 2.1.5 hereto (collectively, the "Intellectual Property"). 2.1.5 Leases. Any lease agreements or equipment lease agreements used or useful in the operation of the Station as set forth in Schedule 2.1.3, including but not limited to the tower lease . 2.2 Excluded Assets. The following assets are expressly excluded from the Station's assets to be purchased and sold: 2.2.1 Cash on hand as of the Closing Date; 2.2.2 Deposit accounts as of the Closing Date; 2.2.3 Accounts receivable; and 2.2.4 All of Seller's corporate books and records related to internal corporate matters and financial relationship's with Seller's lenders. 2.3 No Assumption of Liabilities. Buyer shall assume no liabilities or obligations of 3 Seller, including, without limitation, accounts payable, debts, liabilities, and other obligations, whether pursuant to a contract or otherwise, except liabilities and obligations under the Station Agreements that arise during and are attributable to any period on or after the Commencement Date of the TBA (the "Assumed Obligations") or as otherwise expressly provided herein, and Seller agrees to pay and discharge all Liabilities and obligations of Seller other than the Assumed Obligations on or before the Closing Date. 2.4 Purchase Price. The Buyer agrees to pay Seller, as consideration for the purchase of the Acquired Assets, the purchase price ("Purchase Price") described in Schedule 2.4 to this Agreement, and agrees to make the escrow deposit (the Deposit") in the form and manner described in Schedule 2.4 and the Escrow Agreement attached as Exhibit 1. 2.5 Allocation of Purchase Price. The Purchase Price shall be allocated among the Acquired Assets as mutually agreed to by Buyer and Seller at or before the Closing. Said allocation schedule shall be prepared pursuant to Section 1060 of the Internal Revenue Code. 2.6 Proration of Expenses. Subject to the TBA and except as otherwise provided in this Agreement, the following items shall be pro-rated as of the Commencement Date of the TBA and paid, as between Seller, on the one hand, and Buyer, on the other hand, at the Closing (to the extent possible) in the manner provided for herein below: 2.6.1 All pre-paid expenses and deposits, and all expenses for which liability has accrued but whose payment is not yet due or paid as of the Commencement Date of the TBA, including but not limited to (i) such expenses in connection with the Station Agreements, (ii) rents and deposits, (iii) utility deposits and charges, including electricity, water and sewer charges, (iv) business and license fees, including any retroactive adjustments thereof, (v) property and equipment rentals, (vi) applicable copyright or other fees, (vii) sales and service charges, (viii) real and personal property taxes in connection with the Acquired Assets, (ix) operating expenses, (x) all wages and salaries, vacation pay, sick leave and other leave allowances, awards, bonuses, commissions, and other forms of employment compensation and benefits that have accrued in favor of (but that as of the Commencement Date of the TBA have not yet been paid or provided to), any employees of Seller who shall become employees of Buyer after the Closing, and (xi) similar prepaid and deferred items and all revenues arising from the operation of the Station, shall be pro-rated and adjusted between Buyer and Seller in accordance with the principle that Seller shall receive all revenues, and shall be responsible for all expenses, costs, and liabilities allocable to the conduct of the business or operations of the Station up to midnight on the Commencement Date of the TBA. Any credit to Seller for a pre-paid expense shall not exceed an amount commensurate with the value to Buyer of the pre-paid expense. All prorations shall be made in accordance with generally accepted accounting principles. Notwithstanding the foregoing, there shall be no adjustment for, and Seller shall remain solely liable with respect to, any contract other than the Station Agreements in Schedule 2.1.3 hereto, or any other obligation or liability not being assumed by Buyer. 4 2.6.2 At the conclusion of sixty (60) days from and after the Closing Date, a final adjustment shall be made of the items to be pro-rated between Buyer and Seller pursuant to Section 2.6.1. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer that the statements contained in this Article III are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date, except as set forth in the schedules attached hereto. 3.1 Organization and Good Standing; Ownership. Seller is a corporation validly organized, existing, in good standing and qualified to do business under the laws of the State of South Carolina. Seller has all requisite power and authority to own, operate and lease the Acquired Assets and carry on the business of the Station as it is now being conducted. Seller has paid (or shall pay when due) all franchise and similar fees imposed by the State of South Carolina. 3.2 Authorization and Binding Effect of Documents. Seller has the power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Documents and to consummate the transactions contemplated hereby. By the Closing, necessary corporate actions approving this Agreement and Seller's obligations hereunder shall have been taken, including without limitation, the Board of Directors of Seller has duly authorized the execution, delivery, and performance of this Agreement and the other Documents. This Agreement and each of the other Documents executed or to be executed by Seller have been, or at or prior to the Closing will be, duly executed and delivered by Seller. The execution, delivery and performance of the terms of this Agreement and each of the other Documents, and the consummation by Seller of the transactions contemplated hereby and thereby, will not conflict with or result in the breach, alteration or modification of or constitute a violation of or default under, any of the terms, conditions or provisions of Seller's articles of incorporation, by-laws, or any license, judgment, order, decree, law, regulation, rule or ruling of any court, arbitration or governmental authority to which Seller is subject, or conflict with, result in the breach of, or constitute a default under, any other agreement, lease, contract or other commitment to which Seller, its principals or any of the Acquired Assets are subject and will not result in the creation of any Lien on any of the Acquired Assets to be conveyed. Subject to obtaining the FCC Order and any consents to assignment of the Station Agreements, the execution, delivery and performance of this Agreement by Seller does not require the consent of any governmental authority or other third party. This Agreement constitutes (and each of the other Documents, when executed and delivered by Seller, will constitute) the legal, valid and binding obligation of Seller enforceable against it in accordance with its terms, except to the extent limited by bankruptcy, insolvency, moratorium and other laws of general applicability relating to or affecting the enforcement of creditors' rights. 5 3.3 FCC Authorizations. 3.3.1 Seller is the legal holder of the FCC Authorizations listed on Schedule 3.3. There is not now pending, or to the knowledge of the Seller threatened, any action by the FCC to revoke, cancel, rescind, modify or refuse to renew in the ordinary course any of the FCC Authorizations, or any investigation, Order to Show Cause, Notice of Violation or of Apparent Liability or of Forfeiture, or material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorizations for the Station or Seller. All material reports, forms, applications, statements, and other information required to be filed by Seller with the FCC with respect to the Station have been filed, are complete and accurate in all material respects, and will continue to be filed as required through the Closing Date. The Station is operating in material accordance with its respective FCC Authorizations, and in material compliance with the Act and the rules and regulations of the FCC, including but not limited to the FCC's policy on exposure to radio frequency radiation. The renewal of the FCC Authorization for the Station wold not constitute a major environmental action under the FCC's rules or regulations. 3.3.2 The FCC Authorizations (a) are in full force and effect, unimpaired by any material act or omission of Seller, or its agents, and constitute all of the permits and Authorizations required by the Act, the rules and regulations thereunder or the FCC for, or used in, the operation of the Station as now operated; (b) constitute all the Authorizations, including amendments and modifications thereto, issued by the FCC to Seller for or in connection with the operation of the Station; and (c) are not subject to any restriction or condition which would limit in any respect the full operation of the Station as now conducted. 3.4 Tangible Personal Property. 3.4.1 Schedule 3.4 lists all tangible personal property (other than office supplies and other incidental items) used or useful in the conduct of the business and operations of the Station (the "Tangible Personal Property"). 3.4.2 Seller has good and marketable title to all of the Tangible Personal Property (except for the items indicated on Schedule 3.4 as leased or licensed by Seller), free and clear of all Liens, except Permitted Liens. 3.5 Litigation. Except as described in Schedule 3.5 and except for any investigations and rule-making proceedings affecting the broadcasting industry generally, there are no actions, judgments (issued or outstanding), suits, claims, investigations or administrative, arbitration or other proceedings pending or, to the knowledge of Seller, threatened against Seller, its principals or the Station before or by any court, arbitration tribunal or governmental department or agency of any kind, domestic or foreign that would give any third party the right to enjoin the transactions contemplated by this Agreement; that could adversely affect Seller's ability to consummate the transactions contemplate hereunder; 6 or that could adversely affect Buyer as the owner of any of the Station. Seller does not know of any basis for such claim, litigation, proceeding or investigation. Should any such litigation or other proceeding commence or be threatened after the date of this Agreement, Seller shall promptly, and in no event later than five (5) days after becoming aware of it, notify Buyer and use its best efforts to accomplish the prompt removal or dismissal thereof. 3.6 Broker's or Finder's Fees. Other than American Media Services, LLC, to which no fee shall be due from either Seller or Buyer, no agent, broker or other person or firm acting on behalf of or under the authority of Seller is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, from Seller in connection with the transactions contemplated by this Agreement. 3.7 Disclosure. No representation, warranty or other statement by Seller in this Agreement or any other Document furnished by Seller or on its behalf contains, or will contain, any untrue statement of a material fact, or omits to state a material fact necessary to make any representation, warranty or statement contained herein or therein not misleading, in any such case that was knowingly or willingly made or omitted, as the case may be, by Seller. 3.8 Undisclosed Obligations and Discharge of Liens. There are no material commitments, liabilities or obligations relating to the Station, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by Seller of the liabilities of third parties, other than the Permitted Liens or as otherwise disclosed to Buyer herein. As of the Closing Date, Seller will have paid and discharged all taxes, assessments, excises, liens, levies and judgments for which it is obligated and which are then due and payable and Seller shall promptly pay and discharge, as and when any of them become due and payable after Closing, all taxes, assessments, excises, liens, levies and judgments for which it is obligated or which are a Lien on any of the Acquired Assets immediately prior to the Closing. 3.9 Insurance. Seller currently has, and subject to the TBA, through the Closing Date will maintain, insurance on the Acquired Assets in an amount sufficient to cover the value of said Acquired Assets and consistent with the terms of this Agreement will use the proceeds of any claims for loss to repair, replace or restore any damaged property. All such policies are outstanding and full in force and effect and will continue to be outstanding and in full force and effect until the Closing Date. 3.10 Real Property. The Acquired Assets include no owned Real Property. All Real Property on which facilities owned, leased or otherwise used by Seller in the operation of the Station are located is leased by Seller (the "Leased Real Property"). To the best of Seller's knowledge, the Leased Real Property is free and clear of all conditions, equities, reservations, restrictions, encroachments, adverse uses, easements, servitudes or limitations except as listed and described in Schedule 3.11, none of which shall interfere with Buyer's intended use of the Leased Real Property for the Station's operations. To the best of Seller's knowledge, Seller's improvements upon and use of the Leased Real Property conform in all material 7 respects to all restrictions, restrictive covenants, building codes, fire regulations, building restrictions, and federal, state and local laws, regulations and ordinances. To the best of Seller's knowledge, there is no pending, threatened or contemplated action to take by eminent domain or otherwise to condemn any of the Leased Real Property. 3.11 Other Matters Related to Leased Real Property. Except as set forth in Schedule 3.11, there are no leases or rental agreements regarding the occupancy or use of the Leased Real Property with respect to the Station. To the best of Seller's knowledge, with respect to those transmitting facilities of the Station located on the Leased Real Property, all towers, guy lines, anchors, ground systems and all other structures are located entirely within the confines of the Leased Real Property. To the best of Seller's knowledge, the Leased Real Property is freely accessible directly from public streets, or, if not, any use of adjoining private land to access the same is done in accordance with valid easements of record. 3.12 Environmental Representations. Except as set forth in Schedule 3.13: (a) to the best of Seller's knowledge, none of the Leased Real Property has ever been used by Seller, by the owners and/or prior owners or operators, to treat, produce, handle, transfer, process, transport, dispose or otherwise release petroleum products, a "hazardous substance," "hazardous waste," "pollutant" or "contaminant" (as such terms are defined in any applicable federal, state, or local laws, ordinances, rules and regulations, and including any and all other terms which are or may be used in any applicable environmental laws to define prohibited or regulated substances (collectively "Toxic Substances")), other than in compliance with all applicable laws, ordinances, rules and regulations of all federal, state or local governmental authorities. To the best of Seller's knowledge no Toxic Substances are present on or below the surface of the Leased Real Property; (b) Seller has no knowledge of any notification having been filed with regard to a release of any Toxic Substances on or into the Leased Real Property; (c) neither Seller nor, to the best of Seller's knowledge, any present or former owner or operator of the Leased Real Property has been identified as a potentially responsible party for clean up liability with regard to the emission, discharge or release of any hazardous substance or for any other matter arising under law in any litigation, administrative proceeding, finding, order, citation, notice, investigation or complaint, nor has Seller been threatened with such; (d) Seller has no knowledge of any: (1) generation, treatment, recycling, storage or disposal of any hazardous waste, (2) underground storage tank, surface impoundment, lagoon or other containment facility (past or present) for the temporary or permanent storage, treatment or disposal of hazardous substance, (3) landfill or solid waste disposal area, (4) asbestos-containing materials, (5) "friable" asbestos (as defined in the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq., and the regulations promulgated thereunder), (6) electrical transformers, fluorescent light fixtures with ballasts or other equipment containing polychlorinated biphenyls (PCBs) in, on or at any Leased Real Property. Seller is in compliance in all material respects with all applicable federal state and local regulations concerning any USTs that are located at the Leased Real Property. To the best of its knowledge, Seller has not committed violations of any environmental law, statute, ordinance or regulation with regard to the Leased Real Property. 8 3.13 Contracts. Schedule 2.1.3 is a true and complete list of all Station Agreements to be assigned to and assumed by Buyer. Schedule 2.1.3 indicates for each Station Agreement whether a consent thereunder is required for assignment of the Station Agreement. Seller is not in material default under any of these Station Agreements and Seller has no knowledge of the breach of any material provision of such Agreements. Seller has not been granted, and has not granted, any material waiver or forbearance with respect to any of the Station Agreements. No event has occurred which, but for the passage of time or giving of notice, or both, would or might constitute a material default by Seller under such Station Agreements, and there is no outstanding notice of material default or termination under any such Agreement. Except for the consents required pursuant to the terms of the Station Agreements, Seller has authority to assign its rights thereunder to Buyer on terms and conditions no less favorable to Buyer than those in effect on the date hereof, and such assignment will not affect the validity, enforceability and continuity of any of such Agreements. The Material Station Agreements as designated in Schedule 2.1.3 include all those necessary to conduct, in all material respects, the business and operations of the Station as now conducted. Each of the Station Agreements is valid, binding and enforceable in accordance with its terms and is in full force and effect. Seller holds the right to enforce and receive the benefits under each of the Station Agreements free and clear of any Lien but subject to the terms and provisions of each Station Agreement. The Station Agreements listed on Schedule 2.1.3 include all leases for the Leased Real Property. Schedule 2.1.3-A lists all arrangements for the sale of air time or advertising on the Station in excess of $1,000 since January 1, 1997, and the amount to be paid to the Seller therefor. The Seller has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or any third parties to material contracts of Seller to cease doing business or to reduce in any material respect the business transacted with the Seller or to terminate or modify any agreements with the Seller (whether as a result of consummation of the transactions contemplate hereby or otherwise). 3.14 Taxes and Reports. Seller has filed all material federal, state and local tax returns and state franchise returns which are required to be filed by Seller, and has paid in full all taxes, interest, penalties, assessments and deficiencies owed by or which have been assessed or levied against Seller or any of its assets or properties (except any such obligations as are being contested in good faith). Any additional taxes, interest, penalties, assessments and deficiencies that shall become due and payable with respect to any tax return or tax obligation of Seller arising from the operation of the Station prior to the Closing Date shall be the responsibility of Seller. All other material federal, state, county and local tax returns, reports and declarations of estimated tax or estimated tax deposit forms required to be filed by the Seller in connection with the Station's operations, personal property, real estate or payroll have been duly and timely filed. Seller has paid all taxes which have become due pursuant to such returns or pursuant to any assessment received by it (except any such obligations being contested in good faith), and has paid all installments of estimated taxes due. All taxes, levies and other assessments which the Seller is required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental authorities or held by the Seller for such payment. 9 3.15 Operation in Ordinary Course. Since January 1, 1997, except as set forth on Schedule 3.15, there has not been any material adverse change in the assets, liabilities, business, financial condition, operations, or future prospects of the Seller with respect to the operation of the Station. Without limiting the generality of the foregoing, Seller (i) has operated the Station in the ordinary course of business consistent with past practices; (ii) other than this Agreement, has not entered into any agreement, contract, lease, sublease, license or sublicense outside of the ordinary course of business; (iii) has not delayed or postponed (beyond its normal practice in the ordinary course of business) the payment of accounts payable and other liabilities; (iv) has not altered its credit and collection policies or its accounting policies; (v) has not entered into or terminated any employment arrangement, employment contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement, except in the ordinary course of business; (vi) has not materially altered the programming, formal or all letters of the Station or its promotional or marketing activities, except in the ordinary course of business; (vii) except as set forth on Schedule 3.15, has not applied to the FCC for any modification of the FCC Authorizations or failed to take any action necessary to preserve the FCC Authorizations and has operated the Station in material compliance therewith and with the rules and regulations of the FCC; (viii) has not terminated or received notice of termination for any syndicated programming; and (ix) has not committed to any of the foregoing. 3.16 Intellectual Property. Schedule 2.1.5 lists all Intellectual Property applied for, owned, used or licensed (either as licensor or licensee) in connection with the operation of the Station. Except as disclosed on Schedule 2.1.5: 3.16.1 Seller owns, free and clear of conflicting claims or restrictions and without infringement on the rights of others, all right and interest in, and right and authority to use in connection with the conduct of the Station as presently conducted, all of the Intellectual Property listed on Schedule 2.1.5 and all such Intellectual Property is in full force and effect. 3.16.2 There are no outstanding or, to the knowledge of Seller, threatened judicial or adversary proceedings with respect to any of the Intellectual Property listed on Schedule 2.1.5. 3.16.3 No person or entity has been granted any license or other right or interest in or to any of the Intellectual Property listed on Schedule 2.1.5 or to the use thereof. 3.16.4 Seller has no knowledge of any infringement or unlawful use of any of the Intellectual Property listed on Schedule 2.1.5 and Seller has never received any charge, complaint, or notice alleging interference, infringement, misappropriation or violation of any Intellectual Property rights of third parties. 3.17 Employees. Schedule 3.17 sets forth a listing of the names, positions, job descriptions, salary or wage rates and all other forms of compensation paid for work at the 10 Station by each employee as of the date hereof. Seller is not a party to nor bound by any collective bargaining or similar agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or collective bargaining disputes. Seller has no knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to the employees of the Station. Seller has no knowledge of any basis for any claim by past or current employees of Seller or applicants for employment that Seller or its management has discriminated based upon the individual's race, sex, national origin, religion, ethnicity, handicap or other protected characteristic under applicable law. 3.18 Employee Benefits. Seller maintains, and in the past has maintained, no Employee Benefit Plan to which it contributes or is required to contribute for the benefit of any current or former employee of Seller. Seller does not have any commitment to create any Employee Benefit Plan that would affect any employee of Seller. 3.19 Financial Statements. Included in Schedule 3.19 are the following financial statements (collectively, the "Financial Statements"): (i) unaudited balance sheets and statements of income, and cash flow as of and for the fiscal years ended December 31, 1994, December 31, 1995, and December 31, 1996; and (ii) unaudited balance sheets and statements of income, as of and for each month during 1997 for Seller. The Financial Statements have been prepared in conformity with Seller's normal accounting policies, practices and procedures applied on a consistent basis throughout the periods covered thereby, are correct and complete, fairly present the financial condition of Seller and the results of operation of Seller at the dates and for the periods, indicated, and are consistent with the books and records of Seller. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller that the statements contained in this Article IV are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date, except as set forth in the schedules attached hereto. 4.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing, and qualified to do business under the laws of the State of Nevada. Buyer has or as of the Closing Date shall have, authority to conduct business in the State of Nevada and each such other state in which it conducts business, including South Carolina. Licensing has all requisite corporate power to acquire the FCC Authorizations and to become the licensee of the Station. Buyer agrees to furnish at Closing a Certificate of Good Standing for the State of Nevada and a Certificate of Foreign Corporation Authorization to Do Business in the State of South Carolina. 4.2 Authorization and Binding Effect of Documents. Buyer has full power and authority to execute, deliver, and perform its obligations under this Agreement and each of the other Documents and to consummate the transactions contemplated hereby and thereby. By the Closing, all necessary corporate actions approving this Agreement and Buyer's 11 obligations hereunder shall have been taken, including without limitation, the Boards of Directors of Licensing and Broadcasting have duly authorized the execution, delivery and performance of this Agreement and each of the Documents. This Agreement and each of the other Documents to be executed by Buyer have been, or at or prior to the Closing will be, duly executed and delivered by Buyer. The execution, delivery and performance of the terms of this Agreement and each of the other Documents, and the consummation by Buyer of the transactions contemplated hereby and thereby, will not conflict with or result in the breach, alteration or modification of or constitute a violation of or default under any of the terms, conditions or provisions of Buyer's articles of incorporation, by-laws, or any license, judgement, order, decree, law, regulation, rule or ruling of any court, arbitration or governmental authority to which Buyer is subject, or result in the breach of, or constitute a default under, any other agreement, lease, contract or other commitment to which Buyer, its principals or any of its assets are subject. Subject to obtaining the FCC Order, the execution, delivery and performance of this Agreement does not require the consent of any third party. This Agreement constitutes (and each of the other Documents, when executed and delivered by Buyer will constitute) legal and valid obligations of Buyer enforceable against Buyer in accordance with its terms, except to the extent limited by bankruptcy, insolvency, moratorium and other laws of general applicability relating to or affecting the enforcement of creditors' rights. 4.3 Governmental Consents and Consents of Third Parties. With the exception of the FCC, Buyer's execution, delivery, and performance of its obligations under this Agreement and each of the other Documents and the consummation by Buyer of the transactions contemplated hereby and thereby, do not require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other authority, or the consent of any person under any agreement, arrangement or commitment of any nature which Buyer is a party to or bound by, the failure of which to obtain would have a material adverse effect on the ability of Buyer to consummate the transactions or perform its obligations hereunder or under any other Document. 4.4 Qualifications. Buyer has no knowledge of any facts concerning Buyer or any person with an attributable interest in Buyer (as such term is defined under decisions, rules and regulations of the FCC) which would, under present law (including the Act) and present rules, regulations and practices of the FCC (i) disqualify Buyer from owning and operating the Station; or (ii) raise a substantial and material question of fact (within the meaning of Section 309(a) of the Act) respecting Buyer's qualifications. Buyer will not take, or fail to take, any action it knows or has reason to know would cause such disqualification or raise such question of fact. Should Buyer become aware of any such facts, it will promptly notify Seller in writing thereof and use us best efforts to prevent such disqualification. Buyer further represents and warrants that (i) no waiver is required under Section 73.3555 of the FCC's rules and regulations regarding ownership of multiple radio stations with overlapping signals; and (ii) it is financially qualified to meet all terms, conditions and obligations arising or contemplated under this Agreement. 12 4.5 Broker's or Finder's Fees. No agent, broker or other person or firm acting on behalf of or under the authority of Buyer is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, from Buyer in connection with the transactions contemplated by this Agreement. 4.6 Litigation. There are no legal, administrative, arbitration or other proceedings, unsatisfied judgments, orders, or decrees, injunctions, suits, claims, or governmental investigations pending or, to the knowledge of Buyer, threatened against Buyer before any court, arbitration tribunal or governmental department or agency that would give any third party the right to enjoin the transactions contemplated by this Agreement or that could adversely affect Buyer's ability to consummate the transactions contemplate hereunder. Buyer does not know of any basis for such claim, litigation, proceeding, or investigation. Should any such litigation commence after the date of this Agreement and before the Closing, Buyer shall promptly, andin no event later than five (5) days after becoming aware of it, notify Seller, and use its best efforts to accomplish the prompt removal or dismissal thereof. 4.7 Disclosure. No representation, warranty or other statement by Buyer in this Agreement or any other Document furnished by Buyer or on its behalf contains, or will contain, any untrue statement of a material fact, or omit to state a material fact necessary to make any representation, warranty or statement contained herein or therein not misleading, in any such case that was knowingly or willingly made or omitted, as the case may be, by Buyer. ARTICLE V COVENANTS 5.1 Affirmative Covenants of Seller. Between the date hereof and the Closing Date, except as otherwise expressly provided in this Agreement or the TBA, Seller shall: 5.1.1 Continued Operation of Station. Prior to the Commencement Date of the TBA, continue to operate the Station in the ordinary course consistent with past practices, and at all times between the date hereof and the Closing Date, continue to operate the Station in conformity with the FCC Licenses, the Act, the rules and regulations of the FCC, and all other applicable laws, ordinances, regulations, rules and orders. If Seller receives any finding, order, complaint, citation or notice prior to Closing which asserts that any aspect of the Station's operations violates any rule, regulation or order of the FCC or any other governmental authority (an "Administrative Violation"), Seller shall promptly notify Buyer of any Administrative Violation, take action promptly to remove or correct any Administrative Violation, and, subject to the TBA, be responsible for the payment of all costs associated therewith, including any fines or back pay that may be assessed. 5.1.2 Reasonable Access. Subject to the terms of the TBA, provide Buyer and representatives of Buyer with reasonable access, during normal business hours, to the properties, contracts, books, files, logs, records and affairs of the Station, and furnish such 13 additional information concerning the Station as Buyer may from time to time reasonably request. 5.1.3 Notice and Consent to Assignment. Use reasonable efforts to procure and accomplish the consent of any third parties necessary for the assignment to Buyer of all Material Station Agreements and shall give notice to all third parties as reasonably requested by Buyer. 5.1.4 Maintain Acquired Assets. Subject to the terms of the TBA, maintain all of the Acquired Assets in their present operating condition, repair and order, reasonable wear and tear in ordinary usage excepted, and maintain the inventories of spare parts and tubes for the technical operating equipment of Station at the levels normally maintained for Station. 5.1.5 Maintain Licenses. Use its best efforts to maintain in full force and effect, or renew when required, the FCC Authorizations and any other licenses, permits and authorizations relating to the Station and timely file all FCC required reports or fees. 5.1.6 Notice of Developments. Subject to the TBA, Seller will give Buyer prompt notice of any material development affecting business, operations or prospects of the Station or the Acquired Assets or the ability of the Seller to perform hereunder. 5.1.7 No Solicitation. From the date hereof until the earlier of Closing or termination of this Agreement, neither Seller nor any affiliate of Seller shall directly or indirectly (i) solicit, initiate or encourage submission of any proposal or offer from any person relating to any acquisition or purchase of any interest in Seller or any material assets of any of the Station or any merger, consolidation or business combination with Seller (each an "Acquisition Proposal"), or (ii) participate in any discussions or negotiations regarding, furnish to any person any information with respect to, or otherwise assist, facilitate, encourage or participate in or cooperate with, any effort or attempt by any person to make or effect an Acquisition Proposal. 5.2 Negative Covenants of Seller. Between the date hereof and the Closing Date, except as contemplated by this Agreement, Seller will not, without the prior written consent of Buyer which will not unreasonably be withheld, it being understood that such consent does not alleviate Seller's obligation to ensure that all warranties an representations hereunder remain true and correct as of the Closing Date: 5.2.1 Mortgages. Create, assume or permit to exist any new mortgage or pledge, or subject to lien or encumbrance, any of the Acquired Assets, whether now owned or hereafter acquired, unless discharged of record prior to or at Closing. 5.2.2 Transfers. Sell, assign, lease or otherwise transfer or dispose of any of the Acquired Assets, whether now owned or hereafter acquired, except for disposal and 14 consumption of supplies and inventories in the ordinary course and retirements in the normal and usual course of business of items no longer required for use in connection with the Station's operations, or in connection with the acquisition of similar property or assets of equal or greater value, with the cost of any such replacement property to be Seller's responsibility. 5.2.3 Call Letters. Change the call letters of the Station. 5.2.4 Collective Bargaining. Voluntarily enter into any collective bargaining agreement covering employees of the Station and voluntarily enter into any such collective bargaining agreement that contains a provision requiring assignment to and assumption of the agreement by a purchaser of the Station. 5.2.5 Inconsistent Action. Take any action inconsistent with its warranties, representations or obligations hereunder or which could jeopardize or delay consummation of the transactions contemplated hereunder. 5.2.6 Contractual Obligations. Do, or omit to do, any act which will cause a material breach of, or material default under, or termination of, any Material Station Agreement. 5.3 Covenants of Buyer. Between the date hereof and the Closing Date, 5.3.1 Inconsistent Action. Buyer shall not take any action inconsistent with its representations, warranties and other obligations hereunder or which could jeopardize or delay the consummation of the transactions contemplated hereunder. 5.3.2 Title Insurance, Surveys and Environmental Assessments. Buyer, at its own expense, will obtain with respect to each parcel of Leased Real Property (i) a leasehold owner's policy issued by a title insurer reasonably satisfactory to Seller, in an amount equal to the fair market value of such Leased Real Property (including all improvements thereon), insuring over the standard pre-printed exceptions and insuring leasehold title to such Leased Real Property in the Buyer as of the Closing subject only to the lien for taxes not yet due and payable for the year of Closing, municipal and zoning ordinances, recorded utility easements and other easements of record, together with such endorsements for zoning, contiguity, public access and extended coverage as Buyer or its lender may reasonably request; (ii) a current "as built" survey (each, a "Survey"). Each Survey shall be prepared by a registered surveyor, shall comply with current ALTA Minimum Standard Detail Requirements, shall be certified to Buyer and its lender and sufficient for the title insurer's deletion of the standard exceptions relating to survey matters, and shall not disclose 15 any matters which would materially impair Buyer's ability to use any of the surveyed Leased Real Property in the operation of the Station in the manner in which it is now used; and (iii) a Phase I environmental site assessment from an environmental consultant or engineer reasonably satisfactory to Seller which does not indicate that Seller or the Lease Real Property are not in compliance with any Environmental Law and which does not disclose or recommend any action with respect to any condition to be remediated or investigated or any contamination on the site assessed. Buyer shall cause the environmental consultant or engineer to deliver a copy of the environmental report(s) to Seller at the same time as such report(s) are delivered to Buyer. ARTICLE VI OTHER COVENANTS 6.1 Good Faith; Reasonable Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto will use its reasonable efforts to take all action and to do all things necessary, proper or advisable in good faith to satisfy any condition to the parties' obligations hereunder in its power to satisfy and to consummate and make effective as soon as practicable the transactions contemplated by this Agreement. 6.2 Control of Station. Subject to the TBA, the transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, Buyer and their employees or agents shall not directly or indirectly control, supervise or direct, or attempt to control, supervise or direct, the operation of the Station, and such operation shall be the sole responsibility of and in the control of the Seller. ARTICLE VII FCC CONSENT 7.1 FCC Consent. Within ten (10) days of the execution of this Agreement, Seller and Buyer shall jointly file with the FCC an application seeking approval of the FCC to the assignment of the FCC Authorizations from Seller to Buyer (the "Assignment Application"). Seller and Buyer shall take all commercially reasonable steps necessary to prosecute such filing with diligence and shall diligently oppose any objections to, appeals from or petitions to reconsider the FCC Order, to the end that the FCC Order shall become a Final Action as soon as practicable. Seller shall not take, nor permit any officer or director of Seller to take, and Buyer shall not take, nor permit any shareholder, officer or director of Buyer to take, any action that such party knows or has reason to know would materially and adversely affect or materially delay issuance of the FCC Order, or materially and adversely affect or materially delay the FCC Order from becoming a Final Action. Should Buyer or Seller become aware of any facts not disclosed which could reasonably be expected to materially and adversely affect or materially delay issuance of the FCC Order, or prevent or materially delay the FCC Order from becoming a Final Action, such party shall promptly notify the other party thereof in writing. Seller and Buyer shall share equally any filing fee required by the FCC for the Assignment Application, but the parties shall otherwise each bear its own expenses, including attorney's fees, in connection with the Assignment Application. If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercial reasonable efforts to comply with such condition, provided that neither party shall be required hereunder to comply with any condition that would have a material adverse effect on the 16 Station or such party. If necessary under this Agreement, Seller and Buyer shall jointly request from the FCC an extension of the effective period of the FCC Order if the Closing shall not have occurred prior to the expiration of the original effective period of the FCC Order. Nothing in this Section 7.1 shall be construed to limit either party's right to terminate this Agreement pursuant to the terms of Article XIII. ARTICLE VIII TIME BROKERAGE AGREEMENT 8.1 Time Brokerage Agreement. Concurrent with the execution of this Agreement, Buyer and Seller shall enter into a Time Brokerage Agreement ("TBA") pursuant to which Buyer will provide programming, commencing on March 23, 1998 (the "Commencement Date of the TBA"), for broadcast on the Station pending the FCC Order and the Closing contemplated hereunder. 8.2 Accounts Receivable. Buyer agrees, as Seller's agent, to use its best efforts for a period of ninety (90) days following the Commencement Date of the TBA (the "Collection Period") to collect in the usual and ordinary course of business the accounts receivable of the Station in existence as of the Commencement Date of the TBA. Buyer shall not be required to institute any legal proceedings to enforce the collection of any Accounts Receivable or to refer any of the Accounts Receivable to a collection agency. Buyer shall not adjust any Accounts Receivable or grant credit without Seller's written consent, and any Accounts Receivable amounts collected on behalf of Seller shall be paid to Seller on the forty-fifth (45th) and ninetieth (90th) days after the Commencement Date of TBA. On the ninetieth (90th) day after the Commencement Date of the TBA, Buyer shall return to Seller the uncollected Accounts Receivables, together will all files concerning the collection or attempts to collect the Accounts Receivable, and Buyer's responsibility shall cease. Buyer shall incur no liability to Seller for any uncollected account. All sums collected by Buyer during the Collection Period from any person obligated with respect to any Account Receivable shall be applied first to Seller's Accounts Receivable. After full satisfaction of Seller's account the balance, if any, shall be applied to Buyer's accounts. ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE Buyer's obligation to close the transaction contemplated by this Agreement is subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, unless waived by Buyer in writing: 9.1 Accuracy of Representations and Warranties. The representations and warranties of Seller contained in this Agreement or in any other Document shall be complete and correct in all material respects at the Closing Date with the same effect as though made at such time, except for changes permitted under this Agreement. 17 9.2 Performance of Agreement. Seller shall have performed in all material respects all of its covenants, agreements and obligations required by this Agreement to be performed or complied with by it prior to or upon the Closing Date. 9.3 FCC and Other Consents. 9.3.1 The FCC Order shall have been issued by the FCC (this condition may not be waived) without any condition materially adverse to Seller, Buyer or Station, and shall have become a Final Action. 9.3.2 Conditions which the FCC Order or any order, ruling or decree of any judicial or administrative body relating thereto or in connection therewith specifies and requires to be satisfied prior to assignment of the Station to Buyer and which must be satisfied under Section 7.1 above shall have been satisfied. 9.3.3 All other authorizations, consents, approvals and clearances of all federal, state and local governmental agencies required to permit the consummation by Buyer of the transactions contemplated by this Agreement shall have been obtained; all statutory and regulatory requirements for such consummation shall have been fulfilled; and no such authorizations, consents, approvals or clearances shall contain any conditions that individually or in the aggregate would have a material adverse effect on the Station or Buyer's operation thereof. 9.3.4 All necessary approvals and consents to the assignment to Buyer of the Material Station Agreements on terms no less favorable to Buyer than exist in said agreements today shall have been obtained and delivered to Buyer. 9.4 No Adverse Proceedings. No order, decree or judgment of any court, agency or other governmental authority shall have been rendered against Seller or Buyer that would prevent or make it unlawful to consummate the transactions contemplated by this Agreement in accordance with the terms hereof or to impose damages or penalties upon any of the parties if such transaction is consummated; and, except for proceedings affecting the broadcasting industry generally, no suit, action or governmental proceeding shall be pending or threatened against Seller or Buyer which specifically seeks to prevent or make it unlawful to consummate the transactions contemplated by this Agreement in accordance with the terms hereof or to impose damages or penalties on any party if the transaction is consummated. 9.5 Delivery of Closing Documents. Seller shall have delivered on or before the Closing Date each of the documents required to be delivered pursuant to Section 11.2 or as otherwise provided in this Agreement. 18 ARTICLE X CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE The obligation of Seller to close the transaction contemplated by this Agreement is subject to the satisfaction, on or prior to the Closing Date, or each of the following conditions, unless waived by Seller in writing: 10.1 Accuracy of Representations and Warranties. The representations and warranties of Buyer contained in this Agreement or in any other Document shall be complete and correct in all material respects on the date hereof and at the Closing Date with the same effect as though made at such time, except for changes permitted under this Agreement. 10.2 Performance of Agreement. Buyer shall have performed in all material respects all of its covenants, agreements and obligations required by this Agreement to be performed or complied with by it prior to or upon the Closing Date. 10.3 FCC and Other Consents. 10.3.1 The FCC Order shall have been issued by the FCC (this condition may not be waived), and shall have become a Final Action. 10.3.2 Conditions which the FCC Order or any order, ruling or decree of any judicial or administrative body relating thereto or in connection therewith specifies and requires to be satisfied prior to assignment of the Station to Buyer and which must be satisfied under Section 7.1 above shall have been satisfied. 10.3.3 All other authorizations, consents, approvals and clearances of all federal, state and local governmental agencies required to permit the consummation by Seller of the transactions contemplated by this Agreement shall have been obtained; all statutory and regulatory requirements for such consummation shall have been fulfilled; and no such authorizations, consents, approvals or clearances shall contain any conditions that individually or in the aggregate would have a material adverse effect on the Station or Buyer's operation thereof. 10.4 No Adverse Proceedings. No order, decree or judgment of any court, agency or other governmental authority shall have been rendered against Seller or Buyer that would prevent or make it unlawful to consummate the transactions contemplated by this Agreement in accordance with the terms hereof or to impose damages or penalties upon any of the parties if such transaction is consummated; and, except for proceedings affecting the broadcasting industry generally, no suit, action or governmental proceeding shall be pending or threatened against Seller or Buyer which specifically seeks to prevent or make it unlawful to consummate the transactions contemplated by this Agreement in accordance with the terms hereof or to impose damages or penalties on any party if the transaction is 19 consummated. 10.5 Delivery of Closing Documents. Buyer shall have delivered on or before the Closing Date each of the documents required to be delivered pursuant to Section 11.3 or as otherwise provided in this Agreement. ARTICLE XI CLOSING 11.1 Closing Date. The Closing shall take place between five (5) and ten (10) business days after the FCC Order becomes a Final Action, unless waived by Buyer. If finality is waived by Buyer, then Closing shall take place on such date as the parties may mutually agree (the "Closing Date"). The Closing shall occur at a mutually agreeable location. 11.2 Seller's Performance. At the Closing hereunder Seller shall deliver or cause to be delivered to Buyer the following in each case in form and substance reasonably satisfactorily to Buyer: 11.2.1 License Assignments. Assignments of the FCC Authorizations in customary form and substance; 11.2.2 Bill of Sale. A bill of sale and all other appropriate documents and instruments in a form and substance reasonably acceptable to counsel for Buyer assigning good and marketable title to the Tangible Personal Property and all other Acquired Assets not otherwise conveyed (except the Leased Real Property), free and clear of any Liens; 11.2.3 Leases/Contracts. Such assignments and further instruments of transfer to assign to Buyer on terms no less favorable to Buyer than in said leases as they exist today all of Seller's rights under the Station Agreements free and clear of all Liens and any other adverse claims with, where required, the necessary consents to such assignments; 11.2.4 Records. Deliver to Buyer copies of the records and documents referenced in Section 2.1.4 above. Such documents need not be provided in person but may be located at the studio/offices of the Station. 11.2.5 Certificates. (i) A Certificate by Seller, dated as of the Closing Date, certifying that, except as set forth in such Certificate, all of Seller's undertakings and obligations under this Agreement are satisfied as of the Closing Date and all of its warranties and representations remain true and accurate in all material respects as of the Closing Date; (ii) a certificate of the secretary of Seller attesting to the incumbency of each officer of Seller who executes this Agreement and any of the other Documents; and (iii) certified resolutions of Seller's Board of Directors evidencing the authorization and 20 approval of Seller's execution, delivery and performance of this Agreement. 11.2.6 Opinions of Seller's Counsel. (a) The written opinion of Seller's corporate counsel, dated as of the Closing Date and addressed to Buyers and their lender, that (1) Seller is a corporation duly formed and in good standing in the State of South Carolina; (2) Seller is authorized to sell the Station and the Acquired Assets; (3) all corporate actions necessary to sell the Station and the Acquired Assets pursuant to this Agreement have been duly and properly taken; (4) to the knowledge of counsel, no suit, action or proceeding is pending or threatened that questions or may affect the validity of any action to be taken by Seller pursuant to this Agreement or that seeks to restrain Seller from carrying out the transactions provided for herein; (5) to the knowledge of counsel, there is no outstanding judgment or any suit, action or claim pending, threatened or deemed by counsel to be probable of assertion, or any governmental proceeding or investigation in progress that could reasonably be expected to have a material adverse effect upon the Acquired Assets to be conveyed hereunder or the Station after Closing, and (b) The written opinion of Seller's FCC Counsel, dated as of the Closing Date and addressed to Buyers and their lender, that: (1) Seller holds the FCC Authorizations, each of which is in full force and effect; (2) they are not subject to any conditions other than those shown on the face of the FCC Authorizations or imposed under generally applicable rules of the FCC; (3) the FCC has granted the FCC Order and such order has become a Final Action (unless the condition on finality has been waived by Buyer as permitted herein); and (4) other than proceeding affecting the broadcast industry generally, there are no proceedings pending or, to such counsel's knowledge, threatened by or before the FCC affecting or relating to the Station or the FCC Authorizations; 11.2.7 Joint Escrow Instructions. Written instructions to the Escrow Agent directing that the Deposit be delivered to Seller and all interest thereon be delivered to Buyer; 11.2.8 Wire Instructions. Three (3) days prior to the Closing Date, Seller shall provide to Buyer wire instructions for the payment of the Cash Payment due on the Closing Date. 11.2.9 Allocation of Purchase Price. Seller and Buyer shall have agreed to allocate the Purchase Price among the Acquired Assets in accordance with a mutually agreeable allocation schedule to be delivered at closing. 11.2.10 Additional Documents. Such other information, materials and documentation as counsel for Buyer shall have reasonably requested for the purpose of consummating the transactions described herein and to evidence satisfaction of the conditions to Seller's obligations hereunder, and any other documents expressly required by this Agreement to be delivered by Seller at Closing; 11.3 Deliveries to Seller by Buyer. At the Closing, Buyer shall deliver or cause to 21 be delivered to Seller the following, in each case in form and substance reasonably satisfactory to Seller: 11.3.1 Cash. A wire transfer of immediately available funds to Seller, in the amount set forth on Schedule 2.4; 11.3.2 Certificates. (i) A certificate by Buyer dated as of the Closing Date certifying that, except as set forth in such certificate, all of Buyer's undertakings and obligations under this Agreement are satisfied as of the Closing Date, and all of its warranties and representations remain true and accurate in all material respects as of the Closing Date; (ii) certificates from the Secretary of State of the State of Nevada, dated as near as practicable to the Closing Date, showing that Licensing and Broadcasting are incorporated and in existence in the State of Nevada; (iii) certificates from the Secretary of State of the State of South Carolina, dated as near as practicable to the Closing Date, showing that Licensing and Broadcasting are authorized to do business in the State of South Carolina; (iv) certificates of the secretaries of Licensing and Broadcasting attesting to the incumbency of each officer of Licensing and Broadcasting who execute this Agreement and any of the other Documents; and (iv) certified resolutions of Boards of Directors of Licensing and Broadcasting evidencing the authorization and approval of Licensing's and Broadcasting's execution, delivery and performance of this Agreement. 