-----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, V9OoKaI1XwROjupuCNeU1P3X6drdndwp1LQr2vHRkWehISCF6fxjv25Helc4L0SF f9v8LLXVdxLQJQ0/OuNfpA== 0000950134-97-003015.txt : 19970418 0000950134-97-003015.hdr.sgml : 19970418 ACCESSION NUMBER: 0000950134-97-003015 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970416 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970417 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEAR CHANNEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000739708 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 741787539 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09645 FILM NUMBER: 97582870 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: SUITE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108222828 MAIL ADDRESS: STREET 2: 200 CONCORD PLAZA SUITE 600 CITY: SAN ANTONIO STATE: TX ZIP: 78216 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 17, 1997 Clear Channel Communications, Inc. (Exact name of registrant as specified in its charter) Texas (State of Incorporation) 1-9645 74-1787539 (Commission File Number) (I.R.S. Employer Identification No.) 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 (210) 822-2828 (Address and telephone number of principal executive offices) 2 Item 2.(a) On April 10, 1997, Clear Channel Communications, Inc. (the "Company" or "Registrant"), acquired by purchase approximately 93% of the outstanding stock of Eller Media Corporation ("Eller" or "Eller Media"). Eller Media's operations include approximately 50,000 outdoor advertising display faces in 15 major metropolitan markets including Los Angeles, Sacramento, San Diego and San Francisco, CA; Chicago, IL; Dallas/Ft. Worth, Houston, San Antonio and El Paso, TX; Miami and Tampa, FL; Atlanta, GA ; Cleveland, OH; Milwaukee, WI and Phoenix, AZ. Eller Media was not an affiliate of the Registrant. The purchase price for the approximately 93% of Eller Media's outstanding capital stock was determined based upon an arms-length negotiation considering the potential cash flows to be generated by the outdoor advertising structures, consideration of the markets in which the billboards are located, management, personnel, and the overall operation of the facilities as a going concern. As consideration for the stock acquired, the Company paid cash of approximately $325 million and issued Common Stock ("Common Stock") of the Company in the aggregate value of approximately $298 million (6,643,636 shares at an agreed value of $44.8625 per share) in a private transaction. In addition, the Company issued options to purchase 1,468,182 shares of the Company's Common Stock in connection with the assumption of Eller Media's outstanding stock options. These options have an aggregate estimated fair value of approximately $51 million. In addition, the Company retired approximately $417 million of Eller Media long-term debt, which was refinanced at the closing date using the Company's credit facility. The Company granted to the former Eller Media stockholders certain demand and piggyback registration rights relating to the shares of Common Stock received by them. The holders of the approximately 7% of the outstanding capital stock of Eller Media, not purchased by the Company, have the right to put such stock to the Company for 1,081,469 shares of the Company's Common Stock until April 10, 2002. From and after April 10, 2004, the Company will have the right to call in this minority interest stake in Eller Media for 1,081,469 shares of its Common Stock. Sources of funds utilized in completing this acquisition were provided by the Company's revolving long-term line of credit facility by and between NationsBank of Texas, N.A., as agent, the Registrant and the banks named therein. Item 2.(b) The assets of Eller Media were being utilized by Eller Media for the purpose of outdoor advertising. Registrant intends to continue such use. 3 Item 7.(a)-1 Historical Financial Statements REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders' of Eller Media Corporation: We have audited the accompanying consolidated balance sheets of ELLER MEDIA CORPORATION (EMC) (a Delaware corporation), formerly EMC Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1996, and for the period from inception (August 18, 1995) to December 31, 1995. In addition, we have audited the accompanying combined statements of operations and cash flows of Eller Investment Company, Inc. (EIC) and the accompanying consolidated statements of operations and cash flows of PMG Holdings, Inc. and subsidiaries (PMG), the predecessors of EMC, for the period from January 1, 1995 to August 17, 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 EMC as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996, and for the period from inception (August 18, 1995) to December 31, 1995, and the combined statements of operations and cash flow of EIC and the consolidated statements of operations and cash flow of PMG for the period from January 1, 1995 to August 17, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Phoenix, Arizona, March 14, 1997 4 ELLER MEDIA CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AND SHARE DATA) ASSETS
DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents................................. $ 2,453 $ 873 Accounts receivable, net of allowance for doubtful accounts of $2,274 and $1,791 at December 31, 1995 and 1996, respectively..................................... 30,510 35,627 Prepaid land leases and other assets...................... 10,077 10,774 -------- -------- Total current assets.............................. 43,040 47,274 PREPAID LAND LEASES AND OTHER, net of current portion....... 4,593 8,378 PROPERTY AND EQUIPMENT, net (Note 4)........................ 448,345 460,066 DEFERRED LOAN FEES, net of accumulated amortization of $442 and $48 at December 31, 1995 and 1996, respectively (Note 5)........................................................ 8,725 2,762 DEFERRED TAX ASSET (Note 8)................................. 8,979 10,520 GOODWILL, net of accumulated amortization of $1,334 and $4,711 December 31, 1995 and 1996, respectively........... 130,164 131,678 -------- -------- $643,846 $660,678 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 5,930 $ 4,638 Accrued liabilities....................................... 25,652 32,667 Current portion of long-term debt (Note 5)................ 10,176 12,320 Current portion of capitalized lease obligations (Note 6)..................................................... 1,039 1,060 Accrued interest.......................................... 4,229 3,378 -------- -------- Total current liabilities......................... 47,026 54,063 LONG-TERM DEBT, net of current portion (Note 5)............. 394,336 399,403 CAPITALIZED LEASE OBLIGATIONS, net of current portion (Note 6)........................................................ 1,960 1,822 OTHER LIABILITIES........................................... 11,398 13,007 COMMITMENTS AND CONTINGENCIES (Notes 5, 9, 10 and 11) STOCKHOLDERS' EQUITY (Notes 2 and 7): Preferred stock; $.01 par value; 2,000 shares authorized............................................. -- -- Class A common stock; $.01 par value; 10,000 shares authorized, 1,916 and 1,917 shares issued and outstanding at December 31, 1995 and 1996, respectively........................................... 1 1 Additional paid-in capital................................ 191,659 213,297 Deferred compensation..................................... -- (15,240) Accumulated deficit....................................... (2,534) (5,675) -------- -------- Total stockholders' equity........................ 189,126 192,383 -------- -------- $643,846 $660,678 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 5 ELLER MEDIA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
PREDECESSORS ------------------------ EIC PMG JANUARY 1, JANUARY 1, AUGUST 18, 1995 1995 1995 TO TO TO YEAR ENDED AUGUST 17, AUGUST 17, DECEMBER 31, DECEMBER 31, 1995 1995 1995 1996 ---------- ---------- ------------ ------------ GROSS REVENUES.............................. $15,439 $141,778 $ 92,183 $270,413 AGENCY COMMISSIONS.......................... (1,720) (18,163) (11,505) (33,381) ------- -------- -------- -------- Net revenues...................... 13,719 123,615 80,678 237,032 OPERATING EXPENSES: Cost of sales............................. 5,796 50,456 32,754 91,615 Selling, general and administrative expense................................ 1,901 22,599 15,477 43,924 Corporate overhead........................ 2 8,881 3,900 10,204 Depreciation and amortization............. 2,148 22,769 14,468 40,269 Noncash compensation expense (Notes 7 and 11).................................... -- -- -- 6,300 ------- -------- -------- -------- Operating income.................. 3,872 18,910 14,079 44,720 INTEREST EXPENSE............................ 3,240 27,629 13,616 35,626 LOSS ON DISPOSITION OF FIXED ASSETS AND OTHER, net................................ 497 4,860 2,997 6,721 ------- -------- -------- -------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES..................................... 135 (13,579) (2,534) 2,373 (BENEFIT FROM) PROVISION FOR INCOME TAXES... -- (3,858) -- 977 ------- -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..... 135 (9,721) (2,534) 1,396 EXTRAORDINARY LOSS ON DEBT EXTINGUISHMENT, net of tax benefit of $3,153 (Note 5)..... -- -- -- (4,537) ------- -------- -------- -------- Net income (loss)................. $ 135 $ (9,721) $ (2,534) $ (3,141) ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 6 ELLER MEDIA CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARES)
CLASS A COMMON STOCK TOTAL -------------- PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS' SHARES STOCK CAPITAL COMPENSATION DEFICIT EQUITY ------ ----- -------- ------------ ----------- ------------- BALANCE, August 18, 1995 (inception)....................... -- $-- $ -- $ -- $ -- $ -- Issuance of common stock.......... 1,916 1 191,659 -- -- 191,660 Net loss.......................... -- -- -- -- (2,534) (2,534) ----- --- -------- -------- ------- -------- BALANCE, December 31, 1995.......... 1,916 1 191,659 -- (2,534) 189,126 Valuation of stock options........ -- -- 21,540 (21,540) -- -- Amortization of deferred compensation................... -- -- -- 6,300 -- 6,300 Issuance of common stock.......... 1 -- 98 -- -- 98 Net loss.......................... -- -- -- -- (3,141) (3,141) ----- --- -------- -------- ------- -------- BALANCE, December 31, 1996.......... 1,917 $ 1 $213,297 $(15,240) $(5,675) $192,383 ===== === ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 7 ELLER MEDIA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
PREDECESSORS ------------------------ EIC PMG JANUARY 1, JANUARY 1, AUGUST 18, 1995 1995 1995 TO TO TO YEAR ENDED AUGUST 17, AUGUST 17, DECEMBER 31, DECEMBER 31, 1995 1995 1995 1996 ---------- ---------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)..................... $ 135 $ (9,720) $ (2,534) $ (3,141) Adjustments to reconcile net income (loss) to net cash provided by operating activities -- Depreciation and amortization...... 2,728 22,768 14,467 40,267 Loss on disposition of fixed assets........................... -- 4,860 2,928 6,721 Loss on debt extinguishment........ -- -- -- 7,690 Noncash compensation expense....... -- -- -- 6,300 Changes in assets and liabilities, net of effect of acquisitions -- Accounts receivable, net........... (54) (7,089) 1,453 (5,117) Prepaid land leases and other assets........................... (210) 31,004 2,561 (11,050) Accounts payable, accrued and other liabilities...................... (129) (5,172) (1,681) 6,480 ------- -------- -------- --------- Net cash provided by operating activities.................. 2,470 36,651 17,194 48,150 ------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment... (409) (8,218) (5,662) (51,351) Proceeds from sale of fixed assets.... -- 9,711 531 139 Purchase of PMG and EIC, net of cash acquired (Note 2).................. -- -- (520,441) -- ------- -------- -------- --------- Net cash (used in) provided by investing activities........ (409) 1,493 (525,572) (51,212) ------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt and capitalized lease obligations...... (1,351) (37,757) (12,731) (425,290) Proceeds from issuance of common stock.............................. -- -- 163,160 98 Proceeds from issuance of debt........ -- -- 369,502 429,501 Payments for deferred loan fees....... -- -- (9,100) (2,825) ------- -------- -------- --------- Net cash (used in) provided by financing activities........ (1,351) (37,757) 510,831 1,484 ------- -------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 709 387 2,453 (1,580) CASH AND CASH EQUIVALENTS, beginning of period................................ 491 -- -- 2,453 ------- -------- -------- --------- CASH AND CASH EQUIVALENTS, end of period................................ $ 1,200 $ 387 $ 2,453 $ 873 ======= ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 8 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Eller Media Corporation (the Company) and its subsidiaries, Eller Investment Co. (EIC) and PMG Holdings, Inc. and subsidiaries (PMG) and Target Media Group LLP, a partnership in which the Company indirectly held an 83.127% interest as of December 31, 1995, and wholly owned as of December 31, 1996. All material intercompany transactions have been eliminated. The Company is engaged in the business of providing rental space on outdoor advertising structures and production services for outdoor advertisements in major metropolitan areas in the United States. EIC and PMG were acquired by the Company on August 18, 1995 (the Purchase Date). The Company's consolidated statement of operations and cash flows for the year ended December 31, 1995, include the operations of the Company since its inception (August 18, 1995) and the operations of EIC and PMG since the Purchase Date. Accordingly, the accompanying financial statements for the period January 1, 1995 to August 17, 1995, of EIC and PMG (the Predecessors), and the Company are not comparable in all material respects since those financial statements report results of operations and cash flows for separate entities. (2) FORMATION OF THE COMPANY: Acquisition of EIC, PMG and Initial Capitalization On August 18, 1995, the Company was formed to acquire EIC and PMG. The Company exchanged 284 shares of common stock for all outstanding stock of EIC in a transaction that was valued at approximately $28.5 million. Prior to its acquisition by the Company, EIC was an outdoor advertising firm with operations in Phoenix, Arizona, Atlanta, Georgia and El Paso, Texas with annual net revenues of approximately $22.0 million. The shares issued to the former owners of EIC represent approximately 15% of the issued and outstanding stock of the Company. Simultaneously, with the acquisition of EIC, the Company issued 1,632 shares of common stock (approximately 85% of the issued and outstanding stock of the Company) in exchange for cash totaling approximately $163.1 million. The acquisition of EIC was accounted for using the purchase method of accounting. The purchase price of approximately $28.5 million was allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. The cost in excess of fair values was approximately $32.4 million and is recorded as goodwill in the accompanying consolidated balance sheets. The Company, concurrent with its formation on August 18, 1995, executed a stock purchase agreement with General Electric Capital Corporation to purchase all of the stock of PMG for $519.2 million in cash. Prior to its acquisition by EMC, PMG was an outdoor advertising firm with operations in several major cities in the United States and annual revenues of approximately $177.0 million. This transaction was accounted for using the purchase method of accounting. The purchase price was allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. The cost in excess of fair values was approximately $107.9 million and is recorded as goodwill in the accompanying consolidated balance sheets. The Chase Manhattan Bank, N.A. (Chase), as an agent for a group of banks, provided the Company with $440.0 million in senior secured facilities comprised of a seven year $65.0 million revolving line of credit facility, a seven year $250.0 million term loan facility, and an eight-and-a-half year $125.0 million term loan facility to finance a portion of PMG, to refinance certain existing indebtedness, and to provide for general corporate purposes (see Note 5). 9 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pro Forma Results of Operations Both the formation of the Company and the EIC and PMG acquisitions (the Acquisitions) were effective as of August 18, 1995. The following unaudited pro forma information includes the combined results of operations of the Company and its predecessors for the year ended December 31, 1995, as adjusted for interest expense and depreciation and amortization expense resulting from the Acquisitions. This information is for informational purposes only and is not necessarily indicative of future operating results.
PRO FORMA JANUARY 1, 1995 TO DECEMBER 31, 1995 ------------ Net revenues............................ $218,012 ======== Operating income........................ $ 42,987 ======== Net loss................................ $ (1,909) ========
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash Equivalents The Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Fair Value of Short-Term Instruments The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate fair values due to the short-term maturities of these instruments. Revenue Recognition The Company provides outdoor advertising services under the terms of contracts covering periods up to three years, which are generally billed monthly. Revenues for outdoor advertising space rental are recognized ratably over the contract terms. Consistent with industry practice, the portion of December billings pertaining to January space sales has been recognized in operating income of December. Revenues from design, production and certain other services are recognized as the services are provided. All costs are recognized in the period in which the related services are provided. Prepaid Land Leases Prepaid land leases represent amounts paid for leases of land occupied by outdoor advertising structures. Prepaid land leases are amortized on a straight line basis over the term of the related lease period. 10 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Property and Equipment Property and equipment are recorded at cost. The Company expenses repairs and maintenance when incurred and capitalizes betterments and improvements which extend the useful life of property and equipment. Depreciation is computed on a straight-line basis over the following useful lives: Buildings................................................... 40 years Advertising displays and structures......................... 5-15 years Machinery and equipment..................................... 3-7 years Vehicles.................................................... 3-5 years Furniture, fixtures, computers and equipment................ 3-7 years
Goodwill Goodwill represents the excess of consideration paid over the fair market values of identifiable net assets acquired. Goodwill is amortized on a straight-line basis over 40 years. Goodwill and other long-lived assets are periodically evaluated utilizing undiscounted estimated future cash flows to determine if an impairment has occurred in accordance with the provisions of Statement of Financial Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. As of December 31, 1996, SFAS No. 121 did not have a material impact on the Company's financial position or results of operations. Supplemental Cash Flow Information Cash paid for interest for the period January 1, 1995 through August 17, 1995, was approximately $2.2 million and $0.2 million for EIC and PMG, respectively. In addition, capital lease obligations incurred by PMG during that period were approximately $0.7 million. Cash paid for interest for the period August 18, 1995 through December 31, 1995, and for the year ended December 31, 1996, was approximately $9.7 million and $35.0 million, respectively. In addition, capital lease obligations incurred by the Company during these periods totaled approximately $0.5 million and $2.8 million, respectively, for various equipment and automobiles. In connection with the acquisition of EIC, the Company issued 284 shares of stock in exchange for all of the outstanding stock of EIC, which was valued at approximately $28.5 million. The Company also obtained financing in connection with the acquisition of PMG, and refinanced approximately $44.6 million of existing debt, warrants and preferred stock with a portion of the proceeds. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles necessarily 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 reported period. Actual amounts may differ from these estimates. 11 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) PROPERTY AND EQUIPMENT: Property and equipment consist of the following at December 31 (dollars in thousands):
1995 1996 -------- -------- Advertising structures...................................... $412,110 $448,181 Land........................................................ 7,676 11,878 Buildings................................................... 16,916 17,184 Vehicles.................................................... 6,890 8,242 Machinery and equipment..................................... 4,429 4,734 Furniture and fixtures...................................... 6,189 10,824 Construction-in-process..................................... 6,846 7,679 -------- -------- 461,056 508,722 Less: accumulated depreciation.............................. (12,711) (48,656) -------- -------- $448,345 $460,066 ======== ========
Included in loss on disposition of fixed assets and other are losses from the disposition (takedowns) of certain advertising structures. Total losses on takedowns for the Company for the period August 18, 1995 through December 31, 1995 and for the year ended December 31, 1996, were $2.9 million and $6.2 million, respectively. In addition, total losses on takedowns for PMG for the period January 1, 1995 through August 17, 1995, were approximately $4.9 million. (5) LONG-TERM DEBT: In connection with the financing discussed in Note 2, on August 18, 1995, the Company entered into separate credit facilities, collectively the old credit facility (Old Credit Facility). This Old Credit Facility had A and B Tranche Notes with a group of banks for whom Chase acted as agent (Agent). The Tranche A Notes mature June 2002, with interest payable quarterly, at the Agent's prime rate plus 1.25% (9.75% at December 31, 1995), or at London Interbank Offered Rate (LIBOR) plus 2.50% (blended rate of 8.28% at December 31, 1995). The Tranche B Notes, mature in December 2003, with interest payable quarterly at the Lender's prime rate plus 2.00% (10.50% at December 31, 1995), or at LIBOR plus 3.25% (9.13% at December 31, 1995). Use of the prime or LIBOR based rates is at the Company's option, selected periodically, in advance. Borrowings may be used for general corporate purposes, including working capital requirements, acquisitions and refinancing existing indebtedness. The Old Credit Facility also had a revolving line of credit due June 2002, providing for up to $65.0 million in borrowings that may be used for general corporate purposes, including working capital requirements, acquisitions and refinancing existing indebtedness. Interest is payable quarterly at the Agent's prime rate plus 1.25% (9.75% at December 31, 1995), or at LIBOR plus 2.50% (blended rate of 8.28% at December 31, 1995). In November 1996, the Company refinanced the Old Credit Facility with a New Credit Facility (New Credit Facility). The New Credit Facility has new Tranche A (New Tranche A) and new Tranche B (New Tranche B) notes. The New Tranche A notes mature in September 2003, with interest payable quarterly, at the Agent's prime rate plus 0.625% (8.875% at December 31, 1996), or at LIBOR plus 1.875% (7.375% at December 31, 1996). The New Tranche B notes mature in December 2004, with interest payable quarterly, at the Agent's prime rate plus 1.5% (9.75% at December 31, 1996), or at LIBOR plus 2.75% (8.25% at December 31, 1996). Rates used and use of borrowings are similar to those under the A and B Tranches in the Old Credit Facility. 12 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The New Credit Facility also consists of a revolving line of credit, providing for up to $200.0 million in borrowings, interest payable quarterly at the Agent's prime rate plus 0.625% (8.875% at December 31, 1996), or at LIBOR plus 1.875% (blended rate of 7.50% at December 31, 1996). Available uses of the revolving line of credit are similar to those under the Old Credit Facility's revolving line of credit. As part of the Old Credit Facility and New Credit Facility, the Company may issue letters of credit to be used for various vendor contracts. As of December 31, 1995 and 1996, total letters of credit outstanding were approximately $11.7 million and $9.0 million, respectively. As a result of the above financings, the Company has entered into interest rate swap, interest rate collar and interest rate cap agreements (the Agreements) to reduce the impact of changes in interest rates on its floating rate long-term debt. The following is a summary of the Company's outstanding Agreements as of December 31:
1995 - --------------------------------------------------------------------------------------------------- COMPANY'S NOTIONAL VALUE INSTRUMENT EFFECTIVE RATE (DOLLARS IN THOUSANDS) ---------- -------------- ---------------------- Collar................................................... 7.33% - 10.48% $110,000 Collar................................................... 7.00% - 10.48% 50,000 Collar................................................... 7.73% - 10.48% 25,000 Callable swap............................................ 8.44% 100,000 Cap...................................................... 12.48% 8,775 Cap...................................................... 11.98% 11,000 -------- $304,775 ======== 1996 - --------------------------------------------------------------------------------------------------- Collar................................................... 6.80% - 9.95% $110,000 Collar................................................... 6.47% - 9.95% 50,000 Collar................................................... 7.20% - 9.95% 25,000 Callable swap............................................ 7.91% 100,000 Knock-out swap........................................... 7.78% 50,000 Knock-out swap........................................... 7.76% 25,000 Cap...................................................... 11.95% 6,525 Cap...................................................... 11.70% 10,000 -------- $376,525 ========
The Agreements effectively change the Company's interest rate exposure on a portion of its floating rate notes ($402.0 million and $408.5 million at December 31, 1995 and 1996, respectively) to a weighted average fixed rate ceiling of approximately 9.90% and 9.10% at December 31, 1995 and 1996, respectively, and mature through 2000. As a result of the Agreements and interest rate on debt not protected by such Agreements, the Company incurred interest cost at an average rate of approximately 8.80% and 8.25% for the years ended December 31, 1995 and 1996, respectively. The Company is exposed to credit loss in the event of nonperformance by other parties (various banks) on the Agreements. However, management believes that, based on high credit worthiness of these counterparties, nonperformance is unlikely. As the Company utilizes these Agreements for hedging purposes, amounts paid to obtain these Agreements, if any, are capitalized into prepaid land leases and other in the accompanying consolidated balance sheets and amortized over the life of the specific Agreement. The knock-out swaps have options which enable other parties to cancel such Agreements if the Company's effective interest rate exceeds 8.30% and 8.71% for the $25.0 million and the $50.0 million knock-out swaps, respectively, at December 31, 1996. The callable swap at December 31, 1996, has an option which 13 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) would enable another party to cancel the Agreement. The fair value of interest rate swaps, caps and collars (used for hedging purposes) are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The fair value to the Company of these instruments was approximately $1.0 million at December 31, 1996. The financings restrict the Company and its subsidiaries from, among other things (i) incurring additional indebtedness, (ii) creating liens, (iii) paying dividends (other than dividends paid to the Company by its subsidiaries), and (iv) permitting any part of the Company's business to be sold, leased or conveyed to an unrelated party. The financings also restrict the Company's ability to make capital expenditures and investments, and require that certain financial ratios be met. The Company has granted a security interest in substantially all of its assets to the Agent in connection with the financings. As part of the financing of the Old Credit Facility, the Company paid approximately $9.1 million in loan costs. These costs have been written off as of December 31, 1996 and have been recorded as an extraordinary loss. In connection with the financing of the New Credit Facility, the Company paid approximately $2.9 million in loan costs, which are being amortized on a straight-line basis over the period of the financing. Long-term debt consists of the following at December 31, (dollars in thousands):
1995 1996 -------- -------- Old Credit Facility's Tranche A term loan notes............. $250,000 $ -- Old Credit Facility's Tranche B term loan notes............. 125,000 -- Old Credit Facility's revolving line of credit.............. 27,000 -- New Credit Facility's Tranche A term loan notes............. -- 200,000 New Credit Facility's Tranche B term loan notes............. -- 150,000 New Credit Facility's revolving line of credit.............. -- 58,500 Various notes payable, bearing interest from 6.5% to 9%, maturing through July 2001; partially secured by certain assets of the Company..................................... 2,512 3,223 -------- -------- 404,512 411,723 Less: current maturities.................................... (10,176) (12,320) -------- -------- $394,336 $399,403 ======== ========
The carrying amount of the long-term debt is estimated to approximate fair value as the actual interest rates are consistent with rates estimated to be currently available for debt of similar terms and remaining maturities. Aggregate principal payments on long-term debt for the years ending December 31 are as follows (dollars in thousands): 1997........................................................ $ 12,320 1998........................................................ 22,714 1999........................................................ 33,154 2000........................................................ 74,925 2001........................................................ 56,610 Thereafter.................................................. 212,000 -------- $411,723 ========
(6) CAPITALIZED LEASE OBLIGATIONS: The Company leases certain equipment under capital leases. As such, the equipment has been capitalized and is being depreciated over the lease term or the estimated useful life of the equipment. 14 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under capitalized lease obligations for the years ending December 31 are as follows (dollars in thousands): 1997........................................................ $ 1,276 1998........................................................ 993 1999........................................................ 594 2000........................................................ 367 2001........................................................ 121 ------- Total minimum lease payments...................... 3,351 Less: amount representing interest (at rates ranging from 7.0% to 13.5%)............................................ (469) ------- Present value of minimum lease payments..................... 2,882 Less: current portion....................................... (1,060) ------- $ 1,822 =======
(7) STOCK OPTIONS: The Company has granted to members of their Board of Directors 4.5 shares of common stock at an exercise price of $0.1 million per share, which vest immediately upon grant. The Company has also granted to certain key employees nonqualified base options to purchase 121.098 and 127.928 at December 31, 1995 and 1996, respectively, shares of the Company's common stock at an exercise price of $0.1 million per share, which approximated fair value at the date of grant. These options are subject to various vesting provisions and certain accelerated vesting provisions in the event of the sale of the Company. The options expire five years from grant date. At the Company's inception, certain key employees were granted performance options (the Performance Options) to purchase 89.614 shares of common stock which also have an exercise price of $0.1 million per share and expire in 2002. The Performance Options, however, become exercisable only when certain performance conditions relating to an investor rate of return are met. During 1996, available evidence indicated that the performance criteria were likely to be met and the Company incurred approximately $5.9 million in noncash compensation expense related to the vested portion of the Performance Options pursuant to Accounting Principles Board No. 25 (APB No. 25), Accounting for Stock Issued to Employees. In addition, the Company determined that upon the sale of the Company, it would eliminate the performance criteria. In October 1996, the Company established the 1996 Equity Plan (the Equity Plan) to provide incentives for officers, employees and consultants of the Company through the granting of options and other awards. The Company reserved approximately 42 shares of the authorized common stock of the Company to be issued under the Equity Plan. As of December 31, 1996, no options or awards have been granted under the Equity Plan. The following pro forma disclosures of net income are made assuming the Company had accounted for the stock options pursuant to the provision of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation. The December 31, 1996 pro forma disclosure is adjusted to eliminate any noncash compensation related to the Performance Options recorded in the accompanying consolidated statement of operations pursuant to the provisions of APB No. 25 (dollars in thousands).
1995 1996 ------- ------- As Reported................................................. $(2,534) $(3,141) ======= ======= Pro Forma................................................... $(3,028) $ (323) ======= =======
15 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of each option is estimated on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions used for grants in 1995 and 1996: risk-free interest rates between 5.48% and 6.03% and expected lives of 3 to 5 years. The dividend yield and volatility factors assumed for determining fair values were zero. A summary of the status of the Company's stock options at December 31, 1995 and 1996, and changes during the years then ended is presented in the following table:
1995 1996 -------------------- -------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE -------- -------- -------- -------- Outstanding at inception (August 18, 1995) and January 1, 1996............. -- $ -- 215.212 $100,000 Granted............................... 215.212 100,000 6.830 100,000 Exercised............................. -- -- -- -- Canceled.............................. -- -- -- -- -------- -------- -------- -------- Outstanding at end of year.............. 215.212 $100,000 222.042 $100,000 ======== ======== ======== ======== Exercisable at end of year.............. 45.566 $100,000 75.242 $100,000 ======== ======== ======== ======== Weighted Average Fair Value per share of Options Granted....................... $ 25.771 $ 25.992 ======== ========
(8) INCOME TAXES: The Company computes it income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. Deferred income taxes are provided for differences between results of operations for financial reporting purposes and income tax purposes. The components of the provision for deferred income taxes for the period from August 18, 1995 to December 31, 1995, and for the year ended December 31, 1996, are (dollars in thousands):
1996 1995 ------- ---- Current Federal................................................... $ -- $ -- State..................................................... -- -- ------- ---- Total current provision........................... -- -- Deferred.................................................... -- 977 ------- ---- Total provision................................... $ -- $977 ======= ====
16 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of net deferred taxes at December 31, 1995 and 1996, were as follows (dollars in thousands):
1995 1996 ------- ------- Deferred tax asset Current: Net allowance for doubtful accounts.................... $ 956 $ 1,135 Other current accruals................................. 532 395 Long-term: Accrued property taxes................................. 1,025 900 Accrued worker's compensation and self insurance....... 3,787 4,739 Accrued acquisition reserves........................... 5,279 4,348 Net operating loss..................................... 2,803 6,326 Deferred compensation.................................. -- 2,583 Capital lease obligation............................... 765 386 Other accruals......................................... 3,244 3,493 ------- ------- Total deferred tax assets......................... 18,391 24,305 ------- ------- Deferred tax liabilities Current: Other current reserves................................. 28 48 Long-term: Depreciation........................................... 4,892 8,798 Other accruals......................................... 524 1,921 ------- ------- Total deferred tax liabilities.................... 5,444 10,767 ------- ------- Net deferred tax asset................................. 12,947 13,538 Valuation allowance.................................... 3,968 3,018 ------- ------- Adjusted net deferred tax asset........................ $ 8,979 $10,520 ======= =======
SFAS No. 109 requires a reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Some of the Company's net operating loss (NOL) carryovers are subject to Internal Revenue Code Section 382; accordingly, the utilization of the Company's net operating loss carryforwards are subject to annual limitations. Additionally, the net operating losses begin expiring in the year 2010 for federal income tax purposes. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences were as follows for the period from August 18, 1995 to December 31, 1995, and for the year ended December 31, 1996:
1995 1996 ---- ---- Federal statutory tax rate.................................. (34.00)% 34.00% Consolidated state taxes, net of federal benefit............ (6.00) 7.00 Valuation allowance......................................... 29.04 (40.03) Amortization of goodwill.................................... 10.51 55.38 Other permanent differences................................. 0.45 (15.18) ------- ------- Effective tax rate.......................................... --% 41.17% ======= =======
17 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) RETIREMENT PLAN: The Company sponsors a 401(k) plan that allows contributions up to 15% of compensation for eligible employees. Participation in the plan is available to salaried employees and to certain hourly employees. Employees covered by collective bargaining units and nonresident aliens are not eligible. The Company may make a match in a discretionary percentage (normally 15%) of the first 8% of compensation that a participant contributes. The Company may also make a discretionary annual contribution to be allocated to participant accounts based on their compensation, subject to certain IRS limitations. The Company made payments to the 401(k) plan in the sum of approximately $0.4 million for the period August 18, 1995 through December 31, 1995, and $0.3 million for the year ended December 31, 1996. (10) COMMITMENTS AND CONTINGENCIES: Legal Matters In the normal course of business, the Company is subject to certain administrative proceedings and litigation. In management's opinion, the outcome of such matters will not materially affect the financial position or results of operations of the Company. In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by federal and state laws mandating compensation for such loss and constitutional restraints. Operating Leases The Company leases its offices, paint shop facilities and the majority of the land occupied by its advertising structures under operating lease agreements. Rent expense under operating leases of approximately $17.9 million and $52.0 million was recorded for the period from August 18, 1995 through December 31, 1995, and for the year ended December 31, 1996, respectively. In addition, rent expense under operating leases for the period January 1, 1995 through August 17, 1995, of approximately $3.1 and $26.7 million were recorded for EIC and PMG, respectively. Future minimum lease payments under these building and billboard operating leases for the years ended December 31 are expected to be as follows (dollars in thousands): 1997........................................................ $ 29,597 1998........................................................ 23,452 1999........................................................ 19,938 2000........................................................ 15,602 2001........................................................ 12,549 -------- $101,138 ========
Insurance The Company utilizes various forms of insurance coverages for workers' compensation, medical, automobile and general liability. However, as part of its risk management program, the Company is effectively self-insured for a significant portion of these losses. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the fully-developed aggregate liability for claims incurred. These estimates utilize the Company's prior experience and actuarial assumptions provided by the Company's insurance carriers. The total estimated liability for these losses at December 31, 1995 and 1996, was $9.2 million and $12.1 million, respectively, and is included in accrued liabilities in the accompanying consolidated balance sheets. 18 ELLER MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (11) PHANTOM STOCK PLAN: The Company established a phantom stock plan (the Phantom Stock Plan), effective June 1, 1996, for certain key employees pursuant to which it authorized an aggregate of 150 units of phantom common stock equivalent to 14.378 shares of common stock. As of December 31, 1996, there were 90 units, equivalent to 8.627 shares of common stock, outstanding. The units vest at the end of a five year period after their grant date, subject to continued employment and achievement of certain financial performance criteria, and are payable in cash in an amount equal to the value at vesting of the number of shares of common stock equivalent to the number of units. During 1996, the Company incurred approximately $0.4 million of noncash compensation expense related to these options. (12) SUBSEQUENT EVENTS: In February 1997, the Company entered into a definitive agreement with Clear Channel Communications (Clear Channel), a publicly held entity, to purchase the Company for $1.15 billion. The transaction is structured as a purchase with the consideration to be paid including cash and stock; Clear Channel will pay approximately $750 million in cash and $400 million in stock for the Company. As a result of this purchase, the Company expects to incur approximately $18.0 million in noncash compensation expense during the first quarter 1997 related to the acceleration of certain vesting provisions of the Performance Options and the Phantom Stock Plan. In March 1997, a lawsuit was filed against the Company in the Superior Court of the State of California. The complaint alleges that the Company and its predecessor, PMG, breached contractual and other duties to the plaintiff. The complaint requests compensatory damages for approximately $50.0 million. The Company has not answered the complaint. A preliminary assessment by outside counsel indicates that the Company potentially has several defenses that would preclude a finding of liability and that the plaintiff's damage claim is comprised principally of alleged lost profits which are likely to be very difficult to recover. 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of PMG Holdings, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheet of PMG HOLDINGS, INC. AND SUBSIDIARIES as of December 31, 1994, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PMG Holdings, Inc. and subsidiaries as of December 31, 1994, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP April 27, 1995. Stamford, Connecticut 20 PMG HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1994 (DOLLARS IN THOUSANDS) ASSETS CURRENT ASSETS: Accounts receivable: Trade, net of allowance for doubtful accounts of $1,980................................................ $ 27,210 Other..................................................... 880 Prepaid expenses.......................................... 7,709 Other current assets...................................... 807 -------- Total current assets.............................. 36,606 -------- PROPERTY, PLANT AND EQUIPMENT: Advertising structures.................................... 396,544 Site and building leases.................................. 114,658 Furniture, fixtures and equipment......................... 15,893 Yard stores and work-in-process........................... 5,366 Land...................................................... 6,689 Buildings and improvements................................ 3,218 -------- 542,368 LESS: Accumulated depreciation.................................. 74,932 Reserve for structure takedown (Note 3)................... 24,453 -------- Net property, plant and equipment................. 442,983 DEFERRED TAX ASSET (Note 7)................................. 29,622 OTHER ASSETS................................................ 3,813 -------- $513,024 ======== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable.......................................... $ 5,664 Accrued expenses.......................................... 21,363 Other current liabilities................................. 494 Current portion of long-term debt (Note 4)................ 1,387 -------- Total current liabilities......................... 28,908 LONG-TERM DEBT (Note 4)..................................... 3,231 NOTE PAYABLE (Note 4)....................................... 557,422 GECC INTERCOMPANY ACCOUNT................................... (9,188) ACCRUED LIABILITIES......................................... 620 -------- Total liabilities................................. 580,993 COMMITMENTS AND CONTINGENCIES (Note 11) STOCKHOLDERS' DEFICIT (Note 1): Common stock.............................................. -- Preferred stock........................................... 2 Additional paid-in capital................................ 248 Accumulated deficit....................................... (68,219) -------- Total stockholders' deficit....................... (67,969) -------- $513,024 ========
The accompanying notes are an integral part of these consolidated financial statements. 21 PMG HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS) REVENUE: Gross revenue............................................. $203,065 Less commissions and continuity discounts................. 25,790 -------- Net revenue....................................... 177,275 OPERATING EXPENSES: Cost of sales............................................. 75,427 Selling, general and administrative expense............... 45,859 Depreciation and amortization............................. 33,733 -------- Operating income.................................. 22,256 -------- INTEREST EXPENSE............................................ 50,325 PROVISION FOR LOSS ON STRUCTURES (Note 3)................... 8,000 OTHER INCOME, net........................................... 7,064 -------- LOSS BEFORE PROVISION FOR INCOME TAXES...................... (29,005) INCOME TAX BENEFIT (Note 7)................................. 9,950 -------- Net loss.......................................... $(19,055) ========
The accompanying notes are an integral part of these consolidated financial statements. 22 PMG HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT YEAR ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS)
ADDITIONAL COMMON PREFERRED PAID-IN ACCUMULATED STOCK STOCK CAPITAL DEFICIT TOTAL ------ --------- ---------- ----------- -------- Balance at December 31, 1993.......... $ 8 $2 $340 $(49,063) $(48,713) Merger with New PMG Group, Inc........ (8) -- (92) (101) (201) Net loss.............................. -- -- -- (19,055) (19,055) --- -- ---- -------- -------- Balance at December 31, 1994.......... $-- $2 $248 $(68,219) $(67,969) === == ==== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 23 PMG HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(19,055) Adjustments to reconcile net loss to net cash provided by operating activities -- Depreciation and amortization.......................... 33,733 Provision for loss on structures....................... 8,000 Provision for doubtful accounts........................ 1,035 Gain on disposition of assets.......................... (2,264) Interest capitalized................................... 214 Changes in assets and liabilities -- Increase in net accounts receivable, trade............. (1,924) Decrease in other receivables.......................... 6,908 Increase in prepaid expenses........................... (1,885) Decrease in other assets............................... 3,146 Decrease in deferred tax assets........................ 8,497 Increase in accounts payable........................... 4,112 Decrease in accrued expenses........................... (5,135) Increase in other liabilities.......................... 382 -------- Net cash provided by operating activities......... 35,764 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment....... 12,783 Purchase of property, plant and equipment................. (10,124) Acquisition of outdoor entities........................... (11,449) -------- Net cash used in investing activities............. (8,790) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in GECC intercompany account................... 1,808 Net change in note payable to GECC........................ (27,212) Repayment of debt and capital leases...................... (1,369) Repurchase of common stock................................ (201) -------- Net cash used in financing activities............. (26,974) -------- Net decrease in cash........................................ -- Cash at beginning of year................................... -- -------- Cash at end of year......................................... $ -- ======== Supplemental disclosures of cash flow information: Cash paid during the year for interest to third parties... $ (99) ======== Cash paid during the year for interest to GECC on motor vehicle leases......................................... $ (238) ======== Cash received during the year for taxes from third parties................................................ $ 7,427 ========
The accompanying notes are an integral part of these consolidated financial statements. 24 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) ORGANIZATION AND DESCRIPTION OF BUSINESS: PMG Holdings, Inc. and subsidiaries (the "Company") is a wholly-owned subsidiary of General Electric Capital Corporation ("GECC"). The Company's primary operating subsidiary is Patrick Media Group, Inc. ("Group"). The Company entered into the PMG Agreement and Plan of Restructuring on March 28, 1991 (the "Restructuring Agreement") with GECC and other stock and noteholders. Pursuant to the Restructuring Agreement, GECC received 1 share of new Class C common stock of the Company (having supermajority voting power) and warrants to purchase (for a nominal exercise price) additional shares of Class C common stock representing 75% of the equity of the Company. The Company continued to be in default on its debt obligations to GECC under the Restructuring Agreement and on September 23, 1992, GECC began a series of recapitalizations whereby it first exercised its warrants and acquired a direct equity interest of approximately 79% in the Company. After exercising its warrants, GECC held all of the 1,616,001 issued shares of the Class C common stock and 107,733 shares of the Class B common stock of the Company. The remaining 323,200 shares of Class B common stock were held by various third party investors. Additionally, Group assumed the debt and other obligations owed to GECC by the Company, which obligations were then guaranteed by the Company, in a taxable exchange for the discharge of certain intercompany notes between Group and the Company. GECC then acquired 2,500 shares of preferred stock (par value $1.00) issued by Group for $250. The transaction was accounted for as a purchase as of September 30, 1992. Property, plant and equipment was recorded at its net fair market value of $520,896 based upon an independent appraisal. All other assets were stated at their carrying value. GECC increased its direct equity interest in the Company to 81% in January 1993. On September 28, 1994, the Company was again recapitalized in a non-taxable transaction by merging with New PMG Group, Inc., a wholly-owned subsidiary of GECC, pursuant to an Agreement and Plan of Merger dated September 28, 1994 (the "Merger Agreement"). Pursuant to the Merger Agreement: (i) each of the 430,933 outstanding shares of Class B common stock of the Company were converted into the right to receive $0.46 per share, and subsequently canceled and retired; (ii) all of the 100 outstanding shares of common stock issued by New PMG Group, Inc. held by GECC, were converted into 100 shares of common stock of the Company; and (iii) the issued and outstanding shares of Class C common stock of the Company, all of which were owned by GECC, were canceled and retired. The Company was the surviving entity in the merger. Also pursuant to the Merger Agreement, the capitalization of the Company was amended such that the total authorized capital of the Company at December 31, 1994 is 1,000 shares of common stock with par value of $0.01 (100 shares issued and held by GECC), and 1,000 shares of preferred stock with par value of $1.00 (all unissued). On March 1, 1995, the Company, Group and GECC entered into the Recapitalization Loan Amendment (the "Recapitalization") to further the recapitalization of the Company. Prior to the Recapitalization, Group's issued stock consisted of 1,000 shares of common stock (par value $1.00) and 2,500 shares of preferred stock (par value $1.00). Pursuant to the Recapitalization, the Company surrendered 991 shares of common stock in Group to Group which were subsequently canceled, and GECC contributed all of the 2,500 shares of preferred stock in Group together with approximately $190,000 of Group's outstanding debt obligations, to Group in exchange for 991 shares of common stock issued by Group in a non-taxable transaction. The 2,500 shares of preferred stock in Group were also canceled. The debt obligation of Group to GECC as of March 1, 1995 was approximately $375,000 after giving effect to the Recapitalization which continues to be in default. 25 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) As of December 31, 1994, the Company had issued outstanding warrants to purchase 1,280 shares of Class B common stock, all of which were held by one employee as discussed in note 11. On March 10, 1995, GECC purchased pursuant to a foreclosure sale, all of the outstanding warrants from the employee, at which time the warrants were returned to the Company and deemed canceled. Description of the Business The Company provides outdoor advertising displays primarily to advertisers in major metropolitan areas in the United States. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The accompanying consolidated financial statements of the Company include the accounts and results of operations of the Company and its wholly owned subsidiaries, and Target Media Group LLP, a partnership in which the Company indirectly holds a 83.127% interest. All significant intercompany transactions have been eliminated. Under the terms of the partnership agreement, all income will be allocated based upon ownership percentage while any losses will accrue only to PMG Target Media Holdings, Inc., a wholly owned subsidiary of the Company and the general partner of Target Media Group LLP. Revenue Consistent with industry practice, the portion of December billings pertaining to January space sales has been recognized in operating income of December. Deferred revenue is recorded for the fair value of assets received in non-monetary transactions. Revenue is recognized on a monthly basis over the showing period. Property, Plant and Equipment Property, plant and equipment is carried at allocated cost. As discussed in note 1, property, plant and equipment in place at September 30, 1992 was fair valued and a new cost basis was established. The fair value for site leases was computed by valuing the differential between the site lease rentals and the corresponding fair market rental over the estimated lease term including expected renewals. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets as follows: Buildings................................................... 40 years Shelters.................................................... 10 years Structure faces, transit displays........................... 5 years Advertising structures...................................... 16 years Leasehold improvements...................................... 5 years Furniture, fixtures, computers and equipment................ 5 years Software applications....................................... 5 years Trucks and autos............................................ 4 years
Site leases are amortized straight-line over their composite estimated remaining useful lives, generally 23 years. The capitalized excess of fair market value of building leases greater than future payments are amortized straight-line over 16 years. 26 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Losses on structures which existed at September 30, 1992 are charged against a reserve which was initially established at $26,000 in purchase accounting at September 30, 1992. $8,000 of additional reserves were provided in 1994. The Company allocates the excess of purchase price over the estimated fair value of net assets acquired to structure and site leases in acquisitions accounted for as a purchase. Taxes General Electric Company, the ultimate parent of GECC, files a consolidated U.S. federal income tax return which includes the Company and its subsidiaries. The provisions for estimated taxes payable/receivable include the effect of the Company and its subsidiaries on the consolidated return. Prepaid Expenses Prepaid expenses primarily represent site lease rentals which have been paid in advance. Rental payments are made according to the contractual terms of individual leases and are amortized to site lease rental expense over the payment period. Supplier Rebates Rebates and discounts from suppliers are recognized as a reduction of operating expenses in the period of utilization. (3) RESERVE FOR STRUCTURE TAKEDOWN: A summary of activity for the reserve for structure takedown is as follows: Balance at beginning of the year............................ $23,974 Reserves added during the year.............................. 8,000 Losses incurred during the year............................. (7,521) ------- Balance at end of year...................................... $24,453 =======