11.3.3 Allocation of Purchase Price. Seller and Buyer shall have agreed to allocate the Purchase Price among the Acquired Assets in accordance with a mutually agreeable allocation schedule to be delivered at closing. 11.3.4 Joint Escrow Instructions. Written instructions to the Escrow Agent directing that the Deposit be delivered to Seller and all interest thereon be delivered to Buyer. 11.3.5 Additional Documentation. Such additional information, materials, and documentation as counsel to Seller shall have reasonably requested to evidence satisfaction of the conditions to Buyer's obligations hereunder, and any other documents expressly required by this Agreement to be delivered by Buyer at Closing; ARTICLE XII SURVIVAL OF REPRESENTATIONS AND WARRANTIES: INDEMNIFICATION 12.1 Survival of Representations and Warranties. All representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing and continue in full force and effect for a period of ninety (90) days after the applicable statute of limitations has expired with respect to any claim by Buyer based upon a claim or action by a third party and for a period of two (2) years following Closing with respect to any claim by Buyer not based on a claim or action by a third party. No claim may be brought 22 under this Agreement or any other Document, unless written notice describing in reasonable detail the nature and basis of such claim is given on or prior to the last day of the relevant survival period. In the event such a notice is so given, the right to indemnification with respect thereto under this Article shall survive the applicable survival period until such claim is finally resolved and any obligations with respect thereto are fully satisfied. 12.2 Indemnification in General. Buyer and Seller agree that the rights to be indemnified and held harmless set forth in this Agreement, as between the parties hereto and their respective permitted successors and assigns, shall be exclusive of all rights to be indemnified and held harmless that such party (or its permitted successors or assigns) would otherwise have by statute, common law or otherwise. 12.3 Indemnification by Seller. Seller shall indemnify, defend, and hold harmless Buyer, any officer or director thereof, and their permitted assigns with respect to any and all demands, claims, actions, suits, proceedings, assessments, judgments, costs, losses, damages, obligations, liabilities, recoveries, deficiencies, and expenses (including interest, penalties and reasonable attorneys' fees) of every kind and description (collectively "Claim") relating to or arising out of: 12.3.1 Any breach or non-performance by Seller of any of its representations, warranties, covenants or agreements set forth in this Agreement or any other Document; or 12.3.2 Except as otherwise provided in the TBA, any debt, liability or obligation of Seller or the Station that arises or results from or is attributable to the operations or business of the Seller or the Station prior to the Closing Date, including but not limited to, liabilities and obligations under Station Agreements to the extent such liabilities and obligations relate to any period before the Closing Date, regardless of whether disclosed in any Schedule or Document and regardless of whether constituting a breach by Seller of any representation, warranty, covenant or agreement, and any liability or obligation of Seller other than the Assumed Obligations arising after the Closing Date; provided, however, that Seller shall not be liable for any Claim arising out of or resulting from Buyer's action or failure to act under the TBA. 12.4 Indemnification by Buyer. Buyer shall indemnify, defend, and hold harmless Seller, any officer or director thereof, and their permitted assigns, with respect to any and all demands, claims, actions, suits, proceedings, assessments, judgments, costs, losses, damages, obligations, liabilities, recoveries, deficiencies, and expenses (including interest, penalties and reasonable attorneys' fees) of every kind and description relating to or arising out of: 12.4.1 Any breach or non-performance by Buyer of any of its representations, warranties, covenants or agreements set forth in this Agreement or any 23 other Document; or 12.4.2 The Assumed Obligations and any other liability, obligation or debt of Buyer or the Station that arises or results from and is attributable to the operations or business of the Station on or after the Closing Date or the Commencement Date of the TBA as applicable. 12.5 Indemnification Procedure. For purposes of administering the indemnification provisions set forth in Sections 12.3 and 12.4, the following procedure shall apply: 12.5.1 Whenever a claim for indemnification shall arise under this Article, the party entitled to indemnification (the "Indemnified Party") shall promptly and in no event later than fifteen (15) days after receipt of such a claim, give written notice to the party from whom indemnification is sought (the "Indemnifying Party") setting forth in reasonable detail, to the extent then available, the facts concerning the nature of such claim and the basis upon which the Indemnified Party believes that it is entitled to indemnification hereunder, provided that the Indemnified Party's failure to do so shall not preclude it from seeking indemnification hereunder unless such failure has materially prejudiced the Indemnifying Party's ability to defend such claim. 12.5.2 In the event of any claim for indemnification hereunder resulting from or in connection with any claim, action, suit or legal proceedings brought by a third party, the Indemnifying Party shall be entitled, at its sole expense, either: (i) to participate therein, or (ii) to assume the entire defense thereof with counsel who is selected by it and who is reasonably satisfactory to the Indemnified Party provided that (a) the Indemnifying Party agrees in writing that it does not and will not contest its responsibility for indemnifying the Indemnified Party in respect of such claim or proceeding, and (b) no settlement shall be made without the prior written consent of the Indemnified Party which shall not be unreasonably withheld (except that no such consent shall be required if the claimant is entitled under the settlement to only monetary damages to be paid solely by the Indemnifying Party). If, however, (1) the claim, action, suit or proceeding would, if successful, result in the imposition of damages for which the Indemnifying Party would not be solely responsible hereunder, or (2) representation of both parties by the same counsel would otherwise be inappropriate due to actual or potential differing interests between them, then the Indemnifying Party shall not be entitled to assume the entire defense and each party shall be entitled to retain counsel (in the case of Clause (a) of this sentence, at their own expense) who shall cooperate with one another in defending against such action, claim or proceeding. 12.5.3 If the Indemnifying Party does not choose to defend against a claim, action, suit or legal proceeding by a third party, the Indemnified Party may defend against such claim, action, suit or proceeding in such manner as it deems appropriate or settle such claim, action, suit or proceeding (after giving notice thereof to the Indemnifying 24 Party) on such terms as the Indemnified Party may deem appropriate, and the Indemnified Party shall be entitled to periodic reimbursement of expenses incurred in connection therewith and prompt indemnification from the Indemnifying Party, including reasonable attorneys' fees, in accordance with this Article. 12.5.4 The Indemnifying Party will not, without the Indemnified Party's written consent, settle or compromise any claim or consent to any entry of judgment which does not include, as an unconditional term thereof, the giving by the claimant to the Indemnified Party of a release from all liability with respect to such claim. Neither Buyer nor Seller shall be deemed to have notice of any claim by reason of any knowledge acquired on or prior to the Closing Date by an employee of the Station unless express evidence is available establishing actual notice to either party. 12.6 Limitation of Liability. Notwithstanding anything in this Agreement to the contrary, after the Closing neither Seller nor Buyer shall indemnify or otherwise be liable to the other party from and after the Closing Date except to the extent that the aggregate claims for indemnification by the Indemnified Party exceed Ten Thousand Dollars ($10,000.00) and indemnification shall be made by the Indemnifying Party only to the extent of such excess over Ten Thousand Dollars ($10,000); provided, however, that such limitation shall not apply to the indemnification obligations under Sections 12.3.2 and 12.4.2. ARTICLE XIII TERMINATION 13.1 Termination of Agreement. Seller and/or Buyer may terminate this Agreement upon written notice from one party to the other as provided below: 13.1.1 by either Seller or Buyer if Closing has not occurred on or before the 270th day following the date of this Agreement; or 13.1.2 by one party upon written notice by the non-breaching party to the breaching party at any time prior to the Closing specifying a material breach hereunder by the breaching party provided such breach, if capable of being cured, remains uncured for fifteen (15) days after written notice thereof is received by the breaching party; or 13.1.3 By Seller upon termination of the TBA only by reason of Broker's material breach, or by Buyer upon termination of the TBA by reason of Licensee's material breach; or 13.1.4 By Buyer as provided in Article XIV; or 13.1.5 By Seller or Buyer if the Assignment Application is denied by a Final Order; or 25 13.1.6 By mutual written consent of Seller and Buyer at any time prior to the Closing. Notwithstanding the foregoing, no party shall be entitled to terminate this Agreement while such party is in material breach hereunder. In the event this Agreement is terminated for any reason other than Buyer's material breach hereunder or under the TBA, Buyer shall be entitled to receive the return of the Deposit together will all interest and other earnings earned thereon while held by the Escrow Agent. If this Agreement is terminated by Seller by reason of Buyer's material breach hereunder or under the TBA, Seller shall be entitled to the Deposit plus all accrued interest and other earnings earned thereon while held by the Escrow Agent. Buyer and Seller shall cooperate in taking such action as necessary to assist the designated party in receiving, the return of the Deposit and the interest and earnings earned while held by the Escrow Agent to the designated party(ies). ARTICLE XIV RISK OF LOSS 14.1 The risk of loss, damage or destruction to any of the Acquired Assets from fire, casualty or other cause (except as the result of the action or inaction of Buyer or its agents or employees arising under the TBA) shall be upon Seller at all times up to 12:01 a.m. on the Closing Date, and it shall be the responsibility of Seller prior to Closing to repair or cause to be repaired and to restore the Acquired Assets as closely as practicable to their condition, prior to any such loss or damage. Upon the occurrence of any such casualty, loss, damage or destruction material to the operation of the Station prior to the Closing (except as the result of the action or inaction of Buyer, its agents or employees arising under the TBA), Seller shall immediately give Buyer written notice setting forth in detail the extent of such loss, damage or destruction, the cause thereof if known, and the insurance coverage and Seller shall use its best efforts promptly to commence and thereafter diligently to proceed to repair or replace any such lost, damaged or destroyed property. However, in the event that such repair or replacement is not fully completed prior to the Closing Date, then the Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the scheduled Closing Date and Buyer determines that Seller's failure to repair or replace would have a material adverse effect on the operation of the Station, Buyer may elect: 14.1.1 to terminate this Agreement; or 14.1.2 to consummate the transactions contemplated hereby on the Closing Date with the Acquired Assets in their "as is" condition, in which event Seller shall pay to Buyer the portion of the insurance deductible, if any, not previously met, and assign to Buyer the portion of the insurance proceeds, if any, not previously expended by Seller to repair or replace the damaged or destroyed property; or 26 14.1.3 to postpone the Closing Date until fifteen (15) days after Seller provides written notice to Buyer of completion of the repair or replacement of the damaged or destroyed property in a manner and to an extent satisfactory to Buyer, provided that if Seller is unable through its reasonable best efforts to complete such repair or replacement within ninety (90) days after the Seller's notice to Buyer of the casualty, Buyer may then terminate this Agreement on written notice to Seller. ARTICLE XV DEFAULT AND REMEDIES 15.1 Non-Material Breaches. Non-material breaches or failures to perform by a party hereunder shall not be grounds for postponing the Closing, or terminating this Agreement, but such breaches or failures shall apply to the limitation of liability in Section 12.6 above. 15.2 Opportunity to Cure. No party to this Agreement shall be deemed in default hereunder unless such material breach continues for fifteen (15) days after receipt of written notice from the other party specifying in reasonable detail the nature of such default. The defaulting party shall have the right to cure such default within such 15-day period, provided that if Closing is scheduled prior to the end of this period, cure must be accomplished by the Closing Date. 15.3 Buyer's Remedies. Seller agrees that the Acquired Assets to be conveyed hereunder include unique property that cannot be readily obtained on the open market and that Buyer will be irreparably injured if this Agreement is not specifically enforced. Therefore, Buyer shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to specifically enforce Seller's performance under this Agreement by action instituted in any court of the United States or any state thereof having jurisdiction over the Seller and Buyer and the matter, and Seller agrees to waive the defense in any such suit that Buyer has an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of specific performance as a remedy. In the event Buyer terminates of this Agreement as a result of Seller's material breach of this Agreement instead of seeking specific performance, Buyer shall be entitled to the return of the Deposit, plus all accrued interest, and in addition Buyer shall be entitled to recover from Seller Buyer's actual out-of pocket damages arising from such breach. 15.4 Liquidated Damages. In the event of Seller's termination of this Agreement due to a material breach of Buyer hereunder or under the TBA, then the Deposit, plus all accrued interest, shall be paid to Seller as liquidated damages, it being agreed that the Deposit shall constitute full payment for any and all damages suffered by reason of, and shall constitute Seller's sole remedy at law or in equity for, Buyer's material breach hereunder. 27 ARTICLE XVI MISCELLANEOUS 16.1 Further Actions. From time to time before, at and after the Closing, each party, at its expense and without further consideration, will execute and deliver such documents to the other party as the other party may reasonably request in order to accomplish the transactions contemplated hereby. 16.2 Payment of Expenses. 16.2.1 All state or local sales or use, stamp or transfer, grant and other similar taxes payable in connection with consummation of the transactions contemplated hereby shall be paid by the party primarily liable under applicable law to pay such tax. 16.2.2 Except as otherwise expressly provided in this Agreement, each party shall bear its own expenses, including the fees of any attorneys and accountants engaged by such party, in connection with this Agreement and the consummation of the transactions contemplated herein. 16.3 Notices. All notices, demands or other communications given hereunder shall be in writing and shall be sufficiently given if delivered by hand, by courier (including nationally-recognized overnight delivery service) or sent by registered or certified mail, first class mail, postage prepaid, or by facsimile with receipt confirmation and a follow-up copy sent by nationally-recognized overnight delivery service on the same day as such facsimile, addressed as follows: If to Seller: WSEA, Inc. 2014 N. Irby Street Florence, SC 29506 Tel: 803-661-5000 Fax: 803-661-0888 Copy (which shall not constitute notice to Seller) to: Frank R. Jazzo, Esquire Fletcher Heald & Hildreth, PLC 1300 N. 17th Street, Suite 1100 Arlington, VA 22209 Tel: 703-812-0400 Fax: 703-812-0486 28 If to Buyer: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. c/o QUAESTUS Management Corp. 330 E. Kilbourn Ave., Suite 250 Milwaukee, WI 53202 Attention: Terrence J. Leahy Tel: 414-283-4500 Fax: 414-283-4505 Copy (which shall not constitute notice to Buyer) to: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Ave., Suite 3650 Chicago, IL 60611 Attention: Richard J. Bonick Tel: 312-867-0091 Tel: 312-867-0098 or such other address with respect to either party hereto as such party may from time to time specify (as provided above) to the other party hereto. Any such notice, demand or communication shall be deemed to have been given: 16.3.1 if sent by first class mail, as of the close of the third business day following the date so mailed; 16.3.2 if personally delivered or sent by overnight courier, on the date delivered; and 16.3.3 if faxed, on the date faxed, provided written or verbal confirmation of receipt has been obtained by the sending party. 16.4 Entire Agreement. This Agreement, the Schedules and Exhibits hereto, and the other Documents, constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes any prior offers, negotiations, agreements, understandings or arrangements between the parties hereto with respect to the subject matter hereof. 16.5 Benefit and Assignment. No party may assign this Agreement of its rights or obligations hereunder to another party without the advance written consent of the other party provided, however, that (i) Buyer may assign its right under this Agreement to one or more affiliates or subsidiary of Buyer, provided such affiliate or subsidiary is controlled by or under common control with Buyer, and so long as Buyer unconditionally guarantees all of such affiliate's or subsidiary's obligations under the Agreement and other Documents, 29 and provided that such assignment occurs prior to the termination of the 30-day period provided for in Section 73.3584 of the FCC's rules, and (ii) any party's rights to indemnification under Article XII hereof will inure to the benefit of and be enforceable by any successor-in-interest by merger or consolidation or by any lender secured by a security interest in such rights to indemnification. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors or permitted assigns. 16.6 Governing Law. This Agreement shall in all respects be governed by and construed in accordance with the internal laws of the State of South Carolina, including all matters of construction, validity and performance, without regard to its principles of conflicts of laws. 16.7 Amendments and Waivers. No term or provision of this Agreement may be amended, waived, modified, discharged or terminated orally but rather only by an instrument in writing signed by both parties. Any written waiver shall be effective only in accordance with its express terms and conditions. 16.8 Severability. Any provision of this Agreement which is held by any court of competent jurisdiction or as a result of further legislative or administrative action, unenforceable shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without affecting the validity or enforceability of any other provision hereof. 16.9 Headings. The captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 16.10 Counterparts. This Agreement may be executed in any number of counterparts, and by either party on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16.11 References. All references in this Agreement to Schedules and Exhibits are to Schedules and Exhibits contained in this Agreement unless a different document is expressly specified. 16.12 Attorneys' Fees. If either Seller or Buyer brings suit against the other in connection with this Agreement, the prevailing party shall be entitled to receive from the other party reasonable attorneys' fees and other costs and expenses incurred by such party in connection with such suit regardless of whether such suit is prosecuted to judgment. As used herein, "prevailing party" shall mean, in the case of a claimant, one who is successful in obtaining substantially all of the relief sought, and in the case of a defendant or respondent, one who is successful in denying substantially all of the relief sought by the claimant. 30 16.13 Construction. The language used in this Agreement will be deemed to be the language chosen by the Seller and Buyer to express their mutual intent, and no rule of strict construction shall be applied against any party. Any reference to any federal, state, local or foreign statute or law shall be deemed to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. 16.14 Confidentiality. Buyer and Seller shall keep confidential all information obtained by it with respect to the other in connection with this Agreement and the negotiations preceding this Agreement, and will use such information solely in connection with the transactions contemplated by this Agreement. If the transactions contemplated hereby are not consummated for any reason, each party shall return to the other, without retaining a copy thereof, any schedules, documents or other written information obtained from the other in connection with this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, neither party shall be required to keep confidential or return any information which (a) is known or available through other lawful sources, not bound by a confidentiality agreement with the disclosing party, or (b) is or becomes publicly available or known through no fault of the receiving party or its agents, (c) is required to be disclosed pursuant to an order or request of a judicial or governmental authority or under applicable law (provided the disclosing party is given reasonable prior notice), or (d) is developed by the receiving party independently of the disclosure by the disclosing party. 16.15 Press Releases. In the event either party wishes to issue a news release or other announcement regarding this Agreement (other than public notices required by Section 73.3580 of the FCC's rules), such party shall coordinate with the other party in advance with respect to the information to be disclosed and the timing of such disclosure. [INTENTIONALLY LEFT BLANK] 31 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first written above. WSEA, INC. By: ---------------------------- (printed) ---------------------------- Title: ------------------------- CUMULUS BROADCASTING, INC. By: ---------------------------- (printed) ---------------------------- Title: ------------------------- CUMULUS LICENSING CORPORATION By: ---------------------------- (printed) ---------------------------- Title: ------------------------- 32 TABLE OF EXHIBITS AND SCHEDULES EXHIBIT 1 Escrow Agreement SCHEDULE 2.1.3 Station Agreements, Contracts and Leases SCHEDULE 2.1.3-A Advertising Contracts SCHEDULE 2.1.5 Intangible Assets SCHEDULE 2.4 Purchase Price SCHEDULE 3.3 FCC Authorizations SCHEDULE 3.4 Tangible Personal Property SCHEDULE 3.5 Litigation SCHEDULE 3.11 Leased Real Property SCHEDULE 3.13 Environmental Exceptions SCHEDULE 3.17 Employees SCHEDULE 3.19 Financial Statements
Schedule 2.4 Buyer agrees to pay Seller, as consideration for the purchase contemplated hereunder a total Purchase Price of One Million Three Hundred Thousand Dollars ($1,300,000.00) to be paid as follows: Escrow Deposit. Simultaneously with the execution of this Agreement, Buyer shall deposit Sixty-Five Thousand Dollars ($65,000.00) (the "Deposit") with Frank R. Jazzo and J. Griffith Johnson ("Joint Escrow Agents") in the form of a letter of irrevocable letter of credit from Lehman Commercial Paper Inc. The Deposit shall be held by the Escrow Agent in accordance with the terms of the Escrow Agreement attached hereto as Exhibit 1. Cash Payment of Balance. Buyer shall pay to Seller at Closing the Purchase Price: One Million Three Hundred Thousand Dollars ($1,300,000.00). Payment shall be made by wire transfer of immediately available funds pursuant to wire instructions to be provided by Seller in advance of the Closing. EX-10.72 18 EXHIBIT 10.72 Exhibit 10.72 ASSET PURCHASE AGREEMENT This Agreement ("Agreement") is entered into as of March 30, 1998, by and between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Mountain Wireless, Inc. (the "Seller"). Broadcasting and Licensing are referred to collectively herein as the "Buyers." The Buyers and the Seller are referred to collectively herein as the "Parties." Capitalized terms used in this Agreement are defined in Section 8 hereof. Subject to the terms and conditions of this Agreement, the Buyers hereby agree to purchase substantially all of the assets (and assume certain of the liabilities) of the Seller that are used or useful in the operation of radio station WTOS-FM, licensed to Skowhegan, Maine (the "Station") in return for cash. Now, therefore, in consideration of the above premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Basic Transaction. (a) Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, Licensing agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Licensing, all of the FCC Licenses listed in Section 2(l) of the Disclosure Schedule. In addition, Broadcasting agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Broadcasting, all of the Acquired Assets other than the FCC Licenses. Both such sales shall take place at the Closing for the consideration specified below in this Section 1. (b) Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, the Buyer agrees to assume and become responsible for all of the Assumed Liabilities at the Closing. The Buyer will not assume or have any responsibility, however, with respect to any other obligation or Liability of the Seller not included within the definition of Assumed Liabilities and the Seller agrees to pay and discharge all Liabilities and obligations of the Seller other than the Assumed Liabilities. (c) Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets, the amount of Two Million Two Hundred Thousand Dollars ($2,200,000.00) (the "Purchase Price"). The Purchase Price shall be payable as follows: (i) on the date of this Agreement, the Buyers will deposit with the Escrow Agent an irrevocable letter of credit in favor of Escrow Agent in the amount of One Hundred Ten Thousand Dollars ($110,000.00)(the "Earnest Money Deposit") by wire transfer or delivery of other immediately available funds; and 1 (ii) on the Closing Date, the Buyers shall pay to the Seller the amount of Two Million Two Hundred Thousand Dollars ($2,200,000.00), less interest earned on the Earnest Money Deposit, if any; and The Earnest Money Deposit referenced in this Section l(c) shall be placed in escrow with the Escrow Agent pursuant to an escrow agreement in the form attached hereto as Exhibit A (the "Earnest Money Escrow Agreement"), and the Escrow Agency shall cancel, draw upon, or take other action with respect to the irrevocable letter of credit representing the Earnest Money Deposit pursuant to the terms of the Earnest Money Escrow Agreement. (d) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Station in Skowhegan, Maine, or at such other location as the parties may mutually determine, commencing at 9:00 a.m. local time on the date set by the Buyers not earlier than the fifth business day or later than the tenth business day after the FCC approval of the Assignment Application becomes a Final Order, by which date all other conditions to the obligations of the Parties to consummate the transactions contemplated hereby will have been satisfied or such other date as the Parties may mutually determine (the "Closing Date"). (e) Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyers the various certificates, instruments, and documents referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various certificates, instruments, and documents referred to in Section 5(b) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyers (A) assignments (including Lease and other Assumed Contract assignments and Intellectual Property transfer documents) and bills of sale in the forms attached hereto as Exhibits B-1 through B-2, (B) such affidavits, transfer tax returns, memorandums of lease, and other additional documents as may be necessary to convey title to the Real Estate to the Buyers in the condition required herein or provide public notice of existence of the Leases, and (C) such other instruments of sale, transfer, conveyance, and assignment as the Buyers and their counsel reasonably may request; (iv) the Buyers will execute, acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the form attached hereto as Exhibit C and (B) such other instruments of assumption as the Seller and its counsel reasonably may request; and (v) the Buyers will deliver to the Seller the consideration specified in Section l(c) above. (f) The Parties agree to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with an allocation schedule to be agreed upon within thirty (30) days of the Closing. (g) At the Closing, the Seller and Buyers shall execute the Transitional Services Agreement attached hereto as Exhibit E. 2. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyers that the statements contained in this Section 2 are correct and complete as of the date of this Agreement, except as set forth in the lettered and numbered paragraphs 2 contained in the disclosure schedule accompanying this Agreement and initialed by the Parties (the "Disclosure Schedule") corresponding to the lettered and numbered sections of this Section 2. (a) Organization of the Seller. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. The Seller does not have any Subsidiaries. The Seller has the power and authority to own or lease its properties and to carry on all business activities now conducted by it. (b) Authorization of Transaction. The Seller has full power and authority to execute and deliver this Agreement and all agreements and instruments to be executed and delivered by such Party pursuant to this Agreement (collectively, the "Ancillary Agreements") and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Board of Directors of the Seller has duly authorized the execution, delivery, and performance of this Agreement and the Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligation of the Seller, enforceable in accordance with their respective terms and conditions. (c) Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of the charter or bylaws of the Seller; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other agreement, arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). Other than with respect to the Assignment Application described in Section 4(b) and as disclosed in Section 2(c) of the Disclosure Schedule, the Seller does not need to give any notice to, make any filing with, or obtain any Licenses, consent, or approval of any court or government or governmental agency in order for the Parties to enter into this agreement or the Ancillary Agreements or to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). (d) Title to Acquired Assets. Other than the Security Interests set forth on Section 2(d) of the Disclosure Schedule (which shall be released at or before the Closing) the Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. (e) Financial Statements. Included in Section 2(e) of the Disclosure Schedule are the following financial statements (collectively the "Financial Statements"): (i) statements of income, and cash flow as of and for the fiscal years ended December 31, 1993, December 31, 1994, December 31, 1995 and December 31, 1996, for the Station; and (ii) statements of income, as of 3 and for each month during 1996 and each month ending December 31 in 1997 for the Station. The Financial Statements have been prepared in accordance with GAAP (except to the extent that footnotes are not included) applied on a consistent basis throughout the periods covered thereby, are correct and complete in all material respects, fairly represent the financial condition of the Station on such dates and the results of operations for the periods designated therein, and are consistent with the books and records of the Seller (which books and records are correct and complete in all material respects). (f) Events Subsequent to January 1, 1997. Since January 1, 1997, except as set forth in Section 2(f) of the Disclosure Schedule, there has not been any material adverse change in the assets, Liabilities, business condition of the Station. For the purposes of this Agreement a "material adverse change" shall not apply to or include any change in the ratings of the Station and/or any decline of less than Ten Thousand Dollars ($10,000) in the Station's cash flow for the period January 1, 1998-April 26, 1998 when compared to the same period in 1997. Without limiting the generality of the foregoing and solely with respect to operation of the Station since that date: (i) the Seller has not sold, leased, transferred, or assigned any of its material assets, tangible or intangible; (ii) other than this Agreement, the Seller has not entered into any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business; (iii) no party has accelerated, terminated, modified, or canceled any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) involving more than $5,000 to which the Seller is a party or by which it or any of its assets are bound; (iv) no Security Interest has been imposed upon any of Seller's assets, tangible or intangible; (v) the Seller has not made any capital expenditure (or series of related capital expenditures) outside the Ordinary Course of Business; (vi) the Seller has not made any capital investment in, any loan to, or any acquisition of the securities or assets of any other person (or series of related capital investments, loans, and acquisitions); (vii) the Seller has not created, incurred, assumed, or guaranteed any indebtedness (including capitalized lease obligations) outside the Ordinary Course of Business; (viii) the Seller has not delayed or postponed (beyond its normal practice in the Ordinary Course of Business) the payment of accounts payable and other Liabilities; 4 (ix) the Seller has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) outside the Ordinary Course of Business; (x) the Seller has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) the Seller has not experienced any damage, destruction, or loss (whether or not covered by insurance) to any of its property or any action adversely affecting the FCC Licenses; (xii) the Seller has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees giving rise to any claim or right on its part against the person or on the part of the person against it; (xiii) the Seller has not entered into any employment contract, consulting contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (xiv) the Seller has not granted any increase (outside routine salary and wage increases in the Ordinary Course of Business) in the rate of compensation, commissions, bonus or other remuneration payable, or granted any severance or termination pay to, any of its directors, officers, and employees; (xv) Except as set forth in Section 2(f) of the Disclosure Schedule, the Seller has not adopted any (A) bonus, (B) profit-sharing, (C) incentive compensation, (D) pension, (E) retirement, (F) medical, hospitalization, life, or other insurance, (G) severance, or (H) other plan, contract, or commitment for any of its directors, officers, and employees, or modified or terminated any existing such plan, contract, or commitment; (xvi) the Seller has not made any other change in employment terms for any of its directors, officers, and employees; (xvii) the Seller has not made or pledged to make any charitable or other capital contribution; (xviii) the Seller has not altered its credit and collection policies or its accounting policies; (xix) the Seller has not materially altered the programming, format or call letters of the Station, or its promotional and marketing activities; (xx) the Seller has not applied to the FCC for any modification of the FCC Licenses or failed to take any action necessary to preserve the FCC Licenses and has operated the Station in compliance therewith and with all FCC rules and regulations; or (xxi) the Seller has not committed to any of the foregoing. 5 (g) Tax Matters. The Seller has timely and properly filed all Tax Returns that it was required to file with respect to the Station's operations. All such Tax Returns were correct and complete in all material respects and properly reflect the tax liability of the Seller. The Seller has not requested any extension of time within which to file returns in respect of any Taxes with respect to the Seller's operations. No Tax deficiencies have been proposed or assessed against the Seller. There are no pending, or to the Seller's knowledge, threatened audits, investigations, or claims for or relating to any liability in respect of Taxes with respect to the Seller's operations. All Taxes owed by the Seller with respect to its operations (whether or not shown on any Tax Return) have been paid. The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. There are no Security Interests on any of the assets of the Seller that arose in connection with any failure (or alleged failure) to pay any Tax. (h) Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a listing of all transmitter and station equipment, vehicles and other tangible personal property used in conducting the operation and business of the Station, which are to be conveyed by Seller to Buyers pursuant to this Agreement. The Seller owns or leases all tangible assets necessary for the conduct of the operation and business of the Station as presently conducted and as presently proposed to be conducted and all leased assets are specifically identified as such in Section 2(h) of the Disclosure Schedule. Each such tangible asset is free from defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. Any leased personal property included within the tangible personal property is in the condition required of such property by the terms of the lease applicable thereto during the term of the lease and upon the expiration thereof. All of the equipment utilized in the operation of the Station is in substantial compliance with all FCC and FAA requirements and is sufficient to satisfy the intended needs of the normal customary operations of the Station at all times of the year and all such equipment is in substantial compliance with all applicable laws. (i) Real Property. Section 2(i) of the Disclosure Schedule lists and describes briefly all Owned Real Estate and real property leased to the Seller (including, without limitation, complete legal descriptions for all of the Real Estate) in connection with the operation of the Station. The Seller has delivered to the Buyer correct and complete copies of the Leases. With respect to the Real Estate: (i) the Seller has good and marketable title to all of the Owned Real Estate free and clear of all liens, charges, mortgages, security interests, easements, restrictions or other encumbrances of any nature whatsoever except real estate taxes for the year of Closing and municipal and zoning ordinances and recorded utility easements which do not impair the current use, occupancy or value or the marketability of title of the property and which are disclosed in Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real Estate Encumbrances"); (ii) the Leases are and, following the Closing will continue to be, legal, valid, binding, enforceable, and in full force and effect; 6 (iii) no party to any Lease is in breach or default (or has repudiated any provision thereof), and no event has occurred which, with notice or lapse of time, would constitute a breach or default thereunder or permit termination, modification, or acceleration thereunder; (iv) there are no disputes, oral agreements, or forbearance programs in effect as to any Lease; (v) none of the Owned Real Estate and to the Seller's Knowledge, none of the properties subject to the Leases is subject to any lease (other than Leases), option to purchase or rights of first refusal; (vi) except for Permitted Real Estate Encumbrances, there are no (i) actual or, to the Seller's Knowledge, proposed special assessments with respect to any of the Real Estate; (ii) pending or, to the Seller's Knowledge, threatened condemnation proceedings with respect to any of the Real Estate; (iii) pending or, to the Seller's Knowledge, threatened litigation or administrative actions with respect to any of the Real Estate; (iv) mechanic's or materialmens' liens with respect to the Owned Real Estate; (v) structural or mechanical defects in any of the buildings or improvements located in the Real Estate; (vi) planned or commenced improvements which will result in an assessment or otherwise affect the Real Estate; (vii) governmental agency or court orders requiring the repair, alteration or correction of any existing condition with respect to the Real Estate or any portion thereof; or (viii) any pending or, to the Seller's Knowledge, threatened changed in any zoning laws or ordinances which may affect any of the Real Estate or Seller's use thereof; (vii) all buildings and improvements on the Real estate are in good operating condition and repair, normal wear and tear excepted; (viii) the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or its rights thereunder; (ix) to the Seller's Knowledge, all facilities on the Real Estate have received all approvals of governmental authorities (including licenses, permits and zoning approvals) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; (x) all facilities on the Real Estate are supplied with utilities and other services necessary for the operation of said facilities; and (xi) to the Seller's Knowledge, the owner of each leased facility has good and marketable title to the underlying parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for Permitted Real Estate Encumbrances and Seller's leasehold interest in each Lease has priority over any other interest except for the fee interest therein and Permitted Real Estate Encumbrances; (j) Intellectual Property. The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for or currently used in the operation of the 7 Station as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Seller in connection with operation of the Station immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder. To the Seller's knowledge, with respect to such Intellectual Property used in the operation of the Station: (i) The Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Seller has never received any charge, complaint, claim, or notice alleging any such interference, infringement, misappropriation, or violation. To the Knowledge of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. (ii) Section 2(j) of the Disclosure Schedule identifies each patent, trademark or copyright registration which has been issued to the Seller with respect to any of its Intellectual Property and the call letters (current and past) of the Station, identifies each pending patent, trademark or copyright application for registration which the Seller has made with respect to any of its Intellectual Property, and identifies each license, agreement, or other permission which the Seller has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Seller has delivered to the Buyer correct and complete copies of all such patents, trademarks or copyright registrations, applications, licenses, agreements, and permissions (as amended to date) and has made available to the Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. With respect to each item of Intellectual Property used in the operation of the Station that the Seller owns: (A) the Seller possesses all right, title, and interest in and to the item and all registrations and applications are in full force and effect; (B) the item is not subject to any outstanding judgment, order, decree, stipulation, injunction, or charge; (C) no charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand is pending or, to the Knowledge of the Seller, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and (D) the Seller has not ever agreed to indemnify any person or entity for or against any interference, infringement, misappropriation, or other conflict with respect to the item. (iii) Section 2(j) of the Disclosure Schedule also identifies each item of Intellectual Property that any third party owns and that the Seller uses in connection with operation of the Station pursuant to license, sublicense, agreement, or permission including, but not limited to the call letters of the Station. The Seller has supplied the Buyer with correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each such item of used Intellectual Property used in the operation of the Station: 8 (A) the license, sublicense, agreement, or permission covering the item is, and following the Closing will continue to be on identical terms, legal, valid, binding, enforceable, and in full force and effect; (B) no party to the license, sublicense, agreement, or permission is in breach or default (or has repudiated any provision thereof), and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder; (C) with respect to each sublicense, the representations and warranties set forth in subsections (A) and (B) above are true and correct with respect to the underlying license; (D) the underlying item of Intellectual Property is not subject to any outstanding judgment, order, decree, stipulation, injunction, or charge; (E) no charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand is pending, or, to the Knowledge of the Seller, is threatened which challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; (F) the Seller has not agreed to indemnify any person or entity for or against any interference, infringement, misappropriation, or other conflict with respect to the underlying item of Intellectual Property; and (G) the Seller has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (k) Contracts. Section 2(k) of the Disclosure Schedule lists the following contracts, agreements, and other written arrangements (other than with advertisers for the sale of air time which are listed in Section 2(s) of the Disclosure Schedule) in connection with operation of the Station to which the Seller is a party: (i) any written arrangement (or group of related written arrangements) for the lease of personal property from or to third parties providing for lease payments in excess of $1,000 per year; (ii) any written arrangement (or group of related written arrangements) for the purchase or sale of supplies, products, or other personal property or for the furnishing or receipt of services which either calls for performance over a period of more than one year or involves more than the sum of $1,000; (iii) any written arrangement concerning a partnership or joint venture; (iv) any written arrangement (or group of related written arrangements) under which it has created, incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness (including capitalized lease obligations) involving more than $1,000 or under 9 which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible; (v) any written arrangement concerning confidentiality or noncompetition; (vi) any written arrangement with any of its employees in the nature of a collective bargaining agreement, consulting agreement, compensation agreement, employment agreement, commission agreement, or severance agreement; (vii) any written arrangement under which the consequences of a default or termination could have an adverse effect on the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Station; (viii) any written arrangement concerning a guaranty by the Seller of the obligations of any other party; or (ix) any other written arrangement (or group of related written arrangements) either involving more than $5,000 or not entered into in the Ordinary Course of Business. The Seller has delivered to the Buyer a correct and complete copy of each written arrangement listed in Section 2(k) of the Disclosure Schedule (as amended to date). With respect to each written arrangement so listed which constitutes an Assumed Contract: (A) the written arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing (if the arrangement has not expired according to its terms); (C) no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) no party has repudiated any provision of the written arrangement. The Seller is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in Section 2(k) of the Disclosure Schedule under the terms of this Section 2(k). Except for the Assumed Contracts, the Buyer shall not have any Liability or obligations for or in respect of any of the contracts set forth in Section 2(k) of the Disclosure Schedule or any other contracts or agreements of the Seller. No advertiser of the Station has indicated within the past year that it will stop, or decrease the rate of, buying services from them. (l) Commission Licenses and Compliance with Commission Requirements. (i) All licenses, permits, authorizations, franchises, certificates of compliance, and consents of governmental bodies, including, without limitation, the FCC Licenses, used or useful in the operation of the Station as they are now being operated are (A) in full force and effect, (B) unimpaired by any acts or omissions of the Seller or the Seller's employees or agents, (C) free and clear of any restrictions which might limit the full operation of the Station, and (D) detailed in Section 2(1) of the Disclosure Schedule. With respect to the licenses, permits, 10 authorizations, franchises, certificates of compliance and consents referenced in the preceding sentence, Section 2(1) of the Disclosure Schedule also sets forth, without limitation, the date of the last renewal, the expiration date thereof, and any conditions or contingencies related thereto. Except as set forth in Section 2(1) of the Disclosure Schedule, no condition exists or event has occurred that permits, or after notice or lapse of time, or both, would permit, the revocation or termination of any such license, permit, consent, franchise, or authorization (other than pursuant to their express expiration date) or the imposition of any material restriction or limitation upon the operation of the Station as now conducted. Except as set forth in Section 2(1) of the Disclosure Schedule, the Seller is not aware of any reason why the FCC licenses might not be renewed in the ordinary course or revoked. For the purposes of this Agreement, the imposition by the FCC of reporting conditions and/or a fine in connection with the operation of the Station shall not be considered a material restriction on the FCC licenses. (ii) Except as disclosed in Schedule 2(l), the Station is in compliance with the FCC's policy on exposure to radio frequency radiation, no renewal of any FCC License would constitute a major environmental action under the FCC's rules or policies and access to the Station's transmission facilities is restricted in accordance with the policies of the FCC. (iii) Except as set forth in Section 2(1) of the Disclosure Schedule, to the Seller's Knowledge, the Seller is not the subject of any FCC or other governmental investigation or any notice of violation or order, or any material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorization for the Station, and there are no proceedings (other than rule making proceedings of general applicability) before the FCC or any other governmental authority that could adversely affect any of the FCC Licenses or the authorizations listed in Section 2(1) of the Disclosure Schedule. (iv) The Seller has filed with the FCC and all other governmental authorities having jurisdiction over the Station all material reports, applications, documents, instruments, and other information required to be filed, and will continue to make such filings through the Closing Date. (v) The Seller is not aware of any information concerning the Station that could cause the FCC or any other regulatory authority not to issue to the Buyer all regulatory certificates and approvals necessary for the consummation of the transactions contemplated hereunder or the Buyer's operation and/or ownership of the Station. (m) Insurance. Section 2(m) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) in connection with operation of the Station to which the Seller is a party, a named insured, or otherwise the beneficiary of coverage: (i) the name, address, and telephone number of the agent; 11 (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) the policy number and the period of coverage; (iv) the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and (v) a description of any retroactive premium adjustments or other loss-sharing arrangements. With respect to each such insurance policy: (A) the policy is legal, valid, binding, and enforceable and in full force and effect; (B) the policy will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms through the Closing Date. (n) Litigation. With respect to operation of the Station, Section 2(n) of the Disclosure Schedule sets forth each instance in which the Seller: (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the charges, complaints, actions, suits, proceedings, hearings, and investigations set forth in Section 2(n) of the Disclosure Schedule could result in any material adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Station taken as a whole. The Seller has no reason to believe that any such charge, complaint, action, suit, proceeding, hearing, or investigation may be brought or threatened against the Seller. (o) Employees. Section 2(o) of the Disclosure Schedule sets forth a listing of the names, positions, job descriptions, salary or wage rates and all other forms of compensation paid for work at the Station of each employee of the Seller employed in connection with the Station. Section 2(o) of the Disclosure Schedule also sets forth a list of all employee handbooks and/or manuals relating to the Station employees of the Seller, true and correct copies of which have been delivered to the Buyer. To the Knowledge of the Seller, no key Station employee or group of Station employees has any plans to terminate employment with the Seller. The Seller is not a party to or bound by any understanding (whether written or oral), agreement or contract with any union, labor organization, employee group or other entity or individual which affects the employment of Station employees of the Seller including, but not limited to any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Seller has no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to Station employees of the Seller. The Seller has not been subject to a strike, slow down or other work stoppage during the five (5) year period immediately preceding the date hereof and, to the Seller's Knowledge, there are no strikes, slow downs or work stoppages 12 threatened against the Seller. To the Seller's Knowledge, it has not committed any unfair labor practice. To the Seller's Knowledge, there is no basis for any claim by any past or present Station employee of the Seller that such employee was subject to wrongful discharge or any employment discrimination by the Seller or its management arising out of or relating to the employee's race, sex, age, religion, national origin, ethnicity, handicap or any other protected characteristic under applicable law. No proceedings are pending before any court, governmental agency or instrumentality or arbitrator relating to labor matters, and there is no pending investigation by any governmental agency or, to the Knowledge of the Seller, threatened claim by any such agency or other person relating to labor or employment matters. (p) Employee Benefits. Section 2(p) of the Disclosure Schedule lists all Employee Benefit Plans that the Seller maintains or to which the Seller contributes or is required to contribute for the benefit of any current or former Station employee of the Seller and true and correct copies of each such Employee Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and each related trust or insurance contract) complies and at all times has complied in form and in operation in all respects with the applicable requirements of ERISA and the Code. The Seller does not have any commitment to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee or terminated Station employee of the Seller. There are no pending or, to the Knowledge of the Seller, threatened claims under, by or on behalf of any of the Employee Benefit Plans, by any Station employee or beneficiary covered by any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits), nor have there been any Reportable Events or Prohibited Transactions with respect to any Employee Benefit Plan. (q) Environment, Health, and Safety. To the Seller's Knowledge: (i) With respect to the operation of the Station and the Real Estate by the Seller, the Seller is, and at all times in the past has been, in compliance in all material respects with all Environmental Laws and all laws (including rules and regulations thereunder) of federal, state, and local governments (and all agencies thereof) concerning employee health and safety, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has ever been filed or commenced or, to the Seller's Knowledge, is threatened, against the Seller alleging any failure to comply with any such Environmental Law or laws concerning employee health and safety. (ii) With respect to the operation of the Station and the Real Estate by the Seller, the Seller has no Liability (and to Seller's Knowledge there is no Basis related to the past or present operations of the Seller for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act of 13 1986 (each as amended), or any other law of any federal, state, local, or foreign government or agency thereof (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, or pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes ("Environmental Laws"); (iii) With respect to operation of the Station by the Seller, the Seller has no Liability (and to Seller's Knowledge there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety, or for any illness of or personal injury to any Station employee. (iv) With respect to operation of the Station by the Seller, the Seller has obtained and at all times has been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental Laws or law of any federal, state, or local or foreign government relating to worker health and safety. (v) To the Seller's knowledge, all properties and equipment used in the business of the Seller are free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2-trans- dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. (vi) To the Seller's knowledge, no pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or waste is buried, stored, spilled, leaked, discharged, emitted, or released on any of the Real Estate. (vii) None of the Acquired Assets are required to be upgraded, modified or replaced to be in compliance with Environmental Laws. (viii) Section 2(q) of the Disclosure Schedule contains a copy of all environmental claims, reports, studies, compliance actions or the like of the Seller or which are available to the Seller with respect to any of the Real Estate or any of the Acquired Assets. (ix) To the Seller's knowledge, no septic systems or wells exist on, in or under any of the Real Estate, no above ground or underground storage tanks are located at, on 14 or under the Real Estate, and none of the Real Estate is contaminated by hazardous or toxic substances or waste, as defined under Environmental Laws, originating from off-site sources. (r) Legal Compliance. (i) In connection with operation of the Station, the Seller has complied in all material respects with all laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof) no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced or, to the Seller's Knowledge, is threatened, against the Seller alleging any failure to comply with any such law or regulation, including those relating to the employment of labor, employee civil rights, and equal employment opportunities and relating to antitrust matters. (ii) In connection with operation of the Station, the Seller has filed in a timely manner all reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all material respects) under all applicable laws (including rules and regulations thereunder) of federal state, local and foreign governments (and all agencies thereof). To the Seller's Knowledge, it has possession of all records and documents it was required to retain under all applicable laws (including rules and regulations thereunder). (s) Advertising Contracts. Section 2(s) of the Disclosure Schedule lists all arrangements for the sale of air time or advertising on the Station in excess of $1000, and the amount to be paid to the Seller therefor. In connection with operation of the Station, the Seller has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or third parties to material contracts of the Seller to cease doing business or to reduce in any material respect the business transacted with the Seller or to terminate or modify any agreements with the Seller (whether as a result of consummation of the transactions contemplated hereby or otherwise). (t) Brokers' Fees. The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (u) Undisclosed Commitments or Liabilities. There are no commitments, liabilities or obligations relating to the Station, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by the Seller of the liabilities of third parties, for which specific and adequate provisions have not been made on the Financial Statements except those incurred in or as a result of the Ordinary Course of Business since January 1, 1997 (none of which Ordinary Course of Business obligations have had or will have a material adverse effect on the Station). (v) Disclosure. The representations and warranties contained in this Section 2 do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained in this Section 2 not misleading. 