(4) DEBT: Debt at December 31, 1994, consists of the following: 8.5% note payable by Target Media Group LLP................. $ 1,663 6.0% promissory notes payable, due 1996..................... 701 Installment note payable, prime plus 1.5%, due 1996......... 218 Capitalized leases.......................................... 2,019 Other, due in 1995.......................................... 17 -------- Total............................................. 4,618 Less current term installments, including $622 for capitalized leases........................................ 1,387 -------- Long-term debt.............................................. $ 3,231 ======== Note payable to GECC........................................ $557,422 ========
The Company's note facility with GECC was established under the Revolving Credit, Term Loan and Deferred Interest Loan Agreement dated September 15, 1986. As discussed in note 1 the Company continues to be in default on its debt obligations to GECC. All amounts due to GECC were consolidated into the 27 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) outstanding note facility. The debt obligation is treated as if it were a demand note and is repaid based on the availability of the free cash flow of the Company. Interest on the note facility is paid quarterly in arrears in an amount equal to 1.50% plus the greater of (i) the highest prime or base rate of interest published by any of five major commercial banks, as defined, or (ii) the most recent published annual yield on 90-day commercial paper. Such rate shall be determined quarterly on the last day of each preceding quarter. The effective interest rate on the note facility for the year ended December 31, 1994, was 9.25%. On March 1, 1995, in connection with the recapitalization begun in 1992, described in note 1, GECC converted approximately $190,000 of the outstanding note facility to equity, with the remaining debt obligation being approximately $375,000 as of that date after giving effect to the Recapitalization. Under the terms of a note agreement between Target Media Group LLP and a lender, all repayments of principal are deferred until 2000. Payments for interest, at 8.50% of the outstanding loan balance and unpaid interest, are deferred up to an aggregate balance of $1,770, at which time interest on the balance above $1,770 must be paid. The repayment of the note is guaranteed by the minority partner. Interest payments deferred were $215 in 1994. The promissory notes were issued in connection with the acquisition of Blue Wallscapes, Inc. in April 1993. The notes are repayable in equal monthly installments, plus interest, through May 1996. The installment note was issued in connection with the acquisition of Mobile Outdoor Media in March 1993. The note is repayable in 36 equal monthly installments, plus interest through March 1996. Principal balances outstanding under the promissory and installment notes may be reduced by certain amounts upon the occurrence of specified events as defined in the note agreements. The aggregate maturities of term debt and capital leases, for the five years subsequent to December 31, 1994 are as follows:
TERM CAPITAL DEBT LEASES ------ ------- 1995........................................................ $ 765 $ 759 1996........................................................ 171 782 1997........................................................ -- 572 1998........................................................ -- 234 1999........................................................ -- 99 Thereafter.................................................. 1,663 -- ------ ------ Total............................................. $2,599 2,446 ====== Less amounts representing interest.......................... 427 ------ Present value of capital lease payments..................... $2,019 ======
(5) TRANSACTIONS WITH PARENT: GECC provides a note facility to fund working capital and other financing requirements. 28 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) The Company has made payments to (received payment from) GECC and its affiliates for the year ended December 31, 1994 as follows: Taxes....................................................... $(26,642) Interest.................................................... 50,103 Vehicle leases.............................................. 844 Corporate services.......................................... 560
Interest expense is recognized monthly and is included as a component of the outstanding note payable balance. Current income taxes recoverable are reflected as a component of the GECC intercompany account. Separate cash payments are not made for taxes or interest from GECC transactions. At December 31, 1994, the Company owed $12 to GECC for cumulative preferred dividends. At December 31, 1994, the Company owed $50 to GECC for the 107,733 shares of Class B common stock repurchased in 1994. (6) SALE OF BRANCH ASSETS: In October 1994, an agreement was reached to sell the Company's Rochester branch operations and assets, except for cash and accounts receivable, for $5,000 resulting in an approximate loss of $4,020. This loss was recognized in 1994 and included in other income. In February 1995, as a result of a Phase II environmental study conducted in conjunction with the aforementioned sale, it was determined that there is contamination resulting from previously removed underground tanks. If remediation is required by governmental authorities, the Company would be responsible for all remediation costs associated with this site. The appropriate governmental authorities have been informed with respect to the contamination but have not yet imposed remediation requirements on the Company. Management cannot predict with certainty the total cost of the cleanup if cleanup is required, however, estimates range from $50-$500. No accrual has been made as of December 31, 1994 for this required remediation. The Company will retain title to the associated land and building until the environmental issues are resolved, although the sale of the other assets and operations is proceeding. In connection with the Restructuring Agreement described in note 1, the Company received a note issued by Alabama Outdoor Advertising, Inc. ("AOA") relating to the sale of its Alabama branch. The note was assigned a fair value of $5,000 in connection with the purchase accounting described in note 1. AOA defaulted under the terms of the note in 1993. The Company foreclosed on the note, and disposed of the equity of AOA during 1994, resulting in proceeds of $12,250 to the Company, including a $1,146 note resulting in a gain of $7,002, subject to certain working capital adjustments. The aforementioned gain was included in other income in 1994. (7) INCOME TAXES: The Company has recorded an income tax benefit of $9,950 in 1994. This amount has been determined in accordance with the intercompany income tax sharing arrangement between the Company and GECC. Taxes receivable from parent, included as a component of the GECC intercompany amount, represents amounts owing from GECC relating to a portion of current tax benefits attributable to the Company under the income tax sharing arrangement. The Company has a net deferred tax asset of $29,622 at December 31, 1994. 29 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) The deferred tax asset arises primarily from Federal net operating losses and minimum tax credits including amounts carried forward from years prior to GECC exercising its warrant rights in September 1992. This asset is partially offset by deferred tax liabilities resulting from differences in book and tax depreciation which have arisen subsequent to September 1992. Management has concluded, based upon the expected implementation of certain tax planning strategies, that the net deferred tax asset is fully realizable. (8) NON-CASH INVESTING AND FINANCING ACTIVITIES: The Company purchased several businesses in 1994: Fair value of fixed assets acquired......................... $ 11,449 Net working capital acquired................................ 562 Cash paid for assets........................................ (12,011) -------- Notes assumed............................................... $ -- ========
Capital lease obligations of $238 were incurred in 1994 when the Company entered into leases, primarily for automobiles, with a GECC affiliated company. (9) RETIREMENT PLANS: The Company has two defined benefit plans covering substantially all union employees in its Cleveland, San Francisco, Chicago, Milwaukee and Dallas branches. The plans also allow for voluntary contributions by participants. Benefits provided by these plans are based primarily on years of service. Assets are invested in insurance deposit annuity contracts. The following table summarizes the defined benefit plans' funded status as of December 31, 1993, the latest date available: Actuarial present value of the vested accumulated benefit obligation................................................ $ 883 ====== Projected benefit obligation................................ $1,098 Fair value of plan assets................................... (947) ------ Projected benefit obligation in excess of plan assets....... 151 Unrecognized net loss....................................... (190) Unrecognized net transition obligation...................... (65) ------ Prepaid pension cost........................................ $ (104) ======
The net periodic pension cost for 1993 was $115. The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation and the expected long-term rate of return on assets was 7.50% in 1993. The actuarial valuations also include assumptions for salary increases. The Company's funding policy for the defined benefit plans is to fund the minimum contributions as required by law. The Company also sponsors a defined contribution (401k) plan that allows contributions of 1% to 15% of base compensation for eligible employees. Participation in this plan is available to salaried employees and to certain groups of hourly employees. Employees covered by collective bargaining units are not eligible. The Company matches the employer contribution, at its discretion, in amounts equal to approximately 10% of the employee's contribution up to 8% subject to certain regulatory wage base limits. The Company also contributes, at its discretion, an annual contribution based on the Company's year-end results up to a maximum Social Security integration level. Total costs of the plan to the Company for 1994 were $473. 30 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Pursuant to collective bargaining agreements covering certain employees, the Company made payments to, and charged to expense, one Company sponsored plan and 34 multi-employer pension and welfare plans in the sum of $1,922 in 1994. (10) MAJOR CUSTOMERS: A significant source of the Company's revenues is from the tobacco and distilled beverage industries which provided, respectively, 14% and 12% of total gross revenues in 1994. One tobacco company provided 8% of total gross revenues in 1994. (11) COMMITMENTS AND CONTINGENCIES: Lease Commitments The Company's leases for structure sites are generally cancelable on less than one year's notice and are excluded from the schedule below. Total site lease expense in 1994 was $33,858. Future minimum lease payments under noncancelable operating leases for facilities, transportation and other equipment as of December 31, 1994 are:
YEARS ENDING DECEMBER 31, ------------------------- 1995........................................................ $ 4,344 1996........................................................ 4,236 1997........................................................ 3,252 1998........................................................ 2,202 1999........................................................ 1,090 Subsequent.................................................. 4,525 ------- Total minimum lease payments................................ $19,649 =======
Total rental expense for noncancelable operating leases in 1994 was $5,339. The Company leases substantially all of its vehicles from a wholly-owned subsidiary of GECC. The lease terms are generally five years and require the annual payment of all insurance and maintenance expenses. The leases are capitalized and included as a component of furniture, fixtures and equipment. A summary of the leased vehicles follows: Capitalized leases.......................................... $3,238 Less accumulated depreciation............................... 1,282 ------ Net lease value............................................. $1,956 ======
Letters of Credit At December 31, 1994, the Company had outstanding irrevocable letters of credit in the aggregate face amount of $11,663. The majority of these letters of credit, $10,023, support the Company's casualty, liability and workers compensation self-insurance programs. The remaining letters of credit support payment and performance obligations. Performance under the letters of credit is guaranteed by GECC. Litigation The Company, together with GECC, are co-defendants in an action brought by an employee of the Company. The employee has alleged that the Company's actions in foreclosing upon warrants for common stock and consummating the Merger Agreement were a violation of the employee's employment contract and a warrant agreement between the Company and the employee. Management believes the employee's claims are without merit. 31 PMG HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact on the Company of loss of displays due to governmental action has been mitigated by federal and state laws mandating compensation for such loss and constitutional restraints. Although the Company cannot predict the outcome of existing litigation or the enactment of zoning and other regulatory provisions concerning outdoor advertising, the Company, to date, has incurred no significant losses from the removal of outdoor advertising structures resulting from litigation or governmental enactments without just compensation. The Company also has been named as a defendant in an employment discrimination suit by a former employee, claiming damages of up to $800. While the ultimate resolution of the above matters is uncertain, management believes the ultimate outcome will not have a material adverse effect on the financial position of the Company. 32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Eller Investment Company, Inc.: We have audited the accompanying combined balance sheet of ELLER INVESTMENT COMPANY, INC. (an Arizona corporation) as of December 31, 1994, and the related combined statements of operations, stockholders' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Eller Investment Company, Inc. as of December 31, 1994, and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP PHOENIX, ARIZONA, MARCH 9, 1995. 33 ELLER INVESTMENT COMPANY, INC. COMBINED BALANCE SHEET DECEMBER 31, 1994 ASSETS CURRENT ASSETS: Cash...................................................... $ 490,553 Accounts receivable, net of allowance for doubtful accounts of $72,000.................................... 2,638,430 Prepaid land leases and other assets...................... 741,442 ----------- Total current assets.............................. 3,870,425 PREPAID LAND LEASES, net of current portion................. 179,100 PROPERTY AND EQUIPMENT, net (Note 3)........................ 34,869,672 DEFERRED LOAN FEES, net of accumulated amortization of $181,691.................................................. 3,334,078 GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated amortization of $1,354,966 (Note 4)....................... 3,745,455 ----------- $45,998,730 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable.......................................... $ 510,794 Accrued liabilities....................................... 1,593,762 Current portion of advertising obligation................. 500,000 Notes payable to OSI (Note 6)............................. 1,088,218 Current portion of long-term debt (Note 7)................ 3,450,000 Current portion of capitalized lease obligations (Note 8)..................................................... 267,638 ----------- Total current liabilities......................... 7,410,412 ADVERTISING OBLIGATION, net of current portion.............. 551,600 LONG-TERM DEBT, net of current portion (Note 7)............. 35,550,000 CAPITALIZED LEASE OBLIGATIONS, net of current portion (Note 8)........................................................ 952,740 ----------- Total liabilities................................. 44,464,752 ----------- COMMITMENTS AND CONTINGENCIES (Note 12) SERIES A-1 PREFERRED STOCK (Note 9)......................... 1,700,000 ----------- SERIES B PREFERRED STOCK (Note 9)........................... 1,500,000 ----------- STOCKHOLDERS' DEFICIT (Note 10): Class B common stock...................................... 200 Accumulated deficit....................................... (2,895,122) Warrants outstanding...................................... 2,000,000 Class A common stock, held in treasury.................... (771,100) ----------- Total stockholders' deficit....................... (1,666,022) ----------- $45,998,730 ===========
The accompanying notes are an integral part of this combined balance sheet. 34 ELLER INVESTMENT COMPANY, INC. COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 1994 ------------ ADVERTISING REVENUES........................................ $12,942,911 AGENCY COMMISSIONS AND DISCOUNTS............................ (1,350,668) ----------- Net revenues...................................... 11,592,243 ----------- OPERATING EXPENSES, excluding depreciation and amortization: Cost of sales and production.............................. 5,256,136 Selling, general and administrative....................... 1,366,995 Depreciation and amortization............................. 1,713,407 ----------- Operating income.................................. 3,255,705 INTEREST EXPENSE AND FINANCE COST AMORTIZATION.............. 2,636,960 MANAGEMENT FEES AND OTHER EXPENSE........................... 204,825 ----------- Income before income taxes and extraordinary item............................................. 413,920 PROVISION FOR INCOME TAXES.................................. 80,420 ----------- Income before extraordinary item.................. 333,500 EXTRAORDINARY ITEM -- Loss on extinguishment of debt........ (2,172,997) ----------- Net loss.......................................... $(1,839,497) ===========
The accompanying notes are an integral part of these financial statements. 35 ELLER INVESTMENT COMPANY, INC. COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
CLASS B CLASS A CLASS A COMMON COMMON COMMON CLASS B SHARES STOCK SHARES TOTAL COMMON ISSUED AND ACCUMULATED WARRANTS HELD IN HELD IN STOCKHOLDERS' STOCK OUTSTANDING DEFICIT OUTSTANDING TREASURY TREASURY DEFICIT ------- ----------- ----------- ----------- ----------- -------- ------------- BALANCE AT DECEMBER 31, 1993................... $200 20,000 $ (458,750) $ -- $(1,100,000) 2,004 $(1,558,550) Dividends on preferred stock......... -- -- (267,975) -- -- -- (267,975) Retirement of treasury stock......... -- -- (328,900) -- 328,900 (599) -- Issuance of Class B common stock warrants as consideration for deferred loan fees................. -- -- -- 2,000,000 -- -- 2,000,000 Net loss............................. -- -- (1,839,497) -- -- -- (1,839,497) ---- ------ ----------- ---------- ----------- ------ ----------- BALANCE AT DECEMBER 31, 1994.................. $200 20,000 $(2,895,122) $2,000,000 $ (771,100) 1,405 $(1,666,022) ==== ====== =========== ========== =========== ====== ===========
The accompanying notes are an integral part of these combined financial statements. 36 ELLER INVESTMENT COMPANY, INC. COMBINED STATEMENT OF CASH FLOWS
DECEMBER 31, 1994 ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $ (1,839,497) Adjustments to reconcile net loss to net cash provided by operating activities -- Depreciation............................................ 1,171,507 Amortization of deferred loan fees...................... 492,639 Amortization of goodwill and other intangible assets.... 541,900 Extraordinary item -- loss on extinguishment of debt.... 2,172,997 Revenue recorded under Circle K advertising obligation............................................. (428,450) Changes in assets and liabilities, net of effect of acquisition -- Accounts receivable, net................................ (1,459,365) Prepaid land leases and other assets.................... (533,662) Deferred tax benefit.................................... 128,200 Accounts payable and accrued liabilities................ 701,146 ------------ Net cash provided by operating activities.......... 947,415 ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment....................... (276,363) Acquisition of property and equipment from OSI............ (22,335,588) ------------ Net cash used in investing activities.............. (22,611,951) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt................................ (8,347,000) Payment of fee to CIBC.................................... (3,000,000) Reimbursement from OSI for payments on long-term debt and fee to CIBC............................................. 6,752,563 Proceeds from long-term debt.............................. 27,355,000 Payment of deferred loan fees and acquisition costs....... (1,532,749) Proceeds from notes payable to OSI........................ 1,088,218 Principal payments on capitalized lease obligations....... (229,622) Payment of dividends...................................... (267,975) Redemption of preferred stock............................. (300,000) ------------ Net cash provided by financing activities.......... 21,518,435 ------------ NET DECREASE IN CASH........................................ (146,101) ------------ CASH, beginning of year..................................... 636,654 ------------ CASH, end of year........................................... $ 490,553 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest.................................... $ 2,163,215 ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Capitalized lease obligations incurred.................... $ 1,450,000 ============ Class B common stock warrants issued as consideration for deferred loan fees...................................... $ 2,000,000 ============ Retirement of 599 shares of Class A common stock held in treasury................................................ $ 328,900 ============
The accompanying notes are an integral part of these financial statements. 37 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (1) ORGANIZATION AND BASIS OF PRESENTATION: Organization and Basis of Presentation Eller Investment Company, Inc. and Eller Holdings, Inc. (collectively, the "Company") are both majority owned subsidiaries under the control of Loel Ranches, Inc. The accompanying 1994 financial statements include the combined accounts of Eller Investment Company, Inc. and Eller Holdings, Inc. Eller Investment Company, Inc. includes the consolidated accounts of its wholly owned subsidiaries, Eller Outdoor Advertising Company, Eller Outdoor of El Paso, Inc. and Eller Outdoor Advertising Company of Atlanta. In July 1994, Eller Holdings, Inc. ("Eller Holdings") was merged into Eller Investment Company, Inc. ("Eller Investment"). In conjunction with this merger, Eller Investment exchanged one share of its Class A and Class B common stock for every five shares of the same class stock of Eller Holdings. Eller Investment also exchanged one share of its Series A-1 and Series B preferred stock for every share of the same class stock of Eller Holdings. The non-class common stock of Eller Investment was retired. The accounts of Eller Holdings and Eller Investment have been combined in the accompanying statements of operations, stockholders' equity and cash flows as if the merger had taken place at December 31, 1993. The Company is engaged in the business of providing rental space on outdoor advertising structures and production services for outdoor advertisements in the metropolitan Phoenix, El Paso and Atlanta areas. Acquisition Effective December 31, 1994, Eller Outdoor of Atlanta, which was incorporated as a wholly owned subsidiary of Eller Investment during 1994, acquired the outdoor advertising structures and other property and equipment located in Atlanta, Georgia from Outdoor Systems, Inc. ("OSI"). In accordance with APB No. 16, Accounting for Business Combinations, this acquisition has been accounted for as a purchase. The aggregate cash consideration paid for these assets, including certain legal and other transaction costs, was approximately $22.3 million. Approximately $21.8 million of the acquisition cost has been allocated to advertising displays and structures and the remaining $585,000 has been allocated to other property and equipment that was acquired. In addition to the assets described in the preceding paragraph, the accounts receivable and prepaid land leases related to OSI's Atlanta operation were acquired. Accounts receivable of approximately $722,000 and prepaid land leases of approximately $365,000 were acquired in return for the Notes Payable to OSI described in Note 6. The following unaudited pro forma summary presents the combined results of operations as if the acquisition had occurred at the beginning of 1994, after giving effect to certain adjustments, including amortization of deferred loan fees and interest expense on the acquisition debt and depreciation expense on the acquired assets. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at that date or of results which may occur in the future.