15 3. Representations and Warranties of the Buyer. Buyers represent and warrant to the Seller that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3. (a) Organization of the Buyers. Broadcasting and Licensing are corporations duly organized, validly existing, and in good standing under the laws of Nevada. (b) Authorization of Transaction. Buyers have full power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform their obligations hereunder and thereunder. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligation of the Buyers, enforceable against the Buyers in accordance with their respective terms and conditions. (c) Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyers are subject or any provision of their articles of organization or other charter documents, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyers are a party or by which they are bound or to which any of their assets is subject. Other than the Assignment Application described in Section 4(b), the Buyers do not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any court or government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). (d) Brokers' Fees. Other than fees payable to George Silverman & Associates, which shall be the exclusive responsibility of the Buyers, Buyers have no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. (e) Qualifications. The Buyers are legally, technically, financially and otherwise qualified under the Communications Act of 1934, as amended, and under the rules and regulations of the FCC to become the holder of the Station's FCC Licenses. 16 4. Pre-Closing Covenants. The Parties agree as follows with respect to operation of the Station during the period between the execution of this Agreement and the Closing: (a) General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 5 below). (b) Assignment Application. The Seller and the Buyers have jointly filed with the FCC an application for assignment of the FCC Licenses, permits and authorizations pertaining to the Station from the Seller to Licensing (the "Assignment Application"). The costs of the FCC filing fees in connection with the Assignment Application shall be divided equally between the Parties. Each party shall pay its own attorneys' fees. The Seller and the Buyers shall thereafter prosecute the Assignment Application with all reasonable diligence and otherwise use the commercially reasonable efforts to obtain the grant of the Assignment Application as expeditiously as practicable (but neither the Seller nor the Buyers shall have any obligation to satisfy complainants or the FCC by taking any steps which would have material adverse effect upon the Station or upon any Affiliate or impose significant costs on such party). If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercially reasonable efforts to comply with such condition, provided, that neither party shall be required hereunder to comply with any condition that would have a material adverse effect upon the Station or any Affiliate. The Seller and the Buyers shall jointly oppose any requests for reconsideration or judicial review of FCC approval of the Assignment Application and shall jointly request from the FCC extension of the effective period of FCC approval of the Assignment Application if the Closing shall not have occurred prior to the expiration of the original effective period of the FCC Consent. Nothing in this Section 4(b) shall be construed to limit either party's right to terminate this Agreement pursuant to Section 9 of this Agreement. (c) Employment Offers. Upon notice to the Seller, and at mutually agreeable times, the Seller will permit the Buyers to meet with its Station employees listed on Section 2(o) of the Disclosure Schedule and designated as exclusive employees of the Station prior to the Closing Date. Not earlier than one (1) week prior to the Closing, the Buyers may, at their option, extend offers of employment to all or any of the Seller's Station employees listed on Schedule 2(o) of the Disclosure Schedule and designated as exclusive employees of the Station effective on the Closing Date. From and after the execution of this Agreement, the Seller shall use its best efforts to assist Buyers in retaining those employees of the Station which the Buyers wish to hire in connection with the operation of the Station by the Buyers subsequent to the Closing, and the Seller will not take any action to preclude or discourage any of the Seller's Station employees from accepting any offer of employment extended by the Buyers. (d) Notices and Consents. The Seller will give all notices to third parties and shall have obtained all third party consents, that the Buyers reasonably may request in connection with the matters pertaining to the Seller disclosed or required to be disclosed in the Disclosure Schedule (including, without limitation, consents to assignment of the Leases and other Assumed Contracts). Each of the Parties will take any additional action that may be necessary, proper, 17 or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that it may be required to give, make, or obtain. (e) Operation of Business. The Seller will not engage in any practice, take any action, embark on any course of inaction, or enter into any transaction in connection with operation of the Station outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Seller will not engage in any practice, take any action, embark on any course of inaction, or enter into any transaction of the sort described in Section 2(f) above in connection with operation of the Station. (f) Advertising Obligations. The Seller shall satisfy its air time obligations under its agreements for sale of air time and advertising on the Station for goods or services ("Barter Agreements") such that the outstanding aggregate balance owing under all Barter Agreements as of the Closing Date shall not exceed Five Thousand Dollars ($5,000.00) worth of air time without the Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a schedule, certified by an officer of the Seller, reflecting the aggregate outstanding balances under all Barter Agreements in existence as of the Closing Date. (g) Operating Statements. The Seller shall deliver to the Buyers, for the Buyers' informational purposes only, monthly unaudited statements of operating revenues and operating expenses of the Station within ten (10) days after each such statement is prepared by or for the Seller. (h) Contracts. The Seller will not without the prior written consent of the Buyers amend, change, or modify any of the contracts listed on Section 2(k) of the Disclosure Schedule in any material respect. The Seller will not without prior written consent of the Buyers enter into any new contracts respecting the Station or their properties, except (i) contracts for the sale of time on the Station for cash, goods or services which are entered into in the Ordinary Course of Business and comply with Sections 4(f) and 4(j) hereof, (ii) contracts entered into in the Ordinary Course of Business which are cancelable on not more than thirty-one (31) days' notice without penalty or premium, and (iii) contracts entered into in the Ordinary Course of Business each of which does not involve more than Five Thousand Dollars ($5,000) or all of which do not involve more than Ten Thousand Dollars ($10,000) in the aggregate. (i) Operation of Station. The Seller shall operate the Station in substantial compliance with the FCC Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at all times remain in full force and effect. The Seller shall file with the FCC all material reports, applications, documents, instruments and other information required to be filed in connection with the operation of the Station. (j) Credit and Receivables. The Seller will follow its usual and customary policies with respect to extending credit for sales of air time and advertising on the Station and with respect to collecting accounts receivable arising from such extension of credit. 18 (k) Preservation of Business. The Seller will use its best efforts to keep the Station's business and properties substantially intact, including its present operations, physical facilities, working conditions, relationships with lessors, licensors, advertisers, suppliers, customers, and employees, all of the Confidential Information, call letters and trade secrets of the Station, and the FCC Licenses. (l) Full Access and Consultation. The Seller will permit representatives of the Buyers to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Station, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Seller in connection with operation of the Station for the purpose of permitting the Buyer to, among other things: (a) conduct its due diligence review, (b) review financial statements of the Station (c) verify the accuracy of representations and warranties of the Seller contained in this Agreement, and (d) prepare for the consummation of the transactions contemplated by this Agreement. The Seller will consult with the Buyers' management with a view to informing Buyer's management as to the operations, management and business of the Station. Without limiting the foregoing, the parties acknowledge and agree that no investigation of the Station or the Seller's business by Buyer shall create any obligation on the part of Seller or shall limit the Buyers' obligations under this Agreement, except to the extent that Buyer discovers circumstances which constitute a breach of a representation, warranty or covenant of Seller made in this Agreement, or the failure of any such representation or warranty to be true and correct in all material respects. (m) Notice of Developments. The Seller will give prompt written notice to the Buyers of any material development affecting the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Station. Each Party will give prompt written notice to the other of any material development affecting the ability of the Parties to consummate the transactions contemplated by this Agreement. No disclosure by any Party pursuant to this Section 4(m), however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (n) Exclusivity. For as long as this Agreement is in effect, the Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C) acquisition or purchase of securities or assets, or (D) similar transaction or business combination involving the Seller; or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Seller will notify the Buyers immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. (o) Title Insurance, Surveys and Environmental Assessments. The Buyers at their option and at their sole cost and expense may obtain such title insurance, surveys and environmental assessments as they deem necessary or advisable in connection with the consummation of transactions contemplated by this Agreement. 19 (p) Control of Station. The transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, the Buyers and their employees or agents shall not directly or indirectly control, supervise, or direct, or attempt to control, supervise, or direct, the operation of the Station, and such operation shall be the sole responsibility of and in the control of the Seller. (q) Risk of Loss. The risk of loss, damage, or destruction to any of the Acquired Assets shall remain with the Seller until the Closing. In the event of any such loss, damage, or destruction the Seller will promptly notify the Buyer of all particulars thereof, stating the cause thereof (if known) and the extent to which the cost of restoration, replacement and repair of the Acquired Assets lost, damaged or destroyed will be reimbursed under any insurance policy with respect thereto. The Seller will, at Seller's expense, repair or replace such Acquired Assets to their former condition as soon as possible after loss, damage or destruction thereof and shall use its best efforts to restore as promptly as possible transmissions as authorized in the FCC Licenses. The Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the date of the Seller's notice to the Buyers, and the Buyers determine that the Seller's failure to repair or replace, alone or in the aggregate with any other then existing factors, would have a material adverse effect on the operation of the Station: (a) the Buyers may elect to terminate this Agreement; or (b) the Buyers may postpone the Closing Date until such time as the property has been repaired, replaced or restored in a manner and to an extent reasonably satisfactory to the Buyers, unless the same cannot be reasonably effected within ninety (90) days of the date of the Seller's notice to the Buyers, in which case either party may terminate this Agreement; or (c) the Buyers may choose to accept the Acquired Asset in their "then" condition, together with the Seller's assignment to the Buyers of all rights under any insurance claims covering the loss, damage or destruction and payment over to the Buyers of any proceeds under any such insurance policies, previously received by the Seller with respect thereto plus an amount equal to the amount of any deductible or self-insurance maintained by Seller on such Acquired Assets. In the event the Closing Date is postponed pursuant to this Section 4(q), the parties hereto will cooperate to extend the time during which this Agreement must be closed as specified in the consent of the FCC. 5. Conditions to Obligation to Close. (a) Conditions to Obligation of the Buyers. The obligation of the Buyers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: 20 (i) the representations and warranties set forth in Section 2 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Seller shall have performed and complied with all of its covenants hereunder in all respects through the Closing; (iii) the Seller shall have procured all of the third party consents specified in Section 4(d) above, including but not limited to those relating to transmitter and studio leases; (iv) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the parties if such transactions are consummated, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own, operate, or control the Acquired Assets (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (v) the Seller shall have delivered to the Buyer a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Sections 5(a)(i) through (iv) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Seller which shall survive the Closing; (vi) each of the Assignment Applications shall have been approved by a Final Order of the FCC and the Buyer shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vii) the parties shall have entered into the Transitional Services Agreement; (viii) the Buyers shall have received from counsel to the Seller an opinion with respect to the matters set forth in Exhibit F attached hereto, addressed to the Buyers and its lender and dated as of the Closing Date; and (ix) all actions to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. In the event that any of the foregoing conditions to Closing shall not have been satisfied in all material respects, the Buyers may elect to (i) terminate this Agreement without liability to the Seller, or (ii) consummate the transactions contemplated herein despite such failure. Regardless of whether the Buyers elect to terminate this Agreement or consummate the transactions 21 described herein, if such failure shall be as a result of a breach of any provision of this Agreement by the Seller (including, without limitation, any breach arising as a result of the failure of the Seller to execute and/or deliver any item described in this Section 5(a), the Buyers may seek appropriate remedies for any and all damages, costs and expenses incurred by the Buyers by reason of such breach including, without limitation, indemnification pursuant to Section 7, below, subject, however, to the dollar limitation on damages set forth in Section 7(e) hereof. (b) Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Buyers shall have performed and complied with all of their covenants hereunder in all respects through the Closing; (iii) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the Parties if such transactions are consummated, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (iv) the Buyers shall have delivered to the Seller a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Buyers which shall survive the Closing; (v) each of the Assignment Applications shall have been approved by a Final Order of the FCC and the Buyers shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vi) the parties shall have entered into the Transitional Services Agreement; and (vii) all actions to be taken by the Buyers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. 22 In the event that any of the foregoing conditions to Closing shall not have been satisfied in all material respects, the Seller may elect to (i) terminate this Agreement without liability to the Buyers, or (ii) consummate the transactions contemplated herein despite such failure. Regardless of whether the Seller elects to terminate this Agreement or consummate the transactions described herein, if such failure shall be as a result of a material breach of any provision of this Agreement by the Buyers (including, without limitation, any breach arising as a result of the failure of the Buyers to execute and/or deliver any item described in this Section 5(a)), the Seller may seek appropriate remedies for any and all damages, costs and expenses incurred by the Seller by reason of such breach including, without limitation, indemnification pursuant to Section 7, below. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. (a) General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Station, each of the other Parties will reasonably cooperate with the contesting or defending Party and its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below); provided, however, that such access and cooperation does not unreasonably disrupt the normal operations of the cooperating party. (c) Adjustments. Operation of the Station and the income and expenses attributable thereto up through the close of business on the day before the Closing Date shall be for the account of the Seller and thereafter for the account of the Buyers. Such items as employee salaries, vacation, sick day and personal time accruals, and fringe benefits, power and utilities charges, insurance, real and personal property taxes, prepaid expenses, deposits, music license fees, and rents and payments pertaining to the Assumed Contracts (including any contracts for the sale of time for cash, trade or barter so assigned) shall be prorated between the Seller and the Buyers as of the Closing Date in accordance with the foregoing principle. In addition, all commissions payable with respect to the accounts receivable of the Seller (whether due before or after Closing) shall be solely for the account and responsibility of the Seller. Contractual arrangements that do not reflect an equal rate of compensation to a Station over the term of the agreement shall be equitably adjusted as of the Closing Date. The prorations and adjustments 23 hereunder shall be made and paid insofar as feasible on the Closing Date, with a final settlement sixty (60) days after the Closing Date. In the event of any disputes between the Parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at such time and such disputes shall be determined by an independent accounting firm mutually acceptable to both parties and the fees and expenses of such accounting firm shall be paid one-half (1/2) by the Seller and one-half (1/2) by the Buyer. (d) Collection of Accounts Receivable. At the Closing, the Seller will turn over to the Buyers, for collection only, the accounts receivable of the Station owing to the Seller as of the close of business on the Closing Date. A schedule of such accounts receivable will be delivered by the Seller to the Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree to use commercially reasonable efforts in the ordinary course of business (but without responsibility to institute legal or collection proceedings) to collect such accounts receivable during the 120-day period following the Closing Date, and will remit all payments received on such accounts during each calendar month during this 120-day period on the one hundred twentieth (120th) day together with an accounting of all payments received within such period. The Buyers shall have the sole right to collect such accounts receivable during such one hundred twenty (120) day period. In the event the Buyers receive monies during the 120-day period following the Closing Date from an advertiser who, after the Closing Date, is advertising over any of the Station, and that advertiser was included among the accounts receivable as of the Closing Date, the Buyer shall apply said monies to the oldest outstanding balance due on the particular account, except in the case of a "disputed" account receivable. For purposes of this Section 6(d), a "disputed" account receivable means one which the account debtor refuses to pay because he asserts that the money is not owed or the amount is incorrect. In the case of such a disputed account, the Buyers shall immediately return the account to the Seller prior to expiration of the 120-day period following the Closing Date. If the Buyers return a disputed account to the Seller, the Buyers shall have no further responsibility for its collection and may accept payment from the account debtor for advertising carried on any of the Station after the Closing Date. At the end of the 120-day period following the Closing Date, the Buyers will turn back to the Seller all of the accounts receivable of the Station as of the Closing Date owing to the Seller which have not yet been collected, and the Buyers will thereafter have no further responsibility with respect to the collection of such receivables. During the 120-day period following the Closing Date, the Buyers shall afford the Seller reasonable access to the accounts receivable "aging list." The Seller acknowledges and agrees that the Buyers are acting as its collection agent hereunder for the sole benefit of the Seller and that Buyers have accepted such responsibility for the accommodation of the Seller. The Buyer shall not have any duty to inquire as to the form, manner of execution or validity of any item, document, instrument or notice deposited, received or delivered in connection with such collection efforts, nor shall the Buyers have any duty to inquire as to the identity, authority or rights of the persons who executed the same. The Seller shall indemnify Buyers and hold them harmless from and against any judgments, expenses (including attorney's fees) costs or liabilities which the Buyers may incur or sustain as a result of or by reason of such collection efforts. (f) Consents. In the event any of the Assumed Contracts are not assignable or any consent to such assignment is not obtained on or prior to the Closing Date, and the Buyers elect 24 to consummate the transactions contemplated herein despite such failure or inability to obtain such consent, the Seller shall continue to use commercially reasonable efforts to obtain any such assignment or consent after the Closing Date. Until such time as such assignment or approval has been obtained, the Seller will cooperate with Buyers in any lawful and economically feasible arrangement to provide that the Buyer shall receive the Seller's interest in the benefits under any such Assumed Contract, including performance by the Seller as agent, if economically feasible; provided, however, that the Buyers shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent that Buyers would have been responsible therefor if such consent or assignment had been obtained. 7. Remedies for Breaches of this Agreement. (a) Survival. All of the representations and warranties of the Seller contained in Section 2 of this Agreement shall survive the Closing and continue in full force and effect for a period until 90 days after the applicable statute of limitations has expired with respect to any claim by the Buyers based on a claim or action by a third party and for a period of three (3) years following Closing with respect to any claim by the Buyers not based on a claim or action by a third party. (b) Indemnification Provisions for the Benefit of the Buyers. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Seller agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by: (i) any misrepresentation or breach of any of the Seller's representations or warranties, and covenants contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Seller (so long as the Buyers make a written claim for indemnification within the applicable survival period); (ii) any breach or nonfulfillment of any agreement or covenant of the Seller contained herein or in any Ancillary Agreement; (iii) any Liability of the Seller which is not an Assumed Liability; and/or (iv) any Liability of the Buyers arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not an Assumed Liability. (c) Indemnification Provisions for the Benefit of the Seller. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Buyer agrees to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of, or caused by (i) any misrepresentation or breach of any of the Buyers' representations or warranties contained 25 in this Agreement or in any Ancillary Agreement executed and/or delivered by the Buyers (so long as the Seller makes a written claim for indemnification within the applicable survival period) or (ii) any breach or nonfulfillment of any agreement or covenant of the Buyers contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability. (d) Specific Performance. Each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are materially breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(o) below), in addition to any other remedy to which it may be entitled, at law or in equity. Each of the Parties acknowledges and agrees that not withstanding the provision in Section 7(e) with respect to the remedy of liquidated damages upon a material breach of a warranty or covenant of this Agreement prior to the Closing, money damages would not be an adequate remedy for a material breach of any provision of this Agreement. (e) Liquidated Damages. The Buyer and the Seller acknowledge that in the event that the transactions contemplated by this Agreement are not closed because of a default by either Party, the Adverse Consequences as a result of such default may be difficult, if not impossible, to ascertain. Accordingly, in lieu of indemnification pursuant to Section 7(b) or 7(c), the nondefaulting Party shall be entitled to receive from the defaulting Party for such default the sum of Two Hundred Fifty Thousand Dollars ($250,000) as liquidated damages without the need for proof of damages, subject only to successfully proving in a court of competent jurisdiction that the other Party has materially breached this Agreement and that the transactions contemplated thereby have not occurred; provided however, that the Buyers shall retain the option to receive, pursuant to Section 7(d), and in lieu of receiving the liquidated damages provided in this Section 7(e), the remedy of specific performance with respect to a breach of this Agreement prior to the Closing. The Buyers and the Seller agree to pay said sum of liquidated damages within ten (10) days of the date that the non-defaulting party obtains such a judgment, and agree that in the event this Agreement is terminated by the Seller prior to the Closing Date as a result of a breach or default by the Buyers under this Agreement, the Seller shall proceed against the Earnest Money as partial satisfaction of liquidated damages owed by Buyers. (f) Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall notify the Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such failure. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (i) 26 the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party reasonably concludes that the counsel the Indemnifying Party has selected has a conflict of interest), (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event the Indemnifying Party does not notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, and/or in the event the Indemnifying Party shall fail to defend such claim actively and in good faith, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. (g) Retention of Assets. Seller agrees that in the event Seller sells or otherwise divests substantially all of its assets prior to the expiration of the survival of warranties provision of Section 7(a) hereof, Seller will deposit in escrow Fifty Thousand Dollars ($50,000) for the purpose of satisfying any claims by Buyers for indemnification made pursuant to this Agreement. This sum shall remain in escrow until the expiration of the survival of warranties provision of Section 7(a) hereof. 8. Definitions. "Acquired Assets" means all right, title, and interest in and to all of the assets of the Station listed in Section 2(h) of the Disclosure Schedule, other than Retained Assets that are used or useful in the operation of the Station, which are also listed in Section 2(h) of the Disclosure Schedule , wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of-way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles, and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those Barter Agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for the sale of advertising time on the Station; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters 27 of the Station, jingles, logos, slogans, and business goodwill of the Station; (g) claims, deposits, prepayments, refunds, causes of action, choses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (h) Licenses and similar rights obtained from governments and governmental agencies; and (i) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (j) goodwill of the Station. "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. "Advertising Contracts" has the meaning set forth in Section 2(s), above. "Affiliate" means with reference to any person or entity, another person or entity controlled by, under the control of or under common control with that person or entity. "Assignment Application" has the meaning set forth in Section 4(b) above. "Assumed Contracts" means the Leases, the Barter Agreements, the Advertising Contracts and those contracts listed on Exhibit G attached hereto. "Assumed Liabilities" means obligations of the Seller which accrue after the Closing Date under the Assumed Contract either: (i) to furnish services, and other non-Cash benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. The Assumed Liabilities shall not include any Retained Liabilities. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyers" has the meaning set forth in the preface above. "Cash" means cash and cash equivalents determined in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements. "Closing" has the meaning set forth in Section l(d) above. "Closing Date" has the meaning set forth in Section l(d) above. "Code" means the Internal Revenue Code of 1986, as amended. 28 "Confidential Information" means any information concerning the businesses and affairs of the Seller. "Disclosure Schedule" has the meaning set forth in Section 2 above. "Earnest Money Deposit" has the meaning set forth in Section l(c) above. "Earnest Money Escrow Agreement" has the meaning set forth in Section l(c) above. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "Environmental Laws" has the meaning set forth in Section 2(q), above. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means George Silverman & Associates. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means the licenses, permits and other authorizations, including any temporary waiver or special temporary authorization, issued by the FCC to the Seller in connection with the conduct of the business and operation of the Station. "Final Order" means an action by the FCC as to which: (a) no request for stay by the FCC is pending, no such stay is in effect, and any deadline for filing a request for any such stay has passed; (b) no appeal, petition for rehearing or reconsideration, or application for review is pending before the FCC and the deadline for filing any such appeal, petition or application has passed; (c) the FCC has not initiated reconsideration or review on its own motion and the time in which such reconsideration or review is permitted has passed; and (d) no appeal to a court, or request for stay by a court, of the FCC's action is pending or in effect, and the deadline for filing any such appeal or request has passed. 29 "Financial Statements" has the meaning set forth in Section 2(e) above. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Indemnified Party" has the meaning set forth in Section 7(d) above. "Indemnifying Party" has the meaning set forth in Section 7(d) above. "Intellectual Property" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, call letters, logos, trade names, and corporate names and registrations and applications for registration thereof, (c) all programs, programming materials, copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, market and other research information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (g) other proprietary rights, and (b) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. "Leases" means those real estate leases to which Seller is a party governing the Station's FM tower site, as described in Section 2(i) of the Disclosure Schedule. "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" means all FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Seller with respect to the operations of the Station and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Owned Real Estate" means the real property owned by the Seller in connection with operation of the Station as described in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and improvements located thereon. 30 "Party" has the meaning set forth in the preface above. "Permitted Real Estate Encumbrances" shall have the meaning set forth in Section 2(i), above. "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price" has the meaning set forth in Section l(c) above. "Real Estate" means the Owned Real Estate and the real estate, building, fixtures and improvements which are the subject of the Leases. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Retained Assets" means (i) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of the Seller as a corporation; (ii) any of the rights of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement); (iii) accounts, notes and other receivables of the Seller; (iv) Cash; and (v) assets that are used and useful in the operation of the Station which are listed as Retained Assets in Section 2(h) of the Disclosure Schedule. "Retained Liabilities" means any other obligations or Liabilities of the Seller, including but not limited to: (i) any Liability relating to the ownership or operation of the Station prior to the Closing; (ii) any Liability of the Seller for income, transfer, sales, use, and other Taxes arising in connection with the consummation contemplated hereby; (iii) any Liability of the Seller for costs and expenses incurred in connection with this Agreement or the consummation of the transactions contemplated hereby (except as set forth in Section 4(i) relating to Surveys, title commitments and environmental audits and Section 4(b) with regard to the Assignment Application; or (iv) any Liability or obligation of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement). "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due and payable; and (b) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation. "Seller" has the meaning set forth in the preface above. "Station" means the radio broadcast station having the call letters WTOS-FM, licensed by the FCC to operate in Skowhegan, Maine. 31 "Subsidiary," with respect to any person, means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which ) 50% or more of (i) the outstanding capital stock or other equity interest having voting power to elect a majority of the Board of Directors of such corporation or persons having a similar role as to an entity that is not a corporation, (ii) the interest in the profits of such partnership or joint venture, or (iii) the beneficial interest of such trust or estate are at such time directly or indirectly owned by such person or one or more of such person's Subsidiaries. "Surveys" has the meaning set forth in Section 4(o) above. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Transitional Services Agreement" means the agreement between the parties in the form attached here as Exhibit E. 9. Termination. (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyers and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event the Seller is in material breach of any representation, warranty, or covenant contained in this Agreement; provided, however, that if such breach is capable of being cured, such breach also remains uncured for twenty (20) days after notice of breach is received by the Seller from the Buyers; (iii) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing in the event the Buyers are in material breach of any representation, warranty, or covenant contained in this Agreement; provided, however that if such breach is capable of being cured, such breach remains uncured for twenty (20) days after notice of breach is received by the Buyers from the Seller; 32 (iv) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(a) hereof (unless the failure results primarily from the Buyers themselves materially breaching any representation, warranty, or covenant contained in this Agreement); (v) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(b) hereof (unless the failure results primarily from the Seller itself materially breaching any representation, warranty, or covenant contained in this Agreement); or (vi) the Buyers or the Seller may terminate this Agreement if any Assignment Application is denied by Final Order. (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 9(a) above, all obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 10. Miscellaneous. (a) Survival. All of the representations, warranties, and covenants of the Parties contained in this Agreement shall survive the Closing hereunder as and to the extent provided in Section 7(a) hereof. (b) Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). (c) No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. (d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party, provided that (i) the Buyers may assign all of their right, title and interest in, to and under this Agreement to one or more 33 Affiliates (provided that the Buyers hereby guarantee performance by such entity of the Buyers' obligations hereunder), who shall then, subject to the terms and conditions of this Agreement, have the right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay to the Seller the Purchase Price therefor or to any successor to the Buyers in the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers may assign their indemnification claims and their rights under the warranties and representations of the Sellers to the financial institution(s) providing financing to the Buyers in connection with this transaction. (f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be considered to be given and received in all respects when hand delivered, when delivered via prepaid express or courier delivery service, when sent by facsimile transmission actually received by the receiving equipment or three (3) days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, in each case addressed to the intended recipient as set forth below: If to the Seller: Copy to: (which copy shall not constitute notice to Seller) If to the Buyers: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. c/o QUAESTUS Management Corp. 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Attn: Terrence J. Leahy Fax: (414) 283-4505 34 With a copy to: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Avenue Suite 3650 Chicago, Illinois 60611 Attn: Richard J. Bonick Fax: (312) 867-0098 and a copy (which shall not constitute notice to Buyer) to: David D. Burns, Esq. Paul Hastings Janofsky & Walker, L.L.P. 1299 Pennsylvania Avenue, N.W. 10th Floor Washington, D.C. 20004-2400 Fax: (202) 508-9700 Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Maine. (j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement 35 shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (1) Expenses. The Buyers and the Seller, will each bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, other than as set forth in Section 4(b) with regard to the Assignment Applications and as set forth in Section 4(o) with respect to Surveys, title commitments and environmental audits. The Seller will pay all income taxes. The Seller and the Buyers will each pay one-half (1/2) of any transfer or sales taxes and other recording or similar fees necessary to vest title to each of the Acquired Assets in the Buyers. (m) Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (o) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Portland, Maine, in any action or proceeding arising out of or relating to this Agreement, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on the other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 10(h) above. Nothing in this Section 10(o), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. 36 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the date first above written. CUMULUS BROADCASTING, INC. By: ------------------------- (printed) ------------------------- Title: ---------------------- CUMULUS LICENSING CORPORATION By: ------------------------- (printed) ------------------------- Title: ---------------------- MOUNTAIN WIRELESS, INC. By: ------------------------- (printed) ------------------------- Title: ---------------------- 37 EX-10.73 19 EXHIBIT 10.73 Exhibit 10.73 ASSET PURCHASE AGREEMENT This Agreement ("Agreement") is entered into as of February 5, 1998, by and among Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Castle Broadcasting Limited Partnership, a Maine limited partnership (the "Seller"). Broadcasting and Licensing are referred to collectively herein as the "Buyers." The Buyers and the Seller are referred to collectively herein as the "Parties." Capitalized terms used in this Agreement are defined in Section 8 hereof. Subject to the terms and conditions of this Agreement, the Buyers hereby agree to purchase substantially all of the assets (and assume certain of the liabilities) of the Seller that are used or useful in the operation of radio stations WQCB-FM and WBZN-FM, licensed to Brewer, Maine and Old Town, Maine, respectively (the "Stations") in return for cash. Now, therefore, in consideration of the above premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Basic Transaction. (a) Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, Licensing agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Licensing, all of the FCC Licenses listed in Section 2(l) of the Disclosure Schedule. In addition, Broadcasting agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Broadcasting, all of the Acquired Assets other than the FCC Licenses. Both such sales shall take place at the Closing for the consideration specified below in this Section 1. (b) Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, the Buyers agree to assume and become responsible for all of the Assumed Liabilities at the Closing. The Buyers will not assume or have any responsibility, however, with respect to the Retained Liabilities and the Seller agrees to pay and discharge all of the Retained Liabilities. (c) Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets, the purchase price as set forth on Exhibit 1(c)-1 hereto (the "Purchase Price"). The Purchase Price shall be payable as follows: (i) on the Closing Date, the Buyers shall pay to the Seller the amount of the Purchase Price less $50,000.00; and (ii) on the Closing Date, the Buyer shall pay to the Seller, on behalf of all parties to the Postclosing Agreement, the amount of Fifty Thousand Dollars ($50,000) as consideration for the agreements set forth in the Post-Closing Agreement. On the date of this Agreement, the Buyers will deposit with the Escrow Agent an irrevocable letter of credit in the amount of the earnest money deposit as set forth on Exhibit 1(c)-1 hereto (the "Earnest Money Deposit") pursuant to an escrow agreement in the form attached hereto as Exhibit 1(c)-2 (the "Earnest Money Escrow Agreement"). If this Agreement is terminated without Closing of the transaction contemplated herein, the Earnest Money Deposit shall be paid to the Buyers or the Seller as provided in the Earnest Money Escrow Agreement. (d) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Rudman & Winchell, LLC, 84 Harlow Street, Bangor, Maine (or such other place as the parties may agree), commencing at 9:00 a.m. local time on the date set by the Buyers not later than the fifth business day after the FCC approval of the Assignment Application becomes a Final Order (,subject to the provisions of Section 4(r), and further subject to the satisfaction of all other conditions to the obligations of the Parties to consummate the transactions contemplated hereby, or such other date as the Parties may mutually determine (the "Closing Date"). (e) Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyers the various certificates, instruments, and documents referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various certificates, instruments, and documents referred to in Section 5(b) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyers (A) assignments (including Lease and other Assumed Contract assignments and Intellectual Property transfer documents), bills of sale and quit claim deeds with covenants, all in form and substance reasonably satisfactory to Buyers (B) such affidavits, transfer tax returns, memorandums of lease, and other additional documents as may be required by the terms of the title insurance commitments described in Section 4(o) hereof, as necessary to furnish title insurance as required by such section or as may be necessary to convey title to the Real Estate to the Buyers in the condition required herein or provide public notice of existence of the Leases, and (C) such other instruments of sale, transfer, conveyance, and assignment as the Buyers and their counsel reasonably may request; (iv) the Buyers will execute, acknowledge (if appropriate), and deliver to the Seller such instruments of assumption as the Seller and its counsel reasonably may request; and (v) the Buyers will deliver to the Seller the consideration specified in Section 1(c) above. (f) Postclosing Agreement. On the Closing Date, the Seller shall execute, and shall cause the sole shareholder of its corporate general partner to execute, a Postclosing Agreement with the Buyer including covenants not to compete with the Buyer in the markets served by the Stations and agreements to indemnify the Buyer in the form of Exhibit 1(f) attached hereto. As set forth in Section 1(c)(ii), a portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be paid to the Seller by the Buyers on the Closing Date as consideration for the agreements set forth in the Postclosing Agreement. (g) Allocation. Within 30 days after the Closing Date, Seller and Buyers shall negotiate in good faith an allocation of the Purchase Price (and all other capitalizable costs) among the Acquired Assets, and shall file all required forms with the Internal Revenue Service in accordance with such allocation. If Seller and Buyers are unable to agree on an allocation within such period, Seller and Buyers will retain Broadcast Investment Associates to perform an asset 2 appraisal and shall allocate the Purchase Price in accordance therewith. The costs of such appraisal shall be borne equally by Seller on the one hand and Buyers on the other. 2. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyers that the statements contained in this Section 2 are correct and complete as of the date of this Agreement except as set forth in the lettered and numbered paragraphs contained in the disclosure schedule accompanying this Agreement and initialed by the Parties (the "Disclosure Schedule") corresponding to the lettered and numbered sections of this Section 2. (a) Organization of the Seller. The Seller is a limited partnership duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization. The Seller does not have any Subsidiaries. The Seller has the power and authority to own or lease its properties and to carry on all business activities now conducted by it. The partners of the Seller and their respective partnership interests and status as a general or limited partner are set forth in the Disclosure Schedule. (b) Authorization of Transaction. The Seller has full power and authority (including full partnership power and authority) to execute and deliver this Agreement, the Earnest Money Escrow Agreement and the Post-Closing Agreement (collectively, the "Ancillary Agreements") and all agreements and instruments to be executed and delivered by Seller pursuant to this Agreement and the Ancillary Agreements, and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the partners of the Seller have duly authorized the execution, delivery, and performance of this Agreement and the Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligations of the Seller, enforceable in accordance with their respective terms and conditions, except as enforceability may be limited by laws applying to creditors' rights generally and by equitable principles. (c) Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of the partnership agreement or certificate of limited partnership of the Seller; or (ii) except as noted in Section 2(c) of the Disclosure Schedule, conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other agreement, arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). Other than with respect to the Assignment Application described in Section 4(b) and with respect to agreements set forth in Section 2(c) of the Disclosure Schedule, the Seller does not need to give any notice to, make any filing with, or obtain any Licenses, consent, or approval of any court or government or governmental agency in order for the Parties to enter into this agreement or the Ancillary Agreements or to consummate the transactions contemplated by this Agreement or the 3 Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). (d) Title to Acquired Assets. Other than the Security Interests set forth on Section 2(d) of the Disclosure Schedule (which shall be released at or before the Closing), the Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. (e) Financial Statements. Included in Section 2(e) of the Disclosure Schedule are the following financial statements (collectively the "Financial Statements"): (i) unaudited balance sheets and statements of income, and cash flow as of and for the fiscal years ended December 31, 1993, December 31, 1994, December 31, 1995 and December 31, 1996, for Station WQCB(FM); (ii) unaudited balance sheets and statements of income, as of and for each month during 1996 and each month during 1997 through the month ended October 31, 1997 for Station WQCB(FM); and unaudited balance sheets and statements of income, for the month ended October 31, 1997 for station WBZN(FM) and combined unaudited balance sheet and statement of income for the month ended November 30, 1997 for Stations WQCB(FM) and WBZN(FM) combined. The Financial Statements have been prepared on a consistent basis throughout the periods covered thereby, and fairly present the financial condition of the Stations on such dates and the results of operations for the periods designated therein, and are consistent with the books and records of the Stations (which books and records are correct and complete). (f) Subsequent Events. Except as set forth in Section 2(f) of the Disclosure Schedule or as otherwise disclosed in the Financial Statements, since December 31, 1996 with respect to Station WQCB(FM), and since October 1, 1997 with respect to Station WBZN(FM), there has not been any adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller with respect to the operation of the Stations. Without limiting the generality of the foregoing, since December 31, 1996 with respect to the operation of Station WQCB(FM), and since October 1, 1997 with respect to the operation of Station WBZN(FM), except as set forth on Schedule 2(f): (i) the Seller has not sold, leased, transferred, or assigned any of its material assets, tangible or intangible; (ii) other than this Agreement, the Seller has not entered into any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business; (iii) no party has accelerated, terminated, modified, or canceled any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) involving more than $5,000 to which the Seller is a party or by which it or any of its assets are bound; (iv) no Security Interest has been imposed upon any of Seller's assets, tangible or intangible; 4 (v) the Seller has not made any capital expenditure (or series of related capital expenditures) outside the Ordinary Course of B__iness; (vi) the Seller has not made any capital investment in, any loan (other than extensions of credit in the Ordinary Course of Business) to, or any acquisition of the securities or assets (other than acquisitions of assets in the Ordinary Course of Business) of any other person (or series of related capital investments, loans, and acquisitions); (vii) [Intentionally Deleted] (viii) the Seller has not delayed or postponed (beyond its normal practice in the Ordinary Course of Business) the payment of accounts payable and other Liabilities; (ix) the Seller has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) outside the Ordinary Course of Business; (x) the Seller has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) the Seller has not experienced any material damage, destruction, or loss (whether or not covered by insurance) to any of its property or any action adversely affecting the FCC Licenses; (xii) the Seller has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees giving rise to any claim or right on its part against the person or on the part of the person against it; (xiii) the Seller has not entered into any employment contract, consulting contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any such existing contract or agreement; (xiv) the Seller has not granted any increase (outside routine salary and wage increases in the Ordinary Course of Business) in the rate of compensation, commissions, bonus or other remuneration payable, or granted any severance or termination pay to, any of its directors, officers, and employees; (xv) the Seller has not adopted any (A) bonus, (B) profit-sharing, (C) incentive compensation, (D) pension, (E) retirement, (F) medical, hospitalization, life, or other insurance, (G) severance, or (H) other plan, contract, or commitment for any of its directors, officers, and employees, or modified or terminated any existing such plan, contract, or commitment; (xvi) the Seller has not made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; (xvii) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Seller; 5 (xviii) the Seller has not altered its credit and collection policies or its accounting policies; (xix) the Seller has not materially altered the programming, format or call letters of the Stations, or its promotional and marketing activities; (xx) the Seller has not applied to the FCC for any modification of the FCC Licenses or failed to take any action necessary to preserve the FCC Licenses and has operated the Stations in compliance therewith and with all FCC rules and regulations; or (xxi) the Seller has not committed to do any of the foregoing. (g) Tax Matters. The Seller and its partners have timely and properly filed all Tax Returns that they were required to file with respect to the Seller's operations. All such Tax Returns were correct and complete in all respects and properly reflect the tax liability of the Seller. The Seller has not requested any extension of time within which to file returns in respect of any Taxes with respect to the Seller's operations. No Tax deficiencies have been proposed or assessed against the Seller. There are no pending, or to the Seller's knowledge, threatened audits, investigations, or claims for or relating to any liability in respect of Taxes with respect to the Seller's operations. All Taxes owed by the Seller with respect to its operations (whether or not shown on any Tax Return) have been paid. The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. No claim has ever been made by any authority in any jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Seller that arose in connection with any failure (or alleged failure) to pay any Tax. (h) Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a listing of all transmitter and station equipment, vehicles and other material tangible personal property used in conducting the operation and business of the Stations. Except as set forth in Section 2(h) of the Disclosure Schedule, the Seller owns or leases all tangible assets necessary for the conduct of the operation and business of the Stations as presently conducted and as presently proposed to be conducted and all leased assets are specifically identified as such in Section 2(h) of the Disclosure Schedule. Except as set forth in Section 2(h) of the Disclosure Schedule, each such tangible asset is free from material defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair in all material respects (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. Except as set forth in Section 2(h) of the Disclosure Schedule, no such tangible asset currently used in the operation of the Stations is in need of replacement. Any leased personal property included within the tangible personal property is, in all material respects, in the condition required of such property by the terms of the lease applicable thereto during the term of the lease and upon the expiration thereof. Except as set forth in Section 2(h) of the Disclosure Schedule, all of the equipment utilized in the operation of the Stations is in material compliance with all FCC and FAA requirements and is sufficient in all material respects to satisfy the intended needs of the normal customary operations of the Stations at all times of the year. (i) Real Property. Section 2(i) of the Disclosure Schedule lists and describes briefly all Owned Real Estate and real property leased to the Seller (including, without limitation, complete legal descriptions for 6 all of the Real Estate). The Seller has delivered to the Buyer correct and complete copies of the Leases. With respect to the Real Estate: (i) the Seller has good and marketable title to all of the Owned Real Estate free and clear of all liens, charges, mortgages, security interests, easements, restrictions or other encumbrances of any nature whatsoever except real estate taxes for the year of Closing and municipal and zoning ordinances and recorded utility easements and other matters of record which do not impair the current use, occupancy or value or the marketability of title of the property collectively, the "Permitted Real Estate Encumbrances"); (ii) the Leases are and, following the Closing will continue to be, legal, valid, binding, enforceable, and in full force and effect; (iii) with respect to the Leases, Seller is not (and to the Seller's Knowledge, no other party to any such Lease is) in breach or default (or has repudiated any provision thereof), and no event has occurred which, with notice or lapse of time, would constitute a breach or default thereunder or permit termination, modification, or acceleration thereunder; (iv) there are no disputes, oral agreements, or forbearance programs in effect as to any Lease; (v) none of the Owned Real Estate and to the Seller's Knowledge, none of the properties subject to the Leases is subject to any lease (other than Leases), option to purchase or rights of first refusal; (vi) except for Permitted Real Estate Encumbrances, there are no (i) actual or, to the Seller's Knowledge, proposed special assessments with respect to any of the Real Estate; (ii) pending or, to the Seller's Knowledge, threatened condemnation proceedings with respect to any of the Real Estate; (iii) pending or, to the Seller's Knowledge, threatened litigation or administrative actions with respect to any of the Real Estate; (iv) mechanic's or materialmens' liens with respect to the Owned Real Estate; (v) material structural or mechanical defects in any of the buildings or improvements located in the Real Estate; (vi) planned or commenced improvements which will result in an assessment or otherwise affect the Real Estate; (vii) governmental agency or court orders requiring the repair, alteration or correction of any existing condition with respect to the Real Estate or any portion thereof; or (viii) any pending or, to the Seller's Knowledge, threatened change in any zoning laws or ordinances which may affect any of the Real Estate or Seller's use thereof; (vii) all buildings and improvements on the Real Estate are in good operating condition and repair in all material respects, normal wear and tear excepted; (viii) the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or its rights thereunder; (ix) to the Seller's Knowledge, all facilities on the Real Estate have received all approvals of governmental authorities (including licenses, permits and zoning approvals) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; (x) except as set forth in Section 2(i) of the Disclosure Schedule, all facilities on the Real Estate are supplied with utilities and other services necessary for the operation of said facilities; and 7 (xi) to the Seller's Knowledge, the owner of each leased facility has good and marketable title to the underlying parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for Permitted Real Estate Encumbrances and Seller's leasehold interest in each Lease has priority over any other interest except for the fee interest therein and Permitted Real Estate Encumbrances; (j) Intellectual Property. Section 2(j) of the Disclosure Schedule lists all Intellectual Property of Seller used in, or necessary for, the conduct of the operations of the Stations, specifying as to each, as applicable: (i) the nature of such Intellectual Property, (ii) the owner of such Intellectual Property, (iii) the jurisdictions in which such Intellectual Property is recognized without registration or has been registered, or registration has been applied for, and (iv) material licenses, sublicenses and other agreements as to which Seller is a party and pursuant to which any person is authorized to use such Intellectual Property. The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for or currently used in the operation of the business of the Seller as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Seller immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder. Except as set forth in Section 2(j) of the Disclosure Schedule, the Seller has taken all necessary or desirable action to protect each item of Intellectual Property that it owns or uses. The Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Seller has never received any charge, complaint, claim, or notice alleging any such interference, infringement, misappropriation, or violation. Except as set forth in Section 2(j) of the Disclosure Schedule, to the Knowledge of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. No Intellectual Property of Seller is subject to any order, judgment or agreement restricting the use thereof by Seller in the operation of the Stations. (k) Contracts. Section 2(k) of the Disclosure Schedule lists the following contracts, agreements, and other written arrangements (other than with advertisers for the sale of air time which are listed in Section 2(s) of the Disclosure Schedule) to which the Seller is a party: (i) any written arrangement (or group of related written arrangements) for the lease of personal property from or to third parties providing for lease payments in excess of $5,000 per year; (ii) any written arrangement (or group of related written arrangements) for the purchase or sale of supplies, products, or other personal property or for the furnishing or receipt of services which either calls for performance over a period of more than one year or involves more than the sum of $5,000; (iii) any written arrangement concerning a partnership or joint venture; (iv) any written arrangement (or group of related written arrangements) under which it has created, incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness (including capitalized lease obligations) involving more than $15,000 or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible; (v) any written arrangement concerning confidentiality or noncompetition; 8 (vi) any written arrangement with any of its employees in the nature of a collective bargaining agreement, consulting agreement, compensation agreement, employment agreement, commission agreement, or severance agreement; (vii) any written arrangement under which the consequences of a default or termination could have a material adverse effect on the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations; (viii) any written arrangement concerning a guaranty by the Seller of the obligations of any other party; or (ix) any other written arrangement (or group of related written arrangements) either involving more than $10,000 or not entered into in the Ordinary Course of Business. The Seller has delivered to the Buyer a correct and complete copy of each written arrangement listed in Section 2(k) of the Disclosure Schedule (as amended to date). With respect to each written arrangement so listed which is specifically identified in Section 2(k) of the Disclosure Schedule as an Assumed Contract: (A) the written arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing (if the arrangement has not expired according to its terms); (C) no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) no party has repudiated any provision of the written arrangement. The Seller is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in Section 2(k) of the Disclosure Schedule under the terms of this Section 2(k). Except for the Assumed Contracts, the Buyer shall not have any Liability or obligations for or in respect of any of the contracts set forth in Section 2(k) of the Disclosure Schedule or any other contracts or agreements of the Seller. Except as set forth in Section 2(k) of the Disclosure Schedule, no advertiser of the Stations has indicated within the past year that it will stop, or decrease the rate of, buying services from them. (l) Commission Licenses and Compliance with Commission Requirements. (i) Except as set forth in Section 2(1) of the Disclosure Schedule, all licenses, permits, authorizations, franchises, certificates of compliance, and consents of governmental bodies, including, without limitation, the FCC Licenses, used or useful in the operation of the Stations as they are now being operated are (A) in full force and effect, (B) unimpaired by any acts or omissions of the Seller or the Seller's employees or agents, (C) free and clear of any restrictions which might limit the full operation of the Stations, and (D) detailed in Section 2(1) of the Disclosure Schedule. With respect to the licenses, permits, authorizations, franchises, certificates of compliance and consents referenced in the preceding sentence, Section 2(1) of the Disclosure Schedule also sets forth, without limitation, the date of the last renewal, the expiration date thereof, and any conditions or contingencies related thereto. To Seller's Knowledge, no condition exists or event has occurred that permits, or after notice or lapse of time, or both, would permit, the revocation or termination of any such license, permit, consent, franchise, or authorization (other than pursuant to their express expiration date) or the imposition of any material restriction or limitation upon the operation of the Stations as now conducted. The Seller is not aware of any reason why the FCC Licenses might not be renewed in the ordinary course. 9 (ii) The Stations are each in material compliance with the FCC's policy on exposure to radio frequency radiation. No renewal of any FCC License would constitute a major environmental action under the FCC's rules or policies. Access to the Stations' transmission facilities is restricted in accordance with the policies of the FCC. (iii) To the Seller's Knowledge, the Seller is not the subject of any FCC or other governmental investigation or any notice of violation or order, or any material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorization for the Stations, and there are no proceedings (other than rule making proceedings of general applicability) before the FCC or any other governmental authority that could adversely affect any of the Licenses. (iv) The Seller has filed with the FCC and all other governmental authorities having jurisdiction over the Stations all material reports, applications, documents, instruments, and other information required to be filed, and will continue to make such filings through the Closing Date. (v) The Seller is not aware of any information concerning the Stations that would be reasonably likely to cause the FCC not to grant the Assignment Application free of any conditions that would be reasonably likely to cause a material adverse effect on the consummation of the transactions contemplated by this Agreement or on Buyers' operation of the Stations after the Closing. (m) Insurance. Except as set forth in Section 2(m) of the Disclosure Schedule, Seller has delivered to Buyers true and complete copies of each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Seller is a party, a named insured, or otherwise the beneficiary of coverage. There is no claim by Seller under any such policies as to which coverage has been disputed, and Seller is in material compliance with the terms of each such policy, including payment of premiums. (n) Litigation. Section 2(n) of the Disclosure Schedule sets forth each instance in which the Seller: (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the charges, complaints, actions, suits, proceedings, hearings, and investigations set forth in Section 2(n) of the Disclosure Schedule could result in any adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations taken as a whole. The Seller has no reason to believe that any such charge, complaint, action, suit, proceeding, hearing, or investigation may be brought or threatened against the Seller. (o) Employees. Section 2(o) of the Disclosure Schedule sets forth a listing of the names, positions, job descriptions, current salary or wage rates, salary or wage rate increases, and all other forms of compensation paid or to be paid for work at the Stations of each employee of the Seller. Section 2(o) of the Disclosure Schedule also sets forth a list of all employee handbooks and/or manuals relating to the employees of the Seller, true and correct copies of which have been delivered to the Buyer. The Seller is not a party to or bound by any understanding (whether written or oral), agreement or contract with any union, labor 10 organization, employee group or other entity or individual which affects the employment of employees of the Seller including, but not limited to any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Seller has no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Seller. The Seller has not been subject to a strike, slow down or other work stoppage during the five (5) year period immediately preceding the date hereof and, to the Seller's Knowledge, there are no strikes, slow downs or work stoppages threatened against the Seller. To the Seller's Knowledge, it has not committed any unfair labor practice. To Seller's Knowledge, there is no basis for any claim by any past or present employee of the Seller that such employee was subject to wrongful discharge or any employment discrimination by the Seller or its management arising out of or relating to the employee's race, sex, age, religion, national origin, ethnicity, handicap or any other protected characteristic under applicable law. No proceedings are pending before any court, governmental agency or instrumentality or arbitrator relating to labor matters, and, to Seller's Knowledge, there is no pending investigation by any governmental agency or, to the Knowledge of the Seller, threatened claim by any such agency or other person relating to labor or employment matters. (p) Employee Benefits. Section 2(p) of the Disclosure Schedule lists all Employee Benefit Plans that the Seller maintains or to which the Seller contributes or is required to contribute for the benefit of any current or former employee of the Seller and true and correct copies of each such Employee Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and each related trust or insurance contract) complies and at all times has complied in form and in operation in all respects with the applicable requirements of ERISA and the Code. The Seller does not have any commitment to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee or terminated employee of the Seller. There are no pending or, to the Knowledge of the Seller, threatened claims under, by or on behalf of any of the Employee Benefit Plans, by any employee or beneficiary covered by any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits), nor have there been any Reportable Events or Prohibited Transactions with respect to any Employee Benefit Plan. (q) Environment, Health, and Safety Except as set forth in Section 2(q) of the Disclosure Schedule: (i) With respect to the operation of the Stations and the Real Estate, the Seller is, and at all times in the past has been, in compliance in all material respects with all Environmental Laws and all laws (including rules and regulations thereunder) of federal, state, and local governments (and all agencies thereof) concerning employee health and safety, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has ever been filed or commenced or, to the Seller's Knowledge, is threatened, against the Seller alleging any failure to comply with any such Environmental Law or laws concerning employee health and safety. (ii) With respect to the operation of the Stations and the Real Estate, the Seller has no Liability (and to Seller's Knowledge there is no Basis related to the past or present operations of the Seller or its predecessors for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Comprehensive 11 Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act of 1986 (each as amended), or any other law of any federal, state, local, or foreign government or agency thereof (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, or pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes ("Environmental Laws"); (iii) The Seller has no Liability (and to Seller's Knowledge there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety, or for any illness of or personal injury to any employee. (iv) The Seller has obtained and at all times has been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental Laws or law of any federal, state, or local or foreign government relating to worker health and safety. (v) To Seller's Knowledge all properties and equipment used in the business of the Seller have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. (vi) To Seller's Knowledge, no pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or waste ever has been buried, stored, spilled, leaked, discharged, emitted, or released on any of the Real Estate in a manner that would constitute a violation of any Environmental Laws. (vii) To Seller's Knowledge none of the Acquired Assets are required to be upgraded, modified or replaced to be in compliance with Environmental Laws. (viii) Seller has delivered to Buyers a copy of all environmental claims, reports, studies, compliance actions or the like of the Seller or which are available to the Seller with respect to any of the Real Estate or any of the Acquired Assets. (ix) No septic systems or wells exist on, in or under any of the Real Estate. No above ground or underground storage tanks have ever been located at, on or under the Real Estate. To Seller's Knowledge, none of the Real Estate is contaminated by hazardous or toxic substances or waste, as defined under Environmental Laws, originating from off-site sources. 12 (r) Legal Compliance (i) The Seller has complied in all material respects with all material laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof), and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced or, to the Seller's Knowledge, is threatened, against the Seller alleging any failure to comply with any such law or regulation, including those relating to the employment of labor, employee civil rights, and equal employment opportunities and antitrust matters. (ii) The Seller has filed in a timely manner all material reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all material respects) under all applicable laws (including rules and regulations thereunder) of federal state, local and foreign governments (and all agencies thereof). Except as set forth in Section 2(r) of the Disclosure Schedule , to the Seller's Knowledge, it has possession of all records and documents it was required to retain under all applicable laws (including rules and regulations thereunder). (s) Advertising and Material Contracts. Section 2(s) of the Disclosure Schedule lists all arrangements for the sale of air time or advertising on the Stations in excess of $3,000, and the amount to be paid to the Seller therefor. Except as set forth in Section 2(s) of the Disclosure Schedule, the Seller has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or third parties to material contracts of the Seller to cease doing business or to reduce in any material respect the business transacted with the Seller or to terminate or modify any agreements with the Seller (whether as a result of consummation of the transactions contemplated hereby or otherwise). (t) Brokers' Fees. The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (u) Undisclosed Commitments or Liabilities. Except as set forth in Schedule 2(u), there are no commitments, liabilities or obligations relating to any of the Stations, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by the Seller of the liabilities of third parties, for which specific and adequate provisions have not been made on the Financial Statements (collectively, "Undisclosed Liabilities") except those incurred in or as a result of the Ordinary Course of Business, with respect to station WQCB(FM), since December 31, 1996, and with respect to Station WBZN(FM), since October 1, 1997 (none of which Ordinary Course of Business, obligations have had or will have a material adverse effect on any Stations). (v) Disclosure. The representations and warranties contained in this Section 2 do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained in this Section 2 not misleading. 3. Representations and Warranties of the Buyer. Buyers represent and warrant to the Seller that the statements contained in this Section 3 are correct and complete as of the date of this Agreement except as set forth in the Disclosure Schedule. 13 (a) Organization of the Buyers. Broadcasting and Licensing are corporations duly organized, validly existing, and in good standing under the laws of Nevada, and on the Closing Date will be duly qualified to conduct business in Maine. (b) Authorization of Transaction. Buyers have all necessary corporate power and authority to enter into and perform this Agreement and the Ancillary Agreements and the transactions contemplated thereby, and to acquire the FCC Licenses and to own or lease the Acquired Assets and to carry on the business of the Stations upon the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements. Buyers' execution, delivery and performance of this Agreement and the Ancillary Agreements and the transactions contemplated thereby have been duly and validly authorized by all necessary action on their part and, assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements by Seller, this Agreement and the Ancillary Agreements constitute valid and binding obligations of Buyers, enforceable against them in accordance with their terms, except as the enforceability of this Agreement and the Ancillary Agreements may be affected by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by judicial discretion in the enforcement of equitable remedies. (c) Qualification as FCC Licensee. Licensing is legally, financially and otherwise qualified to be the licensee of, acquire, own and operate the Stations under the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC. Buyers know of no fact that would, under existing law and the existing rules, regulations, policies and procedures of the FCC disqualify Licensing as an assignee of the Stations' FCC Licenses or as the owner and operator of the Stations. No waiver of any FCC rule or policy is necessary to be obtained by Licensing for the grant of the Assignment Application. (d) Noncontravention. The execution and the delivery of this Agreement and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), do not (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyers are subject or any provision of their articles of organization or other charter documents, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyers are a party or by which they are bound or to which any of their assets is subject. Other than the Assignment Application described in Section 4(b), the Buyers do not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any court or government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). (e) Brokers' Fees. Other than the fee payable to George Silverman, which shall be the exclusive liability of the Buyers, the Buyers have no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. (f) Litigation. Except for FCC rulemaking proceedings generally affecting the radio broadcasting industry and not particular to Buyers, there is no claim, litigation, proceeding or investigation pending or, to the best 14 of Buyers' Knowledge, threatened against Buyers, which would reasonably be expected, in any material respect, to impair or hinder Buyers' ability to perform their obligations pursuant to this Agreement, the Ancillary Agreements and the documents contemplated thereby. (g) Compliance With Laws. Buyers are in compliance with all federal, state and local laws, rules, regulations and ordinances applicable to Buyers, except for any noncompliance by Buyers that would not have a material adverse effect on Buyers' ability to perform their obligations pursuant to this Agreement, the Ancillary Agreements and the documents contemplated thereby. (h) Availability of Funds. Buyers will have available on the Closing Date sufficient funds to enable them to consummate the transactions contemplated hereby. 4. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: (a) General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 5 below). (b) Assignment Applications. The Seller and the Buyers have jointly filed with the FCC an application for assignment of the FCC Licenses, permits and authorizations pertaining to the Stations from the Seller to Licensing (the "Assignment Application"). The costs of the FCC filing fees in connection with the Assignment Application shall be divided equally between the Parties. Each party shall pay its own attorneys' fees. The Seller and the Buyers shall thereafter prosecute the Assignment Application with all reasonable diligence and otherwise use commercially reasonable efforts to obtain the grant of the Assignment Application as expeditiously as practicable (but neither the Seller nor the Buyers shall have any obligation to satisfy complainants or the FCC by taking any steps which would have a material adverse effect upon the Stations or upon any Affiliate or impose significant costs on such party). If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercially reasonable efforts to comply with such condition, provided, that neither party shall be required hereunder to comply with any condition that would have a material adverse effect upon the Stations, the party, or any Affiliate. The Seller and the Buyers shall jointly oppose any requests for reconsideration or judicial review of FCC approval of the Assignment Application and shall jointly request from the FCC an extension of the effective period of FCC approval of the Assignment Application if the Closing shall not have occurred prior to the expiration of the original effective period of the FCC Consent. Nothing in this Section 4(b) shall be construed to limit either party's right to terminate this Agreement pursuant to Section 9 of this Agreement. Notwithstanding the foregoing, the parties shall not file Exhibit 1(c)-1 to this Agreement unless requested by the FCC, and if so requested shall not file Exhibit 1(c)-1 prior to January 31, 1998. (c) Employment Offers. Upon notice to the Seller, and at mutually agreeable times, the Seller will permit the Buyers to meet with its employees prior to the Closing Date. Not earlier than one (1) week prior to the Closing, the Buyers may, at their option, extend offers of employment to all or any of the Seller's employees effective on the Closing Date. From and after the execution of this Agreement, the Seller will not take any action to preclude or discourage any of the Seller's employees from accepting any offer of employment extended by the Buyers. 15 (d) Notices and Consents. The Seller will give all notices to third parties and shall use commercially reasonable efforts to obtain all third party consents, that the Buyers reasonably may request in connection with the matters pertaining to the Seller disclosed or required to be disclosed in the Disclosure Schedule (including, without limitation, consents to assignment of the Leases and other Assumed Contracts). Each of the Parties will take any additional action that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that it may be required to give, make, or obtain. (e) Operation of Business. Except as set forth in section 4(e) of the Disclosure Schedule, the Seller will not engage in any practice, take any action, embark on any course of inaction, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, except as set forth in section 4(e) of the Disclosure Schedule the Seller will not engage in any practice, take any action, embark on any course of inaction, or enter into any transaction of the sort described in Section 2(f) above. (f) Advertising Obligations. The Seller shall satisfy its air time obligations under its agreements for sale of air time and advertising on the Stations for goods or services ("Barter Agreements") such that the outstanding aggregate balance owing under all Barter Agreements as of the Closing Date shall not exceed Five Thousand Dollars ($5,000.00) worth of air time without the Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a schedule, certified by an officer of the Seller, reflecting the aggregate outstanding balances under all Barter Agreements in existence as of the Closing Date. (g) Operating Statements. The Seller shall deliver to the Buyers, for the Buyers' informational purposes only, monthly unaudited statements of operating revenues and operating expenses of the Stations within ten (10) days after each such statement is prepared by or for the Seller. (h) Contracts. The Seller will not without the prior written consent of the Buyers amend, change, or modify any of the contracts listed on Section 2(k) of the Disclosure Schedule in any material respect. The Seller will not without prior written consent of the Buyers enter into any new contracts respecting the Stations or their properties, except (i) contracts for the sale of time on the Stations for cash, goods or services which are entered into in the Ordinary Course of Business and comply with Sections 4(f) and 4(j) hereof, (ii) contracts entered into in the Ordinary Course of Business which are cancelable on not more than thirty-one (31) days' notice without penalty or premium, and (iii) contracts entered into in the Ordinary Course of Business each of which does not involve more than Ten Thousand Dollars ($10,000) or all of which do not involve more than Twenty Thousand Dollars ($20,000) in the aggregate. (i) Operation of Stations. The Seller shall operate the Stations in material compliance with the FCC Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at all times remain in full force and effect. The Seller shall file with the FCC all material reports, applications, documents, instruments and other information required to be filed in connection with the operation of the Stations. (j) Credit and Receivables. The Seller will follow its usual and customary policies with respect to extending credit for sales of air time and advertising on the Stations and with respect to collecting accounts receivable arising from such extension of credit. (k) Preservation of Business. The Seller will use its best efforts to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, relationships 16 with lessors, licensors, advertisers, suppliers, customers, and employees, all of the Confidential Information, call letters and trade secrets of the Stations, and the FCC Licenses. (l) Full Access and Consultation. The Seller will permit representatives of the Buyers to have full access upon reasonable notice during business hours, and in a manner so as not to interfere with the normal business operations of the Stations, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Stations for the purpose of permitting the Buyer to, among other things: (a) review financial statements of the Stations, (b) verify the accuracy of representations and warranties of the Seller contained in this Agreement, and (c) prepare for the consummation of the transactions contemplated by this Agreement. The Seller will consult with the Buyers' management with a view to informing Buyer's management as to the operations, management and business of the Stations. (m) Notice of Developments. The Seller will give prompt written notice to the Buyers of any material development affecting the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Stations. Each Party will give prompt written notice to the other of any material development affecting the ability of the Parties to consummate the transactions contemplated by this Agreement. No disclosure by any Party pursuant to this Section 4(m), however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (n) Exclusivity. The Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) liquidation, dissolution, or recapitalization of the Seller, (B) merger or consolidation of the Seller, (C) acquisition or purchase of securities or all or substantially all of the Seller assets, or (D) similar transaction or business combination involving a transfer of control of the Seller or the Stations; or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. (o) Title Insurance, Surveys and Environmental Assessments. The Seller will obtain (i) with respect to each parcel of Real Estate subject to the Leases, a leasehold owner's policy issued by a title insurer reasonably satisfactory to the Buyer, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions, except mechanics liens, and insuring leasehold title to such Real Estate in the Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances, (ii) with respect to each parcel of Owned Real Estate, an owner's policy of title insurance by a title insurer reasonably satisfactory to the Buyer, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions, except mechanics liens, and insuring title to the Owned Real Estate to be vested in the Buyers as of the Closing free and clear of all liens and encumbrances except Permitted Real Estate Encumbrances, (iii) a current survey of each parcel of Real Estate certified to the Buyer and its lender, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Surveys") which shall not disclose any survey defect or encroachment from or onto any of the Real Estate which has not been cured or insured over prior to the Closing; and (iv) with respect to each parcel of Real Estate, a current Phase I environmental site assessment from an environmental consultant or engineer reasonably satisfactory to the Buyers which does not indicate 17 that the Seller and the Real Estate are not in compliance with any Environmental Law and which shall not disclose or recommend any action with respect to any condition to be remediated or investigated or any contamination on the site assessed. The Buyers and the Seller will each pay one-half (1/2) of the costs of these title policies (including costs for title searches, title premiums, abstracting and title examinations), Surveys and environmental assessments. (p) Control of Stations. The transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, the Buyers and their employees or agents shall not directly or indirectly control, supervise, or direct, or attempt to control, supervise, or direct, the operation of the Stations, and such operation shall be the sole responsibility of and in the control of the Seller. (q) Risk of Loss. The risk of loss, damage, or destruction to any of the Acquired Assets shall remain with the Seller until the Closing. In the event of any such loss, damage, or destruction the Seller will promptly notify the Buyer of all particulars thereof, stating the cause thereof (if known) and the extent to which the cost of restoration, replacement and repair of the Acquired Assets lost, damaged or destroyed will be reimbursed under any insurance policy with respect thereto. The Seller will, at Seller's expense, repair or replace such Acquired Assets to their former condition as soon as possible after loss, damage or destruction thereof and shall use commercially reasonable efforts to restore as promptly as possible transmissions as authorized in the FCC Licenses. The Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the date of the Seller's notice to the Buyers, and the Buyers determine that the Seller's failure to repair or replace, alone or in the aggregate with any other then existing factors, would have a material adverse effect on the operation of the Stations: (a) the Buyers may elect to terminate this Agreement; or (b) the Buyers may postpone the Closing Date until such time as the property has been repaired, replaced or restored in a manner and to an extent reasonably satisfactory to the Buyers, unless the same cannot be reasonably effected within sixty (60) days of the date of the Seller's notice to the Buyers, in which case either party may terminate this Agreement; or (c) the Buyers may choose to accept the Acquired Asset in their then existing condition, together with the Seller's assignment to the Buyers of all rights under any insurance claims covering the loss, damage or destruction and payment over to the Buyers of any proceeds under any such insurance policies, previously received by the Seller with respect thereto plus an amount equal to the amount of any deductible or self-insurance maintained by Seller on such Acquired Assets. In the event the Closing Date is postponed pursuant to this Section 4(q), the parties hereto will cooperate to extend the time during which this Agreement must be closed as specified in the consent of the FCC. (r) Waiver of Final Order Condition. Immediately following the grant of the FCC's consent to the Assignment Applications, and if no petitions to deny or other objections have been filed with respect to the Assignment Applications, the Buyer shall use commercially reasonable efforts to obtain the agreement of Buyer's lender to the funding of the Purchase Price prior to the time at which such FCC consent has become a Final Order. If Buyer's lender so agrees, the Buyer agrees to waive the condition set forth in 18 Section 5(a)(vi) to the extent it requires that the FCC consent to the Assignment Applications be a Final Order, and the parties agree to consummate the Closing as soon as practicable thereafter. 5. Conditions to Obligation to Close. (a) Conditions to Obligation of the Buyers. The obligation of the Buyers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 2 above shall be true and correct in all material respects (without giving effect to any materiality qualifiers contained in such representations and warranties) at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Seller shall have performed and complied with all of its covenants hereunder in all material respects (without giving effect to any materiality qualifiers contained in such covenants) through the Closing; (iii) the Seller shall have procured all of the third party consents specified in Section 4(d) above, including but not limited to those relating to transmitter and studio leases, and all of the title insurance commitments (and endorsements), Surveys and environmental site assessments described in Section 4(o) above; (iv) no action, suit, investigation, inquiry or other proceeding shall be pending or, to Seller's Knowledge, threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon Buyers if such transactions are consummated, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own, operate, or control the Acquired Assets (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (v) the Seller shall have delivered to the Buyer a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Sections 5(a)(i) through (iv) is satisfied in all respects; (vi) each of the Assignment Applications shall have been approved by a Final Order of the FCC, subject to the provisions of Section 4(r), and the Buyer shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vii) the relevant parties shall have entered into the Postclosing Agreement; (viii) the Buyers shall have received from counsel to the Seller an opinion with respect to the matters set forth in Exhibit 5(a)(viii) attached hereto, addressed to the Buyers and its lender and dated as of the Closing Date; (ix) the Buyers shall, by November 17, 1997, be satisfied as to the results of their examination and due diligence review referred to in Section 4(l) hereof. If, on or prior to November 17, 1997, Buyers do not 19 deliver to Seller a written notice terminating this Agreement in regard to the contingency described in this Section 5(a) (ix), then the contingency set forth in this Section 5(a) (ix) shall be deemed waived by Buyers; (x) the Acquired Assets shall be free and clear of all Security Interests; (xi) three-phase electrical power from Bangor Hydro shall be available at the WBZN(FM) transmitter site at Alton, Maine; provided, however, that if the Seller is unable to cause such power to be available at such site by the date which would otherwise be the Closing Date, the Parties shall proceed to consummate the Closing following agreement on appropriate procedures which shall result in completion of such project as soon as practicable after Closing at the sole cost and expense of Seller; (xii) Seller shall have completed, to Buyers' reasonable satisfaction, the remedial actions described in Seller's letter of November 24, 1997 to Buyers responding to Buyers' due diligence investigation; and (xiii) all actions to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. In the event that any of the foregoing conditions to Closing, other than the need for FCC approval, shall not have been satisfied, the Buyers may elect to (i) terminate this Agreement, or (ii) consummate the transactions contemplated herein despite such failure. Regardless of whether the Buyers elect to terminate this Agreement or consummate the transactions described herein, if such failure shall be as a result of a breach of any provision of this Agreement by the Seller (including, without limitation, any breach arising as a result of the failure of the Seller to execute and/or deliver any item described in this Section 5(a)), the Buyers may seek appropriate remedies for any and all damages, costs and expenses incurred by the Buyers by reason of such breach including, without limitation, indemnification pursuant to Section 7, below. (b) Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3 above shall be true and correct in all material respects (without giving effect to any materiality qualifiers contained in such representations and warranties) at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Buyers shall have performed and complied with all of their covenants hereunder in all material respects (without giving effect to any materiality qualifiers contained in such covenants) through the Closing; (iii) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon Seller if such transactions are consummated, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); 20 (iv) the Buyers shall have delivered to the Seller a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in all respects; (v) the relevant parties shall have entered into the Postclosing Agreement; (vi) the Seller shall have received from FCC counsel to the Buyers an opinion with respect to the matters set forth on Exhibit 5(b)(vi) attached hereto, addressed to the Seller and dated as of the Closing Date; (vii) the Seller shall have received from the Buyers certificates from the appropriate public officials in the States of Nevada and Maine as to the good standing of the Buyers in each of such states. (viii) all actions to be taken by the Buyers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. In the event that any of the foregoing conditions to Closing, other than the need for FCC approval, shall not have been satisfied, the Seller may elect to (i) terminate this Agreement, or (ii) consummate the transactions contemplated herein despite such failure. Regardless of whether the Seller elects to terminate this Agreement or consummate the transactions described herein, if such failure shall be as a result of a breach of any provision of this Agreement by the Buyers (including, without limitation, any breach arising as a result of the failure of the Buyers to execute and/or deliver any item described in this Section 5(a)), the Seller may seek appropriate remedies for any and all damages, costs and expenses incurred by the Seller by reason of such breach including, without limitation, liquidated damages pursuant to Section 9(d) of this Agreement or indemnification pursuant to Section 7, below. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. (a) General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Stations, each of the other Parties will reasonably cooperate with the contesting or defending Party and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below); provided, however, that such access and cooperation does not unreasonably disrupt the normal operations of the cooperating party. 