(IN THOUSANDS) Net revenues................................................ $19,522 ======= Loss before extraordinary item.............................. $ (106) =======
During 1994, the Company experienced significant growth by means of the merger and acquisition discussed above. As a result, the Company has grown from total net assets of approximately $7.8 million at December 31, 1993 to $46.0 million at December 31, 1994. Prior to the July 1994 merger discussed above, the Company had a financing arrangement with Canadian Imperial Bank of Commerce ("CIBC"; see Note 7) under the terms of which the Company and OSI, a competing outdoor advertising company, were jointly liable for advances made to both parties to fund the 38 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) acquisition of certain assets of Gannett Outdoor Co. of Arizona ("Gannett") by each Company. Additionally, the Company was obligated to reimburse OSI for interest expense on other debt that OSI incurred to fund the acquisition. To afford the Company the ability to operate independently of OSI, the financing arrangement with CIBC and the obligation to OSI were terminated in July 1994, resulting in the loss on extinguishment of debt of $2.2 million recorded in the accompanying financial statements. The accumulated deficit of $2.9 million recorded as of December 31, 1994, and the net loss of $1.8 million recorded for the year then ended are largely the result of this transaction. A new financing agreement was entered into between CIBC and the Company subsequent to the termination of the initial agreement. (2) SIGNIFICANT ACCOUNTING POLICIES: Revenue Recognition The Company provides outdoor advertising services under the terms of contracts covering periods up to 36 months, which are generally billed monthly. Revenues for outdoor advertising space rental is recognized ratably over the contract term. Revenues from design, production and certain other services are recognized as the services are provided. All costs are recognized in the period in which the related services are provided. Prepaid Land Leases Prepaid land leases represents amounts paid for leases of land occupied by outdoor advertising structures prior to the period for which the amounts are due. Prepaid land leases are amortized on a straight-line basis over the term of the related lease period. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the following useful lives: Advertising displays and structures......................... 15 years Machinery and equipment..................................... 3 to 5 years Vehicles.................................................... 3 years Furniture and fixtures...................................... 3 years
Deferred Loan Fees Deferred loan fees are amortized over the terms of the related loans. Goodwill Goodwill represents the excess of consideration paid over the fair market values of identifiable net assets acquired. Goodwill is amortized on a straight-line basis over 40 years. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles necessarily 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 reported period. Actual amounts may differ from these estimates. 39 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (3) PROPERTY AND EQUIPMENT: Property and equipment consists of the following at December 31, 1994: Advertising structures...................................... $39,831,708 Land........................................................ 728,239 Building.................................................... 171,196 Vehicles.................................................... 576,000 Machinery and equipment..................................... 267,904 Furniture and fixtures...................................... 556,764 Construction-in-process..................................... 89,195 ----------- 42,221,006 Less: accumulated depreciation.............................. (7,351,334) ----------- $34,869,672 ===========
(4) GOODWILL AND OTHER INTANGIBLE ASSETS: Included in goodwill and other intangible assets is $3.4 million of unamortized goodwill, which represents the excess of consideration paid over the fair market value of identifiable net assets acquired. Also included in goodwill and other intangible assets is the unamortized cost of payments for certain covenants not to compete. The Company paid $399,965 in 1993 to the Series A-1 and Series B preferred stockholders for their agreement not to compete or invest in any outdoor advertising business in Texas for two years. In conjunction with the purchase of the Class A common stock in 1993 from The Circle K Corporation ("Circle K"), $400,000 of the purchase price was allocated to an agreement of Circle K not to compete with the Company in Texas for two years. These covenants are being amortized on a straight-line basis over their two year life. The unamortized balance at December 31, 1994, of $299,987 is included in goodwill and other intangible assets in the accompanying combined balance sheet. (5) CIRCLE K ADVERTISING OBLIGATION: In conjunction with the acquisition of the El Paso operation in 1993, all shares of the Company's Class A common stock were acquired from Circle K by the Company and held in treasury. Circle K, which was a major shareholder, also agreed not to compete with the Company in Texas for two years. As consideration for the stock and covenant not to compete, the Company agreed to provide $1.5 million of advertising services, at market value, to Circle K over a three year period. During 1994, the Company provided approximately $430,000 of advertising services, at market value, under the agreement, and the balance of advertising services yet to be provided as of December 31, 1994 was $1.1 million. The Class A common shares held in treasury are pledged as security to Circle K for performance under this advertising agreement, and are to be released and retired quarterly as advertising services are provided. During 1994, 599 shares were released and retired. 40 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (6) NOTES PAYABLE TO OSI: In conjunction with the acquisition described in Note 1, the Company entered into the following note payable agreements with OSI: Note payable issued in conjunction with acquisition of prepaid land leases, unsecured, interest at 7%, principal and interest due August 31, 1995.......................... $ 365,803 Note payable issued in conjunction with acquisition of accounts receivable, unsecured, interest at 7%, principal and interest due August 31, 1995. In April 1995, Eller may return any uncollected receivables to OSI for full credit against the note payable.................................. 722,415 ---------- $1,088,218 ==========
(7) LONG-TERM DEBT: At December 31, 1993, $13.2 million was outstanding under a credit agreement with CIBC, the proceeds from which the Company used to purchase the assets of Gannett in 1992. Under the terms of the agreement, the Company was obligated to pay all outstanding principal and interest on December 31, 1995. An additional fee of $3.0 million was also due on that date, which was being accrued on a straight-line basis over the term of the contract. The Company had related agreements with OSI whereby OSI was obligated to repay a portion of the principal and interest and a portion of the additional fee. Additionally, the Company was obligated to reimburse OSI for interest expense that OSI incurred on debt related to the acquisition of Gannett. In July 1994, Eller obtained a new credit agreement with CIBC and the credit agreement with CIBC described above was terminated. The unaccrued portion of the additional $3.0 million fee, unamortized deferred loan fees from the previous credit agreement and the settlement with OSI related to the obligation described above resulted in the loss on extinguishment of debt of $2.2 million recorded in the accompanying financial statements. In conjunction with the acquisition of assets in Atlanta from OSI in December 1994, the existing credit agreement with CIBC was amended. The amended credit agreement provides the Company with up to $40.0 million, of which $39.0 million was outstanding at December 31, 1994. The agreement provides for a floating interest rate based on the Company's leverage ratio (ratio of debt to operating cash flow, as defined). As draws on the credit agreement are made, the Company elects the rate of interest to be based on either the banks' base rate or the LIBOR rate at the time of the draw. The rate of interest varies from 2.50 to 3.25 percent over the banks' base rate or from 3.75 to 4.50 percent over LIBOR, depending on the leverage ratio for the most recently completed fiscal quarter. At December 31, 1994, all draws outstanding were at LIBOR + 4.50 percent, with $20.0 million carrying an interest rate of 10.40 percent and $19.0 million carrying an interest rate of 10.60 percent. The credit agreement has an excess cash flow recapture provision whereby the $40.0 million commitment is reduced by 50-65 percent of excess cash flow, as defined, at the end of each fiscal year. The credit agreement also has an annual commitment fee of 0.5 percent of the unused portion of the commitment. All obligations under the credit agreement are collateralized by all tangible and intangible assets of the Company and a pledge of 100 percent of the stock of the Company, Loel Ranches, Inc. (Loel) and the parent company of Loel. The majority stockholder has guaranteed up to $4.5 million of the amounts outstanding under the credit agreement. Under the credit agreement, the Company is required to comply with certain financial covenants, including a maximum leverage ratio, minimum cash flow to debt service and fixed charge coverage ratios. Compliance with these covenants is not required until fiscal 1995. There are also certain limitations on indebtedness, dividends, management, mergers, capital expenditures and certain other transactions. 41 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The warrants discussed in Note 10 were issued to CIBC in conjunction with the funds provided by CIBC during 1994. As discussed in Note 10, the estimated value of the warrants of $2.0 million are included in the deferred loan fees balance of $3.5 million in the accompanying financial statements, which are being amortized over the six-year life of the credit agreement. Maturities of principal under the credit agreement for the years ended December 31 are as follows: 1995........................................................ $ 3,450,000 1996........................................................ 4,900,000 1997........................................................ 5,810,000 1998........................................................ 6,900,000 1999........................................................ 8,800,000 2000........................................................ 9,140,000 ----------- 39,000,000 Less: current portion....................................... 3,450,000 ----------- $35,550,000 ===========
(8) CAPITALIZED LEASE OBLIGATION: On February 1, 1994, the Company acquired certain advertising structures through a capital lease agreement. In accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, the acquired advertising structures have been recorded at the present value of the future minimum lease payments and are being depreciated over their estimated useful life of 15 years. The lease agreement requires monthly payments of $28,711 through January 1999, after which time the Company will own the assets. The Company can exercise its option to acquire the assets at any time prior to January 1999 through payment of the remaining lease obligation, and can terminate the agreement after June 1, 1997. (9) PREFERRED STOCK: At December 31, 1994, there were 20,000 and 15,000 shares authorized of $.01 par value Series A-1 and Series B preferred stock, respectively, and 17,000 shares of Series A-1 and 14,997 shares of Series B preferred stock issued and outstanding. Both classes of preferred stock have a liquidation preference equal to their redemption value ($100 per share), are entitled to cumulative dividends of 8 percent on the redemption value, are non-voting, and are non-convertible. Scheduled redemptions of Series A-1 preferred stock for the years ended December 31 are as follows: 1995........................................................ $ 300,000 1996........................................................ 400,000 1997........................................................ 500,000 1998........................................................ 500,000 ---------- $1,700,000 ==========
The Series B preferred stock is scheduled to be redeemed prior to December 1998. The redemption of both the Series A-1 and Series B preferred stock is subject to certain restrictions established in the CIBC credit agreement. (10) STOCKHOLDERS' DEFICIT The Company's $0.01 par value nonvoting Class A common stock has a liquidation preference of $500 per share. There were 2,000 shares authorized at December 31, 1994. 42 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) There were 25,000 shares of the Company's $0.01 par value Class B common stock authorized at December 31, 1994. Two warrants for the purchase of 2,223 aggregate shares of the Company's Class B common stock were issued to CIBC in conjunction with the funds provided by CIBC during 1994. The warrants enable the holder to purchase the stock for $0.01 per share and expire in July through December of 2004. The warrants include a put option whereby the holder may require the Company, at any time, to purchase the warrants for a put price, as defined. The warrants also contain a provision whereby the holder may require the Company to issue a public offering of its stock, including the stock represented by the warrants. In the case such a request is made by the warrant holder, the Company may elect to call the warrants at 105 percent of the put price. The current put price for both warrants of $2.0 million has been recorded as deferred loan fees in the accompanying combined financial statements. (11) INCOME TAXES: The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. SFAS 109 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Should income tax rates legislatively change, the deferred tax assets and liabilities will be adjusted in the period of change. The Company has a net deferred tax asset, which arises primarily from net operating loss carryforwards for federal income tax purposes. The Company has net operating loss carryforwards of approximately $3.5 million, the majority of which expire in 2009. SFAS 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recorded a valuation allowance equal to its net deferred tax asset. Accordingly, the net losses recorded in the accompanying statements of operations have not been reduced by any income tax benefit. The provision for income taxes of $80,420 recorded in the accompanying financial statements results from the elimination of the net deferred tax asset recorded on the books of Eller Holdings prior to the merger discussed in Note 1. (12) COMMITMENTS AND CONTINGENCIES: The Company has a qualified salary-reduction plan ("Plan") under Section 401(k) of the Internal Revenue Code covering certain employees of the Company upon their attainment of age 21 and completion of one year of service. The participants may elect to have up to 12 percent of their compensation contributed to the Plan. The employee's contribution, up to 3 percent of compensation, is matched by the Company. During 1994, the Company contributions to the Plan totaled approximately $16,000. The Company has entered into management agreements with the parent company of Loel. For the year ended December 31, 1994, $200,000 in management fee expense has been recorded. Beginning in 1995, the management agreement calls for annual management fees of $300,000. In the normal course of business, the Company is subject to certain administrative proceedings and litigation. In management's opinion, the outcome of such matters will not materially affect the financial position of the Company. The Company is also subject, from time to time, to audit by various taxing authorities reviewing the Company's income, property, sales, use and payroll taxes. Management believes that any findings from such audits will not have a material impact on its financial statements. 43 ELLER INVESTMENT COMPANY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Eller Outdoor of Atlanta, Inc. has entered into a letter of intent agreement with a key employee. Under the terms of the agreement, the Company has committed to the payment in 1995 of $350,000 in bonuses, in return for a three-year employment commitment from the employee. The Company leases its offices, paint shop facilities and the majority of the land occupied by its advertising structures under noncancelable operating lease agreements. Rent expense under operating leases of approximately $2.3 million was recorded for the year ended December 31, 1994. Future minimum lease payments under these noncancelable operating leases for the years ended December 31 are as follows: 1995........................................................ $ 2,511,987 1996........................................................ 2,394,771 1997........................................................ 2,128,228 1998........................................................ 1,730,444 1999........................................................ 1,061,425 Thereafter.................................................. 1,981,400 ----------- $11,808,255 ===========
44 Item 7.(b) Unaudited Pro Forma Financial Information The following pro forma financial information gives effect to the acquisition of Eller Media by the Company. The unaudited pro forma condensed consolidated statement of operations is based on the historical results of operations of Eller Media and the Company, giving effect to the acquisition under the purchase method of accounting as if the acquisition had been consummated on January 1, 1996. The unaudited pro forma condensed consolidated balance sheet is based on historical financial positions of Eller Media and the Company and gives effect to the acquisition under the purchase method of accounting as if the acquisition had been consummated on December 31, 1996. The adjustments in the accompanying notes to the pro forma condensed consolidated statements of operations and balance sheet are based on a preliminary purchase price allocation. This pro forma financial information may not be indicative of the results of operations or financial position that actually would have occurred if the acquisition had been consummated on the dates indicated, or those results of operations or financial position which may be obtained in the future. 45 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES AND ELLER MEDIA CORPORATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Year ended December 31, 1996 - --------------------------------------------------------------------------------
The Company/ The Company Eller Media Pro Forma Eller Media Historical(1) Historical(2) Adj.(3) Pro Forma -------------- -------------- -------------- -------------- Net revenue $ 351,739 $ 237,032 $ -- $ 588,771 Operating expenses 198,332 141,839 -- 340,171 Depreciation and amortization 45,790 40,269 23,895 109,954 Corporate general and admin. expenses 8,527 10,204 -- 18,731 -------------- -------------- -------------- -------------- Operating income 99,090 44,720 (23,895) 119,915 Interest expense 30,080 35,626 10,071 75,777 Other income(expense) 2,230 (6,721) -- (4,491) -------------- -------------- -------------- -------------- Income(loss) before income taxes 71,240 2,373 (33,966) 39,647 Income tax (expense) benefit (28,386) (977) 5,259 (24,104) -------------- -------------- -------------- -------------- Income before equity in net income (loss) of, and other income from, nonconsolidated affiliates 42,854 1,396 (28,707) 15,543 Equity in net income (loss) of , and other income from, nonconsol- idated affiliates (5,158) -- -- (5,158) -------------- -------------- -------------- -------------- Income (loss) from continuing operations $ 37,696 $ 1,396 $ (28,707) $ 10,385 ============== ============== ============== ============== Income from continuing operations per common share $ .50 $ .13 ============== ============== Weighted average common and common share equivalents outstanding 74,649 7,835 82,484 ============== ============== ==============
46 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES AND ELLER MEDIA CORPORATION YEAR ENDED DECEMBER 31, 1996 (1) Historical Condensed Consolidated Statement of Operations for the Company. (2) Historical Condensed Consolidated Statement of Operations for Eller Media. (3) Represents the pro forma effect of the acquisition of Eller Media assuming it was acquired January 1, 1996.
Increase (Decrease) Income (in Thousands) -------------- (a) Increase in amortization of goodwill of $20,818 resulting from the additional goodwill created by the acquisition and a decrease in amortizable life from 40 years (Eller Media) to 25 years (the Company) and additional depreciation of $3,077 related to the adjustment of fixed assets to fair value. $(23,895) (b) Increase in interest expense due to a higher amount of average debt outstanding which was partially offset by a lower average interest rate (6.2% average rate for the Company and 8.8% for Eller Media in 1996). $(10,071) (c) Tax effect of the above adjustments to depreciation and interest expense at the Company's effective tax rate of 40%. $ 5,259 (d) Increase in weighted average common and common share equivalents outstanding resulting from the issuance of shares of the Company's Common Stock and the issuance of options to purchase shares of the Company's Common Stock to shareholders of Eller Media to effect the acquisition. 7,835
The Company granted to the former Eller Media stockholders certain demand and piggyback registration rights relating to the shares of Common Stock received by them. The holders of the approximately 7% of the outstanding capital stock of Eller Media, not purchased by the Company, have the right to put such stock to the Company for 1,081,469 shares of the Company's Common Stock until April 10, 2002. From and after April 10, 2004, the Company will have the right to call in this minority interest stake in Eller Media for 1,081,469 shares of its Common Stock. If such right would have been exercised on April 10, 1997, the Company would have issued additional shares of its Common Stock with an aggregate value of $48.5 million (assuming a price of $44.8625 per share) and recorded a corresponding increase in goodwill. The annual amortization of goodwill associated therewith would decrease the Company's net income by $1.9 million or $.02 per share; however such would have no effect on after tax cash flow. A $1 per share change in the market price of the Company's Common Stock would cause a $1.1 million change in goodwill. The proforma statement of operations excludes the effect of nonrecurring charges related to the acquisition. 47 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES AND ELLER MEDIA CORPORATION (UNAUDITED) (IN THOUSANDS) December 31, 1996
The Company/ The Company Pro Forma Eller Media Historical(4) Eller Media(5) Adjs.(6) Pro Forma ---------------- -------------- -------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 16,701 $ 873 -- $ 17,574 Accounts receivable, net 79,183 35,627 -- 114,810 Film rights - current 14,188 -- -- 14,188 Other current assets 3,092 10,774 -- 13,866 -------------- -------------- -------------- -------------- Total Current Assets 113,164 47,274 -- 160,438 Property, Plant & equipment, net 147,838 460,066 46,156 654,060 Intangible assets: Network affiliation agreements 33,727 -- -- 33,727 Licenses and goodwill 764,233 136,389 471,913 1,372,535 Covenants not-to-compete 22,992 -- -- 22,992 Other intangible assets 8,712 2,810 (2,810) 8,712 -------------- -------------- -------------- -------------- 829,664 139,199 469,103 1,437,966 Less accumulated amortization (78,646) (4,759) 4,759 (78,646) -------------- -------------- -------------- -------------- 751,018 134,440 473,862 1,359,320 Other assets: Notes receivable 52,750 -- -- 52,750 Film rights - noncurrent, net of accumulated amort 13,437 -- -- 13,437 Equity investments in, and advances to, nonconsolidated affiliates 230,660 -- -- 230,660 Other assets 10,808 8,378 -- 19,186 Other investments 5,037 -- -- 5,037 -------------- -------------- -------------- -------------- TOTAL ASSETS $ 1,324,712 $ 650,158 $ 520,018 $ 2,494,888 ============== ============== ============== ============== LIABILITIES Current liabilities: Accounts payable $ 9,865 $ 4,638 -- 14,503 Accrued interest 6,272 3,378 -- 9,650 Accrued expenses 8,236 33,727 6,633 48,596 Accrued income and other taxes -- -- -- -- Deferred income 1,300 -- -- 1,300 Current portion of long-term debt 1,479 12,320 (12,320) 1,479 Current portion of film rights liability 16,310 -- -- 16,310 -------------- -------------- -------------- -------------- Total Current Liabilities 43,462 54,063 (5,687) 91,838 Long-Term Debt 725,132 399,403 337,649 1,462,184 Film Rights Liability 13,797 -- -- 13,797 Deferred Income Taxes 11,283 (10,520) 18,462 19,225 Other liabilities 11,250 14,829 -- 26,079 Minority Interest 6,357 -- 13,289 19,646 Shareholders' equity: Preferred Stock -- -- -- Common Stock 7,699 1 663 8,363 Additional paid-in capital 398,622 213,297 134,727 746,646 Retained earnings/ (accumulated deficit) 106,055 (5,675) 5,675 106,055 Other 1,226 (15,240) 15,240 1,226 Cost of shares held in treasury (171) -- -- (171) -------------- -------------- -------------- -------------- Total Shareholders' Equity 513,431 192,383 156,305 862,119 -------------- -------------- -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,324,712 $ 650,158 $ 520,018 $ 2,494,888 ============== ============== ============== ==============
48 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES AND ELLER MEDIA CORPORATION DECEMBER 31, 1996 (4) Historical Condensed Consolidated Balance Sheet as of December 31, 1996 for the Company. (5) Historical Condensed Consolidated Balance Sheet as of December 31, 1996 for Eller Media. (6) On April 10, 1997, the Company purchased approximately 92.7% of the outstanding shares of common stock of Eller Media in exchange for approximately $325 million cash, $298 million in Common Stock of the Company and issued options to purchase 1,468,182 shares of the Company's Common Stock (estimated fair value of $51 million). In addition, the Company refinanced approximately $417 million in long-term debt related to the Eller Media Credit Facility (approximately $408 million at December 31, 1996). Adjustments to reflect the application of the purchase method of accounting and the issuance of the related consideration (as if the acquisition had been consummated December 31, 1996) are as follows:
Increase (Decrease) Property, plant, equipment, net $ 46,156 Licenses & goodwill 471,913 Deferred loan fees (2,810) Accumulated Amortization (4,759) Accrued expenses 6,633 Current portion of long-term debt (12,320) Long-term debt 337,649 Deferred tax liability 18,462 Minority interest 13,289 Common stock, par value 663 Additional paid-in capital 134,727 Retained earnings (accumulated deficit) 5,675 Deferred compensation 15,240
Item 7.(c) -- Exhibits See index to exhibits following "Signatures." 49 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Clear Channel Communications, Inc. Date April 17, 1997 By /s/L. LOWRY MAYS L. Lowry Mays, Chairman/ Chief Executive Officer Date April 17, 1997 By /s/HERBERT W. HILL, JR. Herbert W. Hill, Jr. Senior Vice President/ Chief Accounting Officer 50 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- (a) 3.1 -- Articles of Incorporation, as amended, of Registrant (m) 3.1.1 -- Articles of Amendment to the Articles of Incorporation of Clear Channel Communications, Inc. (a) 3.2 -- Amended and Restated Bylaws of Registrant (a) 4 -- Buy-Sell Agreement among Clear Channel Communications, Inc., L. Lowry Mays, B. J. McCombs, John M. Schaefer and John W. Barger dated May 31, 1977. (a) 10.1 -- Incentive Stock Option Plan of Clear Channel Communications, Inc. as of January 1, 1984. (b) 10.2 -- Television Asset Purchase Agreement dated January 27, 1992, by and between Chase Broadcasting of Memphis, Inc. and Clear Channel Television, Inc. (b) 10.3 -- Radio Asset Purchase Agreement dated January 31, 1992, by and between Noble Broadcasting of Connecticut, Inc. and Clear Channel Radio, Inc. (b) 10.4 -- Radio Asset Purchase Agreement dated April 19, 1992, by and between Edens Broadcasting, Inc. and Clear Channel Radio, Inc. (k) 10.33 -- Radio Asset Purchase Agreement dated January 31, 1993, by and between KHFI Venture, LTD. and Clear Channel Radio, Inc. (l) 10.34 -- Radio Asset Purchase Agreement dated December 28, 1992, by and between Westinghouse Broadcasting Company, Inc. and Clear Channel Radio, Inc. (c) 10.5 -- Radio Asset Purchase Agreement dated December 23, 1992, by and between Inter-Urban Broadcasting of New Orleans Partnership and Snowden Broadcasting, Inc. (d) 10.6 -- Television Asset Purchase Agreement dated August 19, 1993, by and between Television Marketing Group of Memphis, Inc. and Clear Channel Television, Inc. (e) 10.7 -- Radio Asset Purchase Agreement April 1, 1993, by and Capital Broadcasting of Virginia, Inc. and Clear Channel Radio, Inc. (f) 10.8 -- Television Asset Purchase Agreement dated August 31, 1993, by and between Nationwide Communications, Inc. and Clear Channel Television, Inc. (g) 10.9 -- Radio Asset Merger Agreement dated March 22, 1994, by and between Metroplex Communications, Inc. and Clear Channel Radio, Inc. 51 (h) 10.10 -- Radio Partnership Interest Purchase Agreement dated April 5, 1994, by and between Cook Inlet Communications, Inc. and WCC Associates and Clear Channel Radio, Inc. (i) 10.11 -- Television Asset Purchase Agreement dated September 12,1994, by and between Heritage Broadcasting Company of New York, Inc. and Clear Channel Television, Inc. and Clear Channel Television Licenses, Inc. (j) 10.12 -- Radio Asset Purchase Agreement dated November 17,1994, by and between Noble Broadcast of Houston, Inc. and Clear Channel Radio, Inc. (k) 10.13 -- Australian Radio Network Shareholders Agreement dated February, 1995, by and between APN Broadcasting Investments Pty Ltd, Australian Provincial Newspapers Holdings Limited, APN Broadcasting Pty Ltd and Clear Channel Radio, Inc. and Clear Channel Communications, Inc. (l) 10.14 -- $600,000,000 Amended and Restated Credit Agreement Among Clear Channel Communications, Inc., Certain Lenders, and NationsBank of Texas, N.A., as Administrative Lender, dated October 19, 1995. (m) 10.15 -- Clear Channel Communications, Inc. 1994 Incentive Stock Option Plan. (m) 10.16 -- Clear Channel Communications, Inc. 1994 Nonqualified Stock Option Plan. (m) 10.17 -- Clear Channel Communications, Inc. Directors' Nonqualified Stock Option Plan. (m) 10.18 -- Option Agreement for Officer 10.19 -- Employment Agreement between Clear Channel Communications, Inc. and L. Lowry Mays (o) 10.20 -- Stock Purchase Agreement dated as of March 4, 1996 by and among US Radio Stations, L.P., Blackstone USR Capital Partners L.P., Blackstone USR Offshore Capital Partners L.P., Blackstone Family Investment Partnership II L.P., BCP Radio L.P., BCP Offshore Radio L.P., US Radio Inc., Clear Channel Communications of Memphis, Inc. and Clear Channel Communications, Inc. (p) 10.21 -- Asset Purchase Agreement, dated as of May 9, 1996, by and among REP New England G.P., REP Southeast G.P., REP Ft. Myers G.P., REP Rhode Island G.P., REP Florida G.P., REP WHYN G.P., REP WWBB G.P., S.E. Licensee G.P., REP WCKT G.P. and RI Licensee G.P., Radio Station Management, Inc., Clear Channel Radio, Inc., and Clear Channel Radio Licenses, Inc. (q) 10.22 -- Tender Offer between Clear Channel Radio, Inc. and Heftel Broadcasting Corporation dated June 1, 1996 (q) 10.23 -- Stock Purchase Agreement between Clear Channel Radio, Inc. and Certain Shareholders of Heftel Broadcasting Corporation dated June 1, 1996. (r) 10.24 -- Agreement and Plan of Merger Between Clear Channel Communications, Inc. ("PARENT") and Tichenor Media System, Inc. ("TICHENOR") dated July 9, 1996 (s) 10.25 -- Second Amended and Restated Credit Agreement among Clear Channel Communications, Inc., certain Lenders and NationsBank, N.A., as Administrative Lender (dated August 1, 1996). (n) 10.26 -- Stock Purchase Agreement By and Among Clear Channel Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation Dated February 25, 1997. 10.27 -- Amendment to Stock Purchase Agreement By and Among Clear Channel Communications, Inc., Eller Media Corporation and the Stockholders of Eller Media Corporation Dated April 10, 1997. 10.28 -- Registration Rights Agreement By and Among Clear Channel Communications, Inc., and the Stockholders of Eller Media Corporation, Dated April 10, 1997. 10.29 -- Escrow Agreement By and Among Clear Channel Communications, Inc., Paul Meyer ("Stockholder Representative"), EM Holdings LLC, and Chase Trust Company of California, Dated April 10, 1997. 10.30 -- Stockholders Agreement By and Among Eller Media Corporation, Clear Channel Communications, Inc., and EM Holdings LLC Dated April 9, 1997. 21 -- Subsidiaries of Registrant, Clear Channel Communications, Inc. 23.1 -- Consent of Arthur Andersen LLP. 23.2 -- Consent of KPMG Peat Marwick LLP. 52 (a) -- Incorporated by reference to the exhibits of the Company's Registration Statement on Form S-1(Reg. No. 289161) dated April 19, 1984. (b) -- Incorporated by reference to the Registrant's Form 8-K dated July 14, 1992. (c) -- Incorporated by reference to the Registrant's Form 10-Q dated May 12, 1993. (d) -- Incorporated by reference to the Registrant's Form 8-K dated September 2, 1993. (e) -- Incorporated by reference to the Registrant's Form 10-Q dated November 1, 1993. (f) -- Incorporated by reference to the Registrant's Form 8-K dated October 27, 1993. (g) -- Incorporated by reference to the Registrant's Form 8-K dated October 26, 1994. (h) -- Incorporated by reference to the Registrant's Form 10-Q dated November 14 1994. (i) -- Incorporated by reference to the Registrant's Form 8-K dated December 14, 1994. (j) -- Incorporated by reference to the Registrant's Form 8-K dated January 13, 1995. (k) -- Incorporated by reference to the Registrant's Form 8-K dated May 26, 1995. (l) -- Incorporated by reference to the Registrant's Form 10-Q dated November 14, 1995. (m) -- Incorporated by reference to the Registrant's Form S-8 dated November 20, 1995. (n) -- Incorporated by reference to the Registrant's Form 10-K dated March 31, 1997. (o) -- Incorporated by reference to the Registrant's Form 8-K dated May 4, 1996. (p) -- Incorporated by reference to the Registrant's Form 8-K dated June 5, 1996. (q) -- Incorporated by reference to the Registrant's Form S-3 dated June 14, 1996. (r) -- Incorporated by reference to Heftel Broadcasting Corporation's Amendment 2 to Form SC 14D1/A dated July 9, 1996. (s) -- Incorporated by reference to Heftel Broadcasting Corporation's Amendment 4 to Form SC 14D1/A dated August 5, 1996. EX-10.27 2 AMENDMENT TO STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.27 EXECUTION COPY AMENDMENT TO STOCK PURCHASE AGREEMENT THIS AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment"), dated as of April 10, 1997, is by and among Clear Channel Communications, Inc., a Texas corporation ("Purchaser"), Eller Media Corporation, a Delaware corporation (the "Company"), and those persons listed on Exhibit A hereto (individually, including both option holders and stockholders as identified on such exhibit, each a "Stockholder" and collectively, the "Stockholders"), being the beneficial owners of all shares, and all options to acquire shares, of capital stock of the Company issued and outstanding on the date hereof. RECITALS WHEREAS, the Stockholders as a group own all of the shares of Common Stock, par value $.01 per share, of the Company, issued and outstanding or issuable pursuant to options outstanding on the date hereof, with each Stockholder owning or having the right to acquire the number of shares set forth opposite such Stockholder's name on Exhibit A; WHEREAS, Purchaser, the Company and certain of the Stockholders are parties to that certain Stock Purchase Agreement, dated as of February 25, 1997 (the "Stock Purchase Agreement"); and WHEREAS, Purchaser, the Company and the Stockholders now desire to amend the Stock Purchase Agreement in the manner set forth below. AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereto agree to amend the Stock Purchase Agreement as follows: 1. Definitions. Capitalized terms used herein without definition shall have the meanings given such terms in the Stock Purchase Agreement. 2. Amendments to the Stock Purchase Agreement. (a) Exhibits. (i) Exhibit A is hereby amended and restated in its entirety to read in the form attached hereto as Exhibit A. (ii) Exhibit B is hereby amended and restated in its entirety to read in the form attached hereto as Exhibit B. 2 (iii) Exhibit C is hereby amended and restated in its entirety to read in the form attached hereto as Exhibit C. (iv) Exhibit E is hereby amended and restated in its entirety to read in the form attached hereto as Exhibit E. (v) Exhibit F is hereby amended and restated in its entirety to read in the form attached hereto as Exhibit F. (vi) Exhibit H - New Stockholders Agreement, in the form attached hereto as Exhibit H, is hereby appended as Exhibit H to the Stock Purchase Agreement. (vii) The exhibit index on page (iii) of the Stock Purchase Agreement is hereby amended to add the following exhibits: "Exhibit H - Form of New Stockholders Agreement." (b) Disclosure Letter. The Disclosure Letter is hereby amended and restated in its entirety to read in the form of Disclosure Letter attached hereto. Changes in the Disclosure Letter attached hereto from the Disclosure Letter delivered in connection with the Stock Purchase Agreement are amendments to the Disclosure Letter for purposes of Section 15(a) of the Stock Purchase Agreement. (c) Definitions. (i) The following definition of "ADCO Claim" shall be added to Section 1 of the Stock Purchase Agreement: "`ADCO Claim' has the meaning specified in Section 12(a)(i) of this Agreement." (ii) The definition of "Average Share Price" appearing in Section 1 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "`Average Share Price'" shall mean $44.8625." (iii) The definition of "Company Stock Option Agreements" appearing in Section 1 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "`Company Stock Option Agreements' shall mean the Company stock option agreements listed on Schedule 3(b) of this Agreement, as such agreements may hereafter be amended and restated as contemplated by Schedule 6(d) of this Agreement." 2 3 (iv) The definition of "Escrow Agreement" appearing in Section 1 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "`Escrow Agreement' shall mean that certain Escrow Agreement, dated as of the Closing Date, by and among Purchaser, Holdings, the Stockholder Representative and the Escrow Agent, substantially in the form of Exhibit C attached hereto." (v) The definition of "Escrowed Shares" appearing in Section 1 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "`Escrowed Shares' shall mean a number of shares of Purchaser Common Stock and any other securities or property deposited with the Escrow Agent pursuant to this Agreement and the Escrow Agreement." (vi) The following definition of "Holdings" shall be added to Section 1 of the Stock Purchase Agreement: "`Holdings' shall mean EM Holdings LLC, an Arizona limited liability company." (vii) The following definition of "New Stockholders Agreement" shall be added to Section 1 of the Stock Purchase Agreement: "`New Stockholders Agreement' shall mean that certain Stockholders Agreement, dated as of April 9, 1997, by and among Purchaser, the Company and Holdings, substantially in the form of Exhibit H attached hereto." (viii) The following definition of "Phantom Stock Agreements" shall be added to Section 1 of the Stock Purchase Agreement: "`Phantom Stock Agreements' shall mean the Company phantom stock agreements listed on Schedule 3(b) of this Agreement, as such agreements may hereafter be amended and restated and/or documented as contemplated by Schedule 6(d) of this Agreement." (ix) The definition of "Phantom Stock Units" appearing in Section 1 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "`Phantom Stock Units' shall mean the aggregate number of units of phantom stock issuable pursuant to the terms of the Phantom Stock Agreements." 3 4 (x) The following definition of "Retained Shares" shall be added to Section 1 of the Stock Purchase Agreement: "`Retained Shares' shall mean 140.450 shares of Company Common Stock owned by Holdings which will not be sold to Purchaser on the Closing Date." (d) Sale of Shares; Purchase Price. (i) Section 2(a) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(a) Sale of Shares. On the terms and subject to the conditions set forth in this Agreement and, subject to the immediately following sentence hereof, each Stockholder hereby severally agrees to sell, assign and transfer to Purchaser, and Purchaser hereby agrees to purchase from such Stockholder, on the Closing Date, the number of shares of Company Common Stock owned by such Stockholder on the date hereof as set forth opposite such Stockholder's name on Exhibit B hereto (excluding the Retained Shares), plus such number of additional shares of Company Common Stock as will hereafter be acquired by such Stockholder prior to the Closing Date upon the exercise of Company Stock Options held by such Stockholder as set forth on Exhibit B, for the aggregate consideration set forth on Exhibit B opposite such Stockholder's name, subject to the Escrow Agreement provided for in Section 2(d). In the event any Optionee who on the date hereof is an employee of the Company does not fully exercise Company Stock Options as listed opposite such Optionee's name on Exhibit B under the column "Value of Stock Consideration" on or prior to the Closing Date, Purchaser hereby agrees to assume such options pursuant to Section 2(c) hereof and no shares of Purchaser Common Stock will be issuable at Closing in respect of the unexercised portion of such Company Stock Options. The Retained Shares will not be sold to Purchaser at Closing. As used herein, `Shares' shall mean the aggregate number of shares of Company Common Stock to be sold by the Stockholders and purchased by the Purchaser pursuant to this Section 2." (ii) Section 2(b)(i) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(i) In consideration of the transactions contemplated by this Agreement, Purchaser shall pay to the Stockholders, the Optionees and the Phantom Stock Grantees an aggregate purchase price (the `Purchase Price') equal to (A) $325,329,131 (the `Cash Consideration') in cash (without interest), payable in immediately available funds, plus (B) a number of shares of Purchaser Common Stock (the `Stock Consideration') determined as set forth in subsection (ii) of this Section 2(b), subject to the Escrow Agreement described in Section 2(d) hereof. The Purchase Price shall be allocated among the Stockholders, the Optionees and the Phantom Stock Grantees, and allocated for the payment of expenses pursuant to Section 22 hereof in the manner set forth on 4 5 Exhibit B hereto; provided, however, that Purchaser shall pay the portion of the Stock Consideration to be paid to the Phantom Stock Grantees as set forth on Exhibit B hereto in accordance with the terms of the Phantom Stock Agreements." (iii) Section 2(b)(ii) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(ii) The Stock Consideration shall equal the number of shares of Purchaser Common Stock obtained as a result of dividing $351,482,592 by the Average Share Price. (iv) Section 2(d) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(d) Escrow Agreement. In order to establish a procedure for the satisfaction of any claims by Purchaser for indemnification pursuant to Section 12 hereof, the Stockholder Representative and Holdings shall enter into the Escrow Agreement with Purchaser pursuant to which, among other things, (i) Purchaser shall deposit with the Escrow Agent a number of shares of Purchaser Common Stock to be received by the Stockholders pursuant to Section 2(b) equal to $40 million divided by the Average Share Price multiplied by the sum of the percentages set forth opposite the names under the caption "Stockholders" on Exhibit F hereto, (ii) rights with respect to a number of shares of Purchaser Common Stock issuable upon the exercise of Restated Options equal to $40 million divided by the Average Share Price multiplied by the sum of the percentages set forth opposite the names under the caption "Optionees" on Exhibit F hereto, shall be made subject to an escrow fund pursuant to the Escrow Agreement, and (iii) rights with respect to a number of shares of Purchaser Common Stock issuable upon the exercise of certain rights granted in the New Stockholders Agreement equal to $40 million divided by the Average Share Price multiplied by the percentage set forth opposite the name under the caption "Retained Shares" on Exhibit F hereto, shall be made subject to an escrow fund pursuant to the terms of the Escrow Agreement. The Escrowed Shares shall be available to secure, in accordance with the Escrow Agreement, and shall be the sole source of payment of, the Stockholders' indemnity obligations under Section 12 hereof. All costs of the escrow shall be paid one-half by the Purchaser, on the one hand, and one-half by the Stockholders collectively, on the other, all as further provided in the Escrow Agreement." (v) Section 2(e) is hereby added to the Stock Purchase Agreement to read in its entirety as follows: "(e) Phantom Stock Agreements. On the Closing Date, Purchaser shall assume and agree to perform the terms of the Phantom Stock Agreements in the same manner and to the same extent that the Company would 5 6 be required to perform such agreements had the transactions contemplated by this Agreement not been consummated." (e) Representations and Warranties of the Stockholders. Section 4(a) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(a) Title; Agreements. Except for the Stockholders Agreement and the New Stockholders Agreement (in the case of Holdings), and except with respect to Optionees who do not exercise their Company Stock Options on or prior to the Closing Date, and except with respect to the lien of the Escrow Agreement, such Stockholder holds of record and holds beneficially the number of shares of Company Common Stock set forth opposite its or his name on Exhibit A, free and clear of any and all Encumbrances or other restrictions on transfer. Except for the Stockholders Agreement and other than this Agreement and the New Stockholders Agreement (in the case of Holdings), such Stockholder is not a party to any voting trust, proxy or other agreement or understanding with respect to any capital stock of the Company." (f) Covenants of the Stockholders, the Company and Purchaser. (i) Section 6(d) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(d) Conduct of Business. From and after the date hereof and until the Closing Date, the Company shall conduct and cause the business of the Subsidiaries to be conducted in the ordinary course, consistent with the present conduct of their business. During such period of time, except upon the prior written consent of Purchaser, the Company shall not and shall not permit any Subsidiaries to: (i) amend its Certificate of Incorporation or By-Laws or comparable organizational documents (except to the extent reflected in the Disclosure Letter); (ii) except as disclosed on Schedule 6(d) hereto, issue any additional shares of capital stock or issue, sell or grant any option or right to acquire or otherwise dispose of or commit to dispose of any of its authorized but unissued capital stock or other corporate securities (except upon exercise of Company Stock Options currently outstanding); (iii) declare or pay any dividends or make any other distribution in cash or property on its capital stock or other equity interests, except to the Company or a Subsidiary; (iv) except as disclosed on Schedule 6(d) hereto, repurchase or redeem any shares of its stock or other equity interests; (v) except as disclosed on Schedule 6(d), voluntarily incur any obligation or liability, except obligations and liabilities incurred in the ordinary course of business or permitted by clause (x) below; (vi) except as disclosed on Schedule 6(d), enter into any employment agreement or alter any bonus, profit-sharing, incentive, or other compensation arrangement for any of its officers or directors (other than make changes which do not increase the compensation or benefits provided by the foregoing), or otherwise materially change personnel policies, compensation programs or benefit plans, except for 6 7 changes in the ordinary course of business; (vii) mortgage, pledge, or otherwise encumber any part of its assets, tangible or intangible, except Permitted Encumbrances; (viii) sell, transfer or acquire any properties or assets, tangible or intangible, other than in the ordinary course of business, and except as set forth in Schedule 6(d) hereto; (ix) except as set forth on Schedule 6(d) hereto, merge or consolidate with any corporation, acquire control or acquire any capital stock or other securities, or all or substantially all of the assets, of any other corporation or business entity, or take any steps incident to or in furtherance of any such actions whether by entering into an agreement providing therefor or otherwise; (x) other than the ADCO Note and except in connection with the transactions set forth on Schedule 6(d) hereto or to fund working capital requirements arising in the ordinary course of business consistent with the 1997 budget heretofore provided to Purchaser (the `1997 Budget'), incur Indebtedness in excess of the level outstanding at December 31, 1996; (xi) incur any capital expenditures beyond those set forth in the 1997 Budget; or (xii) take any other action not contemplated hereby which would cause any of the representations and warranties made by the Company and the Stockholders in this Agreement not to be true and correct in all material respects on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date." (ii) Section 6(f)(i) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(i) On the day following the Closing Date, Purchaser shall appoint Karl Eller to its Board of Directors, and shall thereafter cause Karl Eller to be included in the annual slate of directors to be proposed by the management of Purchaser until such time as either Purchaser owns less than a majority of the Company Common Stock or Karl Eller is no longer the Chief Executive Officer or Chairman of the Board of the Company." (g) Conditions Precedent to Purchaser's Obligation. Section 7(g) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(g) Purchaser shall have received the opinion of Latham & Watkins, counsel for the Company, the opinion of Meyer, Hendricks, Bivens & Moyes, counsel for a certain Stockholder, and the opinion of Heller, Ehrman, White & McAuliffe, counsel for certain other Stockholders, as to such matters to be mutually agreed upon." (h) Closing Date; Closing. Section 9(c) of the Stock Purchase Agreement is hereby amended to delete clause (ix) and to add the following paragraphs: "(ix) Prior to the Closing Date, Purchaser, the Company and Holdings shall enter into the New Stockholders Agreement." 