21 (c) Adjustments. Operation of the Stations and the income and expenses attributable thereto up through the close of business on the day before the Closing Date shall be for the account of the Seller and thereafter for the account of the Buyers. Such items as employee salaries, vacation, sick day and personal time accruals, and fringe benefits, power and utilities charges, insurance, real and personal property taxes, prepaid expenses, deposits, music license fees, and rents and payments pertaining to the Assumed Contracts (including any contracts for the sale of time for cash, trade or barter so assigned) shall be prorated between the Seller and the Buyers as of the Closing Date in accordance with the foregoing principle. In addition, all commissions payable with respect to the accounts receivable of the Seller (whether due before or after Closing) shall be solely for the account and responsibility of the Seller. Contractual arrangements that do not reflect an equal rate of compensation to a Station over the term of the agreement shall be equitably adjusted as of the Closing Date. The prorations and adjustments hereunder shall be made and paid insofar as feasible on the Closing Date, with a final settlement sixty (60) days after the Closing Date. In the event of any disputes between the Parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at such time and such disputes shall be determined by an independent accounting firm mutually acceptable to both parties and the fees and expenses of such accounting firm shall be paid one-half (1/2) by the Seller and one-half (1/2) by the Buyer. (d) Collection of Accounts Receivable. At the Closing, the Seller will turn over to the Buyers, for collection only, the accounts receivable of the Stations owing to the Seller as of the close of business on the Closing Date. A schedule of such accounts receivable will be delivered by the Seller to the Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree to use commercially reasonable efforts in the ordinary course of business (but without responsibility to institute legal or collection proceedings) to collect such accounts receivable during the 120-day period following the Closing Date, and will remit all payments received on such accounts during each calendar month during this 120-day period on the tenth day of the next calendar month following receipt of the payment together with an accounting of all payments received within such month. The Buyers shall have the sole right to collect such accounts receivable during such one hundred twenty (120) day period. In the event the Buyers receive monies during the 120-day period following the Closing Date from an advertiser who, after the Closing Date, is advertising over any of the Stations, and that advertiser was included among the accounts receivable as of the Closing Date, the Buyer shall apply said monies to the oldest outstanding balance due on the particular account, except in the case of a "disputed" account receivable. For purposes of this Section 6(d), a "disputed" account receivable means one that the account debtor refuses in writing to pay because he asserts that the money is not owed or the amount is incorrect. In the case of such a disputed account, the Buyers shall immediately return the account to the Seller prior to expiration of the 120-day period following the Closing Date together with any written refusals to pay from the account debtor. If the Buyers return a disputed account to the Seller, the Buyers shall have no further responsibility for its collection and may accept payment from the account debtor for advertising carried on any of the Stations after the Closing Date. At the end of the 120-day period following the Closing Date, the Buyers will turn back to the Seller all of the accounts receivable of the Stations as of the Closing Date owing to the Seller which have not yet been collected, and the Buyers will thereafter have no further responsibility with respect to the collection of such receivables. During the 120-day period following the Closing Date, the Buyers shall afford the Seller reasonable access to the accounts receivable "aging list." The Seller acknowledges and agrees that the Buyers are acting as its collection agent hereunder for the sole benefit of the Seller and that Buyers have accepted such responsibility for the accommodation of the Seller. The Buyer shall not have any duty to inquire as to the form, manner of execution or validity of any item, document, instrument or notice deposited, received or delivered in connection with such collection efforts, 22 nor shall the Buyers have any duty to inquire as to the identity, authority or rights of the persons who executed the same. The Seller shall indemnify Buyers and hold them harmless from and against any judgments, expenses (including attorney's fees) costs or liabilities which the Buyers may incur or sustain as a result of or by reason of such collection efforts. (e) Consents. In the event any of the Assumed Contracts are not assignable or any consent to such assignment is not obtained on or prior to the Closing Date, and the Buyers elect to consummate the transactions contemplated herein despite such failure or inability to obtain such consent, the Seller shall continue to use commercially reasonable efforts to obtain any such assignment or consent after the Closing Date. Until the later of such time as such assignment or approval has been obtained or sixty (60) days following the Closing Date, the Seller will cooperate with Buyers in any lawful and economically feasible arrangement to provide that the Buyer shall receive the Seller's interest in the benefits under any such Assumed Contract, including performance by the Seller as agent, if economically feasible; provided, however, that the Buyers shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent that Buyers would have been responsible therefor if such consent or assignment had been obtained. 7. Survival of Representations and Warranties; Indemnification. (a) Survival. All of the representations and warranties of the Seller contained in Section 2 of this Agreement (other than the representations and warranties of the Seller contained in Sections 2(a), 2(b), and 2(d) hereof or relating to the Seller's organization, authorization, and title to the Acquired Assets), and the representations of Buyers contained in Section 3 of this Agreement (other than the representations of Buyer contained in Sections 3(a) and 3(b) hereof), shall survive the Closing and continue in full force and effect for a period of three (3) years following Closing. All of the representations and warranties of the Seller contained in Sections 2(a), 2(b), and 2(d) hereof or relating to the Seller's title to the Acquired Assets, all representation and warranties of the Buyers contained in Sections 3(a) and 3(b) hereof, and all covenants of the Buyers and the Seller contained in this Agreement shall survive the Closing and continue in full force and effect forever thereafter. (b) Indemnification Provisions for the Benefit of the Buyers. After the Closing Date, the Seller agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by: (i) any misrepresentation or breach of any of the Seller's representations or warranties, and covenants (without regard to any materiality qualifier contained therein) contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Seller; (ii) any breach or nonfulfillment of any agreement or covenant (without regard to any materiality qualifier contained therein) of the Seller contained herein or in any Ancillary Agreement; (iii) any Retained Liability. 23 (c) Indemnification Provisions for the Benefit of the Seller. After the Closing Date, the Buyers agree to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of, or caused by (i) any misrepresentation or breach of any of the Buyers' representations or warranties (without regard to any materiality qualifier contained therein) contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Buyers or (ii) any breach or nonfulfillment of any agreement or covenant (without regard to any materiality qualifier contained therein) of the Buyers contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability. (d) Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall notify the Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such failure. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party reasonably concludes that the counsel the Indemnifying Party has selected has a conflict of interest), (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event the Indemnifying Party does not notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, and/or in the event the Indemnifying Party shall fail to defend such claim actively and in good faith, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. (e) Limitations on Indemnification. Notwithstanding the foregoing, Seller's obligation to indemnify Buyers under Section 7(b)(i) or (ii), and Buyers' obligation to indemnify Seller under Section 7(c)(i) or (ii), shall be subject to the following limitations: (i) No indemnification shall be required to be made by Buyers or Seller as the Indemnifying Party, as the case may be, under Section 7(c) or 7(b) until the aggregate amount of damages of Buyers or Seller as Indemnified Party exceeds Thirty-Five Thousand Dollars ($35,000), in which case the Indemnifying Party shall be liable for all such Liability. (ii) The Indemnified Party shall be entitled to Indemnification only for those Adverse Consequences arising with respect to any claim as to which Indemnified Party has given the Indemnifying Party written notice within the appropriate time period set forth in Section 7(a) hereof for such claim. 24 (iii) All of Buyer's or Seller's recovery sought under Section 7(b) or 7(c) hereof shall be net of any insurance proceeds received by Buyers or Seller as Indemnified Parties, as the case may be, or which such party shall be entitled to receive, with respect to the events giving rise to such Adverse Consequences. Buyers and Seller agree that, subsequent to Closing, each party shall look first to recover under its applicable insurance policies, if any, prior to seeking indemnity as Indemnified Party from the other party hereto as Indemnifying Party. (iv) In no event shall Indemnifying Party's right to indemnify exceed the amount of the Purchase Price of the transactions contemplated by this Agreement. (v) Following the consummation, the sole and exclusive remedy for either party for any claim arising out of a breach of any representation, warranty, covenant, or other agreement herein shall be a claim for indemnification pursuant to this Section 7 except with respect to any claim for injunctive relief regarding a breach by any party of its obligations under the covenant not to compete set forth in the Post-Closing Agreement or except as otherwise provided in the Post-Closing Agreement. 8. Definitions "Acquired Assets" means all right, title, and interest in and to all of the assets of the Seller, other than Retained Assets, that are used or useful in the operation of the Stations, wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of-way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles, and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those Barter Agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for the sale of advertising time on the Stations; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters of the Stations, jingles, logos, slogans, and business goodwill of the Stations; (g) Licenses and similar rights obtained from governments and governmental agencies; and (h) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (i) goodwill of the Stations. "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. "Advertising Contracts" has the meaning set forth in Section 2(s), above. 25 "Affiliate" means with reference to any person or entity, another person or entity controlled by, under the control of or under common control with that person or entity. "Assignment Application" has the meaning set forth in Section 4(b) above. "Assumed Contracts" means the Leases, the Barter Agreements, the Advertising Contracts and those contracts specifically identified as Assumed Contracts in Section 2(k) of the Disclosure Schedule. "Assumed Liabilities" means obligations of the Seller which accrue after the Closing Date under the Assumed Contract either: (i) to furnish services, and other non-Cash benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. The Assumed Liabilities shall not include any Retained Liabilities. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or would reasonably be expected to form the basis for any specified consequence. "Buyers" has the meaning set forth in the preface to this Agreement. "Cash" means cash and cash equivalents determined in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements. "Closing" has the meaning set forth in Section 1(d) above. "Closing Date" has the meaning set forth in Section 1(d) above. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the businesses and affairs of the Seller. "Disclosure Schedule" has the meaning set forth in Section 2 above. "Earnest Money Deposit" has the meaning set forth in Section 1(c) above. "Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c) above. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). 26 "Environmental Laws" has the meaning set forth in Section 2(q), above. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means the George Mason Bank. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means the licenses, permits and other authorizations, including any temporary waiver or special temporary authorization, issued by the FCC to the Seller in connection with the conduct of the business and operation of the Stations. "Final Order" means an action by the FCC as to which: (a) no request for stay by the FCC is pending, no such stay is in effect, and any deadline for filing a request for any such stay has passed; (b) no appeal, petition for rehearing or reconsideration, or application for review is pending before the FCC and the deadline for filing any such appeal, petition or application has passed; (c) the FCC has not initiated reconsideration or review on its own motion and the time in which such reconsideration or review is permitted has passed; and (d) no appeal to a court, or request for stay by a court, of the FCC's action is pending or in effect, and the deadline for filing any such appeal or request has passed. "Financial Statements" has the meaning set forth in Section 2(e) above. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Indemnified Party" has the meaning set forth in Section 7(d) above. "Indemnifying Party" has the meaning set forth in Section 7(d) above. "Intellectual Property" means all (a) trademarks, service marks, trade dress, call letters, logos, trade names, and corporate names and registrations and applications for registration thereof, (b) all programs, programming materials, copyrights and registrations and applications for registration thereof, (c) computer software, data, and documentation, (d) trade secrets and confidential business information (including ideas, and compositions) know-how, market and other research information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (e) other proprietary rights, and (f) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. "Leases" means those real estate leases to which Seller is a party governing Seller's studios and FM tower sites in Brewer, Old Town, Garland and Alton, Maine, as described in Section 2(i) of the Disclosure Schedule. 27 "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" means all FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Seller with respect to the operations of the Stations and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Owned Real Estate" means the real property owned by the Seller in Garland, Maine as described in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and improvements located thereon. "Party" has the meaning set forth in the preface to this Agreement. "Permitted Real Estate Encumbrances" shall have the meaning set forth in Section 2(i), above. "Post-Closing Agreement" means the Post-Closing Agreement with Seller's owners in the form attached hereto as Exhibit 1(f). "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price" has the meaning set forth in Section 1(c) above. "Real Estate" means the Owned Real Estate and the real estate, building, fixtures and improvements which are the subject of the Leases. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Retained Assets" means (i) the certificate of limited partnership, taxpayer and other identification numbers, seals, minute books, and other documents relating to the organization, maintenance, and existence of the Seller; (ii) any of the rights of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement); (iii) accounts, notes and other receivables of the Seller; (iv) claims, deposits, prepayments, refunds, causes of action, chooses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (v) Cash, and (vi) Seller's partnership name. "Retained Liabilities" means any obligations or Liabilities of the Seller other than the Assumed Liabilities, including but not limited to: (i) any Liability relating to the ownership or operation of the Stations prior to the Closing; (ii) subject to Buyers' obligations under Sections 4(o) and 10(l) to pay one-half (1/2) of the costs of title policies, Surveys, environmental assessments, and transfer or sales taxes and other recording or similar fees, any Liability of the Seller for income, transfer, sales, use, and other Taxes of the transactions arising in connection with the consummation contemplated hereby; (iii) any Liability of the Seller for costs and expenses incurred in connection with this Agreement or the consummation of the 28 transactions contemplated hereby (except as set forth in Section 4(o) relating to Surveys, title commitments and environmental audits, Section 4(b) with regard to the Assignment Application, and Section 10(l) relating to transfer or sales taxes and other recording or similar fees), or (iv) any Liability or obligation of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement). "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due and payable; and (b) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation. "Seller" has the meaning set forth in the preface to this Agreement. "Stations" means the radio broadcast stations having the call letters WQCB(FM) and WBZN(FM), licensed by the FCC to operate in Brewer, Maine, and Old Town, Maine, respectively. "Surveys" has the meaning set forth in Section 4(o) above. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 9. Termination (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyers and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event the Seller is in material breach of any representation, warranty, or covenant contained in this Agreement; provided, however, that Seller shall have twenty (20) days following such notice to cure the breach, after which time if such breach remains uncured, Buyers may terminate this Agreement; (iii) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing in the event the Buyers are in material breach of any representation, warranty, or covenant contained in this Agreement; provided, that Buyer shall have twenty (20) days following such notice to cure the breach, after which time if such breach remains uncured, Seller may terminate this Agreement; (iv) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing if the Closing shall not have occurred on or before the 360th day following the date of this 29 Agreement by reason of the failure of any condition precedent under Section 5(a) hereof (unless the failure results primarily from the Buyers themselves breaching any representation, warranty, or covenant contained in this Agreement); (v) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing if the Closing shall not have occurred on or before the 360th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(b) hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement); or (vi) the Buyers or the Seller may terminate this Agreement if any Assignment Application is denied by Final Order. (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 9(a) above, all obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). (c) Specific Performance. Seller acknowledges and agrees that the Buyers would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the Buyers shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(o) below), in addition to any other remedy to which it may be entitled, at law or in equity. (d) Liquidated Damages. The Buyer and the Seller acknowledge that in the event that the transactions contemplated by this Agreement are not closed because of a default by Buyers, the Adverse Consequences to Seller as a result of such default may be difficult, if not impossible, to ascertain. Accordingly, in lieu of indemnification pursuant to Section 7(c), Seller shall be entitled to receive, as liquidated damages, the Earnest Money Deposit plus Three Hundred Twenty Thousand Dollars in the event of a termination of this Agreement pursuant to Section 9(a)(iii), without the need for proof of damages, subject only to successfully proving in a court of competent jurisdiction that the other Party has materially breached this Agreement and that the transactions contemplated hereby have not occurred as a result thereof. The Buyers and the Seller agree that the Earnest Money Deposit plus Three Hundred Twenty Thousand Dollars, as liquidated damages, will be released and paid to Seller within ten (10) days of the date that the Seller obtains such a judgment. 10. Miscellaneous (a) Survival. The representations, warranties, and covenants of the Parties contained in this Agreement shall survive the Closing hereunder as and to the extent provided in Section 7(a) hereof and the Post-Closing Agreement with respect to Seller's owners. (b) Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other 30 Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). (c) No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. (d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof, provided, however, that the Parties' obligations under Section 6 of the letter agreement dated October 3, 1997 between Seller and Buyers shall survive execution of this Agreement. (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party, provided that (i) the Buyers may assign all of its right, title and interest in, to and under this Agreement to one or more Affiliates, who shall then, subject to the terms and conditions of this Agreement, have the right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay to the Seller the Purchase Price therefor, and (ii) Buyers may assign their indemnification claims and their rights under the warranties and representations of the Sellers to the financial institution(s) providing financing to the Buyers in connection with this transaction); provided further, however, an assignment by Buyers pursuant to Section 10(e)(i) shall not be permitted if it would result in a major amendment to, or otherwise delay processing of, the Assignment Application. (f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be considered to be given and received in all respects when hand delivered, when delivered via prepaid express or courier delivery service, when sent by facsimile transmission actually received by the receiving equipment or three (3) days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, in each case addressed to the intended recipient as set forth below: If to the Seller: Castle Broadcasting Limited Partnership 200 Danforth Street Portland, ME 04102 Attn: Rudolph F. Haffenreffer; IV Fax: (207) 773-9727 31 Copy to: Dow Lohnes & Alberton 1200 New Hampshire Ave., N.W. Washington, DC 20036 Attn: M. Anne Swanson, Esq. Fax: (202) 776-2222 Rudman & Winchell, LLC 84 Harlow Street P.O. Box 1401 Bangor, Maine 04402-1401 Attn: George F. Eaton, II, Esq. Fax: (207) 941-9715 (which copies shall not constitute notice to Seller) 32 If to the Buyers: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. c/o QUAESTUS Management Corp. 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Attn: Terrence J. Leahy Fax: (414) 283-4505 With a copy to: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Avenue Suite 3650 Chicago, Illinois 60611 Attn: Richard J. Bonick Fax: (312) 867-0098 and Paul, Hastings, Janofsky & Walker LLP 1299 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attn: J. Griffith Johnson, Jr., Esq. Fax: (202) 508-9700 (which copy shall not constitute notice to Buyer) Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Maine. (j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent 33 default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (l) Expenses. The Buyers and the Seller, will each bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, other than as set forth in Section 4(b) with regard to the Assignment Applications and as set forth in Section 4(o) with respect to Surveys, title commitments and environmental audits. The Seller will pay all income taxes related to pre-Closing income of the Stations. The Seller and the Buyers will each pay one-half (1/2) of any transfer or sales taxes and other recording or similar fees necessary to vest title to each of the Acquired Assets in the Buyers. (m) Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (o) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in the State of Maine in any action or proceeding arising out of or relating to this Agreement, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the 34 Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on the other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 10(h) above. Nothing in this Section 10(o), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the date first above written. CUMULUS BROADCASTING, INC. By: (printed) - ------------------------------------ Title: CUMULUS LICENSING CORPORATION By: (printed) - ------------------------------------ Title: CASTLE BROADCASTING LIMITED PARTNERSHIP By: (printed) - ------------------------------------ Title: 35 EXHIBIT 1(c)-1 The Purchase Price shall be Six Million Four Hundred Thousand Dollars ($6,400,000.00). The Earnest Money Deposit shall be Three Hundred Twenty Thousand Dollars ($320,000.00). 36 EX-10.74 20 EXHIBIT 10.74 Exhibit 10.74 ASSET PURCHASE AGREEMENT This Agreement ("Agreement") are entered into as of March 5, 1998, by and between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation ("Licensing), Missouri River Broadcasting, Inc. ("Missouri River"), a North Dakota corporation, and JKJ Broadcasting, Inc. ("JKJ") a North Dakota corporation. Broadcasting and Licensing are referred to collectively herein as the "Buyers;" Missouri River and JKJ are referred to collectively herein as the "Seller." The Buyers and the Sellers are referred to individually as the "Party" or collectively as the "Parties." Capitalized terms used in this Agreement are defined in Section 9 hereof. Subject to the terms and conditions of this Agreement, the Buyers hereby agree to purchase substantially all of the assets (and assume certain of the liabilities) of the Sellers that are used or useful in the operation of the Stations, as defined below, in return for cash. Now, therefore, in consideration of the above premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Basic Transaction. a. Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, the Sellers agree to sell, transfer, convey and deliver to (i) Licensing, and Licensing agrees to purchase from the Sellers, all of the FCC Licenses listed in Section 2(k) of the disclosure schedule ("Disclosure Schedule"); and (ii) Broadcasting, and Broadcasting agrees to purchase from the Sellers, all of the Acquired Assets other than the FCC Licenses. Both such sales shall take place at the Closing for the consideration specified below in this Section 1. b. Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, Broadcasting agrees to assume and become responsible for all of the Assumed Liabilities at the Closing. The Buyers will not assume or has any responsibility, however, with respect to any other obligation or Liability of the Sellers not included within the definition of Assumed Liabilities and assumed by Broadcasting, and the Sellers agree to pay and discharge all Liabilities and obligations of the Sellers other than the Assumed Liabilities. c. Purchase Price. The Buyers agree to pay to the Sellers, as consideration for the Acquired Assets, the purchase price (the "Purchase Price") described in Schedule A to this Agreement, and agree to make the escrow deposit (the "Escrow Deposit") in the form and manner described in Schedule A and more particularly in the earnest money escrow agreement ("Earnest Money Escrow Agreement") attached hereto as Exhibit A. d. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at a mutually agreed location, commencing at 9:00 a.m. local time on the last day of the month in which the FCC approval of the Assignment Application becomes a Final Order, by which date all other conditions to the obligations of the Parties to consummate the transactions contemplated hereby will has been satisfied, or such other date as the Parties may mutually determine (the "Closing Date"). e. Deliveries at the Closing. At the Closing, (i) the Sellers will deliver to the Buyers the various certificates, instruments, and documents referred to in Section 5(a) below; (ii) the Buyers will deliver to the Sellers the various certificates, instruments, and documents referred to in Section 5(b) below; (iii) the Sellers will execute, acknowledge (if appropriate), and deliver to the Buyers (A) assignments (including Lease and other Assumed Contract assignments and Intellectual Property transfer documents), bills of sale and warranty deeds in form acceptable to the Buyers, (B) such affidavits, transfer tax returns, memorandums of lease, and other additional documents as may be required by the terms of the title insurance commitments described in Section 4(o) hereof, as necessary to obtain title insurance as required by such section or as may be necessary to convey title to the Real Estate to the Buyers in the condition required herein or provide public notice of existence of the Leases, and (C) such other instruments of sale, transfer, conveyance, and assignment as the Buyers and their counsel reasonably may request; (iv) the Buyers will execute, acknowledge (if appropriate), and deliver to the Sellers (A) an assumption in the form attached hereto as Exhibit B and (B) such other instruments of assumption as the Sellers and their counsel reasonably may request; and (v) the Buyers will deliver to the Sellers the consideration specified in Section 1(c) above. f. Postclosing Agreement. On the Closing Date, the Sellers shall execute, and shall cause each of their shareholders to execute, a Postclosing Agreement with the Buyers including covenants not to compete with the Buyers in the market served by the Stations for a period not to exceed three years and agreements to indemnify the Buyers in the form of Exhibit C attached hereto. A portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be paid to the Sellers by the Buyers on the Closing Date as consideration for the agreements set forth in the Postclosing Agreement. 2. Representations and Warranties of the Seller. The Sellers represent and warrant to the Buyers that the statements contained in this Section 2 is correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date, except as set forth in the Disclosure Schedule. a. Organization of the Seller. Sellers are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction of their incorporation. The Sellers do not has any Subsidiaries. The Sellers has the power and authority to own or lease their properties and to carry on all business activities now conducted by it. The sole shareholder of each of Sellers is James Ingstad. b. Authorization of Transaction. The Sellers have full power and authority (including full corporate power and authority) to execute and deliver this Agreement and all agreements and instruments to be executed and delivered by Sellers pursuant to this Agreement -2- (collectively, the "Ancillary Agreements") and to perform their obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Boards of Directors of the Sellers has duly authorized the execution, delivery, and performance of this Agreement and the Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligations of the Sellers, enforceable in accordance with their respective terms and conditions. c. Noncontravention. Except as set forth in the Disclosure Schedule, neither the execution and the delivery of this Agreement nor the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section l(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Sellers is subject or any provision of the charter or bylaws of the Sellers; or (ii) Materially conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other agreement, arrangement to which the Sellers is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets) subject to the giving of required notices and obtaining required consents of contracts identified in Section 2(j) of the Disclosure Schedule. Other than with respect to the Assignment Application described in Section 4(b), and the possible need for actions pursuant to the Hart-Scott-Rodino Act, the Sellers do not need to give any notice to, make any filing with, or obtain any Licenses, consent, or approval of any court or government or governmental agency in order for the Parties to enter into this agreement or the Ancillary Agreements or to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). d. Title to Acquired Assets. Other than the Security Interests set forth on Section 2(d) of the Disclosure Schedule (which shall be released at or before the Closing) the Sellers has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. e. Financial Statements. Included in Section 2(e) of the Disclosure Schedule is unaudited statements of income as of and for the fiscal year December 31, 1996, for the Sellers and unaudited statements of income as of and for each month during 1997 for the Sellers(collectively the "Financial Statements"). The Financial Statements has been prepared in conformity with the Seller's normal accounting policies, practices and procedures applied on a consistent basis, throughout the periods covered thereby, and is correct and complete, fairly present the financial condition of the Sellers and the results of operation of at the dates and for the periods indicated (without consideration of certain "group home office" expenses that has been identified to Buyers and that will not be incurred subsequent bo the Closing, and subject to adjustments consistent with Seller's past practices, is consistent with the books and records of the -3- Sellers (which books and records is correct and complete). The Financial Statements accurately state the revenues of the Stations for the period indicated therein and include a Materially accurate breakout of cash and trade revenues. f. Events Subsequent to January 1, 1997. Since January 1, 1997, except as set forth in Section 2(f) of the Disclosure Schedule, there have not been any Material Adverse effects on the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Sellers with respect to the operation of the Stations. Without limiting the generality of the foregoing and with respect to the operation of the Stations since January 1, 1997, to Seller's Knowledge, except as set forth in Section 2(f) of the Disclosure Schedule: i. Sellers has not, other than this Agreement, entered into any Material agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business; ii. Sellers has not Materially delayed or postponed (beyond its normal practice in the Ordinary Course of Business) the payment of accounts payable and other Liabilities; iii. Sellers has not Materially altered its credit and collection policies or its accounting policies; iv. Sellers has not entered into or terminated any Material employment arrangement, employment contract, consulting contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; v. there has been no Material changes to, nor threatened changes to, employment terms for any of Seller's employees; vi. there has not been any other Material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Seller; vii. the Sellers has not Materially altered the programming, format or call letters of the Stations, or their promotional and marketing activities; viii. the Sellers has not applied to the FCC for any modification of the FCC Licenses or failed to take any material action necessary to preserve the FCC Licenses and has operated the Stations in material compliance therewith and in material compliance with all FCC rules and regulations; ix. the Sellers has not terminated or received notice of termination for any Material syndicated programming; and -4- x. the Sellers has not committed to any of the foregoing. g. Tax Matters. The Sellers has timely and properly filed all Tax Returns that it was required to file with respect to the Seller's operations. All such Tax Returns were correct and complete and properly reflect the tax liability of the Seller. No Tax deficiencies has been proposed or assessed against the Seller. All Taxes owed by the Sellers with respect to its operations (whether or not shown on any Tax Return) has been paid. The Sellers has withheld and paid all Taxes required to has been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. No claim has ever been made by any authority in any jurisdiction where the Sellers does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. h. Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a Materially complete listing of transmitter and station equipment, vehicles and other tangible personal property used in conducting the operation and business of the Stations. The Sellers own or lease all tangible assets Materially necessary for the conduct of the operation and business of the Stations as presently conducted and as presently proposed to be conducted and all leased assets is specifically identified as such in Section 2(h) of the Disclosure Schedule. i. Real Property. Section 2(i) of the Disclosure Schedule lists and describes briefly all Owned Real Estate and real property leased to the Sellers (including, without limitation, complete legal descriptions for all of the Real Estate). The Sellers has delivered to the Buyers correct and complete copies of the Leases. With respect to the Real Estate, except as set forth in Section 2(i) of the Disclosure Schedule: i. the Sellers has good and marketable title to all of the Owned Real Estate which, at Closing, with the exception of the Stations' studios and the KLXX (AM) transmitter site to be retained by Seller, will be delivered to Buyers free and clear of all liens, charges, mortgages, security interests, easements, restrictions or other encumbrances of any nature whatsoever except real estate taxes for the year of Closing and municipal and zoning ordinances and recorded utility easements which do not impair the current use, occupancy or value or the marketability of title of the property and which is disclosed in Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real Estate Encumbrances"); ii. to Seller's Knowledge, the Leases is and, following the Closing will continue to be, legal, valid, binding, enforceable, and in full force and effect; iii. to Seller's Knowledge, no party to any Lease is in Material breach or default (or has repudiated any provision thereof), and no event has occurred which, with notice or lapse of time, would constitute a Material breach or default thereunder or permit termination, modification, or acceleration thereunder; -5- iv. to Seller's Knowledge, there is no Material disputes or oral agreements, or any forbearance programs in effect as to any Lease; v. none of the Owned Real Estate and to the Seller's Knowledge, none of the properties subject to the Leases is subject to any lease (other than Leases), option to purchase or rights of first refusal; vi. except for Permitted Real Estate Encumbrances, to Seller's Knowledge, there is no (i) actual or proposed special assessments with respect to any of the Real Estate; (ii) pending or threatened condemnation proceedings with respect to any of the Real Estate; (iii) structural or mechanical defects in any of the buildings or improvements located on the Real Estate that would prevent their continued use in the manner in which they is presently used; or (iv) any pending or threatened change in any zoning laws or ordinances which may Materially adversely affect any of the Real Estate or Seller's use thereof; and vii. the Sellers has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or its rights thereunder; viii. to the Seller's Knowledge, all facilities on the Real Estate has received all Material approvals of governmental authorities (including Material licenses, permits and zoning approvals) required in connection with the operation thereof and has been operated and maintained in Material accordance with applicable laws, rules, and regulations. j. Contracts. Section 2(j) of the Disclosure Schedule lists any written arrangement (or group of related written arrangements) either involving more than $25,000 or not entered into in the Ordinary Course of Business. The Sellers has delivered to the Buyers a correct and complete copy of each written arrangement listed in Section 2(j) of the Disclosure Schedule (as amended to date). With respect to each written arrangement so listed which constitutes an Assumed Contract: (A) to Seller's Knowledge, the written arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) subject to the giving of required notices and obtaining required consents, the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing (if the arrangements has not expired according to their terms); (C) to Seller's Knowledge, no party is in Material breach or default, and no event has occurred which with notice or lapse of time would constitute a Material breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) to Seller's Knowledge, no party has repudiated any provision of the written arrangement. The Sellers is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in Section 2(j) of the Disclosure Schedule under the terms of this Section 2(j). Except for the Assumed Contracts, the Sellers shall hold Buyers harmless and indemnify Buyers from any Liability or obligations for or in respect of any of the contracts set forth in Section 2(j) of the Disclosure Schedule or any other contracts or agreements of the Seller. -6- k. Commission Licenses and Compliance with Commission Requirements. Except as set forth in Section 2(k) of the Disclosure Statement: i. All licenses, permits, authorizations, franchises, certificates of compliance, and consents of governmental bodies, including, without limitation, the FCC Licenses, used or useful in the operation of the Stations as they is now being operated is (A) in full force and effect, and (B) to Seller's knowledge, unimpaired by any acts or omissions of the Sellers or the Seller's employees or agents. Copies of all FCC licenses, permits, and authorizations is included in Section 2(k) of the Disclosure Schedule. To Seller's Knowledge, no condition exists or event has occurred that permits, or after notice or lapse of time, or both, would permit, the revocation or termination of any such license, permit, consent, franchise, or authorization (other than pursuant to their express expiration date) or the imposition of any Material restriction or limitation upon the operation of the Stations as now conducted. Except as set forth in Section 2(k) of the Disclosure Schedule, the Sellers is not aware of any reason why the FCC licenses might not be renewed in the ordinary course or revoked. ii. The Sellers has been advised by its engineering staff that the Stations is in compliance with the FCC's policy on exposure to radio frequency radiation, and knows of no reason to dispute said information. To Seller's Knowledge, no renewal of any FCC License would constitute a major environmental action under the FCC's rules or policies. To Seller's Knowledge, access to the Stations' transmission facilities is restricted in accordance with the policies of the FCC. iii. Except as set forth in Section 2(k) of the Disclosure Schedule, to the Seller's Knowledge, the Sellers is not the subject of any FCC or other governmental investigation or any notice of violation or order, or any Material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorization for the Stations, and there is no proceedings (other than rule making proceedings of general applicability) before the FCC or any other governmental authority that could adversely affect any of the FCC Licenses or the authorizations listed in Section 2(k) of the Disclosure Schedule. iv. To Seller's Knowledge, the Sellers has filed with the FCC and all other governmental authorities having jurisdiction over the Stations all Material reports, applications, documents, instruments, and other information required to be filed, including but not limited to Antenna Structure Registration Forms, and will continue to make such filings through the Closing Date. v. The Sellers is not aware of any information concerning the Seller's ownership or operation of the Stations that could cause the FCC not to issue to the Buyers all regulatory certificates and approvals necessary for the consummation of the transactions contemplated hereunder or the Buyer's operation and/or ownership of the Stations. -7- l. Intellectual Property. To Seller's Knowledge, the Sellers owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property Materially necessary for the operation of the businesses of the Sellers as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Sellers immediately prior to the Closing hereunder is set forth on Section 2(l) of the Disclosure Schedule and each item listed will be owned or available for use the by the Buyers on identical terms and conditions immediately subsequent to the Closing hereunder. To Seller's Knowledge, the Sellers has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Sellers has never received any charge, complaint, or notice alleging any such interference, infringement, misappropriation, or violation, that has not been, or will not be by the Closing, resolved. To the Knowledge of the Seller, no third party has Materially interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. m. Insurance. Section 2(m) of the Disclosure Schedule sets forth a Materially complete and accurate description of all Seller's insurance coverage. With respect to each such insurance policy, to Seller's Knowledge: (A) the policy is legal, valid, binding, and enforceable and in full force and effect; and (B) the policy will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms through the Closing Date. n. Litigation. Section 2(n) of the Disclosure Schedule sets forth each instance in which the Seller: (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasi judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. To Seller's Knowledge, none of the charges, complaints, actions, suits, proceedings, hearings, and investigations set forth in Section 2(n) of the Disclosure Schedule could result in any Materially Adverse Effect. The Sellers has no Knowledge of any Basis for any such charge, complaint, action, suit, proceeding, hearing, or investigation against the Seller. o. Employees. Section 2(o) of the Disclosure Schedule sets forth a Materially complete listing of the names, positions, job descriptions, salary or wage rates and all other forms of compensation paid for work at the Stations of each employee. To the Knowledge of the Seller, no key employee or group of employees has any plans to terminate employment with the Seller. The Sellers is not a party to or bound by any collective bargaining or similar agreement, nor has they experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Sellers has no knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to the employees of the Seller. The Sellers has no knowledge of any Basis for any Material claim by past or current employees of the Sellers or applicants for employment that the Sellers or its management has discriminated based on each individuals race, sex, national origin, religion, ethnicity, handicap or any other protected characteristic under applicable law. -8- p. Employee Benefits. Section 2(p) of the Disclosure Schedule lists all Employee Benefit Plans that the Sellers maintains or to which the Sellers contributes or is required to contribute for the benefit of any current or former employee of the Sellers and true and correct copies of each such Employee Benefit Plan has been delivered to the Buyers. Each Employee Benefit Plan (and each related trust or insurance contract) Materially complies and at all times has Materially complied in form and in operation in all respects with the applicable requirements of ERISA and the Code. The Sellers does not has any commitment to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee or terminated employee of the Seller. There is no pending or, to the Knowledge of the Seller, threatened claims under, by or on behalf of any of the Employee Benefit Plans, by any employee or beneficiary covered by any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits), nor has there been any Reportable Events or Prohibited Transactions with respect to any Employee Benefit Plan of which Sellers has Knowledge. q. Environment, Health, and Safety. Except as disclosed in Section 2(q) of the Disclosure Schedule: i. With respect to the operation of the Stations and the Real Estate, the Sellers is, and at all times in the past has been, in compliance in all Material respects with all then-effective Environmental Laws and all laws (including rules and regulations thereunder) of federal, state, and local governments (and all agencies thereof) concerning employee health and safety, and, to Seller's Knowledge, the Sellers has no Liability (and there is no Basis related to the past or present operations of the Sellers or its predecessors for any present or future Material Liability) under any Environmental Law. To Seller's Knowledge, the Sellers has no Liability (and there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Sellers giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety, or for any illness of or personal injury to any employee. ii. The Sellers has obtained and at all times has been in compliance in all Material respects with all of the terms and conditions of all permits, licenses, and other authorizations which is required under, and has Materially complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which is contained in, all Environmental Laws or law of any federal, state, or local or foreign government relating to worker health and safety. iii. To Seller's Knowledge, all properties and equipment used in the Stations and the Acquired Assets has been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2-transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances unless the presence of such Materials is in conformity with Environmental Laws. Sellers has no Knowledge that any pollutant, contaminant, or chemical, industrial, hazardous, or -9- toxic material or waste ever has been unlawfully buried, stored, spilled, leaked, discharged, emitted, or released on any of the Real Estate. To Seller's Knowledge, no above ground or underground storage tanks has ever been located at, on or under the Real Estate. The Sellers has delivered to the Buyers a Materially complete copy of all environmental claims, reports, studies, compliance actions or the like of the Sellers or which is available to the Sellers with respect to any of the Real Estate or any of the Acquired Assets. r. Legal Compliance. Except as set forth in Section 2(r) of the Disclosure Schedule, the Sellers has complied in all Material respects with all laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof). To Seller's Knowledge, the Sellers has filed all reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all Material respects) under all applicable laws. s. Advertising Contracts. Section 2(s) of the Disclosure Schedule lists all arrangements for the sale of air time or advertising on the Stations in excess of $10,000, and the amount to be paid to the Sellers therefor, which will not be completed prior to Closing. The Sellers has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or third parties to Material contracts of the Sellers to cease doing business or to reduce in any Material respect the business transacted with the Sellers or to terminate or modify any agreements with the Sellers (whether as a result of consummation of the transactions contemplated hereby or otherwise) which, collectively or individually, would has a Material Adverse Effect. t. Brokers' Fees. Other than the fee payable to Media Venture Partners, which shall be the exclusive responsibility of Seller, the Sellers has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. u. Undisclosed Commitments or Liabilities. Except as set forth in Section 2(u) of the Disclosure Schedule, there is no Material commitments, liabilities or obligations relating to the Stations, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by the Sellers of the liabilities of third parties, for which specific and adequate provisions has not been made on the Financial Statements except those incurred in or as a result of the Ordinary Course of Business since January 1, 1997. v. Disclosure. The representations and warranties contained in this Section 2 do not contain any Materially untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained in this Section 2 Materially not misleading. -10- 3. Representations and Warranties of the Buyer. Buyers represent and warrant to the Sellers that the statements contained in this Section 3 is correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date except as set forth in the Disclosure Schedule. a. Organization of the Buyers. Broadcasting and Licensing is corporations duly organized, validly existing, and in good standing under the laws of Nevada. b. Authorization of Transaction. Buyers has full power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform their obligations hereunder and thereunder. This Agreement and the Ancillary Agreements constitute legally binding obligations of the Buyers, enforceable against the Buyers in accordance with their respective terms and conditions. c. Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section l(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyers is subject or any provision of their articles of organization or other charter documents, or (ii) Materially conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyers is a party or by which they is bound or to which any of their assets is subject. Other than the Assignment Application described in Section 4(b), and the possible need for actions pursuant to the Hart-Scott-Rodino Act, the Buyers do not need to give any notice to, make any filing with; or obtain any authorization, consent, or approval of any court or government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1 (e) above). d. Brokers' Fees. The Buyers has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Sellers could become liable or obligated. d. Qualifications to Acquire Stations. The Buyers is legally, financially, technically, and otherwise qualified to acquire the Stations from Seller. The Buyers is not aware of any information that could cause the FCC not to issue to the Buyers all regulatory certificates and approvals necessary for the consummation of the transactions contemplated hereunder or the Buyer's operation and/or ownership of the Stations. -11- 4. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: a. General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 5 below). b. Assignment Application. Within ten (10) business days after the execution of this Agreement, the Sellers and the Buyers shall jointly file with the FCC an appropriate application for assignment of the FCC Licenses, permits and authorizations pertaining to the Stations from the Sellers to Licensing (the "Assignment Application"). The costs of the FCC filing fees in connection with the Assignment Application shall be divided equally between the Parties. Each party shall pay their own attorneys' fees. The Sellers and the Buyers shall thereafter prosecute the Assignment Application with all reasonable diligence and otherwise use commercially reasonable efforts to obtain the grant of the Assignment Application as expeditiously as practicable (but neither the Sellers nor the Buyers shall has any obligation to satisfy complainants or the FCC by taking any steps which would has a Material Adverse Effect upon the Stations or impose significant costs on such party). If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercially reasonable efforts to comply with such condition, provided, that neither party shall be required hereunder to comply with any condition that would has a Material Adverse Effect upon the Stations or any Affiliate. The Sellers and the Buyers shall jointly oppose any requests for reconsideration or judicial review of FCC approval of the Assignment Application and shall jointly request from the FCC extension of the effective period of FCC approval of the Assignment Application if the Closing shall not has occurred prior to the expiration of the original effective period of the FCC Consent. Nothing in this Section 4(b) shall be construed to limit either party's right to terminate this Agreement pursuant to Section 10 of this Agreement. c. Employment Offers. Upon notice to the Seller, and at mutually agreeable times, the Sellers will permit the Buyers to meet with its employees prior to the Closing Date. The Buyers may, at their option, extend offers of employment to all or any of the Seller's employees effective on the Closing Date. From and after the execution of this Agreement, the Sellers shall use its best efforts to assist Buyers in retaining those employees of the Stations which the Buyers wish to hire in connection with the operation of the Stations by the Buyers subsequent to the Closing, and the Sellers will not take any action to preclude or discourage any of the Seller's employees from accepting any offer of employment extended by the Buyers. d. Notices and Consents. The Sellers will give all notices to third parties and shall use commercially reasonable efforts to obtain all third party consents, that the Buyers reasonably may request. Each of the Parties will file any notification and report forms and related -12- material that it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Act, will use their best efforts to obtain an early termination of the applicable waiting period, and will make any further filings pursuant thereto that may be necessary, proper or advisable. Each of the Parties will take any additional action that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that it may be required to give, make, or obtain. e. Advertising Obligations. The Sellers shall take commercially reasonable steps, without Materially adversely impacting the cash financial performance of the Stations, to satisfy its outstanding obligations under its agreements for sale of air time and advertising on the Stations for goods or services ("Barter Agreements") and shall only enter into new Barter Agreements in the Ordinary Course of Business of the Stations. On the Closing Date, the Sellers shall deliver to the Buyers a report (the "Trade Report") which lists all Barter Agreements included in the Acquired Assets and the contract end date for each such Barter Agreement together with an itemized statement, determined in accordance with generally accepted accounting principles, of the aggregate value of the barter payable and the barter receivable pursuant to each of the Barter Agreements. To the extent that the aggregate value as reflected on the Trade Report of the Stations' barter payable is more than Twenty Thousand Dollars ($20,000.00) greater than the aggregate value of the barter receivable, Buyer shall be entitled to receive as a credit against the purchase price the amount of the excess barter imbalance. f. Operating Statements. The Sellers shall deliver to the Buyers, for the Buyers' informational purposes only, monthly unaudited statements of operating revenues and operating expenses of the Stations within ten (10) days after each such statement is prepared by or for the Seller. g. Contracts. The Sellers will not without the prior written consent of the Buyers amend, change, or modify any of the contracts listed on Section 2(k) of the Disclosure Schedule in any Material respect. The Sellers will not without prior written consent of the Buyers enter into any contract outside the Ordinary Course of Business which involves an obligation which will survive the Closing under which Buyer will be obligated to expend more than Five Thousand Dollars ($5,000). h. Operation of Stations. The Sellers will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business which will has a Material Adverse Effect. The Sellers shall operate the Stations Materially in compliance with the FCC Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at all times remain in full force and effect. The Sellers shall file with the FCC all Material reports, applications, documents, instruments and other information required to be filed in connection with the operation of the Stations. -13- i. Credit and Receivables. The Sellers will follow its usual and customary policies with respect to extending credit for sales of air time and advertising on the Stations and with respect to collecting accounts receivable arising from such extension of credit. j. Preservation of Stations and the Acquired Assets. The Sellers will take all commercially reasonable actions to keep its Stations and the Acquired Assets and properties substantially intact, including their present operations, physical facilities, working conditions, relationships with lessors, licensors, advertisers, suppliers, customers, and employees, all of the Confidential Information, call letters and trade secrets of the Stations, and the FCC Licenses. k. Access and Consultation. The Sellers will permit representatives of the Buyers to has commercially reasonable access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Stations, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Seller. The Sellers will consult with the Buyers' management with a view to informing Buyers' management as to the operations, management and business of the Stations. Without limiting the foregoing, Sellers acknowledges and agrees that they will provide the Buyers and their representatives with such access to the properties, books, records, documents and operations of the Sellers as contemplated herein in a manner which will permit the Buyers to fully complete their due diligence review within the thirty (30) day period referenced in Section 9(a) (vi), below. l. Notice of Developments. The Sellers will give prompt written notice to the Buyers of any Material development affecting business, operations or prospects of the Stations or the Acquired Assets or the ability of the Sellers to perform hereunder. m. Exclusivity. The Sellers will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) merger or consolidation, (B) acquisition or purchase of securities or assets, or (C) similar transaction or business combination involving the Seller, or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Sellers will notify the Buyers immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. n. Title Insurance. Surveys and Environmental Assessments. The Sellers will take all commercially reasonable actions to assist Buyer in obtaining, at Buyers' own cost (i) with respect to each parcel of Real Estate subject to the Leases, a leasehold owner's policy issued by a title insurer reasonably satisfactory to the Buyers, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring leasehold title to such Real Estate in the Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or their lender reasonably request, (ii) with respect to each parcel of Owned Real Estate being sold to Buyers, an owner's -14- policy of title insurance by a title insurer reasonably satisfactory to the Buyers, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard preprinted exceptions and insuring title to the Owned Real Estate to be vested in the Buyers as of the Closing free and clear of all liens and encumbrances except Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or their lender reasonably request, (iii) a current survey of each parcel of Real Estate certified to the Buyers and their lender, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Surveys ") which shall not disclose any survey defect or encroachment from or onto any of the Real Estate which has not been cured or insured over prior to the Closing; and (iv) with respect to each parcel of Real Estate, a current Phase I environmental site assessment from an environmental consultant or engineer reasonably satisfactory to the Sellers which does not indicate that the Sellers and the Real Estate is not in compliance with any Environmental Law and which shall not disclose or recommend any action with respect to any condition to be remediated or investigated or any contamination on the site assessed. Sellers shall provide to Buyers copies of all existing title insurance policies, land surveys, Phase I and other environmental surveys that is in the possession of Seller. o. Control of Stations. The transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, the Buyers and their employees or agents shall not directly or indirectly control, supervise, or direct, or attempt to control, supervise, or direct, the operation of the Stations, and such operation shall be the sole responsibility of and in the control of the Seller. The costs of obtaining title insurance, surveys and environmental assessments shall be borne by Buyers. p. Risk of Loss. The risk of loss, damage, or destruction to any of the Acquired Assets shall remain with the Sellers until the Closing. In the event of any Material loss, damage, or destruction to any of the Acquired Assets, the Sellers will promptly notify the Buyers of all particulars thereof, stating the cause thereof (if known) and the extent to which the cost of restoration, replacement and repair of the Acquired Assets lost, damaged or destroyed will be reimbursed under any insurance policy with respect thereto. The Sellers will, at Seller's expense, repair or replace such Acquired Assets to their former condition as soon as possible after loss, damage or destruction thereof and shall use its best efforts to restore as promptly as possible transmissions as authorized in the FCC Licenses. The Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the date of the Seller's notice to the Buyers and the Buyers determine that the Seller's failure to repair or replace would has a Material Adverse Effect on the operation of the Stations: i. the Buyers may elect to terminate this Agreement; or -15- ii. the Buyers may postpone the Closing Date until such time as the property has been repaired, replaced or restored in a manner and to an extent reasonably satisfactory to the Buyers, unless the same cannot be reasonably effected within ninety (90) days of the date of the Seller's notice to the Buyers, in which case either party may terminate this Agreement; or iii. the Buyers may choose to accept the Acquired Asset in their "then" condition, together with the Seller's assignment to the Buyers of all rights under any insurance claims covering the loss, damage or destruction and payment over to the Buyers of any proceeds under any such insurance policies, previously received by the Sellers with respect thereto plus an amount equal to the amount of any deductible or self-insurance maintained by Sellers on such Acquired Assets. In the event the Closing Date is postponed pursuant to this Section 4(p), the parties hereto will cooperate to extend the time during which this Agreement must be closed as specified in the consent of the FCC. r. Priority of Transaction. Buyers will take no action which will prevent or unduly delay the issuance of any required regulatory clearance relating to the transactions contemplated by this Agreement. In the event of a conflict between the transactions proposed in this Agreement and another subsequent transaction involving the Buyers, Buyer will defer, delay, or terminate such other transaction if necessary to permit the grant of required regulatory consent for the transactions contemplated herein. 5. Conditions to Obligation to Close. a. Conditions to Obligation of the Buyers. The obligation of Buyers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: i. the representations and warranties set forth in Section 2 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; ii. the Sellers shall has performed and complied with all of its covenants hereunder in all respects through the Closing; iii. the Sellers shall has procured all of the third party consents specified in Section 4(d) above (or taken such action to Buyers' satisfaction as will provide the full benefits of such contracts, agreements or arrangements to Buyer) and all of the title insurance commitments (and endorsements), Surveys and environmental site assessments described in Section 4(o) above; iv. no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasijudicial or administrative agency of any federal, -16- state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the parties if such transactions is consummated, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) adversely affect the right of the Buyers to own, operate, or control the Acquired Assets (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); v. the Sellers shall has delivered to the Buyers a certificate (without qualification as to knowledge or Materiality or otherwise) to the effect that each of the conditions specified above in Sections 5(a)(I) through (iv) is satisfied in all respects; vi. the Assignment Application shall has been approved by a Final Order of the FCC, all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall has expired or been terminated, and the Buyers shall has received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; vii. the relevant parties shall has entered into the Postclosing Agreement; viii. the Buyers shall has received from counsel to the Sellers an opinion with respect to the matters set forth in Exhibit E attached hereto, addressed to the Buyers and their lender and dated as of the Closing Date; ix. the Parties shall has agreed to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with an allocation schedule to be delivered at closing; and x. The Parties shall has entered into a lease with terms reasonably acceptable to each party, providing for the lease to Buyers, for a period of twelve months from the Closing Date, of the Stations studios and the KLXX (AM) transmitter site. The lease shall be without rent, except that during the term of the lease Buyers will pay directly or reimburse Sellers within five (5) days for all out-of-pocket costs relating to its occupation of the leased premises, including but not limited to power and utility costs, real estate and other taxes, maintenance and other costs. xi. all actions to be taken by the Sellers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyers. -17- b. Conditions to Obligation of the Seller. The obligation of the Sellers to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: i. the representations and warranties set forth in Section 3 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; ii. the Buyers shall has performed and complied with all of their covenants hereunder in all respects through the Closing; iii. no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the Parties if such transactions is consummated, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); iv. the Buyers shall has delivered to the Sellers one or more certificate(s) (without qualification as to knowledge or Materiality or otherwise) to the effect that each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Buyers which shall survive the Closing; v. the Assignment Application shall has been approved by a Final Order of the FCC and the Buyers shall has received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; and vi. the relevant parties shall has entered into the Postclosing Agreement; vii. the Parties shall has agreed to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with an allocation schedule to be delivered at closing; and viii. The Parties shall has entered into a lease with terms reasonably acceptable to each party, providing for the lease to Buyers, for a period of twelve months from the Closing Date, of the Stations studios and the KLXX (AM) transmitter site. The lease shall be without rent, except that during the term of the lease Buyers will pay directly or reimburse Sellers -18- within five (5) days for all out-of-pocket costs relating to its occupation of the leased premises, including but not limited to power and utility costs, real estate and other taxes, maintenance and other costs. ix. all actions to be taken by the Buyers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing: a. General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). b. Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Stations, each of the other Parties will reasonably cooperate with the contesting or defending Party and their counsel in the contest or defense, make available his or their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below); provided, however, that such access and cooperation does not unreasonably disrupt the normal operations of the cooperating party. c. Adjustments. Operation of the Stations and the income and expenses attributable thereto up through the close of business on the day before the Closing Date shall be for the account of the Sellers and thereafter for the account of the Buyers. Such items as employee salaries, vacation, sick day and personal time accruals, and fringe benefits, power and utilities charges, insurance, real and personal property taxes, prepaid expenses, deposits, music license fees, and rents and payments pertaining to the Assumed Contracts (including any contracts for the sale of time for cash so assigned) shall be prorated between the Sellers and the Buyers as of the Closing Date in accordance with the foregoing principle. Outstanding barter balances shall be adjusted as provided in Section 4(e) of this Agreement. In addition, all commissions payable with respect to the accounts receivable of the Sellers (whether due before or after Closing) shall be -19- solely for the account and responsibility of the Seller. Contractual arrangements that do not reflect an equal rate of compensation to a Stations over the term of the agreement shall be equitably adjusted as of the Closing Date. The prorations and adjustments hereunder shall be made and paid insofar as feasible on the Closing Date, with a final settlement sixty (60) days after the Closing Date. In the event of any disputes between the Parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at such time and such disputes shall be determined by an independent accounting firm mutually acceptable to both parties and the fees and expenses of such accounting firm shall be paid one-half (1/2) by the Sellers and one-half (1/2) by the Buyer. d. Collection of Accounts Receivable. At the Closing, the Sellers will turn over to the Buyers, for collection only, the accounts receivable of the Stations owing to the Sellers as of the close of business on the day before the Closing Date. A schedule of such accounts receivable will be delivered by the Sellers to the Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree to use commercially reasonable efforts in the ordinary course of business (but without responsibility to institute legal or collection proceedings) to collect such accounts receivable during the 120-day period following the Closing Date, and will remit all payments received on such accounts during this 120-day period on the one hundred twentieth (120th) day together with an accounting of all payments received within such period. The Buyers shall has the sole right to collect such accounts receivable during such one hundred twenty (120) day period. In the event the Buyers receive monies during the 120-day period following the Closing Date from an advertiser who, after the Closing Date, is advertising on the Stations, and that advertiser was included among the accounts receivable as of the Closing Date, the Buyers shall apply said monies to the oldest outstanding balance due on the particular account, except in the case of a "disputed" account receivable. For purposes of this Section 6(d), a "disputed" account receivable means one which the account debtor refuses to pay because he asserts that the money is not owed or the amount is incorrect. Buyers shall not knowingly encourage any account debtor to dispute any amounts outstanding on the Closing Date. In the case of such a disputed account, the Buyers shall immediately return the account to the Sellers prior to expiration of the 120-day period following the Closing Date. If the Buyers return a disputed account to the Seller, the Buyers shall has no further responsibility for their collection and may accept payment from the account debtor for advertising carried on the Stations after the Closing Date. At the end of the 120-day period following the Closing Date, the Buyers will turn back to the Sellers all of the accounts receivable of the Stations as of the Closing Date owing to the Sellers which has not yet been collected (including all records and documents of the Stations relating to such uncollected accounts), and the Buyers will thereafter has no further responsibility with respect to the collection of such receivables. During the 120-day period following the Closing Date, the Buyers shall afford the Sellers reasonable access to the accounts receivable "aging list." The Sellers acknowledges and agrees that the Buyers is acting as collection agent hereunder for the sole benefit of the Sellers and that Buyers has accepted such responsibility for the accommodation of the Seller. The Buyers shall not has any duty to inquire as to the form, manner of execution or validity of any item, document, instrument or notice deposited, received or delivered in connection with such collection efforts, nor shall the Buyers has any duty to inquire as to the identity, authority or rights of the persons who executed the same. The Sellers shall indemnify -20- Buyers and hold them harmless from and against any judgments, expenses (including attorney's fees) costs or liabilities which the Buyers may incur or sustain as a result of or by reason of such collection efforts taken in good faith. To the extent that Sellers (i) satisfy accounts payable related to the Stations with cash payments following the Closing Date and (2) provide Buyers with documentation of such accounts payable and cash payments, Buyers shall reimburse Sellers for such expenses no later than the tenth (10th) day of the month following that in which Sellers makes such cash payments in satisfaction of accounts payable, and such amounts shall be deducted from the amounts due Sellers as a result of the collection of accounts receivable owing to the Sellers as of the close of business on the day before the Closing Date e. Consents. In the event any of the Assumed Contracts is not assignable or any consent to such assignment is not obtained on or prior to the Closing Date, and the Buyers elect to consummate the transactions contemplated herein despite such failure or inability to obtain such consent, the Sellers shall continue to use commercially reasonable efforts to obtain any such assignment or consent after the Closing Date. Until such time as such assignment or approval has been obtained, the Sellers will cooperate with Buyers in any lawful and economically feasible arrangement to provide that the Buyers shall receive the Seller's interest in the benefits under any such Assumed Contract, including performance by the Sellers as agent, if economically feasible; provided, however, that the Buyers shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent that Buyers would has been responsible therefore if such consent or assignment had been obtained. 7. Remedies for Breaches of this Agreement. a. Survival. All of the representations and warranties of the Sellers contained in Section 2 of this Agreement (other than the representations and warranties of the Sellers contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to the Acquired Assets) shall survive the Closing and continue in full force and effect for a period until 90 days after the applicable statute of limitations has expired with respect to any claim by the Buyers based on a claim or action by a third party and for a period of three (3) years following Closing with respect to any claim by the Buyers not based on a claim or action by a third party. All of the other representations and warranties (including the representations and warranties Sellers contained in Sections 2(a), 2(b), 2(c),. and 2(d) hereof or relating to the Seller's title to the Acquired Assets) and all covenants of the Buyers and the Sellers contained in this Agreement shall survive the Closing and continue in full force and effect forever thereafter. b. Indemnification Provisions for the Benefit of the Buyers. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Sellers agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by: -21- i. any misrepresentation or breach of any of the Seller's representations or warranties, and covenants contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Sellers (so long as the Buyers make a written claim for indemnification within the applicable survival period); ii. any breach or nonfulfillment of any agreement or covenant of the Sellers contained herein or in any Ancillary Agreement; iii. any Liability of the Sellers which is not an Assumed Liability; and/or iv. any Liability of the Buyers arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not an Assumed Liability. c. Indemnification Provisions for the Benefit of the Seller. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Buyers agree to indemnify the Sellers from and against the entirety of any Adverse Consequences the Sellers may suffer resulting from, arising out of, relating to, in the nature of, or caused by (i) any misrepresentation or breach of any of the Buyers' representations or warranties contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Buyers (so long as the Sellers makes a written claim for indemnification within the applicable survival period) or (ii) any breach or nonfulfillment of any agreement or covenant of the Buyers contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability. d. Specific Performance. Each of the Parties acknowledges and agrees that the Buyers would be damaged irreparably in the event any of the provisions of this Agreement is not performed in accordance with their specific terms or otherwise is breached. Accordingly, each of the Parties agrees that the Buyers shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 11(o) below), in addition to any other remedy to which it may be entitled, at law or in equity. Each of the Parties acknowledges and agrees that not withstanding the provision in Section 7(e) with respect to the remedy of liquidated damages upon a breach of a warranty or covenant of this Agreement prior to the Closing, money damages would not be an adequate remedy for Buyers for a breach of any provision of this Agreement. e. Liquidated Damages. The Buyers and the Sellers acknowledge that in the event that the transactions contemplated by this Agreement is not closed because of a default by the Buyers, the Adverse Consequences to the Sellers as a result of such default may be difficult, if not impossible, to ascertain. Accordingly, in lieu of indemnification pursuant to Section 7(c), the Sellers shall be entitled to receive from the defaulting Party for such default the Earnest Money -22- Deposit as liquidated damages without the need for proof of damages, subject only to successfully proving in a court of competent jurisdiction that the Buyer Materially breached this Agreement and that the transactions contemplated thereby has not occurred. The Sellers shall proceed against the Earnest Money Deposit as full satisfaction of liquidated damages owed by the Buyers and as their sole remedy for a failure of the transactions contemplated hereby to occur as a result of a Material breach of the terms of this Agreement by the Buyers. f. Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall notify the Indemnifying Party thereof promptly; provided. however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such failure. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of their choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at their sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party reasonably concludes that the counsel the Indemnifying Party has selected has a conflict of interest), (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event the Indemnifying Party does not notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, and/or in the event the Indemnifying Party shall fail to defend such claim actively and in good faith, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. g. Limitation of Liability. Notwithstanding anything in this Agreement to the contrary, after the Closing neither party shall indemnify or otherwise be liable to the other party from and after the Closing Date except to the extent that the Adverse Consequences suffered by the Identified Party, in the aggregate from all indemnifiable events shall exceed Ten Thousand Dollars ($10,000) and indemnification shall be made by the indemnifying party only to the extent of such excess over Ten Thousand Dollars ($10,000); provided however that the foregoing limitation shall not be applicable to: (i) the obligations of the Buyer to pay and discharge any Liability of the Sellers to third parties from and after the Closing Date assumed by the Buyer under the terms of this Agreement; (ii) the obligation of the Sellers to pay and discharge any -23- Liability to third parties not assumed by the Buyer under the terms of this Agreement, or (iii) the Seller's obligation to deliver clear title to the Acquired Assets. 8. Option. Seller hereby grants Buyer an option to purchase the Stations studios and KLXX(AM) transmitter site for the amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000) (the "Option"). Buyer shall notify Seller in writing of its exercise of the Option within six (6) months of the Closing Date and shall close on the Option within twelve (12) months of the Closing Date. Buyer's failure to notify Seller of its exercise or close pursuant to this paragraph shall terminate Buyer's Option. 9. Definitions. "Acquired Assets" means all right, title, and interest in and to all of the assets of the Seller, other than Retained Assets that is used or useful in the operation of the Stations, wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles) and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those Barter Agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for the sale of advertising time on the Stations to be broadcast after the Closing; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters of the Stations, jingles, logos, slogans, and business goodwill of the Stations; (g) claims, deposits, prepayments, refunds, causes of action, chooses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (h) Licenses and similar rights obtained from governments and governmental agencies; and (i) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (j) goodwill of the Stations. "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. -24- "Advertising Contracts" has the meaning set forth in Section 2(s), above. "Affiliate" means with reference to any person or entity, another person or entity controlled by, under the control of or under common control with that person or entity. "Assignment Application" shall has the meaning set forth in Section 4(b) above. "Assumed Contracts" means the Leases, the Barter Agreements, the Advertising Contracts and those contracts identified on Section 2(k) of the Disclosure Schedule as those to be assumed by Broadcasting. "Assumed Liabilities" means (a) obligations of the Sellers which accrue after the Closing Date under the Assumed Contract either: (i) to furnish services, and other non-Cash benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. The Assumed Liabilities shall not include any Retained Liabilities. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyers" has the meaning set forth in the preface above. "Cash" means cash and cash equivalents determined in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements. "Closing" has the meaning set forth in Section 1 (d) above. "Closing Date" has the meaning set forth in Section 1(d) above. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the businesses and affairs of the Seller. "Disclosure Schedule" has the meaning set forth in Section 1 above. "Earnest Money Deposit" has the meaning set forth in Section 1(c) above. "Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c). "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined -25- contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multi-employer Plan), or (d) Employee Welfare Benefit Plan or Material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act of 1986 (each as amended), or any other law of any federal, state, local, or foreign government or agency thereof (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, or pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means Media Venture Partners. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means the licenses, permits and other authorizations, including any temporary waiver or special temporary authorization, issued by the FCC to the Sellers in connection with the conduct of the business and operation of the Stations. "Final Order" means an action by the FCC as to which: (a) no request for stay by the FCC is pending, no such stay is in effect, and any deadline for filing a request for any such stay has passed; (b) no appeal, petition for rehearing or reconsideration, or application for review is pending before the FCC and the deadline for filing any such appeal, petition or application has passed; (c) the FCC has not initiated reconsideration or review on its own motion and the time in which such reconsideration or review is permitted has passed; and (d) no appeal to a court, or -26- request for stay by a court, of the FCC's action is pending or in effect, and the deadline for filing any such appeal or request has passed. "Financial Statements" has the meaning set forth in Section 2(e) above. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnified Party" has the meaning set forth in Section 7(d) above. "Indemnifying Party" has the meaning set forth in Section 7(d) above. "Intellectual Property" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, call letters, logos, trade names, and corporate names and registrations and applications for registration thereof, (c) all programs, programming materials, copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, market and other research information, drawings, specifications, designs, plans proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (g) other proprietary rights, and (h) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. It is understood and agreed that prior to the execution of this Agreement, Sellers has not informed any employees of Sellers or the Stations as to the negotiations between Sellers and Buyers or the contemplated sale of the Stations, and therefore the warranties and representations set forth herein reflect information known to James Ingstad, Roger Sayler, and Kevin Lein. Promptly after this Agreement has been executed, Sellers will inquire of the Stations' general managers regarding the accuracy of the representations and warranties set forth herein, and shall supplement the schedules hereto within ten days from the date of execution of this Agreement reflecting information obtained through such inquiry, if any. "Leases" means those real estate leases to which Sellers is a party, as described in Section 2(i) of the Disclosure Schedule. -27- "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" means all FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Sellers with respect to the operations of the Stations and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. "Material" or "Materially" means having or likely to has a Material Adverse Effect. "Material Adverse Effect" means any effect that (i) is material and adverse to the business, assets, liabilities, results of operations or financial condition of the Stations, or (ii) materially impairs the ability of the Sellers or the Buyers to consummate the transactions contemplated hereby; provided, however, that Material Adverse Effect shall not be deemed to include the impact of (a) actions contemplated by this Agreement, and (b) changes in laws and regulations or interpretations thereof that is generally applicable to the broadcasting industry." "Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37). "Option" has the meaning set forth in Section 8 above. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Owned Real Estate" means the real property owned by the Sellers as described in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and improvements located thereon, which is directly used and useful in the operation of the Stations, provided, however, that the Station's studio building and the KLXX (AM) tower site is specifically excluded from the assets being assigned to Buyers hereunder. "Party" has the meaning set forth in the preface above. "Permitted Real Estate Encumbrances" shall has the meaning set forth in Section 2(i), "Post-Closing Agreement" means the Post-Closing Agreement with Seller's owner in the form attached hereto as Exhibit C. "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price " has the meaning set forth in Section l(c) above. -28- "Real Estate" means the Owned Real Estate and the real estate, building, fixtures and improvements which is the subject of the Leases. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Retained Assets" means (i) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of the Sellers as a corporation, including, without limitation, the general ledger and tax records of Sellers and the Stations (although Sellers will provide access to such records available to Buyers upon request at commercially reasonable times); (ii) any of the rights of the Sellers under this Agreement (or under any side agreement between the Sellers on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement); (iii) accounts, notes and other receivables of the Seller; and (iv) Cash. "Retained Liabilities" means any other obligations or Liabilities of the Seller, including but not limited to: (i) any Liability relating to the ownership or operation of the Stations prior to the Closing; (ii) any Liability of the Sellers for income, transfer, sales, use, and other Taxes arising in connection with the consummation contemplated hereby; (iii) any Liability of the Sellers for costs and expenses incurred in connection with this Agreement or the consummation of the transactions contemplated hereby (except as set forth in Section 4(i) relating to Surveys, title commitments and environmental audits and Section 4(b) with regard to the Assignment Application; or (iv) any Liability or obligation of the Sellers under this Agreement (or under any side agreement between the Sellers on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement). "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due and payable; and (b) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation. "Seller" has the meaning set forth in the preface above. "Stations" means the following radio broadcast stations: KBYZ-FM, KACL-FM, KKCT-FM and KLXX (AM), Bismarck, North Dakota. "Subsidiary," with respect to any person, means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which ) 50% or more of (i) the outstanding capital stock or other equity interest having voting power to elect a majority of the Board of Directors of such corporation or persons having a similar role as to an entity that is not a corporation, (ii) the interest in the profits of such partnership or joint venture, or (iii) the beneficial -29- interest of such trust or estate is at such time directly or indirectly owned by such person or one or more of such person's Subsidiaries. "Surveys" has the meaning set forth in Section 4(o) above. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 10. Termination. (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: i. the Buyers and the Sellers may terminate this Agreement by mutual written consent at any time prior to the Closing; ii. the Buyers may terminate this Agreement by giving written notice to the Sellers at any time prior to the Closing in the event the Sellers is in breach of any representation, warranty, or covenant contained in this Agreement; provided, however, that if such breach is capable of being cured, such breach also remains uncured for twenty (20) days after notice of breach is received by the Sellers from the Buyers; iii. the Sellers may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing in the event the Buyers is in breach of any representation, warranty, or covenant contained in this Agreement; provided, however that if such breach is capable being cured, such breach remains uncured for twenty (20) days after notice of breach is received by the Buyers from the Seller; iv. the Buyers may terminate this Agreement by giving written notice to the Sellers at any time prior to the Closing if the Closing shall not has occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(a) hereof (unless the failure results primarily from the Buyers themselves breaching any representation, warranty, or covenant contained in this Agreement); -30- v. the Sellers may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing if the Closing shall not has occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(b) hereof (unless the failure results primarily from the Sellers themselves breaching any representation, warranty, or covenant contained in this Agreement); vi. the Buyers or the Sellers may terminate this Agreement if any Assignment Application is denied by Final Order. (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section above, all obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 11. Miscellaneous. a. Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). b. No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. c. Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may has related in any way to the subject matter hereof. d. Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of their rights, interests, or obligations hereunder without the prior written approval of the other Party, provided that (i) the Buyers may assign all of their right, title and interest in, to and under this Agreement to one or more Affiliates, who shall then, subject to the terms and conditions of this Agreement, has the right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay to the Sellers the Purchase Price therefor or to any successor to the Buyers in the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers may assign their indemnification claims and their rights under the warranties and representations of the Sellers to the financial institution(s) providing financing to the Buyers in connection with this transaction. -31- e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. f. Headings. The section headings contained in this Agreement is inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. g. Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be considered to be given and received in all respects when hand delivered, when delivered via prepaid express or courier delivery service, when sent by facsimile transmission actually received by the receiving equipment or three (3) days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, in each case addressed to the intended recipient as set forth below: If to the Seller: Mr. James Ingstad James Ingstad Broadcast Group P.O. Box 9919 Fargo, ND 58106-9439 With a copy to: Clifford M. Harrington, Esq. Fisher Wayland Cooper Leader & Zaragoza L.L.P. 2001 Pennsylvania Avenue, N.W. Suite 400 Washington, D.C. 20006-1851 Fax: (202) 296-5618 (which copy shall not constitute notice to Seller) If to the Buyers: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. c/o QUAESTUS Management Corp. 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Attn: Terrence J. Leahy Fax: (414) 283-4505 With a copy to: -32- Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Avenue Suite 3650 Chicago, Illinois 60611 Attn..: Richard J. Bonick Fax: (312) 867-0098 Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to has been duly given unless and until it actually is received by the party for whom it is intended. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder is to be delivered by giving the other party notice in the manner herein set forth. h. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of North Dakota. i. Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. j. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall has the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. k. Expenses. The Buyers and the Sellers will each bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, other than as set forth in Section 4(b) with regard to the Assignment Application. The Sellers will pay all income taxes. The Sellers and the Buyers will -33- each pay one-half (1/2) of any transfer or sales taxes and other recording or similar fees necessary to vest title to each of the Acquired Assets in the Buyers. l. Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. The Parties intend that each representation, warranty, and covenant contained herein shall has independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. m. Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement is incorporated herein by reference and made a part hereof. n. Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Minneapolis, Minnesota in any action or proceeding arising out of or relating to this Agreement, agree that all claims in respect of the action or proceeding may be heard and determined in any such court, and agree not to bring any action or proceeding arising out of or relating to this Agreement in any other -court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on the other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 10(g) above. Nothing in this Section 10(n), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. * * * * * -34- IN WITNESS WHEREOF, the Parties hereto has executed this Agreement on as of the date first above written. CUMULUS BROADCASTING, INC. By: (printed) Title: CUMULUS LICENSING CORPORATION By: (printed) Title: MISSOURI RIVER BROADCASTING, INC. By: (printed) Title: JKJ BROADCASTING, INC. By: (printed) Title: -35- SCHEDULE A Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets, the amount of Seven Million and no/100 Dollars ($7,000,000.00), payable as follows: (i) on the date of this Agreement, the Buyers will deposit with the Escrow Agent the amount of Three Hundred Fifty Thousand and no/100 Dollars ($350,000.00) (the "Earnest Money Deposit') in the form of an irrevocable letter of credit from Lehman Commercial Paper Inc.; and (ii) on the Closing Date, the Buyers shall pay to the Sellers the amount of Seven Million and no/100 Dollars ($7,000,000.00), with adjustments as provided specifically in this Agreement. The Earnest Money Deposit referenced in this Schedule A shall be placed in escrow with the Escrow Agent pursuant to an escrow agreement in the form attached hereto as Exhibit A (the "Earnest Money Escrow Agreement's, and shall be disbursed to Sellers or returned to Buyer as provided in the Earnest Money Escrow Agreement. -36- EX-10.75 21 EXHIBIT 10.75 Exhibit 10.75 ASSET PURCHASE AGREEMENT This Agreement ("Agreement") is entered into as of March 11, 1998, by and between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Clarendon County Broadcasting Co., Inc., a South Carolina corporation (the "Seller"). Broadcasting and Licensing are referred to collectively herein as the "Buyers." The Buyers and the Seller are referred to collectively herein as the "Parties." Capitalized terms used in this Agreement are defined in Section 8 hereof. Subject to the terms and conditions of this Agreement, the Buyers hereby agree to purchase substantially all of the assets (and assume certain of the liabilities) of the Seller that are used or useful in the operation of radio stations WHLZ-FM, licensed to Manning, South Carolina, and WYMB-AM, licensed to Manning, South Carolina (collectively, the "Stations") in return for cash. Now, therefore, in consideration of the above premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. Basic Transaction. (a) Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, Licensing agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Licensing, all of the FCC Licenses listed in Section 2(l) of the Disclosure Schedule. In addition, Broadcasting agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Broadcasting, all of the Acquired Assets other than the FCC Licenses. Both such sales shall take place at the Closing for the consideration specified below in this Section 1. (b) Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, the Buyer agrees to assume and become responsible for all of the Assumed Liabilities at the Closing. The Buyer will not assume or have any responsibility, however, with respect to any other obligation or Liability of the Seller not included within the definition of Assumed Liabilities and the Seller agrees to pay and discharge all Liabilities and obligations of the Seller other than the Assumed Liabilities. (c) Purchase Price. The Buyers agree to pay to the Seller, as consideration for the Acquired Assets, the amount of Three Million Two Hundred Fifty Thousand Dollars ($3,250,000.00) (the "Purchase Price"). The Purchase Price shall be payable as follows: (i) on the date of this Agreement, the Buyers will deliver to the Escrow Agent an irrevocable letter of credit issued by NationsBank of Texas, N.A. for the benefit of the Escrow Agent in substantially similar form as the letter of credit attached hereto 1 as Exhibit A in the amount of One Hundred Sixty-Two Thousand Five Hundred Dollars ($162,500.00) (the "Earnest Money Deposit"); and (ii) on the Closing Date, the Buyers shall pay to the Seller the amount of Three Million Two Hundred Fifty Dollars ($3,250,000.00), with adjustments as specifically provided in this Agreement. The Earnest Money Deposit referenced in this Section 1(c) shall be held in escrow by the Escrow Agent pursuant to an escrow agreement in the form attached hereto as Exhibit B (the "Earnest Money Escrow Agreement"). If this Agreement is terminated without Closing of the transaction contemplated herein, the Earnest Money Deposit shall be paid to the Seller or returned to the Buyers as provided in the Earnest Money Escrow Agreement. (d) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Stations in Manning, South Carolina, commencing at 9:00 a.m. local time on the date set by the Buyers not earlier than the fifth business day or later than the tenth business day after the FCC approval of the Assignment Application becomes a Final Order, by which date all other conditions to the obligations of the Parties to consummate the transactions contemplated hereby will have been satisfied or such other date as the Parties may mutually determine (the "Closing Date"). (e) Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyers the various certificates, instruments, and documents referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various certificates, instruments, and documents referred to in Section 5(b) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyers (A) assignments (including Lease and other Assumed Contract assignments and Intellectual Property transfer documents), bills of sale and warranty deeds in the forms attached hereto as Exhibits C-1 through C-2, (B) such affidavits, transfer tax returns, memorandums of lease, and other additional documents as may be required by the terms of the title insurance commitments described in Section 4(o) hereof, as necessary to furnish title insurance as required by such section or as may be necessary to convey title to the Real Estate to the Buyers in the condition required herein or provided public notice of existence of the Leases, and (C) such other instruments of sale, transfer, conveyance, and assignment as the Buyers and their counsel reasonably may request; (iv) the Buyers will execute, acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the form attached hereto as Exhibit D and (B) such other instruments of assumption as the Seller and its counsel reasonably may request; and (v) the Buyers will deliver to the Seller the consideration specified in Section 1(c) above. (f) Postclosing Agreement. On the Closing Date, the Seller shall execute, and shall cause shareholder Mrs. Betty Roper to execute, a Postclosing Agreement with the Buyer including covenants not to compete with the Buyer in the markets served by the Stations and agreements to indemnify the Buyer in the form of Exhibit E attached hereto. A portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be paid to the Seller by the Buyers on the Closing Date as consideration for the agreements set forth in the Postclosing Agreement. 2 (g) Allocation. The Parties agree to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with the allocation schedule attached hereto as Exhibit F. 2. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyers that the statements contained in this Section 2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 2), except as set forth in the lettered and numbered paragraphs contained in the disclosure schedule accompanying this Agreement and initialed by the Parties (the "Disclosure Schedule") corresponding to the lettered and numbered sections of this Section 2. (a) Organization of the Seller. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. The Seller does not have any Subsidiaries. The Seller has the power and authority to own or lease its properties and to carry on all business activities now conducted by it. The sole shareholder of the Seller is Mrs. Betty Roper. (b) Authorization of Transaction. The Seller has full power and authority (including full partnership power and authority) to execute and deliver this Agreement and all agreements and instruments to be eexecuted and delivered by such Party pursuant to this Agreement (collectively, the "Ancillary Agreements") and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the Board of Directors of the Seller has duly authorized the execution, delivery, and performance of this Agreement and the Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements constitute the valid and legally binding obligation of the Seller, enforceable in accordance with their respective terms and conditions. (c) Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of the charter or bylaws of the Seller; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other agreement, arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). Other than with respect to the Assignment Application described in Section 4(b) the Seller does not need to give any notice to, make any filing with, or obtain any Licenses, consent, or approval of any court or government or governmental agency in order for the Parties to enter into this agreement or the Ancillary Agreements or to consummate the transactions 3 contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). (d) Title to Acquired Assets. Other than the Security Interests set forth on Section 2(d) of the Disclosure Schedule (which shall be released at or before the Closing) the Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. (e) Financial Statements. Included in Section 2(e) of the Disclosure Schedule are the following financial statements (collectively the "Financial Statements"): (i) unaudited balance sheets and statements of income, and cash flow as of and for the fiscal years ended December 31, 1993, December 31, 1994, December 31, 1995 and December 31, 1996, for the Seller; and (ii) unaudited balance sheets and statements of income, as of and for each month during 1996 and each month ending August 31 in 1997 for the Seller. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, are correct and complete, fairly represent the financial condition of the Seller on such dates and the results of operations for the periods designated therein, and are consistent with the books and records of the Seller (which books and records are correct and complete). (f) Events Subsequent to January 1, 1997. Since January 1, 1997, except as set forth in Section 2(f) of the Disclosure Schedule, there has not been any adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller with respect to the operation of the Stations. Without limiting the generality of the foregoing and with respect to the operation of the Stations since that date: (i) the Seller has not sold, leased, transferred, or assigned any of its material assets, tangible or intangible; (ii) other than this Agreement, the Seller has not entered into any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business; (iii) no party has accelerated, terminated, modified, or canceled any agreement, contract, lease, sublease, license, or sublicense (or series of related agreements, contracts, leases, subleases, licenses, and sublicenses) involving more than $5,000 to which the Seller is a party or by which it or any of its assets are bound; (iv) no Security Interest has been imposed upon any of Seller's assets, tangible or intangible; (v) the Seller has not made any capital expenditure (or series of related capital expenditures) outside the Ordinary Course of Business; 4 (vi) the Seller has not made any capital investment in, any loan to, or any acquisition of the securities or assets of any other person (or series of related capital investments, loans, and acquisitions); (vii) the Seller has not created, incurred, assumed, or guaranteed any indebtedness (including capitalized lease obligations) outside the Ordinary Course of Business; (viii) the Seller has not delayed or postponed (beyond its normal practice in the Ordinary Course of Business) the payment of accounts payable and other Liabilities; (ix) the Seller has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) outside the Ordinary Course of Business; (x) the Seller has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) the Seller has not experienced any damage, destruction, or loss (whether or not covered by insurance) to any of its property or any action adversely affecting the FCC Licenses; (xii) the Seller has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees giving rise to any claim or right on its part against the person or on the part of the person against it; (xiii) the Seller has not entered into any employment contract, consulting contract or severance agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (xiv) the Seller has not granted any increase (outside routine salary and wage increases in the Ordinary Course of Business) in the rate of compensation, commissions, bonus or other remuneration payable, or granted any severance or termination pay to, any of its directors, officers, and employees; (xv) the Seller has not adopted any (A) bonus, (B) profit-sharing, (C) incentive compensation, (D) pension, (E) retirement, (F) medical, hospitalization, life, or other insurance, (G) severance, or (H) other plan, contract, or commitment for any of its directors, officers, and employees, or modified or terminated any existing such plan, contract, or commitment; (xvi) the Seller has not made any other change in employment terms for any of its directors, officers, and employees; (xvii) the Seller has not made or pledged to make any charitable or other capital contribution; 5 (xviii) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Seller; (xix) the Seller has not altered its credit and collection policies or its accounting policies; (xx) the Seller has not materially altered the programming, format or call letters of the Stations, or its promotional and marketing activities; (xxi) the Seller has not applied to the FCC for any modification of the FCC Licenses or failed to take any action necessary to preserve the FCC Licenses and has operated the Stations in compliance therewith and with all FCC rules and regulations; or (xxii) the Seller has not committed to any of the foregoing. (g) Tax Matters. The Seller and its partners have timely and properly filed all Tax Returns that they were required to file with respect to the Seller's operations. All such Tax Returns were correct and complete in all respects and properly reflect the tax liability of the Seller. The Seller has not requested any extension of time within which to file returns in respect of any Taxes with respect to the Seller's operations. No Tax deficiencies have been proposed or assessed against the Seller. There are no pending, or to the Seller's knowledge, threatened audits, investigations, or claims for or relating to any liability in respect of Taxes with respect to the Seller's operations. All Taxes owed by the Seller with respect to its operations (whether or not shown on any Tax Return) have been paid. The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. No claim has ever been made by any authority in any jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Seller that arose in connection with any failure (or alleged failure) to pay any Tax. (h) Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a listing of all transmitter and station equipment, vehicles and other tangible personal property used in conducting the operation and business of the Stations. The Seller owns or leases all tangible assets necessary for the conduct of the operation and business of the Stations as presently conducted and as presently proposed to be conducted and all leased assets are specifically identified as such in Section 2(h) of the Disclosure Schedule. Each such tangible asset is free from defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. No such tangible asset is in need of replacement. Any leased personal property included within the tangible personal property is in the condition required of such property by the terms of the lease applicable thereto during the term of the lease and upon the expiration thereof. All of the equipment utilized in the operation of the stations is in compliance with all FCC and FAA requirements and is sufficient to satisfy the intended needs of the normal customary operations of the Stations at all times of the year and all such equipment is in compliance with all applicable laws. 6 (i) Real Property. Section 2(i) of the Disclosure Schedule lists and describes briefly all Owned Real Estate and real property leased to the Seller (including, without limitation, complete legal descriptions for all of the Real Estate). The Seller has delivered to the Buyer correct and complete copies of the Leases. With respect to the Real Estate: (i) the Seller has good and marketable title to all of the Owned Real Estate free and clear of all liens, charges, mortgages, security interests, easements, restrictions or other encumbrances of any nature whatsoever except real estate taxes for the year of Closing and municipal and zoning ordinances and recorded utility easements which do not impair the current use, occupancy or value or the marketability of title of the property and which are disclosed in Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real Estate Encumbrances"); (ii) the Leases are and, following the Closing will continue to be, legal, valid, binding, enforceable, and in full force and effect; (iii) no party to any Lease is in breach or default (or has repudiated any provision thereof), and no event has occurred which, with notice or lapse of time, would constitute a breach or default thereunder or permit termination, modification, or acceleration thereunder; (iv) there are no disputes, oral agreements, or forbearance programs in effect as to any Lease; (v) none of the Owned Real Estate and to the Seller's Knowledge, none of the properties subject to the Leases is subject to any lease (other than Leases), option to purchase or rights of first refusal; (vi) except for Permitted Real Estate Encumbrances, there are no (i) actual or, to the Seller's Knowledge, proposed special assessments with respect to any of the Real Estate; (ii) pending or, to the Seller's Knowledge, threatened condemnation proceedings with respect to any of the Real Estate; (iii) pending or, to the Seller's Knowledge, threatened litigation or administrative actions with respect to any of the Real Estate; (iv) mechanic's or materialmens' liens with respect to the Owned Real Estate; (v) structural or mechanical defects in any of the buildings or improvements located in the Real Estate; (vi) planned or commenced improvements which will result in an assessment or otherwise affect the Real Estate; (vii) governmental agency or court orders requiring the repair, alteration or correction of any existing condition with respect to the Real Estate or any portion thereof; or (viii) any pending or, to the Seller's Knowledge, threatened changed in any zoning laws or ordinances which may affect any of the Real Estate or Seller's use thereof; (vii) all buildings and improvements on the Real estate are in good operating condition and repair, normal wear and tear excepted; (viii) the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Leases or its rights thereunder; 7 (ix) to the Seller's Knowledge, all facilities on the Real Estate have received all approvals of governmental authorities (including licenses, permits and zoning approvals) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; (x) all facilities on the Real EState are supplied with utilities and other services necessary for the operation of said facilities; and (viii) to the Seller's Knowledge, the owner of each leased facility has good and marketable title to the underlying parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for Permitted Real Estate Encumbrances and Seller's leasehold interest in each Lease has priority over any other interest except for the fee interest therein and Permitted Real Estate Encumbrances; (j) Intellectual Property. The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for or currently used in the operation of the business of the Seller as presently conducted and as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Seller immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder. The Seller has taken all necessary or desirable action to protect each item of Intellectual Property that it owns or uses. With respect to such Intellectual Property: (i) The Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and the Seller has never received any charge, complaint, claim, or notice alleging any such interference, infringement, misappropriation, or violation. To the Knowledge of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. (ii) Section 2(j) of the Disclosure Schedule identifies each patent, trademark or copyright registration which has been issued to the Seller with respect to any of its Intellectual Property and the call letters (current and past) of the Stations, identifies each pending patent, trademark or copyright application for registration which the Seller has made with respect to any of its Intellectual Property, and identifies each license, agreement, or other permission which the Seller has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Seller has delivered to the Buyer correct and complete copies of all such patents, trademarks or copyright registrations, applications, licenses, agreements, and permissions (as amended to date) and has made available to the Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. With respect to each item of Intellectual Property that the Seller owns: 8 (A) the Seller possesses all right, title, and interest in and to the item and all registrations and applications are in full force and effect; (B) the item is not subject to any outstanding judgment, order, decree, stipulation, injunction, or charge; (C) no charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand is pending or, to the Knowledge of the Seller, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and (D) the Seller has not ever agreed to indemnify any person or entity for or against any interference, infringement, misappropriation, or other conflict with respect to the item. (iii) Section 2(j) of the Disclosure Schedule also identifies each item of Intellectual Property that any third party owns and that the Seller uses pursuant to license, sublicense, agreement, or permission including, but not limited to the call letters of the Stations. The Seller has supplied the Buyer with correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each such item of used Intellectual Property: (A) the license, sublicense, agreement, or permission covering the item is, and following the Closing will continue to be on identical terms, legal, valid, binding, enforceable, and in full force and effect; (B) no party to the license, sublicense, agreement, or permission is in breach or default (or has repudiated any provision thereof), and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder; (C) with respect to each sublicense, the representations and warranties set forth in subsections (A) and (B) above are true and correct with respect to the underlying license; (D) the underlying item of Intellectual Property is not subject to any outstanding judgment, order, decree, stipulation, injunction, or charge; (E) no charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand is pending, or, to the Knowledge of the Seller, is threatened which challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; (F) the Seller has not agreed to indemnify any person or entity for or against any interference, infringement, misappropriation, or other conflict with respect to the underlying item of Intellectual Property; and 9 (G) the Seller has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (iv) The Seller has no Knowledge of any new products, inventions, procedures, or methods of processing that any competitors or other third parties have developed which reasonably could be expected to supersede or make obsolete any product or process of the Seller. (k) Contracts. Section 2(k) of the Disclosure Schedule lists the following contracts, agreements, and other written arrangements (other than with advertisers for the sale of air time which are listed in Section 2(s) of the Disclosure Schedule) to which the Seller is a party: (i) any written arrangement (or group of related written arrangements) for the lease of personal property from or to third parties providing for lease payments in excess of $1,000 per year; (ii) any written arrangement (or group of related written arrangements) for the purchase or sale of supplies, products, or other personal property or for the furnishing or receipt of services which either calls for performance over a period of more than one year or involves more than the sum of $1,000; (iii) any written arrangement concerning a partnership or joint venture; (iv) any written arrangement (or group of related written arrangements) under which it has created, incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness (including capitalized lease obligations) involving more than $1,000 or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible; (v) any written arrangement concerning confidentiality or noncompetition; (vi) any written arrangement with any of its employees in the nature of a collective bargaining agreement, consulting agreement, compensation agreement, employment agreement, commission agreement, or severance agreement; (vii) any written arrangement under which the consequences of a default or termination could have an adverse effect on the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations; (viii) any written arrangement concerning a guaranty by the Seller of the obligations of any other party; or (ix) any other written arrangement (or group of related written arrangements) either involving more than $5,000 or not entered into in the Ordinary Course of Business. 10 The Seller has delivered to the Buyer a correct and complete copy of each written arrangement listed in Section 2(k) of the Disclosure Schedule (as amended to date). With respect to each written arrangement so listed which constitutes an Assumed Contract: (A) the written arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) the written arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing (if the arrangement has not expired according to its terms); (C) no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) no party has repudiated any provision of the written arrangement. The Seller is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in Section 2(k) of the Disclosure Schedule under the terms of this Section 2(k). Except for the Assumed Contracts, the Buyer shall not have any Liability or obligations for or in respect of any of the contracts set forth in Section 2(k) of the Disclosure Schedule or any other contracts or agreements of the Seller. No advertiser of the Stations has indicated within the past year that it will stop, or decrease the rate of, buying services from them. (l) Commission Licenses and Compliance with Commission Requirements. (i) All licenses, permits, authorizations, franchises, certificates of compliance, and consents of governmental bodies, including, without limitation, the FCC Licenses, used or useful in the operation of the Stations as they are now being operated are (A) in full force and effect, (B) unimpaired by any acts or omissions of the Seller or the Seller's employees or agents, (C) free and clear of any restrictions which might limit the full operation of the Stations, and (D) detailed in Section 2(l) of the Disclosure Schedule. With respect to the licenses, permits, authorizations, franchises, certificates of compliance and consents referenced in the preceding sentence, Section 2(l) of the Disclosure Schedule also sets forth, without limitation, the date of the last renewal, the expiration date thereof, and any conditions or contingencies related thereto. Except as set forth in Section 2(l) of the Disclosure Schedule, no condition exists or event has occurred that permits, or after notice or lapse of time, or both, would permit, the revocation or termination of any such license, permit, consent, franchise, or authorization (other than pursuant to their express expiration date) or the imposition of any material restriction or limitation upon the operation of the Stations as now conducted. Except as set forth in Section 2(l) of the Disclosure Schedule, the Seller is not aware of any reason why the FCC licenses might not be renewed in the ordinary course or revoked. (ii) The Stations are each in compliance with the FCC's policy on exposure to radio frequency radiation. No renewal of any FCC License would constitute a major environmental action under the FCC's rules or policies. Access to the Stations' transmission facilities is restricted in accordance with the policies of the FCC. (iii) Except as set forth in Section 2(1) of the Disclosure Schedule, to the Seller's Knowledge, the Seller is not the subject of any FCC or other governmental investigation or any 11 notice of violation or order, or any material complaint, objection, petition to deny, or opposition issued by or filed with the FCC or any other governmental authority in connection with the operation of or authorization for the Stations, and there are no proceedings (other than rule making proceedings of general applicability) before the FCC or any other governmental authority that could adversely affect any of the FCC Licenses or the authorizations listed in Section 2(l) of the Disclosure Schedule. (iv) The Seller has filed with the FCC and all other governmental authorities having jurisdiction over the Stations all material reports, applications, documents, instruments, and other information required to be filed, and will continue to make such filings through the Closing Date. (v) The Seller is not aware of any information concerning the Stations that could cause the FCC or any other regulatory authority not to issue to the Buyer all regulatory certificates and approvals necessary for the consummation of the transactions contemplated hereunder or the Buyer's operation and/or ownership of the Stations. Seller is not aware of any pending FCC applications which, if approved, would allow for the operation of a new radio station with a signal reaching the signal area of the Stations and, in addition, Seller is not aware of any plans or proposals by existing radio stations with a signal reaching the signal area of the Stations to alter or change their format to a format similar to that of the Stations. (m) Insurance. Section 2(m) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Seller is a party, a named insured, or otherwise the beneficiary of coverage: (i) the name, address, and telephone number of. the agent; (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) the policy number and the period of coverage; (iv) the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and (v) a description of any retroactive premium adjustments or other loss-sharing arrangements. With respect to each such insurance policy: (A) the policy is legal, valid, binding, and enforceable and in full force and effect; (B) the policy will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms through the Closing Date. 12 (n) Litigation. Section 2(n) of the Disclosure Schedule sets forth each instance in which the Seller: (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the charges, complaints, actions, suits, proceedings, hearings, and investigations set forth in Section 2(n) of the Disclosure Schedule could result in any adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations taken as a whole. The Seller has no reason to believe that any such charge, complaint, action, suit, proceeding, hearing, or investigation may be brought or threatened against the Seller. (o) Employees. Section 2(o) of the Disclosure Schedule sets forth a listing of the names, positions, job descriptions, salary or wage rates and all other forms of compensation paid for work at the Stations of each employee of the Seller. Section 2(o) of the Disclosure Schedule also sets forth a list of all employee handbooks and/or manuals relating to the employees of the Seller, true and correct copies of which have been delivered to the Buyer. To the Knowledge of the Seller, no key employee or group of employees has any plans to terminate employment with the Seller. The Seller is not a party to or bound by any understanding (whether written or oral), agreement or contract with any union, labor organization, employee group or other entity or individual which affects the employment of employees of the Seller including, but not limited to any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Seller has no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of any of the Seller. The Seller has not been subject to a strike, slow down or other work stoppage during the five (5) year period immediately preceding the date hereof and, to the Seller's Knowledge, there are no strikes, slow downs or work stoppages threatened against the Seller. To the Seller's Knowledge, it has not committed any unfair labor practice. There is no basis for any claim by any past or present employee of the Seller that such employee was subject to wrongful discharge or any employment discrimination by the Seller or its management arising out of or relating to the employee's race, sex, age, religion, national origin, ethnicity, handicap or any other protected characteristic under applicable law. No proceedings are pending before any court, governmental agency or instrumentality or arbitrator relating to labor matters, and there is no pending investigation by any governmental agency or, to the Knowledge of the Seller, threatened claim by any such agency or other person relating to labor or employment matters. (p) Employee Benefits. Section 2(p) of the Disclosure Schedule lists all Employee Benefit Plans that the Seller maintains or to which the Seller contributes or is required to contribute for the benefit of any current or former employee of the Seller and true and correct copies of each such Employee Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and each related trust or insurance contract) complies and at all times has complied in form and in operation in all respects with the applicable requirements of ERISA and the Code. The Seller does not have any commitment to create any additional Employee 13 Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any employee or terminated employee of the Seller. There are no pending or, to the Knowledge of the Seller, threatened claims under, by or on behalf of any of the Employee Benefit Plans, by any employee or beneficiary covered by any such Employee Benefit Plan, or otherwise involving any such Employee Benefit Plan (other than routine claims for benefits), nor have there been any Reportable Events or Prohibited Transactions with respect to any Employee Benefit Plan. (q) Environment, Health, and Safety. (i) With respect to the operation of the Stations and the Real Estate, the Seller is, and at all times in the past has been, in compliance in all material respects with all Environmental Laws and all laws (including rules and regulations thereunder) of federal, state, and local governments (and all agencies thereof) concerning employee health and safety, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has ever been filed or commenced or, to the Seller's Knowledge, is threatened, against the Seller alleging any failure to comply with any such Environmental Law or laws concerning employee health and safety. (ii) With respect to the operation of the Stations and the Real Estate, the Seller has no Liability (and to Seller's Knowledge there is no Basis related to the past or present operations of the Seller or its predecessors for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and Community Right-to-Know Act of 1986 (each as amended), or any other law of any federal, state, local, or foreign government or agency thereof (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, or pollution or protection of the environment, including, without limitation, laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes ("Environmental Laws"); (iii) The Seller has no Liability (and to Seller's Knowledge there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Seller giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) 14 of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety, or for any illness of or personal injury to any employee. (iv) The Seller has obtained and at all times has been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental Laws or law of any federal, state, or local or foreign government relating to worker health and safety. (v) All properties and equipment used in the business of the Seller have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. (vi) No pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or waste ever has been buried, stored, spilled, leaked, discharged, emitted, or released on any of the Real Estate (vii) None of the Acquired Assets are required to be upgraded, modified or replaced to be in compliance with Environmental Laws. (viii) Section 2(q) of the Disclosure Schedule contains a copy of all environmental claims, reports, studies, compliance actions or the like of the Seller or which are available to the Seller with respect to any of the Real Estate or any of the Acquired Assets. (ix) No septic systems or wells exist on, in or under any of the Real Estate. No above ground or underground storage tanks have ever been located at, on or under the Real Estate. None of the Real Estate is contaminated by hazardous or toxic substances or waste, as defined under Environmental Laws, originating from off-site sources. (r) Legal Compliance. (i) The Seller has complied in all material respects with all laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced or, to the Seller's Knowledge, is threatened, against the Seller alleging any failure to comply with any such law or regulation, including those relating to the employment of labor, employee civil rights, and equal employment opportunities and relating to antitrust matters. (ii) The Seller has filed in a timely manner all reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all material respects) under all applicable laws (including rules and regulations thereunder) of 15 federal state, local and foreign governments (and all agencies thereof). To the Seller's Knowledge, it has possession of all records and documents it was required to retain under all applicable laws (including rules and regulations thereunder). (s) Advertising Contracts. Section 2(s) of the Disclosure Schedule lists all arrangements for the sale of air time or advertising on the Stations in excess of $1000, and the amount to be paid to the Seller therefor. The Seller has no reason to believe and has not received a notice or indication of the intention of any of the advertisers or third parties to material contracts of the Seller to cease doing business or to reduce in any material respect the business transacted with the Seller or to terminate or modify any agreements with the Seller (whether as a result of consummation of the transactions contemplated hereby or otherwise). (t) Brokers' Fees. Other than the fee payable to Gary Whittle Agency, which shall be the exclusive responsibility of the Seller, the Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (u) Undisclosed Commitments or Liabilities. There are no commitments, liabilities or obligations relating to any of the Stations, whether accrued, absolute, contingent or otherwise including, without limitation, guaranties by the Seller of the liabilities of third parties, for which specific and adequate provisions have not been made on the Financial Statements except those incurred in or as a result of the Ordinary Course of Business since January 1, 1997 (none of which Ordinary Course of Business obligations have had or will have a material adverse effect on any Station). (v) Disclosure. The representations and warranties contained in this Section 2 do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained in this Section 2 not misleading. 3. Representations and Warranties of the Buyer. Buyers represent and warrant to the Seller that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3. (a) Organization of the Buyers. Broadcasting and Licensing are corporations duly organized, validly existing, and in good standing under the laws of Nevada. (b) Authorization of Transaction. Buyers have full power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform their obligations hereunder and thereunder. This Agreement and the Ancillary Agreements constitute the valid and legally 16 binding obligation of the Buyers, enforceable against the Buyers in accordance with their respective terms and conditions. (c) Noncontravention. Neither the execution and the delivery of this Agreement or the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby (including the assignments and assumptions referred to in Section 1(e) above), will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyers are subject or any provision of their articles of organization or other charter documents, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or third party consent under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyers are a party or by which they are bound or to which any of their assets is subject. Other than the Assignment Application described in Section 4(b), the Buyers do not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any court or government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the Ancillary Agreements (including the assignments and assumptions referred to in Section 1(e) above). (d) Brokers' Fees. The Buyers have no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. 4. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing: (a) General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 5 below). (b) Assignment Applications. Within ten (10) business days after the execution of this Agreement, the Seller and the Buyers shall jointly file with the FCC an application for assignment of the FCC Licenses, permits and authorizations pertaining to the Stations from the Seller to Licensing (the "Assignment Application"). The costs of the FCC filing fees in connection with the Assignment Application shall be divided equally between the Parties. Each party shall pay its own attorneys' fees. The Seller and the Buyers shall thereafter prosecute the Assignment Application with all reasonable diligence and otherwise use the commercially reasonable efforts to obtain the grant of the Assignment Application as expeditiously as practicable (but neither the Seller nor the Buyers shall have any obligation to satisfy complainants or the FCC by taking any steps which would have material adverse effect upon the Stations or upon any Affiliate or impose significant costs on such party). If the FCC imposes any condition on either party to the Assignment Application, such party shall use commercially 17 reasonable efforts to comply with such condition, provided, that neither party shall be required hereunder to comply with any condition that would have a material adverse effect upon the Stations or any Affiliate. The Seller and the Buyers shall jointly oppose any requests for reconsideration or judicial review of FCC approval of the Assignment Application and shall jointly request from the FCC extension of the effective period of FCC approval of the Assignment Application if the Closing shall not have occurred prior to the expiration of the original effective period of the FCC Consent. Nothing in this Section 4(b) shall be construed to limit either party's right to terminate this Agreement pursuant to Section 9 of this Agreement. (c) Employment Offers. Upon notice to the Seller, and at mutually agreeable times, the Seller will permit the Buyers to meet with its employees prior to the Closing Date. Not earlier than one (1) week prior to the Closing, the Buyers may, at their option, extend offers of employment to all or any of the Seller's employees effective on the Closing Date. From and after the execution of this Agreement, the Seller shall use its best efforts to assist Buyers in retaining those employees of the Stations which the Buyers wish to hire in connection with the operation of the stations by the Buyers subsequent to the Closing, and the Seller will not take any action to preclude or discourage any of the Seller's employees from accepting any offer of employment extended by the Buyers. (d) Notices and Consents. The Seller will give all notices to third parties and shall have obtained all third party consents, that the Buyers reasonably may request in connection with the matters pertaining to the Seller disclosed or required to be disclosed in the Disclosure Schedule (including, without limitation, consents to assignment of the Leases and other Assumed Contracts). Each of the Parties will take any additional action that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that it may be required to give, make, or obtain. (e) Operation of Business. The Seller will not engage in any practice, take any action, embark on any course of inaction, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Seller will not engage in any practice, take any action, embark on any course of inaction, or enter into any transaction of the sort described in Section 2(f) above. (f) Advertising Obligations. The Seller shall satisfy its air time obligations under its agreements for sale of air time and advertising on the Stations for goods or services ("Barter Agreements") such that the outstanding aggregate balance owing under all Barter Agreements as of the Closing Date shall not exceed Five Thousand Dollars ($5,000.00) worth of air time without the Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a schedule, certified by an officer of the Seller, reflecting the aggregate outstanding balances under all Barter Agreements in existence as of the Closing Date. (g) Operating Statements. The Seller shall deliver to the Buyers, for the Buyers' informational purposes only, monthly unaudited statements of operating revenues and operating 18 expenses of the Stations within ten (10) days after each such statement is prepared by or for the Seller. (h) Contracts. The Seller will not without the prior written consent of the Buyers amend, change, or modify any of the contracts listed on Section 2(k) of the Disclosure Schedule in any material respect. The Seller will not without prior written consent of the Buyers enter into any new contracts respecting the Stations or their properties, except (i) contracts for the sale of time on the Stations for cash, goods or services which are entered into in the Ordinary Course of Business and comply with Sections 4(f) and 4(j) hereof, (ii) contracts entered into in the Ordinary Course of Business which are cancelable on not more than thirty-one (31) days' notice without penalty or premium, and (iii) contracts entered into in the Ordinary Course of Business each of which does not involve more than Five Thousand Dollars ($5,000) or all of which do not involve more than Ten Thousand Dollars ($10,000) in the aggregate. (i) Operation of Stations. The Seller shall operate the Stations in compliance with the FCC Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at all times remain in full force and effect. The Seller shall file with the FCC all material reports, applications, documents, instruments and other information required to be filed in connection with the operation of the Stations. (j) Credit and Receivables. The Seller will follow its usual and customary policies with respect to extending credit for sales of air time and advertising on the Stations and with respect to collecting accounts receivable arising from such extension of credit. (k) Preservation of Business. The Seller will keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, relationships with lessors, licensers, advertisers, suppliers, customers, and employees, all of the Confidential Information, call letters and trade secrets of the Stations, and the FCC Licenses. (l) Full Access and Consultation. The Seller will permit representatives of the Buyers to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Stations, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Seller for the purpose of permitting the Buyer to, among other things: (a) conduct its due diligence review, (b) review financial statements of the Seller, (c) verify the accuracy of representations and warranties of the Seller contained in this Agreement, and (d) prepare for the consummation of the transactions contemplated by this Agreement. The Seller will consult with the Buyers' management with a view to informing Buyer's management as to the operations, management and business of the Stations. Without limiting the foregoing, Seller acknowledges and agrees that it will provide the Buyers and their representatives with such access to the properties, books, records, documents and operations of the Seller as contemplated herein in a manner which will permit the Buyers to fully complete their due diligence review within the thirty (30) day period reference in Section 5(a) (ix), below. 19 (m) Notice of Developments. The Seller will give prompt written notice to the Buyers of any material development affecting the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Seller or the Stations. Each Party will give prompt written notice to the other of any material development affecting the ability of the Parties to consummate the transactions contemplated by this Agreement. No disclosure by any Party pursuant to this Section 4(m), however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (n) Exclusivity. The Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C) acquisition or purchase of securities or assets, or (D) similar transaction or business combination involving the Seller; or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Seller will notify the Buyers immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. (o) Title Insurance, Surveys and Environmental Assessments. The Seller will obtain with respect to each parcel of Real Estate subject to the Leases, a leasehold owner's policy issued by a title insurer reasonably satisfactory to the Buyer, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring leasehold title to such Real Estate in the Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyers or their lender reasonably requests, (ii) with respect to each parcel of Owned Real Estate, an owner's policy of title insurance by a title insurer reasonably satisfactory to the Buyer, in an amount equal to the fair market value of such Real Estate (including all improvements located thereon), insuring over the standard pre-printed exceptions and insuring title to the Owned Real Estate to be vested in the Buyers as of the Closing free and clear of all liens and encumbrances except Permitted Real Estate Encumbrances, together with such endorsements for zoning, contiguity, public access and extended coverage as the Buyer or its lender reasonably requests, (iii) a current survey of each parcel of Real Estate certified to the Buyer and its lender, prepared by a licensed surveyor and conforming to current ALTA Minimum Detail Requirements for Land Title Surveys, disclosing the location of all improvements, easements, party walls, sidewalks, roadways, utility lines, and other matters shown customarily on such surveys, and showing access affirmatively to public streets and roads (the "Surveys") which shall not disclose any survey defect or encroachment from or onto any of the Real Estate which has not been cured or insured over prior to the Closing; and (iv) with respect to each parcel of Real Estate, a current Phase I environmental site assessment from an environmental consultant or engineer reasonably satisfactory to the Buyers which does not indicate that the Seller and the Real Estate are not in compliance with any Environmental Law and which shall not disclose or recommend any action with respect to any condition to be remediated or investigated or any contamination on the site 20 assessed. The Buyers and the Seller will each pay one-half (1/2) of the costs of these title policies, Surveys and environmental assessments. (p) Control of Stations. The transactions contemplated by this Agreement shall not be consummated until after the FCC has given its consent and approval to the Assignment Application. Between the date of this Agreement and the Closing Date, the Buyers and their employees or agents shall not directly or indirectly control, supervise, or direct, or attempt to control, supervise, or direct, the operation of the Stations, and such operation shall be the sole responsibility of and in the control of the Seller. (q) Risk of Loss. The risk of loss, damage, or destruction to any of the Acquired Assets shall remain with the Seller until the Closing. In the event of any such loss, damage, or destruction the Seller will promptly notify the Buyer of all particulars thereof, stating the cause thereof (if known) and the extent to which the cost of restoration, replacement and repair of the Acquired Assets lost, damaged or destroyed will be reimbursed under any insurance policy with respect thereto. The Seller will, at Seller's expense, repair or replace such Acquired Assets to their former condition as soon as possible after loss, damage or destruction thereof and shall use its best efforts to restore as promptly as possible transmissions as authorized in the FCC Licenses. The Closing Date shall be extended (with FCC consent, if necessary) for up to sixty (60) days to permit such repair or replacement. If repair or replacement cannot be accomplished within sixty (60) days of the date of the Seller's notice to the Buyers, and the Buyers determine that the Seller's failure to repair or replace, alone or in the aggregate with any other then existing factors, would have a material adverse effect on the operation of the Stations: (a) the Buyers may elect to terminate this Agreement; or (b) the Buyers may postpone the Closing Date until such time as the property has been repaired, replaced or restored in a manner and to an extent reasonably satisfactory to the Buyers, unless the same cannot be reasonably effected within ninety (90) days of the date of the Seller's notice to the Buyers, in which case either party may terminate this Agreement; or (c) the Buyers may choose to accept the Acquired Asset in their "then" condition, together with the Seller's assignment to the Buyers of all rights under any insurance claims covering the loss, damage or destruction and payment over to the Buyers of any proceeds under any such insurance policies, previously received by the Seller with respect thereto plus an amount equal to the amount of any deductible or self-insurance maintained by Seller on such Acquired Assets.. In the event the Closing Date is postponed pursuant to this Section 4(q), the parties hereto will cooperate to extend the time during which this Agreement must be closed as specified in the consent of the FCC. 5. Conditions to Obligation to Close. 21 (a) Conditions to Obligation of the Buyers. The obligation of the Buyers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 2 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Seller shall have performed and complied with all of its covenants hereunder in all respects through the Closing; (iii) the Seller shall have procured all of the third party consents specified in Section 4(d) above, including but not limited to those relating to transmitter and studio leases, and all of the title insurance commitments (and endorsements), Surveys and environmental site assessments described in Section 4(o) above; (iv) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the parties if such transactions are consummated, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own, operate, or control the Acquired Assets (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (v) the Seller shall have delivered to the Buyer a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Sections 5(a)(i) through (iv) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Seller which shall survive the Closing; (vi) each of the Assignment Applications shall have been approved by a Final Order of the FCC and the Buyer shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vii) the relevant parties shall have entered into the Postclosing Agreement; (viii) the Buyers shall have received from counsel to the Seller an opinion with respect to the matters set forth in Exhibit F attached hereto, addressed to the Buyers and its lender and dated as of the Closing Date; and 22 (ix) the Buyers shall, within thirty (30) days after the date hereof, be satisfied as to the results of their examination and due diligence review referred to in Section 4(l) hereof. If, within thirty (30) days after the date hereof, Buyers do not deliver to Seller a written notice terminating this Agreement in regard to the contingency described in this Section 5(a) (ix), then the contingency set forth in this Section 5(a) (ix) shall be deemed waived by Buyers; and (x) all actions to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. In the event that any of the foregoing conditions to Closing shall not have been satisfied, the Buyers may elect to (i) terminate this Agreement without liability to the Seller, or (ii) consummate the transactions contemplated herein despite such failure. Regardless of whether the Buyers elect to terminate this Agreement or consummate the transactions described herein, if such failure shall be as a result of a breach of any provision of this Agreement by the Seller (including, without limitation, any breach arising as a result of the failure of the Seller to execute and/or deliver any item described in this Section 5(a), the Buyers may seek appropriate remedies for any and all damages, costs and expenses incurred by the Buyers by reason of such breach including, without limitation, indemnification pursuant to Section 7, below. (b) Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3 above shall be true and correct in all respects at and as of the Closing Date as though made on and as of the Closing Date; (ii) the Buyers shall have performed and complied with all of their covenants hereunder in all respects through the Closing; (iii) no action, suit, investigation, inquiry or other proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or impose damages or penalties upon any of the Parties if such transactions are consummated, or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); 23 (iv) the Buyers shall have delivered to the Seller a certificate (without qualification as to knowledge or materiality or otherwise) to the effect that each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in all respects and the statements contained in such certificate shall be deemed a warranty of the Buyers which shall survive the Closing; (v) each of the Assignment Applications shall have been approved by a Final Order of the FCC and the Buyers shall have received all governmental approvals required to transfer all other authorizations, consents, and approvals of governments and governmental agencies set forth in the Disclosure Schedule; (vi) the relevant parties shall have entered into the Postclosing Agreement; and (viii) all actions to be taken by the Buyers in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. In the event that any of the foregoing conditions to Closing shall not have been satisfied, the Seller may elect to (i) terminate this Agreement without liability to the Buyers, or (ii) consummate the transactions contemplated herein despite such failure. Regardless of whether the Seller elects to terminate this Agreement or consummate the transactions described herein, if such failure shall be as a result of a breach of any provision of this Agreement by the Buyers (including, without limitation, any breach arising as a result of the failure of the Buyers to execute and/or deliver any item described in this Section 5(a), the Seller may seek appropriate remedies for any and all damages, costs and expenses incurred by the Seller by reason of such breach including, without limitation, indemnification pursuant to Section 7, below. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. (a) General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 7 below). (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Stations, each of the other Parties will reasonably cooperate with the contesting or defending Party and its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to its books and records as shall be necessary in 24 connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 7 below); provided, however, that such access and cooperation does not unreasonably disrupt the normal operations of the cooperating party. (c) Adjustments. Operation of the Stations and the income and expenses attributable thereto up through the close of business on the day before the Closing Date shall be for the account of the Seller and thereafter for the account of the Buyers. Such items as employee salaries, vacation, sick day and personal time accruals, and fringe benefits, power and utilities charges, insurance, real and personal property taxes, prepaid expenses, deposits, music license fees, and rents and payments pertaining to the Assumed Contracts (including any contracts for the sale of time for cash, trade or barter so assigned) shall be prorated between the Seller and the Buyers as of the Closing Date in accordance with the foregoing principle. In addition, all commissions payable with respect to the accounts receivable of the Seller (whether due before or after Closing) shall be solely for the account and responsibility of the Seller. Contractual arrangements that do not reflect an equal rate of compensation to a Station over the term of the agreement shall be equitably adjusted as of the Closing Date. The prorations and adjustments hereunder shall be made and paid insofar as feasible on the Closing Date, with a final settlement sixty (60) days after the Closing Date. In the event of any disputes between the Parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at such time and such disputes shall be determined by an independent accounting firm mutually acceptable to both parties and the fees and expenses of such accounting firm shall be paid one-half (1/2) by the Seller and one-half (1/2) by the Buyer. (d) Collection of Accounts Receivable. At the Closing, the Seller will turn over to the Buyers, for collection only, the accounts receivable of the Stations owing to the Seller as of the close of business on the Closing Date. A schedule of such accounts receivable will be delivered by the Seller to the Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree to use commercially reasonable efforts in the ordinary course of business (but without responsibility to institute legal or collection proceedings) to collect such accounts receivable during the 120-day period following the Closing Date, and will remit all payments received on such accounts during each calendar month during this 120-day period on the one hundred twentieth (120th) day together with an accounting of all payments received within such period. The Buyers shall have the sole right to collect such accounts receivable during such one hundred twenty (120) day period. In the event the Buyers receive monies during the 120-day period following the Closing Date from an advertiser who, after the Closing Date, is advertising over any of the Stations, and that advertiser was included among the accounts receivable as of the Closing Date, the Buyer shall apply said monies to the oldest outstanding balance due on the particular account, except in the case of a "disputed" account receivable. For purposes of this Section 6(d), a "disputed" account receivable means one which the account debtor refuses to pay because he asserts that the money is not owed or the amount is incorrect. In the case of such a disputed account, the Buyers shall immediately return the account to the Seller prior to expiration of the 120-day period following the Closing Date. If the Buyers return a disputed account to the Seller, the Buyers shall have no further responsibility for its collection and may 25 accept payment from the account debtor for advertising carried on any of the Stations after the Closing Date. At the end of the 120-day period following the Closing Date, the Buyers will turn back to the Seller all of the accounts receivable of the Stations as of the Closing Date owing to the Seller which have not yet been collected, and the Buyers will thereafter have no further responsibility with respect to the collection of such receivables. During the 120-day period following the Closing Date, the Buyers shall afford the Seller reasonable access to the accounts receivable "aging list." The Seller acknowledges and agrees that the Buyers are acting as its collection agent hereunder for the sole benefit of the Seller and that Buyers have accepted such responsibility for the accommodation of the Seller. The Buyer shall not have any duty to inquire as to the form, manner of execution or validity of any item, document, instrument or notice deposited, received or delivered in connection with such collection efforts, nor shall the Buyers have any duty to inquire as to the identity, authority or rights of the persons who executed the same. The Seller shall indemnify Buyers and hold them harmless from and against any judgments, expenses (including attorney's fees) costs or liabilities which the Buyers may incur or sustain as a result of or by reason of such collection efforts. (e) Consents. In the event any of the Assumed Contracts are not assignable or any consent to such assignment is not obtained on or prior to the Closing Date, and the Buyers elect to consummate the transactions contemplated herein despite such failure or inability to obtain such consent, the Seller shall continue to use commercially reasonable efforts to obtain any such assignment or consent after the Closing Date. Until such time as such assignment or approval has been obtained, the Seller will cooperate with Buyers in any lawful and economically feasible arrangement to provide that the Buyer shall receive the Seller's interest in the benefits under any such Assumed Contract, including performance by the Seller as agent, if economically feasible; provided, however, that the Buyers shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent that Buyers would have been responsible therefor if such consent or assignment had been obtained. 7. Remedies for Breaches of this Agreement. (a) Survival. All of the representations and warranties of the Seller contained in Section 2 of this Agreement (other than the representations and warranties of the Seller contained in Sections 2(a), 2(b), 2(c), 2(d), 2(g), 2(r) and 2(t) hereof or relating to the Seller's title to the Acquired Assets) shall survive the Closing and continue in full force and effect for a period until 90 days after the applicable statute of limitations has expired with respect to any claim by the Buyers based on a claim or action by a third party and for a period of three (3) years following Closing with respect to any claim by the Buyers not based on a claim or action by a third party. All of the other representations and warranties (including the representations and warranties of the Seller contained in Sections 2(a), 2(b), 2(c), 2(d), 2(g) 2(r) and 2(t) hereof or relating to the Seller's title to the Acquired Assets) and all covenants of the Buyers and the Seller contained in this Agreement shall survive the Closing and continue in full force and effect forever thereafter. (b) Indemnification Provisions for the Benefit of the Buyers. 