7 8 (i) Indemnification. (i) Section 12(a)(i) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(i) Each of the Stockholders severally (on a pro rata basis as provided in the Escrow Agreement), but not jointly, agrees to indemnify and hold Purchaser and its Affiliates harmless from and against any and all losses, claims, demands, liabilities, obligations, damages, deficiencies, assessments, judgments, payments, penalties, costs and expenses (including without limitation reasonable attorneys' fees, any amounts paid in investigation, defense or settlement of any of the foregoing and interest) (herein, `Damages') incurred in connection with, arising out of, resulting from or incident to, (A) any breach of any representation or warranty (as updated pursuant to Section 15 hereof and as in effect on the Closing Date) made by the Company and the Stockholders in this Agreement (other than the representations and warranties made in Section 4(a) hereof), (B) any breach of any covenant or agreement made by the Company and the Stockholders in this Agreement, (C) any liability or obligation which the Company or its Subsidiaries pays or becomes obligated to pay after December 31, 1996 and prior to twelve months after the Closing Date in respect of costs of defense, settlement or resolution of any litigation matter which has been disclosed on Schedule 3(p) to this Agreement, to the extent, and only to the extent, that such costs in the aggregate, after giving credit for any insurance recoveries to which the Company or the Subsidiaries is entitled, exceeds the aggregate amount of the Company's reserves therefor on the Balance Sheet, (D) any Pre-Agreement Disclosure Matter (as hereinafter defined) or (E) any claim by Richard Traverso, ADCO Outdoor Advertising or Pacific Coast Display for any amount or recovery in excess of, or in addition to, the express obligation of the Company contained in the ADCO Note and the related Asset Purchase Agreement, Security Agreement and Registration Rights Agreement, in accordance with their respective terms, including, without limitation, any claim, liability, expense or loss resulting from a recession of the ADCO Note and the transactions concluded in connection therewith (an `ADCO Claim'). The parties hereby acknowledge and agree that after the Closing Date recourse against the Escrowed Shares constitutes the sole remedy, at law or in equity, that Purchaser may have against the Stockholders, and that the Escrowed Shares shall be Purchaser's exclusive method of receiving indemnification from the Stockholders, pursuant to this Section 12(a)(i). Notwithstanding the foregoing, Purchaser may not receive any of the Escrowed Shares in connection with Damages arising from breaches or inaccuracies pursuant to this Section 12(a)(i) unless the aggregate of such Damages indemnified against shall exceed $10 million, in which event such indemnification shall be effective with respect to all Damages in excess of such amount, and shall be limited to the Escrowed Shares; provided, however, that the foregoing $10 million threshold will not apply to any Damages from an ADCO Claim, as to which the indemnification obligation of the Stockholders shall accrue from the first dollar of Damages. For purposes of determining the Stockholders' 8 9 indemnification obligations pursuant to this Section 12(a)(i), each representation and warranty stated in Sections 3 and 4 hereof shall be deemed to exclude any materiality standard, materiality exception and materiality qualification stated therein. The parties acknowledge that the limitations on liability of the Stockholders in this Section 12(a)(i) contained were an essential inducement to the Stockholders to cause them to enter into and perform this Agreement, and without which they would not have done so." (ii) Section 12(c) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(c) Damages. The term `Damages' as used in this Section 12 is not limited to matters asserted by third parties against any indemnified party, but includes Damages incurred or sustained by any indemnified party in the absence of third party claims. Any Damages otherwise due and payable under this Section 12 shall be (i) decreased to the extent of any reduction of Tax liability that is realizable by the indemnified party upon payment of an indemnifiable loss and (ii) increased to the extent of any increase in Tax liability that is imposed on the indemnified party upon the receipt of an indemnity payment pursuant to this Section 12. In addition, Damages shall be determined net of any insurance recoveries by any indemnified party and shall be net of any indemnity to which the Company is entitled pursuant to that certain Stock Purchase Agreement, dated as of July 14, 1995, by and between Eller Investment Company, Inc., an Arizona corporation, and General Electric Capital Corporation, a New York corporation. In the case of the ADCO Claim, Damages shall include reasonable reimbursement for the cost of the time which employees of Purchaser and the Company spend in resolving the ADCO Claim." (iii) Section 12(d)(iv) is hereby added to the Stock Purchase Agreement to read in its entirety as follows: "(iv) Notwithstanding the foregoing, as to any items identified as Pre-Agreement Disclosure Matters on Schedule 3(p), and as to any item on Schedule 3(p) to the extent it could give rise to a claim for Damages pursuant to Section 12(a)(i)(C) of this Agreement (i) notice of the potential Claim hereby is deemed given for purposes of Section 12(d), and (ii) Purchaser hereby is entitled to take control of the defense of such matters and to employ and engage attorneys to handle and defend the same and to compromise and settle such action in such manner as it may deem necessary and appropriate, all in accordance with Section 12(d)(i). Notice of the potential Claim is also deemed given for the ADCO Claim, which will be defended by the Stockholders as the indemnifying party in accordance with the procedures set forth in Section 12(d)(i)." 9 10 (j) Termination; Amendments to Disclosure Letter. Section 15(b) of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "(b) Amendments to Disclosure Letter. Between the date hereof and the Closing Date, the Company and the Stockholders may add to the Disclosure Letter by notification in writing to Purchaser of the matter to be added, which may be matters relating to events first arising after the date of this Agreement (`Post-Agreement Date Disclosure Matters') or may be matters which relate to events first arising prior to the date of this Agreement and which, if not so added to the Disclosure Letter, would constitute a breach of the representations and warranties provided by the Company and the Stockholders on the date of this Agreement (`Pre-Agreement Date Disclosure Matters' and, collectively with the Post-Agreement Date Disclosure Matters, the `New Disclosure Matters'); provided, however, any additions or changes to Schedule 6(d) between the date hereof and the Closing Date shall not constitute New Disclosure Matters. If the aggregate dollar amount involved in the New Disclosure Matters exceeds $5,000,000, Purchaser may, at its election by written notice to the Company and the Stockholders on or before the Closing Date, either (i) accept the Disclosure Letter as so modified and close the transactions contemplated hereby, in which case the Disclosure Letter as so modified will be deemed to have been delivered on or before the date of this Agreement or (ii) terminate this Agreement. If the aggregate dollar amount involved in the Pre-Agreement Date Disclosure Matters exceeds $5,000,000, the Company and the Stockholders may terminate this Agreement by written notice to Purchaser, unless Purchaser agrees in writing that the aggregate indemnity obligation of the Stockholders in respect of such Pre-Agreement Date Disclosure Matters pursuant to Section 12(a)(i) will in all events be limited to $5,000,000. Nothing contained herein will preclude Purchaser from alleging that any matter disclosed in a proposed modification to the Disclosure Letter which is not subject to quantification does not give rise to a right not to close under this Agreement because of the inability of the Company and the Stockholders to satisfy the condition set forth in Section 7(a) hereof due to such New Disclosure Matter. Notwithstanding the foregoing, it is understood that the Company will as soon as practicable furnish to Purchaser its audited financial statements for the year 1996 in substitution for its unaudited 1996 financial statements (as contemplated by the definition `Financial Statements'), and it is agreed that Purchaser shall have no right to object to such substitution unless the audited 1996 financial statements contain material adjustments or disclosures not contained in the unaudited 1996 financial statements." (k) Entire Agreement. Section 18 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "18. Entire Agreement. This Agreement together with all exhibits and schedules hereto (including the Disclosure Letter as updated pursuant to Section 15 hereof) represent the entire understanding and agreement among the 10 11 parties hereto with respect to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral, and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought, including, in the case of the Stockholders, all Stockholders who are a party to this Agreement at the time such enforcement is sought. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. Upon Closing, all rights and obligations under that certain letter, dated February 25, 1997, regarding the ADCO Note shall terminate." (l) Expenses. Section 22 of the Stock Purchase Agreement is hereby amended to read in its entirety as follows: "Expenses. Whether or not the transactions contemplated hereby are consummated, (a) Purchaser shall pay all of its legal, accounting and other out-of-pocket expenses incident to the transactions contemplated hereby and (ii) the Stockholders and the Phantom Stock Grantees shall pay their own and the Company's legal, accounting and other out-of-pocket expenses incident to the transactions contemplated hereby, provided however, that Purchaser, on the one hand, and the Stockholders, on the other, shall divide and share equally filing fees in connection with government filings necessary to consummate the transactions contemplated hereby (provided that if this Agreement is terminated, each party shall attempt to obtain any available refunds of such fees or otherwise utilize such fees in other transactions such that expense to the parties is minimized)." 3. Effect of Amendment. Except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Stock Purchase Agreement, and all terms and conditions of the Stock Purchase Agreement remain in full force and effect unless otherwise specifically amended, waived or changed pursuant to the terms and conditions hereof. 4. Additional Parties. By executing this Amendment below, each party who was an original signatory to the Stock Purchase Agreement hereby ratifies, approves and confirms the Stock Purchase Agreement in all respects, except as amended by this Amendment, and each Stockholder who was not an original signatory to the Stock Purchase Agreement hereby affirms the Stock Purchase Agreement as so amended and hereby becomes a party thereto and agrees to be bound thereby. 5. Applicable Law. This Amendment and the rights and obligations of the parties hereto and all other aspects hereof shall be deemed to be made under, and shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of Delaware. 11 12 6. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. [SIGNATURE PAGES FOLLOW] 12 13 IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. PURCHASER By ------------------------ Name: Title: ELLER MEDIA CORPORATION By ------------------------ Name: Title: HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P. By: Its General Partner, H&F Investors III By: Its Managing General Partner, Hellman & Friedman Associates III, L.P. By: Its Managing General Partner, H&F Investors III, Inc. By: --------------------------- Its: 14 H&F ORCHARD PARTNERS III, L.P. By: Its General Partner, H&F Investors III By: Its Managing General Partner, Hellman & Friedman Associates III, L.P. By: Its Managing General Partner, H&F Investors III, Inc. By: --------------------------- Its: H&F INTERNATIONAL PARTNERS III, L.P. By: Its General Partner, H&F Investors III By: Its Managing General Partner, Hellman & Friedman Associates III, L.P. By: Its Managing General Partner, H&F Investors III, Inc. By: --------------------------- Its: EM HOLDINGS LLC By: --------------------------- Its: ------------------------------ H. Irving Grousbeck 15 AMERICAN MEDIA MANAGEMENT, INC. By: ---------------------------- Its: ------------------------------- Richard Reiss, Jr. ------------------------------- Glenn Krevlin, as Trustee fbo Nina Krevlin, Glenn Krevlin, Michael Krevlin and Jill Krevlin ------------------------------- K. Tucker Andersen ------------------------------- Bruce Halle ------------------------------- Timothy J. Donmoyer 16 --------------------------------- Karl Eller --------------------------------- Paul J. Meyer --------------------------------- Patricia Salas Pineda EL DORADO INVESTMENT COMPANY By: ------------------------------ Its: --------------------------------- Steven G. Mihaylo EX-10.28 3 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.28 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 10, 1997, is entered into by and among Clear Channel Communications, Inc., a Texas corporation (the "Company"), and the persons listed on the signature pages hereof (the "Stockholders"). RECITALS A. The Company and the Stockholders desire to enter into this Agreement for the purpose of granting to the Stockholders certain rights with respect to registering under the Securities Act of 1933, as amended, shares of Common Stock, par value $.10 per share, of the Company. B. The Common Stock is being acquired by the Stockholders pursuant to the stock purchase (the "Transaction") contemplated by the Stock Purchase Agreement, dated as of February 25, 1997, as amended, by and among the Company, Eller Media Corporation, a Delaware corporation ("EMC"), and the persons listed on Exhibit A thereto. AGREEMENT In consideration of the Recitals and mutual promises contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have the meaning set forth in Section 4 hereof. "Affiliate" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" shall have the meaning set forth in the heading hereof. "Business Day" means any day that is not a Saturday, a Sunday or a legal holiday on which banking institutions in the State of New York are not required to be open. 2 "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock issued by such person, including each class of common stock and preferred stock of such person. "Common Stock" means the Common Stock, par value $.10 per share, of the Company issued to any Holder named on the signature pages hereof in the Transaction or any other shares of capital stock or other securities of the Company into which such shares of Common Stock shall be reclassified or changed, including, by reason of a merger, consolidation, reorganization or recapitalization. If the Common Stock has been so reclassified or changed, or if the Company pays a dividend or makes a distribution on the Common Stock in shares of capital stock or subdivides (or combines) its outstanding shares of Common Stock into a greater (or smaller) number of shares of Common Stock, a share of Common Stock shall be deemed to be such number of shares of stock and amount of other securities to which a holder of a share of Common Stock outstanding immediately prior to such change, reclassification, exchange, dividend, distribution, subdivision or combination would be entitled. "Company" shall have the meaning set forth in the heading hereof. "Company Common Stock" shall mean shares of Common Stock, par value $.10 per share, of the Company. "Delay Period" shall have the meaning set forth in Section 2(d) hereof. "Demand Notice" shall have the meaning set forth in Section 2(a) hereof. "Demand Registration" shall have the meaning set forth in Section 2(b) hereof. "Effectiveness Period" shall have the meaning set forth in Section 2(d) hereof. "EMC" shall have the meaning set forth in Recital B. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "H&F Funds" shall mean Hellman & Friedman Capital Partners III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III, L.P. "Holder" means a person who owns Registrable Shares and is either (i) a Stockholder, (ii) a Permitted Transferee or (iii) a Permitted Assignee. "Holdings" shall mean EM Holdings LLC, an Arizona limited liability company. "Holdings Agreement" shall mean the Stockholders Agreement, dated as of April 8, 1997, by and among EMC, the Company and Holdings. "Inclusion Notice" shall have the meaning set forth in Section 2(a) hereof. 2 3 "Indemnified Party" shall have the meaning set forth in Section 7(c) hereof. "Indemnifying Party" shall have the meaning set forth in Section 7(c) hereof. "Inspectors" shall have the meaning set forth in Section 4(l) hereof. "Interruption Period" shall have the meaning set forth in Section 4 hereof. "Losses" shall have the meaning set forth in Section 7(a) hereof. "Permitted Assignee" means a Holder who acquires (a) more than $5 million in value of Common Stock at the date of transfer from a Holder, or (b) Common Stock from a Holder in a transfer in which consent to assignment of this Agreement is granted pursuant to Section 9(e), in either case in a transfer exempt pursuant to Rule "4(1-1/2)" (or any similar private transfer exemption), provided that in each case the transferee assumes and agrees to perform and becomes a party to this Agreement. "Permitted Transferees" means, as to any Holder, (A) any other Holder, (B) any Affiliate or partner of a Stockholder (and in the case of a general partner of a Stockholder, any partner of such general partner or its partners or members); (C) any person who is the spouse or former spouse of, or any lineal descendent (including adopted children) of, or any spouse of such lineal descendant (including adopted children) of, or the grandparent, parent, brother or sister of, or spouse of such brother or sister of, a Holder or Permitted Transferee of such person; (D) upon the death of any Holder or any Permitted Transferee of such person, the executors of the estate of such Holder or Permitted Transferee, any of such Holder's or such Permitted Transferee's heirs, testamentary trustees, devisees, or legatees; (E) any trust principally for the benefit of one or more of the foregoing Holders or Permitted Transferees (including a charitable lead or remainder trust); or (F) upon the disability of any Holder or Permitted Transferee, any guardian or conservator of such Holder or Permitted Transferee; provided that in each case such transferee assumes and agrees to perform and becomes a party to this Agreement. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Piggyback Registration" shall have the meaning set forth in Section 3(a) hereof. "Prospectus" means the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. 3 4 "Records" shall have the meaning set forth in Section 4(l) hereof. "Registrable Shares" means shares of Common Stock unless (i) they have been effectively registered under Section 5 of the Securities Act and disposed of pursuant to an effective Registration Statement, or (ii) all of such Common Stock of a Holder can be freely sold and transferred without restriction under the volume limitation provisions of Rule 144 or Rule 145 under the Securities Act or any successor rule such that, after any such transfer referred to in this clause (ii), such securities may be freely transferred without restriction under the Securities Act. In addition, any shares of Common Stock held by a Stockholder who owns Common Stock representing more than 1% of the then outstanding Company Common Stock shall be considered Registrable Shares. Further, no Holder who is not a Stockholder shall be deemed to own Registrable Shares after three years from the date hereof. For purposes of this definition, the H&F Funds shall be considered a single Stockholder. "Registration" means registration under the Securities Act of an offering of Registrable Shares pursuant to a Demand Registration or a Piggyback Registration. "Registration Period" means, as to any Holder, the period beginning on the date hereof and ending on the date when such Holder no longer owns any Registrable Shares. "Registration Statement" means any registration statement under the Securities Act of the Company that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Stockholders" shall have the meaning set forth in the heading hereof. "Transaction" shall have the meaning set forth in Recital B. "Underwritten Offering" means a registration under the Securities Act in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Demand Registration. (a) Subject to the last sentence of this Section 2(a), any Holder or Holders shall have the right during the Registration Period, by written notice (the "Demand Notice") given to the Company, to request the Company to register under and in accordance with the provisions of the Securities Act all or any portion of the Registrable Shares designated by such Holders; provided, however, that the aggregate value (based on the closing price per 4 5 share of Common Stock at the respective dates of such notices) of Registrable Shares requested to be registered pursuant to any Demand Notice and pursuant to any related Inclusion Notices received pursuant to the following sentence shall be at least $ 20 million. Upon receipt of any such Demand Notice, the Company shall promptly (and in no event later than 15 days after receipt of such Demand Notice) notify all other Holders of the receipt of such Demand Notice and allow them the opportunity to include Registrable Shares held by them in the proposed registration by submitting their own written notice to the Company no later than 15 days after receipt of the notice from the Company of the Demand Notice requesting inclusion of a specified number of such Holders' Registrable Securities (the "Inclusion Notice"). In connection with any Demand Registration in which more than one Holder participates, in the event that such Demand Registration involves an Underwritten Offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders of Registrable Shares to be included in such offering that the total number of Registrable Shares to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the Registrable Shares to be sold), then the amount of Registrable Shares to be offered for the account of such Holders shall be reduced pro rata on the basis of the number of Registrable Shares to be registered by each such Holder. The Holders as a group shall be entitled to three Demand Registrations pursuant to this Section 2. If any such Demand Registration does not become effective or is not maintained for a period (whether or not continuous) of at least 120 days (or such shorter period as shall terminate when all the Registrable Shares covered by such Demand Registration (other than any shares reserved for issuance upon exercise of the underwriters' overallotment option) have been sold pursuant thereto), the affected Holders will be entitled to an additional Demand Registration pursuant hereto. For purposes of the foregoing, the 120-day period does not have to be consecutive and may be interrupted by Delay Periods or Interruption Periods as set forth herein. It is agreed that the registration of Registrable Shares pursuant to an Inclusion Notice shall not be deemed to be a separate Demand Registration. Nothing in this Section 2(a) shall limit any rights pursuant to Section 3 hereof. (b) The Company, within 45 days of the date on which the Company receives a Demand Notice given by Holders in accordance with Section 2(a) hereof, shall file with the SEC, and the Company shall thereafter use commercially reasonable efforts to cause to be declared effective, a Registration Statement on the appropriate form for the registration and sale, in accordance with the intended method or methods of distribution, of the total number of Registrable Shares specified by the Holders in such Demand Notice (a "Demand Registration"). (c) The Company shall use commercially reasonable efforts to cause the Registration Statement to be declared effective and to keep each Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of the Registrable Shares covered thereby until the earlier of (i) 120 days from the date on which the SEC declares such Registration Statement effective (as such period may be extended pursuant to this Section 2) and (ii) the date on which all the Registrable Shares covered by such Registration Statement (other than any shares reserved for issuance upon exercise of the underwriters' overallotment option) have been sold pursuant to such Registration Statement. 5 6 (d) Except with respect to the first Demand Notice contemplated by Section 2(g) hereof, the Company shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by the Company pursuant to this Section 2 for a reasonable period of time, but not in excess of 90 days (a "Delay Period"), if the Board of Directors of the Company determines in good faith that the registration and distribution of the Registrable Shares covered or to be covered by such Registration Statement would materially interfere with any pending material financing, acquisition or corporate reorganization or other material corporate development involving the Company or any of its subsidiaries or would require premature disclosure thereof and promptly gives the Holders written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the period of the anticipated delay; provided, however, that (i) the aggregate number of days included in all Delay Periods during any consecutive 12 months shall not exceed the aggregate of (x) 120 days minus (y) the number of days occurring during all Interruption Periods during such consecutive 12 months and (ii) a period of at least 60 days shall elapse between the termination of any Delay Period or Interruption Period and the commencement of the immediately succeeding Delay Period. If the Company shall so postpone the filing of a Registration Statement, the Holders of Registrable Shares to be registered shall have the right to withdraw the request for registration by giving written notice from the Holders of a majority of the Registrable Shares that were to be registered to the Company within 30 days after receipt of the notice of postponement or, if earlier, the termination of such Delay Period (and, in the event of such withdrawal, such request shall not be counted for purposes of determining the number of requests for registration to which the Holders of Registrable Shares are entitled pursuant to this Section 2). The time period for which the Company is required to maintain the effectiveness of any Registration Statement shall be extended by the aggregate number of days of all Delay Periods and all Interruption Periods occurring during such Registration and such period and any extension thereof is hereinafter referred to as the "Effectiveness Period." The Company shall not be entitled to initiate a Delay Period or an Interruption Period unless it shall (A) concurrently prohibit sales by all other security holders under registration statements covering securities held by such other security holders (excluding exercise of options pursuant to a Form S-8) and (B) forbid purchases and sales in the open market by senior executives of the Company. (e) Except with respect to the first Demand Registration contemplated by Section 2(g) hereof, the Company shall not include any securities that are not Registrable Shares in any Registration Statement filed pursuant to this Section 2 without the prior written consent of the Holders of a majority in number of the Registrable Shares held by Holders covered by such Registration Statement, which consent shall not be unreasonably withheld. (f) Holders of a majority in number of the Registrable Shares to be included in a Registration Statement pursuant to this Section 2 may, at any time prior to the effective date of the Registration Statement relating to such Registration, revoke such request by providing a written notice to the Company revoking such request. The Holders of Registrable Shares who revoke such request shall reimburse the Company for all its out-of- pocket expenses incurred in the preparation, filing and processing of the Registration Statement; provided, however, that, if such revocation was pursuant to Section 2(d) (for a postponement) or was based on the Company's failure to comply in any material respect with its obligations 6 7 hereunder, such reimbursement shall not be required, and such registration shall not count against the maximum number of Demand Registrations to which the applicable Holders are entitled under Section 2(a). In addition, if pursuant to the terms of this Section 2(f), the Holders reimburse the Company for its out-of-pocket expenses incurred in the preparation, filing and processing of any Registration Statement requested, and subsequently revoked by such Holder(s), such registration shall not count against the maximum number of Demand Registrations to which the applicable Holder(s) are entitled under Section 2(a). (g) Notwithstanding anything herein to the contrary, the Stockholders hereby give their first Demand Notice to the Company as set forth on Schedule I hereto, subject to their right to revoke such request pursuant to Section 2(f), and understand and agree that the Company intends to include authorized but unissued Company Common Stock for sale in such Registration pursuant to a firm commitment Underwritten Offering. In the event the managing underwriter or underwriters participating in such offering advise in writing the Company and the Holders of Registrable Shares to be included in such offering that the total number of Registrable Shares and shares of Company Common Stock to be sold by the Company to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the Registrable Shares and other shares of Company Common Stock to be sold), then the amount of shares to be offered shall be reduced in the following order of priority: (i) first, the amount of Company Common Stock to be sold by the Company shall be reduced, to the extent necessary, until such amount equals zero, and (ii) second, to the extent necessary, the amount of Registrable Shares shall be reduced pro rata on the basis of the number of Registrable Shares to be registered by each such Holder. It is understood that the second Demand Notice may not be given for a period of at least six months after the completion of the sale of Registrable Shares effected pursuant to the first Demand Registration, and that the third Demand Notice may not be given for a period of at least twelve months after the completion of the sale of Registrable Shares effected pursuant to the second Demand Registration, and that no Demand Notice will be given for a period of 120 days after the sale of any shares of Company Common Stock pursuant to a Registration Statement in which the Holders have been given an opportunity to participate as provided in Section 3(a) hereof and have either sold any shares as part of such offering or have elected not to participate. 3. Piggyback Registration. (a) Right to Piggyback. If at any time during the Registration Period the Company proposes to file a registration statement under the Securities Act with respect to a public offering of securities of the same type as the Registrable Shares pursuant to a firm commitment Underwritten Offering for cash for its own account (other than a registration statement (i) on Form S-8 or any successor forms thereto, or (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan of the Company or its Affiliates) or for the account of any holder of securities of the same type as the Registrable Shares (to the extent that the Company has the right to include Registrable Shares in any registration statement to be filed by the Company on behalf of such holder), then the Company shall give written notice of such proposed filing to the Holders at least 10 days before the anticipated filing date of such registration statement. Such notice shall offer the Holders the opportunity to register such 7 8 amount of Registrable Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within 10 days after notice has been given to the Holders. Each Holder shall be permitted to withdraw all or any portion of the Registrable Shares of such Holder from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration; provided, however, that if such withdrawal occurs after the filing of the Registration Statement with respect to such Piggyback Registration, the withdrawing Holders shall reimburse the Company for the portion of the registration expenses payable with respect to the Registrable Shares so withdrawn. (b) Priority on Piggyback Registrations. The Company shall permit the Holders to include all such Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein. Notwithstanding the foregoing, if the Company or the managing underwriter or underwriters participating in such offering advise the Holders in writing that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold in (or during the time of) such offering without delaying or jeopardizing the success of the offering (including the price per share of the securities to be sold), then the amount of securities to be offered for the account of the Holders and other holders of securities who have registration rights with respect thereto shall be reduced (to zero if necessary) pro rata on the basis of the number of common stock equivalents requested to be registered by each such Holder or holder participating in such offering. (c) Right to Abandon. Nothing in this Section 3 shall create any liability on the part of the Company to the Holders if the Company in its sole discretion should decide not to file a registration statement proposed to be filed pursuant to Section 3(a) hereof or to withdraw such registration statement subsequent to its filing and prior to the later of its effectiveness or the release of the Registrable Shares for public offering by the managing underwriter, in the case of an underwritten public offering, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Company of any notice hereunder or otherwise. (d) Priority Over Demand Registrations. If the Company at any time within 15 days after receipt of a Demand Notice (or any applicable Delay Period) notifies the Holders of its proposal to file a Registration Statement covered by Section 3(a) hereof pursuant to which a majority of shares to be sold will be sold by the Company (without regard to any shares to be sold by the Holders), the Company's proposed filing and notice thereof will take priority over the Demand Notice, and the Demand Notice will be considered to have been revoked and will not be considered or counted as a Demand Registration under Section 2. Subject to the provisions of Section 2(g), the revocation of the Demand Notice shall in no way affect or preclude a new Demand Notice if the Company abandons the proposed registration as contemplated by Section 3(c). The provisions of this Section 2(d) will not apply to the first Demand Notice pursuant to Section 2(g) hereof. 8 9 4. Registration Procedures. In connection with the registration obligations of the Company pursuant to and in accordance with Sections 2 and 3 hereof (and subject to Sections 2 and 3 hereof), the Company shall use commercially reasonable efforts to effect such registration to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall (subject to Sections 2 and 3 hereof): (a) At least three business days before filing a Registration Statement or Prospectus, furnish to the Holders (or their representatives) who are participating in such Registration Statement and the underwriters, if any, copies of all such documents (which may be drafts or proofs) proposed to be filed, which documents will be subject to the review of such Holders and such underwriters (and their respective counsel), and, in the case of a Demand Registration, the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereof to which the registering Holders or the underwriters, if any, shall reasonably object; (b) prepare and file with the SEC a Registration Statement for the sale of the Registrable Shares on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate in accordance with such Holders' intended method or methods of distribution thereof, subject to Section 2(b) hereof, and, subject to the Company's right to terminate or abandon a registration pursuant to Section 3(c) hereof, use commercially reasonable efforts to cause such Registration Statement to become effective and remain effective as provided herein; (c) prepare and file with the SEC such amendments (including post-effective amendments) to such Registration Statement, and such supplements to the related Prospectus, as may be required by the rules, regulations or instructions applicable to the Securities Act during the applicable period in accordance with the intended methods of disposition specified by the Holders of the Registrable Shares covered by such Registration Statement, make generally available earnings statements satisfying the provisions of Section 11(a) of the Securities Act (provided that the Company shall be deemed to have complied with this clause if it has complied with Rule 158 under the Securities Act), and cause the related Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act; provided, however, that before filing a Registration Statement or Prospectus, or any amendments or supplements thereto (other than reports required to be filed by it under the Exchange Act), the Company shall furnish to the Holders of Registrable Shares covered by such Registration Statement and their counsel for their reasonable review and comment, copies of all documents required to be filed; (d) notify the Holders of any Registrable Shares covered by such Registration Statement promptly and (if requested) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to such Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to such Registration Statement or the related Prospectus or for additional information regarding such Holders, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such 9 10 Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed to be incorporated therein by reference so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (e) use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States; (f) furnish to the Holder of any Registrable Shares covered by such Registration Statement, each counsel for such Holders and each managing underwriter, if any, without charge, one conformed copy of such Registration Statement, as declared effective by the SEC, and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, any amended preliminary prospectus, each final Prospectus and any post-effective amendment or supplement thereto, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares of such Holder covered by such Registration Statement in conformity with the requirements of the Securities Act; (g) prior to any public offering of Registrable Shares covered by such Registration Statement, use commercially reasonable efforts to register or qualify such Registrable Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Holders of such Registrable Shares shall reasonably request in writing; provided, however, that the Company shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to execute or file a general consent to service of process in any such jurisdiction where it has not theretofore done so or to take any action that would subject it to general service of process or taxation in any such jurisdiction where it is not then subject; (h) upon the occurrence of any event contemplated by paragraph 4(d)(v) above, prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated or deemed to be incorporated therein by reference and file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder (including upon the termination of any Delay Period), such Prospectus will not contain 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 light of the circumstances under which they were made, not misleading; (i) use commercially reasonable efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange or automated 10 11 interdealer quotation system, if any, on which similar securities issued by the Company are then listed or quoted; (j) use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC and any securities exchange or regulatory body; (k) on or before the effective date of such Registration Statement, provide the transfer agent of the Company for the Registrable Shares with printed certificates for the Registrable Shares covered by such Registration Statement which are in a form eligible for deposit with The Depository Trust Company; (l) if such offering is an Underwritten Offering, make available for inspection by any Holder of Registrable Shares included in such Registration Statement, any underwriter participating in any offering pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "Inspectors"), such financial and other records and other information, pertinent corporate documents and properties of any of the Company and its subsidiaries and Affiliates (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibilities; provided, however, that the Records that the Company determines, in good faith, to be confidential and which it notifies the Inspector in writing are confidential shall not be disclosed to any Inspector unless such Inspector signs a confidentiality agreement reasonably satisfactory to the Company, which agreement shall permit the release of such Records if such release is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided, however, that each Holder of Registrable Shares agrees that it shall, promptly after learning that disclosure of such Records is sought in a court having jurisdiction, give notice to the Company so that the Company, at the Company's expense, may undertake appropriate action to prevent disclosure of such Records; and (m) if such offering is an Underwritten Offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other appropriate and reasonable actions requested by the Holders of a majority of the Registrable Shares being sold in connection therewith (including those reasonably requested by the managing underwriters) in order to expedite or facilitate the disposition of such Registrable Shares, and in such connection, (i) use commercially reasonable efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters and counsel to the Holders of the Registrable Shares being sold), addressed to each selling Holder of Registrable Shares covered by such Registration Statement and each of the underwriters as to the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (ii) use commercially reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder of Registrable Shares covered by the Registration Statement (unless such accountants 11 12 shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings (iii) if requested and if an underwriting agreement is entered into, provide indemnification provisions and procedures substantially to the effect set forth in Section 7 hereof with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder. In addition, the Company agrees not to effect any public sale or distribution of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, during the period commencing with the effective date of any underwritten Demand or Piggyback Registration and until the earlier of (A) the abandonment of such offering or (B) the termination of any "hold back" period reasonably requested by the underwriters (with exceptions for issuances pursuant to outstanding options, warrants, and convertible or exchangeable securities, pursuant to employee and dividend reinvestment plans, and such other exceptions as are customary or agreed with the managing underwriter). The Company may require each Holder of Registrable Shares covered by a Registration Statement to furnish such information regarding such Holder and such Holder's intended method of disposition of such Registrable Shares as it may from time to time reasonably request in writing. If any such information is not furnished within a reasonable period of time after receipt of such request, the Company may exclude such Holder's Registrable Shares from such Registration Statement. In addition, the Company may require each Holder of Registrable Shares covered by a Registration Statement to agree not to effect any public sale or distribution of Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, during the period commencing with the effective date of any underwritten Demand or Piggyback Registration and until the earlier of (A) the abandonment of such offering or (B) the termination of any "hold back" period reasonably requested by the underwriters (with such exceptions as are customary or agreed with the managing underwriter). In addition, if the Holders have been given an opportunity to participate in a Registration Statement pursuant to Section 3(a), any Holder who owns Registrable Shares representing 1% or more of the then outstanding shares of Common Stock of the Company will agree, if so requested by the Company, not to effect any public sale or distribution of Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, during the period commencing with the effective date of any underwritten Piggyback Registration and until the earlier of (A) the abandonment of such offering or (B) 30 days after the effective date of such Piggyback Registration; provided that each officer and director of the Company who beneficially owns 1% or more of the then outstanding Company Common Stock and each stockholder of the Company who owns "restricted" shares of Company Common Stock (as defined in Rule 144) constituting 1% or more of the then outstanding Company Common Stock agrees to the same hold-back arrangements. 12 13 Each Holder of Registrable Shares covered by a Registration Statement agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(iv) or 4(d)(v) hereof, that such Holder shall forthwith discontinue disposition of any Registrable Shares covered by such Registration Statement or the related Prospectus until receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(h) hereof, or until such Holder is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amended or supplemented Prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such Prospectus (such period during which disposition is discontinued being an "Interruption Period") and, if requested by the Company, the Holder shall deliver to the Company (at the expense of the Company) all copies then in its possession, other than permanent file copies then in such holder's possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each Holder of Registrable Shares covered by a Registration Statement further agrees not to utilize any material other than the applicable current preliminary prospectus or Prospectus in connection with the offering of such Registrable Shares. 5. Registration Expenses. The costs, fees and expenses incident to the Company's performance of or compliance with this Agreement, including (i) all registration and filing fees, including NASD filing fees, (ii) all fees and expenses of compliance with securities or Blue Sky laws, including reasonable fees and disbursements of counsel in connection therewith, (iii) printing expenses (including expenses of printing certificates for Registrable Shares and of printing preliminary and final prospectuses if the printing of prospectuses is requested by the Holders or the managing underwriter, if any), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Company, (vi) fees and disbursements of all independent certified public accountants of the Company (including expenses of any "cold comfort" letters required in connection with this Agreement) and all other persons retained by the Company in connection with this Agreement and the Registration Statement, (vii) all other costs, fees and expenses incident to the Company's performance or compliance with this Agreement (excluding the Company's internal direct and indirect expenses, any expenses which the Company would otherwise incur, including the costs of its financial and other reporting under the Exchange Act and filings made on its own behalf under the Securities Act, any amounts payable by the Company on behalf of other sellers pursuant to other registration rights agreements or otherwise, and discounts, commissions and brokers' fees or fees of similar securities industry professionals and any transfer taxes payable by the Company, which shall be borne by the Company), shall be borne by the Holders and, if applicable, the Company, pro rata (based on the number of Registrable Shares sold by such Holders in such offering as a percentage of the total number of shares sold in the offering). The fees and expenses of any persons retained by any Holder, including counsel for such Holder, and any discounts, commissions or brokers' fees or fees of similar securities industry professionals and any transfer taxes relating to the disposition of the Registrable Shares by a Holder, will be payable by such Holder. 13 14 6. Underwriting Requirements. (a) Subject to Section 6(b) hereof, any Holder giving a Demand Notice shall have the right, by written notice, to request that any Demand Registration provide for an Underwritten Offering. (b) In the case of any Underwritten Offering pursuant to a Demand Registration, the Company shall select the institution or institutions that shall manage or lead such offering, with the consent of the Holders of a majority of the Registrable Shares covered by the Demand Notice to be disposed of in connection therewith, which consent shall not be unreasonably withheld. In the case of any Underwritten Offering pursuant to a Piggyback Registration, the Company shall select the institution or institutions that shall manage or lead such offering. 7. Indemnification. (a) Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the officers, directors and agents and employees of each of them, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgment, costs (including, without limitation, costs of preparation and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based upon information furnished in writing to the Company by or on behalf of such Holder expressly for use therein or by any underwriter in a Demand Registration; provided, however, that the Company shall not be liable to any such Holder to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) having previously been furnished by or on behalf of the Company with copies of the Prospectus, such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Registrable Shares by such Holder to the person asserting the claim from which such Losses arise and (ii) the Prospectus would have corrected in all material respects such untrue statement or alleged untrue statement or such omission or alleged omission; and provided further, however, that the Company shall not be liable in any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in all material respects in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or 14 15 supplemented, prior to or currently with the sale of Registrable Shares. In connection with any Underwritten Offering, the Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act) to the same extent as provided above with respect to indemnification of Holders of Registrable Shares, or on such other terms as are reasonable and customary and requested by the managing underwriter. (b) Indemnification by Holder of Registrable Shares. In connection with any Registration Statement in which a Holder is participating, such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with such Registration Statement or the related Prospectus and agrees to indemnify, to the full extent permitted by law, the Company, its directors, officers, agents or employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the directors, officers, agents or employees of such controlling Persons, from and against all Losses as incurred arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or the related Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is based upon any information so furnished in writing by or on behalf of such Holder to the Company expressly for use in such Registration Statement or Prospectus. (c) If any Person shall be entitled to indemnity hereunder (an "Indemnified Party"), indemnified party shall give prompt notice to the party from which such indemnity is sought (the "Indemnifying Party") of any claim or of the commencement of any proceeding with respect to indemnitee party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that (i) an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (1) the indemnifying party agrees to pay such fees and expenses; (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any proceeding (including impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there are likely to be one or more legal defenses available to it that are inconsistent with those available to the indemnifying party or that a conflict of interest is likely to exist among such indemnified party and any other indemnified parties (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified 15 16 party); and (ii) subject to clause (3) above, the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party shall not be subject to any liability for any settlement made without its consent. The indemnifying party shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder. (d) Contribution. If the indemnification provided for in this Section 7 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the this Section 7(d). Notwithstanding the provision of this Section 7(d), an indemnifying party that is a Holder shall not be required to contribute any amount which is in excess of the amount by which the total proceeds received by such Holder from the sale of the Registrable Shares sold by such Holder (net of all underwriting discounts and commissions) exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8. Rule 144. The Company covenants that it will use all reasonable commercial efforts to timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the SEC under the Securities Act) and the rules and regulations adopted by the SEC thereunder (or if the Company 16 17 is not required to file such reports, the Company will, upon the request of any Holder of Registrable Shares, make publicly available other information), and will take such further action as any Holder of Registrable Shares may reasonably request, all to the extent required from time to time to enable such Holder of Registrable Shares to sell Registrable Shares within the exemption provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder of Registrable Shares, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 9. Rights of Holdings. In the event that Holdings receives any shares of Company Common Stock pursuant to and in accordance with the terms of the Holdings Agreement, and so long as at least one other Holder (which is not a Permitted Transferee or Permitted Assignee of Holdings) owns Registrable Shares and this Agreement has not been terminated in accordance with its terms, such shares received by Holdings shall then and thereafter for purposes of this Agreement constitute Registrable Shares (subject to the qualifications set forth in the definition of Registrable Shares) and Holdings shall then and thereafter for purposes of this Agreement be a Holder in respect of such Registrable Shares. Notwithstanding the foregoing, in respect of the Demand Registration rights granted to Holders under Section 2 of this Agreement, Holdings (and the Permitted Transferees and Permitted Assignees of Holdings), as a Holder hereunder, shall not have the right to request any Demand Registrations, but only the right to participate with other Holders in such Demand Registrations in accordance with and subject to the provisions of Section 2. Also, in respect of the termination provisions set forth in Section 10(a) below, the Registrable Shares owned by Holdings hereunder (or any Permitted Transferee or Permitted Assignee thereof) shall not be Registrable Shares for purposes of any determinations made thereunder. 