26 Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Seller agrees to indemnify the Buyers from and against the entirety of any Adverse Consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by: (i) any misrepresentation or breach of any of the Seller's representations or warranties, and covenants contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Seller (so long as the Buyers make a written claim for indemnification within the applicable survival period); (ii) any breach or nonfulfillment of any agreement or covenant of the Seller contained herein or in any Ancillary Agreement; (iii) any Liability of the Seller which is not an Assumed Liability; and/or (iv) any Liability of the Buyers arising by operation of law (including under any bulk transfer law of any jurisdiction or under any common law doctrine of defacto merger or successor liability) which is not an Assumed Liability. (c) Indemnification Provisions for the Benefit of the Seller. Except as described below in Section 7(e) with respect to a breach of a warranty or covenant prior to the Closing Date, the Buyer agrees to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of, or caused by (i) any misrepresentation or breach of any of the Buyers' representations or warranties contained in this Agreement or in any Ancillary Agreement executed and/or delivered by the Buyers (so long as the Seller makes a written claim for indemnification within the applicable survival period) or (ii) any breach or nonfulillment of any agreement or covenant of the Buyers contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability. (d) Specific Performance. Each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(o) below), in addition to any other remedy to which it may be entitled, at law or in equity. Each of the Parties acknowledges and agrees that not withstanding the provision in Section 7(e) with respect to the remedy of liquidated damages upon a breach of a warranty or covenant of this Agreement prior to the Closing, money damages would not be an adequate remedy for a breach of any provision of this Agreement. 27 (e) Liquidated Damages. The Buyer and the Seller acknowledge that in the event that the transactions contemplated by this Agreement are not closed because of a default by either Party, the Adverse Consequences as a result of such default may be difficult, if not impossible, to ascertain. Accordingly, in lieu of indemnification pursuant to Section 7(b) or 7(c), the non defaulting Party shall be entitled to receive from the defaulting Party for such default the sum of Three Hundred FiftyThousand Dollars ($350,000) as liquidated damages without the need for proof of damages, subject only to successfully proving in a court of competent jurisdiction that the other Party has materially breached this Agreement and that the transactions contemplated thereby have not occurred; provided however, that the Buyers shall retain the option to receive, pursuant to Section 7(d), and in lieu of receiving the liquidated damages provided in this Section 7(e), the remedy of specific performance with respect to a breach of this Agreement prior to the Closing. The Buyers and the Seller agree to pay said sum of liquidated damages within ten (10) days of the date that the non-defaulting party obtains such a judgment, and agree that in the event this Agreement is terminated by the Seller prior to the Closing Date as a result of a breach or default by the Buyers under this Agreement, the Seller shall proceed against the Earnest Money as partial satisfaction of liquidated damages owed by Buyers. (f) Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnifica tion against any other Party (the "Indemnifying Party") under this Section 7, then the Indemnified Party shall notify the Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such failure. In the event any Indemnifying Party notifies the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party reasonably concludes that the counsel the Indemnifying Party has selected has a conflict of interest), (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event the Indemnifying Party does not notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, and/or in the event the Indemnifying Party shall fail to defend such claim actively and in good faith, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. 28 8. Definitions. "Acquired Assets" means all right, title, and interest in and to all of the assets of the Seller, other than Retained Assets that are used or useful in the operation of the Stations, wherever located, including but not limited to all of its (a) leaseholds and other interests of any kind therein, improvements, fixtures, and fittings thereon (such as towers and antennae), and easements, rights-of-way, and other appurtenances thereto); (b) tangible personal property (such as fixed assets, computers, data processing equipment, electrical devices, monitoring equipment, test equipment, switching, terminal and studio equipment, transmitters, transformers, receivers, broadcast facilities, furniture, furnishings, inventories of compact disks, records, tapes and other supplies, vehicles, and all assignable warranties with respect thereto; (c) Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) rights under orders and agreements (including those Barter Agreements and Advertising Contracts identified on the Disclosure Schedule) now existing or entered into in the Ordinary Course of Business for the sale of advertising time on the Stations; (e) Assumed Contracts, indentures, Security Interests, guaranties, other similar arrangements, and rights thereunder; (f) call letters of the Stations, jingles, logos, slogans, and business goodwill of the Stations; (g) claims, deposits, prepayments, refunds, causes of action, choses in action, rights of recovery (including rights under policies of insurance), rights of set off, and rights of recoupment; (h) Licenses and similar rights obtained from governments and governmental agencies; and (i) FCC logs and records and all other books, records, ledgers, logs, files, documents, correspondence, advertiser lists, all other lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, program production materials, studies, reports, and other printed or written materials; and (j) goodwill of the Stations. "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. "Advertising Contracts" has the meaning set forth in Section 2(s), above. "Affiliate" means with reference to any person or entity, another person or entity controlled by, under the control of or under common control with that person or entity. "Assignment Application" has the meaning set forth in Section 4(b) above. "Assumed Contracts" means the Leases, the Barter Agreements, the Advertising Contracts and those contracts listed on Exhibit G attached hereto. "Assumed Liabilities" means (a) obligations of the Seller which accrue after the Closing Date under the Assumed Contract either: (i) to furnish services, and other non-Cash 29 benefits to another party after the Closing; or (ii) to pay for goods, services, and other non-Cash benefits that another party will furnish to it after the Closing. The Assumed Liabilities shall not include any Retained Liabilities. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Buyers" has the meaning set forth in the preface above. "Cash" means cash and cash equivalents determined in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements. "Closing" has the meaning set forth in Section 1(d) above. "Closing Date" has the meaning set forth in Section 1(d) above. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the businesses and affairs of the Seller. "Disclosure Schedule" has the meaning set forth in Section 2 above. "Earnest Money Deposit" has the meaning set forth in Section 1(c) above. "Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c) above. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "Environmental Laws" has the meaning set forth in Section 2(q), above. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 30 "Escrow Agent" means the Gary Whittle Agency. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FCC" means the Federal Communications Commission of the United States. "FCC Licenses" means the licenses, permits and other authorizations, including any temporary waiver or special temporary authorization, issued by the FCC to the Seller in connection with the conduct of the business and operation of the Stations. "Final Order" means an action by the FCC as to which: (a) no request for stay by the FCC is pending, no such stay is in effect, and any deadline for filing a request for any such stay has passed; (b) no appeal, petition for rehearing or reconsideration, or application for review is pending before the FCC and the deadline for filing any such appeal, petition or application has passed; (c) the FCC has not initiated reconsideration or review on its own motion and the time in which such reconsideration or review is permitted has passed; and (d) no appeal to a court, or request for stay by a court, of the FCC's action is pending or in effect, and the deadline for filing any such appeal or request has passed. "Financial Statements" has the meaning set forth in Section 2(e) above. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Indemnified Party" has the meaning set forth in Section 7(d) above. "Indemnifying Party" has the meaning set forth in Section 7(d) above. "Intellectual Property" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, call letters, logos, trade names, and corporate names and registrations and applications for registration thereof, (c) all programs, programming materials, copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, market and other research information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (g) other proprietary rights, and (b) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. 31 "Leases" means those real estate leases to which Seller is a party governing Seller's studios and FM tower sites in Manning, South Carolina, as described in Section 2(i) of the Disclosure Schedule. "Liability" means any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Licenses" means all FCC and other governmental licenses, franchises, approvals, certificates, authorizations and rights of the Seller with respect to the operations of the Stations and all applications therefor, together with any renewals, extension or modifications thereof and additions thereto. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Owned Real Estate" means the real property owned by the Seller in _________ as described in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and improvements located thereon. "Party" has the meaning set forth in the preface above. "Permitted Real Estate Encumbrances" shall have the meaning set forth in Section 2(i), above. "Post-Closing Agreement" means the Post-Closing Agreement with Seller's owners in the form attached hereto as Exhibit D. "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price" has the meaning set forth in Section 1(c) above. "Real Estate" means the Owned Real Estate and the real estate, building, fixtures and improvements which are the subject of the Leases. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Retained Assets" means (i) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence 32 of the Seller as a corporation; (ii) any of the rights of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement); (iii) accounts, notes and other receivables of the Seller; (iv) the real estate located 517 Sunset Drive, Manning, South Carolina; and (v) Cash. "Retained Liabilities" means any other obligations or Liabilities of the Seller, including but not limited to: (i) any Liability relating to the ownership or operation of the Stations prior to the Closing; (ii) any Liability of the Seller for income, transfer, sales, use, and other Taxes arising in connection with the consummation contemplated hereby; (iii) any Liability of the Seller for costs and expenses incurred in connection with this Agreement or the consummation of the transactions contemplated hereby (except as set forth in Section 4(i) relating to Surveys, title commitments and environmental audits and Section 4(b) with regard to the Assignment Application; or (iv) any Liability or obligation of the Seller under this Agreement (or under any side agreement between the Seller on the one hand and the Buyers on the other hand entered into on or after the date of this Agreement). "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due and payable; and (b) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation. "Seller" has the meaning set forth in the preface above. "Stations" means the radio broadcast stations having the call letters WHLZ-FM and WYMB-AM, licensed by the FCC to operate in Manning, South Carolina. "Subsidiary," with respect to any person, means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which ) 50% or more of (i) the outstanding capital stock or other equity interest having voting power to elect a majority of the Board of Directors of such corporation or persons having a similar role as to an entity that is not a corporation, (ii) the interest in the profits of such partnership or joint venture, or (iii) the beneficial interest of such trust or estate are at such time directly or indirectly owned by such person or one or more of such person's Subsidiaries. "Surveys" has the meaning set forth in Section 4(o) above. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, 33 estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 9. Termination. (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyers and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event the Seller is in breach of any representation, warranty, or covenant contained in this Agreement; provided, however, that if such breach is capable of being cured, such breach also remains uncured for twenty (20) days after notice of breach is received by the Seller from the Buyers; (iii) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing in the event the Buyers are in breach of any representation, warranty, or covenant contained in this Agreement; provided, however that if such breach is capable being cured, such breach remains uncured for twenty (20) days after notice of breach is received by the Buyers from the Seller; (iv) the Buyers may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(a) hereof (unless the failure results primarily from the Buyers themselves breaching any representation, warranty, or covenant contained in this Agreement); (v) the Seller may terminate this Agreement by giving written notice to the Buyers at any time prior to the Closing if the Closing shall not have occurred on or before the 270th day following the date of this Agreement by reason of the failure of any condition precedent under Section 5(b) hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement); or (vi) the Buyers or the Seller may terminate this Agreement if any Assignment Application is denied by Final Order. 34 (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 9(a) above, all obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 10. Miscellaneous. (a) Survival. All of the representations, warranties, and covenants of the Parties contained in this Agreement shall survive the Closing hereunder as and to the extent provided in Section 7(a) hereof and the Post-Closing Agreement with respect to Seller's owners. (b) Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). (c) No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. (d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party, provided that (i) the Buyers may assign all of its right, title and interest in, to and under this Agreement to one or more Affiliates, who shall then, subject to the terms and conditions of this Agreement, have the right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay to the Seller the Purchase Price therefor or to any successor to the Buyers in the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers may assign their indemnification claims and their rights under the warranties and representations of the Sellers to the financial institution(s) providing financing to the Buyers in connection with this transaction. (f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 35 (h) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be considered to be given and received in all respects when hand delivered, when delivered via prepaid express or courier delivery service, when sent by facsimile transmission actually received by the receiving equipment or three (3) days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, in each case addressed to the intended recipient as set forth below: If to the Seller: Mrs. Betty Roper Clarendon County Broadcasting Co., Inc. 517 Sunset Drive Manning, South Carolina 29102 Copy to: Coffey, Chandler & Johnson, Attorneys Post Office Box 1292 Manning, South Carolina 29102 Attn: W.C. Coffey, Jr. Phone: (803) 435-8847 Fax: (803) 435-8915 (which copy shall not constitute notice to Seller) If to the Buyers: Cumulus Broadcasting, Inc. c/o QUAESTUS Management Corporation 330 E. Kilbourn Avenue, Suite 250 Milwaukee, WI 53202 Attn: Terrence J. Leahy With a copy to: Cumulus Broadcasting, Inc. Cumulus Licensing Corp. 875 N. Michigan Avenue Suite 3650 Chicago, Illinois 60611 Attn: Richard J. Bonick Baker & Daniels 205 W. Jefferson Boulevard Suite 250 36 South Bend, Indiana 46601 Attn: Peter Trybula (which copies shall not constitute notice to Buyers) Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of South Carolina. (j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyers and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (l) Expenses. The Buyers and the Seller, will each bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, other than as set forth in Section 4(b) with regard to the Assignment Applications and as set forth in Section 4(o) with respect to Surveys, title commitments and environmental audits. The Seller will pay all income taxes. The Seller and the Buyers will each pay one-half (1/2) of any transfer or sales taxes and other recording or similar fees necessary to vest title to each of the Acquired Assets in the Buyers. 37 (m) Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (o) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Charleston, South Carolina, in any action or proceeding arising out of or relating to this Agreement, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, and agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on the other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 10(h) above. Nothing in this Section 10(o), however, shall affect the right of any Party to serve legal process in any other manner permitted by law. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the date first above written. CUMULUS BROADCASTING, INC. By: ----------------------------------- (printed) - -------------------------------------- Title: -------------------------------- CUMULUS LICENSING CORPORATION By: ----------------------------------- 38 (printed) - -------------------------------------- Title: -------------------------------- CLARENDON COUNTY BROADCASTING CO., INC. By: ----------------------------------- (printed) - -------------------------------------- Title: -------------------------------- 39 EX-10.76 22 EXHIBIT 10.76 Exhibit 10.76 SERVICES AGREEMENT THIS AGREEMENT, made and entered into as of this 1st day of May, 1998, by and between QUAESTUS MANAGEMENT CORPORATION, a Delaware corporation ("QUAESTUS") and CUMULUS MEDIA INC., an Illinois corporation (the "Company") (QUAESTUS and the Company shall be referred to collectively as the "Parties"). R E C I T A L S: WHEREAS, the Company is in the business of identifying and entering into acquisitions of media properties; WHEREAS, QUAESTUS has expertise and resources in the areas of market identification, due diligence, and corporate finance support; and WHEREAS, the Company wishes to outsource the provision of these services to QUAESTUS. NOW, THEREFORE, the Parties agree as follows: 1. Term. The effective date of this Agreement shall be _____________ ("Effective Date") and it shall continue in effect until the second anniversary of the Effective Date unless terminated before then as provided below. 2. Provision of Services. The Company agrees to purchase, and QUAESTUS agrees to provide, services under the terms and conditions described herein. 3. Duties of Service Provider. QUAESTUS has and will maintain a staff trained and experienced in identifying broadcast and media properties, analyzing media markets, using broadcast research tools and methods, and developing cash flow and analytical financial models to support the process of identifying attractive broadcast markets and prospective acquisition candidates for the Company within those markets. Such staff is and will be adequate for the performance of QUAESTUS' duties under this Agreement. Services to be rendered by QUAESTUS under this Agreement shall include the services identified in Exhibit A to this Agreement. In addition to the services of its own staff, QUAESTUS shall, after consultation with the Company regarding services to be rendered at the Company's request, arrange for and coordinate the services of other professionals and experts, such as consulting engineers, broadcast research services, or other outside service providers. Such use of service providers other than QUAESTUS shall be at the expense of the Company. QUAESTUS shall report to and be accountable to the Chief Executive Officer and Chief Financial Officer in connection with the performance of its services under this Agreement. 4. Compensation. In consideration of the services to be provided by QUAESTUS, the Company agrees to pay QUAESTUS the amounts listed in Exhibit B to this Agreement. Such amounts shall be due and payable upon the closing of the transactions which relate to the services provided. No amounts shall be due for transactions which do not close. In addition, the Company shall promptly, but in no event later than thirty (30) days, reimburse QUAESTUS for all of its documented out-of-pocket and direct expenses incurred in connection with the performance of its services under this Agreement. The Chief Financial Officer of the Company may request QUAESTUS to provide corporate support services in addition to those outlined in Appendix A to this agreement, such as marketing support, graphic design, administrative services, shareholder relations, and other services. Such services shall be provided under such terms as may be agreed between the Chief Financial Officer and QUAESTUS and approved by the outside members of the Company's Board of Directors 5. Termination. This Agreement may be terminated for cause by either Party upon thirty (30) days' notice, plus the cure period described in section 6 below. "Cause" for this purpose shall consist of a Party's failure substantially to perform its duties under this Agreement. Otherwise the Agreement shall terminate upon the expiration of the term described in Section 1 above. Notwithstanding the termination of the Agreement, QUAESTUS shall be entitled to compensation for services provided before termination in connection with Company transactions which are consummated after termination. 6. Cure Period. The defaulting party shall have thirty (30) days from the date on which the non-defaulting party has provided the defaulting party with written notice specifying the event(s) of default to curer any such event(s) of default. If the event of default cannot be cured by the defaulting party within such time period but commercially reasonably efforts are being made to effect a cure or otherwise secure or protect the interests of the non-defaulting party (in which case, if successful, the event of default shall be deemed cured), then the defaulting party shall have an additional period not to exceed thirty (30) days to effect a cure or a deemed cure. 7. Renewal. The Agreement shall be renewed for an additional twelve-month term beyond the initial term upon the same terms and conditions, unless either Party provides written notice to the other Party no later than thirty (30) days before the expiration of the initial term, of its intent to terminate the Agreement. 8. Amendment. This Agreement can be modified or amended only by a writing signed by the parties hereto. 9. Entire Agreement. This Agreement reflects the sole understanding of the Parties with respect to the subject matter hereof and supersedes and replaces any agreement (whether oral or written) between the Parties with respect to the subject matter hereof. 10. Indemnification. The Company shall indemnify, defend, and hold harmless QUAESTUS from and against any and all claims, losses, costs, liabilities, damages, and expenses (including reasonable attorneys' fees and other expenses incidental thereto) of every kind, nature and description arising out of QUAESTUS' provision of services to the Company under this Agreement, except and to the extent that QUAESTUS has committed gross negligence or willful misconduct. 11. Assignment; Binding Effect. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12. Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin. IN WITNESS WHEREOF, the undersigned have executed this Services Agreement as of the date first above written. QUAESTUS MANAGEMENT CORPORATION By: -------------------------------------- Charles F. Wright, Vice President CUMULUS MEDIA INC. By: -------------------------------------- Title: ----------------------------------- EXHIBIT A Services to be Provided by QUAESTUS 1. Industry Research -- Perform function comparable to media research group of investment bank -- Monitor current status of acquisition multiples -- Review trade press -- Public company research, filings retrieval, etc -- Analyze competitors' acquisition strategy, capital structures 2. Deal Sourcing and Origination -- Identify and screen potential radio markets based on Cumulus criteria -- Retrieve and distribute BIA and other data -- Review trade press -- Discuss potential markets with brokers, analysts, industry experts -- Prepare profiles of markets and competitors -- Market modeling and assessment -- Bid discussions and strategies -- Research on sellers/competitors -- Prepare valuations based on cash flow and other criteria -- Analyze comparable sales 3. Due Diligence/Acquisition Support -- Prepare and distribute due diligence request lists -- Collate and distribute due diligence materials received from Sellers -- Follow-up with Sellers to make certain all necessary information received -- Follow-up with Company personnel to make certain all data analyzed -- Re-formatting of financial data to Company's management format -- Coordinate and oversee outside diligence efforts by environmental consultants, financial consultants, and engineers -- Prepare contract summaries -- Schedule audits as needed at Seller locations -- Prepare contour and engineering analysis to support FCC applications 4. Support for Board of Directors -- Prepare acquisition materials and other board decision materials for Directors -- Respond to requests for additional information 5. Corporate Finance /Treasury Support -- Prepare and maintain current actual and projected financial models -- Respond to financial questions from investors, lenders -- Cash needs analysis -- Equity/debt discussion -- Covenant compliance forecasts -- Investor return models -- Prepare and revise models to test various financial forecasts and conditions -- Budgeting process support 6. Public Relations /Marketing Support -- Draft, maintain and update Company and personnel brochure -- Serve as chief public contact for the Company -- Develop Company's public and community services programs -- Develop and maintain relationships with public officials on Company's behalf EXHIBIT B Compensation For each transaction which is successfully consummated, upon closing the Company shall pay QUAESTUS: $15,000 for each transaction involving one FM station; $30,000 for each transaction involving two FM stations; $45,000 for each transaction involving three FM stations; and. $60,000 for each transaction involving four or more FM stations. EX-21.1 23 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF CUMULUS MEDIA INC. Cumulus Broadcasting, Inc., a Nevada corporation Caribbean Communications Company, a Montserrat corporation Gem Radio Five Ltd., a Trinidad & Tobago corporation Minority Radio Associates, a Georgia corporation Forjay Broadcasting, Inc. a South Carolina corporation EX-23.1 24 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our reports as of the dates and relating to the financial statements of the companies listed below, which appear in such Prospectus.
COMPANY DATE OF REPORT - -------------------------------------------------------------------------------------- -------------------------- Cumulus Media Inc. March 18, 1998 Arbor Radio LP February 19, 1998 Beaumont Skywave, Inc. February 10, 1998 Caribbean Communications Company Limited March 9, 1998 Carolina Broadcasting, Inc. and Georgetown Radio, Inc. March 4, 1998 Castle Broadcasting Limited Partnership March 18, 1998 Clearly Superior Radio Properties February 24, 1998 Communications Properties, Inc. January 10, 1998 Crystal Radio Group, Inc. March 13, 1998 Forjay Broadcasting Corporation January 23, 1998 HVS Partners February 25, 1998 Jan-Di Broadcasting, Inc. February 24, 1998 K-Country, Inc. February 27, 1998 Lesnick Communications, Inc. February 20, 1998 Louisiana Media Interests, Inc. and Subsidiaries March 9, 1998 M&M Partners February 24, 1998 The Midwestern Broadcasting Company, Radio Stations WWWM-FM and WLQR-AM February 11, 1998 Midland Broadcasters, Inc. May 12, 1998 Mustang Broadcasting Company March 5, 1998 Ninety Four Point One, Inc. and KAYD AM/FM February 20, 1998, except as to Note 7, which is as of March 6, 1998 Pamplico Broadcasting, L.P. February 13, 1998 Phoenix Broadcast Partners, Inc. March 16, 1998 Savannah Valley Broadcasting Radio Properties February 27, 1998 Seacoast Radio Company, LLC February 24, 1998 Sunny Broadcasters, Inc. February 24, 1998 Tallahassee Broadcasting, Inc. February 20, 1998 Tryon-Seacoast Communications, Inc. February 20, 1998
COMPANY DATE OF REPORT - -------------------------------------------------------------------------------------- -------------------------- Value Radio Corporation February 24, 1998 Wilks Broadcast Acquisitions, Inc. February 16, 1998 WJCL-FM February 27, 1998 WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM February 6, 1998 WWFG-FM and WOSC-FM March 18, 1998
We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PRICE WATERHOUSE LLP Chicago, Illinois May 14, 1998 EX-23.2 25 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report dated March 2, 1998 on our audit of the consolidated financial statements of Republic Corporation and subsidiary (radio broadcasting operations only) as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Montgomery, Alabama May 14, 1998 EX-23.6 26 EXHIBIT 23.6 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 of our report dated February 27, 1998 on our audit of the financial statements of Savannah Communications, L.P. as of December 31, 1997 and 1996 and for each of the two years in the period ended December 31, 1997. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Atlanta, Georgia May 14, 1998 EX-23.4 27 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT We have issued our reports dated February 24, 1998, accompanying the financial statements of New Frontier Communications, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned reports in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." /s/ Johnson, Miller & Co. Odessa, Texas May 14, 1998 1 EX-23.5 28 EXHIBIT 23.5 EXHIBIT 23.5 CONSENT OF MCGLADREY & PULLEN, LLP To the Board of Directors Cumulus Media Inc. We hereby consent to the use in this Registration Statement on Form S-1 of our report, dated February 11, 1998, except for Note 12 as to which the date is February 19, 1998, relating to the combined financial statements of JKJ Boradcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc. and Hometown Wireless, Inc. We also consent to the reference to our Firm under the captions "Experts" in the Prospectus. /s/ McGladrey & Pullen, LLP Pierre, South Dakota May 14, 1998 EX-23.6 29 EXHIBIT 23.6 EXHIBIT 23.6 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion of our report dated February 11, 1997 on the divisional financial statements of Fritz Broadcasting, Inc. Toledo Division for the years ended December 29, 1996 and December 31, 1995 in the Registration Statement on Form S-1 filed on March 15, 1998 by Cumulus Media Inc. for the registration of Class A Common Stock. /s/ Plante & Moran, LLP Troy, Michigan May 14, 1998 EX-25.1 30 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------ FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------ FIRSTAR BANK OF MINNESOTA, N.A. (Exact name of Trustee as specified in its charter) A National Banking Association 41-0122055 (State of incorporation if (IRS Employer not a national bank) Identification No.) 101 East Fifth Street Corporate Trust Department St. Paul, Minnesota 55101 (Address of principal executive offices) (Zip Code) FIRSTAR BANK OF MINNESOTA, N.A. 101 East Fifth Street St. Paul, Minnesota 55101 (612) 229-2600 (Exact name, address and telephone number of agent for service) ------------------------------ Cumulus Media, Inc. (Exact name of obligor as specified in its charter) Illinois 36-4159663 (State of incorporation or (IRS Employer other jurisdiction) Identification No.) 330 East Kilbourn Avenue Milwaukee, Wisconsin 53202 (Address of principal executive offices) (Zip Code) ------------------------------ % Senior Subordinated Notes due 2008 (Title of Indenture securities) Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Treasury Department Washington, DC Federal Deposit Insurance Corporation Washington, DC The Board of Governors of the Federal Reserve System Washington, DC (b) The Trustee is authorized to exercise corporate trust powers. GENERAL Item 2. Affiliations with Obligor and Underwriters. If the obligor or any underwriter for the obligor is an affiliate of the Trustee, describe each such affiliation. None See Note following Item 16. Items 3-15 are not applicable because to the best of the Trustee's knowledge the obligor is not in default under any Indenture for which the Trustee acts as Trustee. Item 16. List of Exhibits. Listed below are all the exhibits filed as a part of this statement of eligibility and qualification. Exhibits 1-4 are incorporated by reference from filing 333-37723. Exhibit 1. Copy of Articles of Association of the trustee now in effect. Exhibit 2. a. A copy of the certificate of the Comptroller of Currency dated June 1, 1965, authorizing Firstar Bank of Minnesota, N.A. to act as fiduciary. b. A copy of the certificate of authority of the trustee to commence business issued June 9, 1903, by the Comptroller of the Currency to Firstar Bank of Minnesota, N.A. Exhibit 3. A copy of the authorization of the trustee to exercise corporate trust powers issued by the Federal Reserve Board. Exhibit 4. Company of the By-Laws of the trustee as now in effect. Exhibit 5. Copy of each Indenture referred to in Item 4. - Not Applicable Exhibit 6. The consent of the trustee required by Section 321(b) of the Act. Exhibit 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligor within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligor, or affiliates, are based upon information furnished to the Trustee by the obligor. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, a national banking association organized and existing under the laws of the United States, has duly caused this statement of Eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Saint Paul and State of Minnesota on the 13th day of May, 1998. FIRSTAR BANK OF MINNESOTA, N.A. (Seal) /s/ Frank P. Leslie -------------------------------- Frank P. Leslie III Vice President EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, Firstar Bank of Minnesota, N.A., hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: May 13, 1998 FIRSTAR BANK OF MINNESOTA, N.A. /s/ Frank P. Leslie -------------------------------- Frank P. Leslie III Vice President FIRSTAR BANK OF MINNESOTA, N.A. BALANCE SHEET
DECEMBER 31, ------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- ------- $(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000) ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances..... 116,623 132,057 87,322 60,020 80,393 63,001 65,548 59,561 (17,217), Interest-bearing balances........ 2,490 736 201 144 0 0 2,400 3,600 Securities......................... 432,648 446,668 454,809 395,074 371,004 379,371 360,790 348,473 Federal funds sold and securities purchased under agreements to resell: Federal funds sold............... 301,169 0 0 0 0 0 7,275 26,050 (29,450)A Securities purchased under agreements to resell........... 0 0 0 0 0 0 0 0 Loans and lease financing receivables: Loans and leases, net of unearned income......................... 1,834,544 2,276,562 1,797,918 723,375 615,578 540,293 551,347 525,883 LESS: Allowance for loan and lease losses................... 32,327 34,218 23,978 15,665 16,317 15,049 10,763 13,739 LESS: Allocated transfer risk reserve........................ 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Loans and leases, net of unearned income, allowance, and reserve........................ 1,802,217 2,242,344 1,773,940 707,710 599,261 525,244 540,584 512,144 Assets held in trading accounts.... 0 300 0 0 0 0 0 0 Premises and fixed assets (including capitalized leases)... 31,607 31,539 25,944 17,465 17,661 20,809 23,464 23,090 Other real estate owned............ 210 326 599 272 1,380 3,402 4,398 2,844 Investments in unconsolidated subsidiaries and associated companies........................ 0 0 0 0 0 0 0 0 Customers' liability to this bank on acceptances outstanding....... 0 0 0 0 0 0 0 0 Intangible assets.................. 111,806 118,287 25,260 26,456 29,644 32,832 36,020 114 Other assets....................... 40,512 53,778 32,009 22,492 21,079 23,090 20,424 19,275 --------- --------- --------- --------- --------- --------- --------- ------- Total assets....................... 2,839,282 3,026,035 2,400,084 1,229,633 1,120,422 1,047,749 1,060,903 995,151 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ------- LIABILITIES Deposits: In domestic offices: Noninterest-bearing.......... 326,189 375,851 227,405 213,066 195,136 181,238 166,447 179,811 (17,217), Interest-bearing............. 1,705,713 1,783,187 1,375,794 724,995 719,091 724,573 764,840 724,382 --------- --------- --------- --------- --------- --------- --------- ------- Total domestic deposits........ 2,031,902 2,159,038 1,603,199 938,061 914,227 905,811 931,287 904,193 In foreign offices:.............. 0 0 0 0 0 0 0 0 Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased.......... 28,089 104,476 167,903 151,614 69,211 410 0 750 (29,450)A Securities sold under agreements to repurchase.................. 0 0 0 0 0 0 0 4,772 Demand notes issued to the U.S. Treasury......................... 28,176 0 0 0 0 0 0 1,067 Other borrowed money............... 405,544 331,207 391,500 0 154 0 37 37 Mortgage indebtedness and obligations under capitalized leases........................... 0 1,142 367 0 0 0 3,290 2,334 Bank's liability on acceptances executed and outstanding......... 0 0 0 0 0 0 0 0 Notes and debentures subordinated to deposits...................... 0 0 0 0 0 0 0 0 Other liabilities.................. 16,010 46,822 28,205 13,955 13,397 18,769 10,447 9,128 --------- --------- --------- --------- --------- --------- --------- ------- Total liabilities.................. 2,509,721 2,642,685 2,191,174 1,103,630 996,989 924,990 945,061 922,281 Limited-life preferred stock....... 0 0 0 0 0 0 0 0 EQUITY CAPITAL Perpetual preferred stock.......... 0 0 0 0 0 0 0 0 Common stock....................... 35,730 35,730 35,730 35,730 35,730 35,730 35,730 6,336 Surplus............................ 220,268 220,084 101,435 64,948 64,886 64,834 64,834 39,666 Undivided profits and capital reserves......................... 72,084 126,450 69,527 25,325 22,817 22,195 15,278 26,868 LESS: Net unrealized loss on marketable equity securities..... 1,479 1,086 2,218 0 0 0 0 0 Total equity capital............... 329,561 383,350 208,910 126,003 123,433 122,759 115,842 72,870 --------- --------- --------- --------- --------- --------- --------- -------- Total liabilities, limited-life preferred stock, and equity capital.......................... 2,839,282 3,026,035 2,400,084 1,229,633 1,120,422 1,047,749 1,060,903 995,151 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- -------
FIRSTAR BANK OF MINNESOTA, N.A. INCOME STATEMENT
DECEMBER 31, ------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- ------- $(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000) Interest Income Interest and fee income on loans: Loans secured by real estate... 110,027 115,978 106,902 20,644 18,049 19,637 21,473 23,398 Loans to finance agricultural production and other loans to farmers...................... 0 0 20 10 12 17 39 Commercial and industrial loans........................ 36,492 28,852 18,155 13,667 10,758 12,703 16,082 Loans to individuals for household, family, and other personal expenditures: Credit cards and related plans...................... 2,461 2,618 2,040 1,324 725 1,084 1,250 1,093 Other........................ 20,351 20,090 15,979 15,082 14,969 16,229 14,938 12,068 Loans to foreign governments and official institutions.... 0 0 0 0 0 0 0 0 Obligations (other than securities and leases) of states and political subdivisions in the U.S.: Taxable obligations.......... 0 0 0 0 0 0 0 0 Tax-exempt obligations....... 1,760 621 497 428 418 374 712 All other loans................ 4,435 3,200 1,195 814 248 80 147 21,536 Income from lease financing receivables: Taxable leases................. 2,945 1,318 99 10 4 23 117 217 Tax-exempt leases.............. 47 25 0 6 17 61 149 312 Interest income on balances due from depository institutions... 54 48 529 5 0 140 262 493 Interest and dividend income on securities: U.S. Treasury securities and U.S. Government agency and corporation obligations...... 14,423 17,220 18,752 15,540 17,511 17,791 19,660 17,767 Securities issued by states and political subdivisions in the U.S.: Taxable securities........... 0 0 1 41 51 75 120 205 Tax-exempt securities........ 8,110 7,114 6,871 6,443 6,473 7,094 8,246 8,008 Other domestic debt securities................... 14 161 796 466 856 1,337 1,775 1,968 Foreign debt securities........ 107 67 24 19 19 16 22 23 Equity securities (including investments in mutual funds)....................... 3,703 2,560 2,112 305 174 156 21 22 Interest income from assets held in trading accounts............ 0 0 0 0 0 0 0 0 Interest income on federal funds sold and securities purchased under agreements to resell..... 3,713 37 0 0 0 377 433 2,329 --------- --------- --------- --------- --------- --------- --------- ------- Total interest income............ 208,642 199,909 173,972 74,804 70,284 77,194 85,446 89,439 Interest expense Interest on deposits: Transaction accounts (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts)........... 3,551 2,290 1,635 1,420 1,676 2,786 5,350 6,930 Nontransaction accounts: Money market deposit accounts (MMDAs).................... 19,180 12,518 8,288 4,947 5,322 7,108 10,877 11,417 Other savings deposits....... 1,785 2,283 2,439 1,317 1,767 2,120 3,782 2,876 Time certificates of deposit of $100,000 or more........ 7,035 6,401 4,614 1,318 1,154 1,796 3,571 5,818 All other time deposits...... 41,400 43,188 43,023 10,458 10,024 12,757 18,595 20,771 Expense of federal funds purchased and securities sold under agreements to repurchase..................... 5,822 9,817 11,834 4,539 1,489 135 598 643 Interest on demand notes issued to the U.S. Treasury and on other borrowed money........... 20,418 19,168 23,582 0 0 0 21 62 Interest on mortgage indebtedness and obligations under capitalized leases............. 0 56 43 0 0 199 220 184 Interest on notes and debentures subordinated to deposits....... 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Total interest expense........... 99,191 95,721 95,458 23,999 21,432 26,901 43,014 48,701 --------- --------- --------- --------- --------- --------- --------- ------- Net interest income................ 109,451 104,188 78,514 50,805 48,852 50,293 42,432 40,738 Provisions: Provision for loan and lease losses......................... 925 774 5,738 0 2,980 7,000 3,020 7,196 Provision for allocated transfer risk........................... 0 0 0 0 0 0 0 0
FIRSTAR BANK OF MINNESOTA, N.A. INCOME STATEMENT (continued)
DECEMBER 31, ------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- ------- $(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000) Noninterest income Income from fiduciary activities..................... 5,378 3,220 0 0 0 0 0 0 Service charges on deposit accounts....................... 11,979 10,508 9,536 9,721 10,482 9,066 7,974 7,488 (78)B Trading gains (losses) and fees from foreign exchange transactions................... 226 461 58 16 (4) 14 32 1 Other foreign transaction gains (losses)....................... 0 0 0 0 0 0 0 1 Gains (losses) and fees from assets held in trading accounts....................... 0 0 0 0 0 0 0 0 Other noninterest income:........ 2,896 Other fee income............... 5,638 8,439 12,770 3,919 3,783 3,375 2,820 All other noninterest income... 435 1,110 1,358 816 379 440 470 --------- --------- --------- --------- --------- --------- --------- ------- Total noninterest income......... 23,656 23,738 23,722 14,472 14,640 12,895 11,296 10,386 Gains (losses) on securities not held in trading accounts......... 0 36 (537) 22 28 341 134 20 Noninterest expense Salaries and employee benefits... 28,497 31,590 28,091 17,566 16,855 16,365 11,993 15,939 Expenses of premises and fixed assets (net of rental income) (excluding salaries and employee benefits and mortgage interest)...................... 10,458 13,167 7,837 5,279 8,464 7,844 9,804 6,379 Other noninterest expense........ 40,445 37,650 27,411 20,432 21,431 21,754 23,964 16,232 (78)B --------- --------- --------- --------- --------- --------- --------- ------- Total noninterest expense........ 79,400 82,407 63,339 43,277 46,750 45,963 45,761 38,550 --------- --------- --------- --------- --------- --------- --------- ------- Income (loss) before taxes and extraordinary items and other adjustments...................... 52,782 44,781 32,622 22,022 13,790 10,566 5,081 5,398 Applicable income taxes............ 20,148 17,099 12,724 8,513 4,838 3,649 984 (452) --------- --------- --------- --------- --------- --------- --------- ------- Income (loss) before extraordinary items and other adjustments...... 32,634 27,682 19,898 13,509 8,952 6,917 4,097 5,850 Extraordinary items and other adjustments: Extraordinary items and other adjustments, gross of income taxes.......................... 0 0 0 0 2,370 0 0 0 Applicable income taxes.......... 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Extraordinary items and other adjustments, net of income taxes.......................... 0 0 0 0 2,370 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Net income (loss).................. 32,634 27,682 19,898 13,509 11,322 6,917 4,097 5,850 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ------- CHANGES IN EQUITY CAPITAL Total equity capital originally reported at end of previous calendar year.................... 383,350 208,910 126,003 123,433 122,759 115,842 72,870 70,570 Equity capital adjustments from amended Reports of Income, net... 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Amended balance at end of previous calendar year.................... 383,350 208,910 126,003 123,433 122,759 115,842 72,870 70,570 Net income (loss).................. 32,634 27,682 19,898 13,509 11,322 6,917 4,097 5,850 Sale, conversion, acquisition, or retirement of capital stock, net.............................. 0 711 269 61 52 0 0 0 Changes incident to business combination, net................. 0 159,313 70,922 0 0 0 38,875 0 LESS: Cash dividends declared on preferred stock.................. 0 0 0 0 0 0 0 0 LESS: Cash dividends declared on common stock..................... 87,000 24,000 10,400 11,000 10,700 0 0 4,050 Cumulative effect of changes in accounting principles from prior years............................ 0 0 0 0 0 0 0 0 Corrections of material accounting errors from prior years.......... 0 0 0 0 0 0 0 0 Change in net unrealized loss on marketable equity securities..... 393 (1,132) 2,218 0 0 0 0 0 Other transactions with parent holding company.................. 184 11,866 0 0 0 0 0 500 --------- --------- --------- --------- --------- --------- --------- ------- Total equity capital at end of period........................... 329,561 383,350 208,910 126,003 123,433 122,759 115,842 72,870 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- -------
FIRSTAR BANK OF MINNESOTA, N.A. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES AND IN ALLOCATED TRANSFER RISK RESERVE
DECEMBER 31, ------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- ------- $(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000) Allowance for loan and lease losses: Balance originally reported at end of previous year........... 34,218 23,978 15,665 16,317 15,049 10,763 13,739 10,932 Recoveries....................... 3,117 2,780 2,321 2,829 1,890 2,213 1,417 1,704 LESS: Charge-offs................ 5,933 2,735 3,368 3,481 3,602 4,927 7,413 6,093 (33)C Provision for loan and lease losses......................... 925 774 5,738 0 2,980 7,000 3,020 7,196 Adjustments...................... 0 9,421 3,622 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Balance at end of period......... 32,327 34,218 23,978 15,665 16,317 15,049 10,763 13,739 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ------- Allocated transfer risk reserve: Balance originally reported at end of previous year........... 0 0 0 0 0 0 0 0 Recoveries....................... 0 0 0 0 0 0 0 0 LESS: Charge-offs................ 0 0 0 0 0 0 0 0 Provision for allocated transfer risk........................... 0 0 0 0 0 0 0 0 Adjustments...................... 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Balance at end of period......... 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ------- PAST DUE AND NONACCRUAL LOANS, LEASES AND OTHER ASSETS Loans, leases, and other assets past due 90 days or more and still accruing: Real estate loans................ 2,260 8,112 792 112 684 540 1,713 147 Installment loans................ 842 435 85 75 106 139 724 299 Credit cards and related plans... 191 271 125 81 77 129 20 0 Commercial (time and demand) and all other loans................ 1,452 3,925 620 306 1,936 583 780 900 Lease financing receivables...... 0 28 0 0 0 0 0 357 --------- --------- --------- --------- --------- --------- --------- ------- Total past due and still accruing....................... 4,745 12,771 1,622 574 2,803 1,391 3,237 1,703 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ------- Nonaccrual: Real estate loans................ 8,647 9,358 8,960 2,863 3,854 3,288 3,055 7,872 Installment loans................ 17 46 82 56 389 1,577 932 273 Credit cards and related plans... 22 22 0 14 18 2 5 0 Commercial (time and demand) and all other loans................ 724 523 516 447 640 1,008 2,484 6,944 Lease financing receivables...... 0 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- ------- Total nonaccrual................. 9,410 9,949 9,558 3,380 4,901 5,875 6,476 15,089 --------- --------- --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ------- OFF BALANCE SHEET ITEMS Standby letters of credit.......... 45,166 36,939 20,364 16,725 17,371 15,620 Amount of standby letters of credit conveyed to others...... 0 0 5,947 3,507 3,691 3,756 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
, To eliminate Shelard cash balances A To eliminate Shelard intercompany fed fund B To eliminate Shelard service charges C To adjust 1992 Charge-offs due to Eagan error corrected in 1992 EX-25.2 31 EXHIBIT 25.2 Exhibit 25.2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------- FORM T-1 Statement of Eligibility Under the Trust Indenture Act of 1939 of a Corporation Designed to act as Trustee U.S. BANK TRUST NATIONAL ASSOCIATION FORMERLY KNOWN AS FIRST TRUST NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter) United States 41-0257700 (State of Incorporation) (I.R.S. Employer Identification No.) U.S. Bank Trust Center 180 East Fifth Street St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (Zip Code) CUMULUS MEDIA INC. (Exact name of Registrant as specified in its charter) Illinois 36-4159663 (State of Incorporation) (I.R.S. Employer Identification No.) 330 East Kilbourn Avenue Milwaukee, WI 53202 (Address of Principal Executive Offices) (Zip Code) % SUBORDINATED EXCHANGE DEBENTURES DUE 2009 (Title of the Indenture Securities) GENERAL 1. GENERAL INFORMATION Furnish the following information as to the Trustee. (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any underwriter for the obligor is an affiliate of the Trustee, describe each such affiliation. None See Note following Item 16. Items 3-15 are not applicable because to the best of the trustee's knowledge the obligor is not in default under any Indenture for which the trustee acts as Trustee. 16. LIST OR EXHIBITS List below all exhibits filed as a part of this statement of eligibility and qualification. 1. Copy of Articles of Association.* 2. Copy of Certificate of Authority to Commence Business.* 3. Authorization of the Trustee to exercise corporate trust powers (included in Exhibits 1 and 2: no separate instrument).* 4. Copy of existing By-Laws.* 5. Copy of each Indenture referred to in Item 4. N/A. 6. The consents of the Trustee required by Section 321(b) of the act. 7. Copy of the latest report of condition of the Trustee published pursuant to law or the requirements of its supervising or examining authority is incorporated by reference to Registration Number 333-42147. * Incorporated by reference to Registration Number 22-27000. NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefore. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, U.S. Bank Trust National Association f/k/a First Trust National Association, as Association organized and existing under the laws of the United State, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Saint Paul and State of Minnesota on the 15th day of May, 1998. U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL ASSOCIATION /s/ Richard H. Prokosch --------------------------------- Richard H. Prokosch Assistant Vice President /s/ Kathe M. Barrett - ----------------------------- Kathe M. Barrett Assistant Secretary EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: May 15, 1998 U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL ASSOCIATION /s/ Richard H. Prokosch ---------------------------------- Richard H. Prokosch Assistant Vice President NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefore. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, U.S. Bank Trust National Association f/k/a First Trust National Association, as Association organized and existing under the laws of the United State, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Saint Paul and State of Minnesota on the 15th day of May, 1998. U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL ASSOCIATION /s/ Richard H. Prokosch ---------------------------------- Richard H. Prokosch Assistant Vice President /s/ Kathe M. Barrett - ----------------------------- Kathe M. Barrett Assistant Secretary EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: May 15, 1998 U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL ASSOCIATION /s/ Richard H. Prokosch ------------------------------- Richard H. Prokosch Assistant Vice President -----END PRIVACY-ENHANCED MESSAGE-----