10. Miscellaneous. (a) Termination. Section 2 of this Agreement shall terminate on the later of 2 years after the date of this Agreement or the date when the H&F Funds collectively own less than 2,285,000 Registrable Shares (appropriately adjusted for stock splits, combinations, stock dividends and similar transactions). This Agreement and the obligations and rights of the Company and the Holders hereunder (other than Section 7 hereof) shall terminate on the earlier of (i) the first date on which there remains outstanding Registrable Shares having a value (based on the closing price per share of Common Stock) of less than $20 million and (ii) 5 years after the date of this Agreement. (b) Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case, notice shall be sent to each of the Stockholders at the address indicated below such Stockholder's name on the signature pages hereto, and to the Company at the address indicated below: 17 18 Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Randall T. Mays Telecopy: (210) 822-2299 with a copy to: Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Kenneth E. Wyker, Esq. Telecopy: (210) 822-2299 Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201 Attention: R.W. Smith, Jr., Esq. Telecopy: (410) 539-1700 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. (c) Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". This Agreement shall not be construed for or against either party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. All terms defined in this Agreement in the singular shall have the same comparable meanings when used in the plural and vice versa, unless otherwise specified. (d) Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. (e) Assignment. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned (whether by operation of law or otherwise) by any Holder without the consent of the Company, or by the Company without the consent of Holders of at least a majority in number of the Registrable Shares then outstanding; provided that any Holder can assign its rights hereunder to a Permitted Transferee or Permitted Assignee without the consent of the Company. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective 18 19 successors and assigns. In no event shall any transferee of Common Stock be entitled, solely as a result of such transfer, to any of the benefits of this Agreement or to enforce the same. (f) Governing Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Delaware (without reference to the choice of law provisions), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. (g) Severability. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby. Upon any such holding that any provision of this Agreement is null, void or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant to an order or judgment of a court or other competent authority, such party shall incur no liability or obligation unless such party did not in good faith seek to resist or object to the imposition or entering of such order or judgment. (h) Injunctive Relief. The parties acknowledge that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved person or entity will be irreparably damaged and will not have an adequate remedy at law. Any such person or entity shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties shall raise the defense that there is an adequate remedy at law. (i) Attorneys' Fees. If any party to this Agreement brings an action to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including without limitation reasonable attorneys' fees, incurred in connection with such action, including any appeal of such action. (j) Cumulative Remedies. All rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 19 20 (k) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when executed and delivered by each of the parties. (l) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority in number of the Registrable Shares then outstanding, or the Holders have obtained the written consent of the Company. (m) Other Agreements. The Company shall not enter into any registration rights agreements which are in conflict with the provisions of this Agreement. [SIGNATURE PAGES FOLLOW] 20 21 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. CLEAR CHANNEL COMMUNICATIONS, INC. By: ---------------------------------------- Name: Title: HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P. By: Its General Partner, H&F Investors III By: Its Managing General Partner, Hellman & Friedman Associates III, L.P. By: Its Managing General Partner, H&F Investors III, Inc. By: ------------------------- Its: Address: One Maritime Plaza 12th Floor San Francisco, CA 94111 22 H&F ORCHARD PARTNERS III, L.P. By: Its General Partner, H&F Investors III By: Its Managing General Partner, Hellman & Friedman Associates III, L.P. By: Its Managing General Partner, H&F Investors III, Inc. By: ------------------------- Its: Address: One Maritime Plaza 12th Floor San Francisco, CA 94111 H&F INTERNATIONAL PARTNERS III, L.P. By: Its General Partner, H&F Investors III By: Its Managing General Partner, Hellman & Friedman Associates III, L.P. By: Its Managing General Partner, H&F Investors III, Inc. By: ------------------------- Its: Address: One Maritime Plaza 12th Floor San Francisco, CA 94111 ---------------------------- H. Irving Grousbeck Address: c/o Stanford University Graduate School of Business Administration Room L336 Stanford, CA 94305 23 AMERICAN MEDIA MANAGEMENT, INC. By: ---------------------------------------- Its: Address: 1940 Webster Street San Francisco, CA 94115 ---------------------------- Richard Reiss, Jr. Address: c/o Cumberland Associates 1114 Avenue of the Americas New York, NY 10036 ---------------------------- Glenn Krevlin, as Trustee fbo Nina Krevlin, Glenn Krevlin, Michael Krevlin and Jill Krevlin Address: c/o Richard Reiss, Jr. Cumberland Associates 1114 Avenue of the Americas New York, New York 10036 ---------------------------- K. Tucker Andersen Address: c/o Richard Reiss, Jr. Cumberland Associates 1114 Avenue of the Americas New York, New York 10036 24 ---------------------------- Bruce Halle Address: c/o Discount Tire Company 14631 North Scottsdale Road Scottsdale, Arizona 85254 ---------------------------- Timothy J. Donmoyer Address: c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, AZ 85016 ---------------------------- Patricia Salas Pineda Address: c/o NUMMI 45500 Fremont Boulevard Fremont, CA 94538 EL DORADO INVESTMENT COMPANY By:_________________________ Its: Address: c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, AZ 85016 25 ---------------------------- Steven G. Mihaylo Address: 5710 North 25th Place Phoenix, AZ 85016 EM HOLDINGS LLC By: ------------------------- Its: Address: c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, AZ 85016 EX-10.29 4 ESCROW AGREEMENT 1 EXHIBIT 10.29 EXECUTION COPY ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of this 10th day of April, 1997 (this "Agreement"), is by and among Clear Channel Communications, Inc., a Texas corporation ("Purchaser"), Paul J. Meyer, as stockholder representative (the "Stockholder Representative") for each of the persons listed on Exhibit A hereto and as each such person's attorney in fact and agent pursuant to Section 13(b) of the Stock Purchase Agreement (as defined below), EM Holdings LLC, an Arizona limited liability company ("Holdings"), and Chase Trust Company of California, a California corporation, as escrow agent (the "Escrow Agent"). RECITALS A. Concurrently with the execution and delivery hereof, Purchaser is acquiring 1793.504 of the issued and outstanding shares of capital stock of Eller Media Corporation, a Delaware corporation (the "Company"), pursuant to a Stock Purchase Agreement, dated as of February 25, 1997, as amended (the "Stock Purchase Agreement"), by and among Purchaser, the Company and those persons listed on Exhibit A thereto (individually, including Holdings and both option holders and stockholders as identified on such exhibit, each a "Stockholder" and collectively, the "Stockholders"). B. Purchaser and the Stockholders desire to set aside a portion of the consideration to be paid to the Stockholders pursuant to Section 2(b) of the Stock Purchase Agreement, for the purpose of providing Purchaser with a remedy in the event of a breach by the Company or the Stockholders of the representations, warranties and covenants made in the Stock Purchase Agreement. C. Purchaser and the holders of Company Stock Options (as defined in the Stock Purchase Agreement) which have not been exercised prior to the Closing (as defined in the Stock Purchase Agreement) desire to set aside rights to a portion of the Purchaser Common Stock (as defined in the Stock Purchase Agreement) to be delivered to holders of Restated Options (as defined in the Stock Purchase Agreement) upon exercise of such Restated Options pursuant to the Option Assumption Agreements (as defined in the Stock Purchase Agreement), for the purpose of providing Purchaser with a remedy in the event of a breach by the Company or the Stockholders of the representations, warranties and covenants made in the Stock Purchase Agreement. D. Purchaser, Holdings and the Company have entered into that certain Stockholders Agreement, dated as of April 8, 1997 (the "Stockholders Agreement"), pursuant to which the Holdings Stockholders (as defined in the Stockholders Agreement) have been granted certain put rights (the "Put Right"), and obligated themselves with respect to certain purchase rights (the "Redemption Right"), upon the terms and subject to the conditions set forth therein. E. Purchaser and Holdings desire to set aside rights to a portion of the Purchaser Common Stock to be delivered to the Holdings Stockholders upon exercise of the Put Right or the Redemption Right, as the case may be, pursuant to the Stockholders Agreement, 2 for the purpose of providing Purchaser with a remedy in the event of a breach by the Company or the Stockholders of the representations, warranties and covenants made in the Stock Purchase Agreement. F. A material condition to the consummation of the transactions contemplated by the Stock Purchase Agreement is that the parties hereto enter into this Agreement. AGREEMENT NOW THEREFORE, in consideration of the mutual covenants and premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Except as hereinafter defined, capitalized terms used in this Agreement will have the meanings assigned to such terms in the Stock Purchase Agreement. "Account" or "Accounts" shall mean ADCO Account(s) and/or General Account(s). "ADCO Account" shall have the meaning set forth in Section 4(a). "ADCO Amount" shall mean $5 million. "ADCO Contingent Shares" shall mean Contingent Shares deposited in an ADCO Account. "ADCO Initial Shares" shall mean a number of shares of Purchaser Common Stock equal to (a) the ADCO Amount divided by the Average Share Price, (b) multiplied by a fraction of which the numerator is the sum of the percentages set forth opposite the names under the captions "Stockholders" on Exhibit F, and of which the denominator is the sum of the percentages set forth opposite the names under the captions "Stockholders," "Optionees," and "Retained Shares" on Exhibit F. "ADCO Prior Payment" shall mean, in the case of an Optionee or Holdings, the product of multiplying (a) the respective numbers of Deposited Contingent Shares previously deposited in such Holder's ADCO Account, by (b) the Average Share Price. "ADCO Required Amount" shall mean for an Optionee or for Holdings the product of multiplying the ADCO Amount times the percentage set forth opposite their respective names under the captions "Optionees" and "Retained Shares," on Exhibit F. "ADCO Required Number" shall mean for an Optionee or Holdings such number of shares of Purchaser Common Stock as shall be the result of dividing (a) his ADCO Undeposited Difference, by (b) the Average Share Price. "ADCO shortfall" shall have the meaning set forth in Section 7(c). 2 3 "ADCO Shortfall Responsibility" shall mean, for any Holder with an ADCO Undeposited Difference after distribution of Escrow Funds pursuant to Section 7(c), the product of multiplying (a) the amount of any ADCO shortfall, up to the sum of all ADCO Undeposited Differences, by (b) a fraction of which the numerator is such Holder's ADCO Undeposited Difference, and the denominator is the sum of all ADCO Undeposited Differences, all as of the date of distribution. "ADCO Undeposited Difference" shall mean, at any time, in the aggregate, the sum the ADCO Required Amounts for all Optionees and for Holdings, less the aggregate amount of ADCO Prior Payments for all such Holders; and for each Optionee or for Holdings, the ADCO Required Amount for such Holder less his ADCO Prior Payments. "Average Disbursement Share Price" shall mean the average closing price of Purchaser Common Stock on the NYSE during the 10 trading days beginning 13 trading days prior to, as applicable, (a) the date of any disbursement of Escrowed Funds, or (b) the date of determination under Section 5 or 7. "Claim" shall mean a claim for Damages incurred by Purchaser pursuant to Section 12 of the Stock Purchase Agreement. "Claim Date" shall have the meaning set forth in Section 5 hereof. "Claim Expiration Time" shall mean the day prior to the first anniversary of the Closing. If such day is not a Business Day or a trading day on the NYSE, solely for purposes of the valuations required herein, the Escrow Agent shall deem the Claim Expiration Time to be the next previous Business Day which was a trading day on the NYSE. "Claim Notice" shall have the meaning set forth in Section 5 hereof. "Company" shall have the meaning set forth in Recital A hereof. "Contingent Shares" shall mean shares of Purchaser Common Stock issued after the Closing on behalf of Optionees in respect of Restated Options, and on behalf of Holdings in respect of the Put Right or the Redemption Right, as the case may be. "Damage Amount" shall have the meaning set forth in Section 5 hereof. "Deposited Contingent Shares" shall mean at any time the Contingent Shares deposited with the Escrow Agent. "Escrow Agent" shall have the meaning set forth in the heading hereof. "Escrow Amount" shall mean $35 million. "Escrowed Funds" shall have the meaning set forth in Section 4 hereof. 3 4 "Escrowed Shares" shall mean the Initial Shares, the ADCO Initial Shares, and any Deposited Contingent Shares. "Exhibit F" shall mean Exhibit F to the Stock Purchase Agreement. "Final Instruction" shall have the meaning set forth in Section 6 hereof. "General Account" or "General Accounts" shall have the meaning set forth in Section 4(a) hereof. "Holders" shall mean the Stockholders, including Holdings with respect to the Retained Shares. "Holdings" shall have the meaning set forth in the heading hereof. "Indemnifiable Amount" shall mean those amounts for which Purchaser is entitled to indemnity pursuant to Section 12(a) of the Stock Purchase Agreement. "Initial Shares" shall mean a number of shares of Purchaser Common Stock equal to (a) the Escrow Amount divided by the Average Share Price, (b) multiplied by a fraction of which the numerator is the sum of the percentages set forth opposite the names under the caption "Stockholders" on Exhibit F, and of which the denominator is the sum of the percentages set forth opposite the names under the captions "Stockholders," "Optionees," and "Retained Shares" on Exhibit F. "Net Number" shall mean, as to an Optionee, the number of shares of Purchaser Common Stock issued upon any exercise of a Restated Option, minus the number of shares which is equal to the result of dividing the aggregate exercise price of the portion of the Restated Option which was exercised by the closing price per share of Purchaser Common Stock on the NYSE on the trading day prior to the date of exercise of the Restated Option. "Optionees" shall mean Stockholders who at the date hereof hold unexercised Restated Options. "Prior Payment" shall mean, in the case of an Optionee or Holdings, the product of multiplying (a) the respective numbers of Deposited Contingent Shares previously deposited on behalf of such Holder in such Holder's General Account, by (b) the Average Share Price. "Pro rata in proportion to their respective ownership of Escrowed Shares" shall mean, as of the date of determination, the balance(s) remaining in such Stockholder's General Account(s) or ADCO Account(s), as the case may be. "Purchaser" shall have the meaning set forth in the heading hereof. "Put Right" shall have the meaning set forth in Recital D hereof. 4 5 "Redemption Right" shall have the meaning set forth in Recital D hereof. "Reduction Formula" shall mean that number of shares of Purchaser Common Stock equal to the lesser of the result of (a) dividing a Holder's Shortfall Responsibility (or ADCO Shortfall Responsibility, as the case may be) by the Average Share Price (which is the number of shares which otherwise would be required to be deposited in Escrow); and (b) dividing a Holder's Shortfall Responsibility (or ADCO Shortfall Responsibility, as the case may be) by the Average Disbursement Share Price as of the date of determination (which is the number of shares, if available in the subject Account, which otherwise would be required to be distributed from the Escrow to satisfy the applicable Damage Amount). "Required Amount" shall mean for an Optionee or for Holdings the product of multiplying the Escrow Amount times the percentage set forth opposite their respective names under the captions "Optionees" and "Retained Shares," on Exhibit F. "Required Number" shall mean for an Optionee or Holdings such number of shares of Purchaser Common Stock as shall be the result of dividing (a) his Undeposited Difference, by (b) the Average Share Price. "reserve" shall have the meaning set forth in Section 7 hereof. "Respective Percentages" shall mean the indicated respective percentages set forth opposite a Stockholder's, Optionee's or Holdings' name on Exhibit F. "shortfall" shall have the meaning set forth in Section 7(d) hereof. "Shortfall Responsibility" shall mean, for any Holder with an Undeposited Difference after distribution of Escrow Funds pursuant to Section 7(d), the product of multiplying (a) the amount of any shortfall, up to the sum of all Undeposited Differences, by (b) a fraction of which the numerator is such Holder's Undeposited Difference, and the denominator is the sum of all Undeposited Differences, all as of the date of distribution. "Stockholder Representative" shall have the meaning set forth in the heading hereof. "Stockholder" or "Stockholders" shall have the meaning set forth in Recital A hereof. "Stockholders Agreement" shall have the meaning set forth in Recital D hereof. "Stock Purchase Agreement" shall have the meaning set forth in Recital A hereof. "Total Escrow Amount" shall mean the ADCO Amount and the Escrow Amount (or $40 million). 5 6 "Undeposited Difference" shall mean, at any time, in the aggregate, the sum of the Required Amounts for all Optionees and for Holdings, less the aggregate amount of Prior Payments for all such Holders; and for each Optionee or for Holdings, the Required Amount for such Holder less his Prior Payments. 2. Appointment of Escrow Agent. Purchaser, Holdings and the Stockholder Representative hereby designate and appoint Escrow Agent as escrow agent for the purposes set forth herein, and the Escrow Agent hereby accepts such appointment on the terms herein provided. 3. Deposit of Escrowed Shares. (a) Simultaneously with the execution and delivery of this Agreement, Purchaser, on behalf of the Stockholders and for the benefit of Purchaser, shall deliver to the Escrow Agent one or more certificates registered in the name of the Escrow Agent representing a number of shares of Purchaser Common Stock equal to (i) the Initial Shares, and (ii) the ADCO Initial Shares. In addition, the Optionees and Holdings hereby assign to the Escrow Agent, for the benefit of Purchaser, their rights, as described in Recitals C and E, to such number of Contingent Shares, as may be required of each of the Optionees and Holdings hereunder. Upon such deposit, the duties and obligations of each of the parties to this Agreement will commence. (b) If, prior to the termination of this Agreement, any Restated Options are exercised in whole or in part, a number of shares of Purchaser Common Stock issuable upon such exercise equal to the lesser of (i) the Net Number, or (ii) sum of the Required Number and the ADCO Required Number, shall be delivered to the Escrow Agent and registered in the name of the Escrow Agent, and such shares shall become and thereafter be Escrowed Shares. Deposits first will be made to the ADCO Account and then to the General Account. Notwithstanding the foregoing, the ADCO Required Number need not be deposited if at the time of exercise there shall have been a final distribution of Escrowed Funds pursuant to Section 7(c). (c) If, prior to the termination of this Agreement, the Put Right is exercised, in whole or in part, or the Redemption Right is exercised, a number of shares of Purchaser Common Stock issuable upon such exercise equal to the sum of the Required Number and the ADCO Required Number shall be delivered to the Escrow Agent and registered in the name of the Escrow Agent, and such shares shall become and thereafter be Escrowed Shares. Deposits first will be made to the ADCO Account and then to the General Account. Notwithstanding the foregoing, the ADCO Required Number need not be deposited if at the time of exercise there shall have been a final distribution of Escrowed Funds pursuant to Section 7(c). 4. Maintenance of Escrow. (a) The Escrow Agent shall hold the Escrowed Shares in escrow, and shall maintain and disburse the Escrowed Shares, pursuant to this Agreement. The Escrow Agent shall establish separate accounts in respect of any (i) Initial Shares (one for each Stockholder in respect of whom Initial Shares were deposited), (ii) Deposited Contingent Shares other than 6 7 ADCO Contingent Shares (one for each Optionee in respect of the exercise of Restated Options and one for Holdings in respect of the exercise of the Put Right or the Redemption Right) (the accounts in sub-paragraphs (i) and (ii) individually a "General Account" and collectively, the "General Accounts"), (iii) ADCO Initial Shares (one for each Stockholder in respect of whom ADCO Initial Shares were deposited), and (iv) ADCO Contingent Shares (one for each Optionee in respect of the exercise of Restated Options and one for Holdings in respect of the exercise of the Put Right or the Redemption Right in each case resulting in a deposit of ADCO Contingent Shares) (the accounts in subparagraphs (iii) and (iv) individually an "ADCO Account" and collectively, the "ADCO Accounts"), (v) and shall credit to such respective General Accounts or ADCO Accounts, as the case may be, any stock splits or dividends payable in stock or other securities, that are received with respect to such Initial Shares, ADCO Initial Shares, or Deposited Contingent Shares. (b) All stock splits or dividends payable in stock or other securities that are made by Purchaser with respect to the Escrowed Shares while such shares are held by the Escrow Agent shall be registered in the name of the Escrow Agent, deposited in escrow and governed by this Agreement. The Escrowed Shares, such stock or other dividends deposited in escrow and any cash in lieu of fractional shares of Purchaser Common Stock are collectively referred to in this Agreement as the "Escrowed Funds." All other dividends or distributions made by Purchaser with respect to the Escrowed Shares while such shares are held by the Escrow Agent shall be delivered to the Holders by the Escrow Agent pro rata in accordance with their respective ownership of Escrowed Shares at the time of such distribution, and such dividends or distributions shall be made to each such Holder as soon as practicable after receipt by the Escrow Agent of such dividends or distributions. 5. Purchaser's Right to Assert Claim to Escrowed Funds. Purchaser shall have the right to make one or more Claims on or prior to the Claim Expiration Time by delivering a notice of such Claim (a "Claim Notice") to the Stockholder Representative and the Escrow Agent prior to such time (the date of such notice, the "Claim Date"). If Purchaser asserts a Claim, such Claim Notice shall state with particularity (i) the basis for the Claim, together with sufficient facts relating thereto so that the Stockholder Representative may reasonably evaluate such Claim, (ii) Purchaser's estimate of the amount that equals the aggregate amount of such Indemnifiable Amount (the "Damage Amount") (it being understood that such estimate shall not preclude Purchaser from revising such Damage Amount by notice to the Stockholder Representative and the Escrow Agent and thereafter such revised amount shall become the Damage Amount for all purposes hereunder), and (iii) a calculation of the number of Escrowed Shares to be disbursed from the Escrow Funds in connection with such Damage Amount (for purposes of such calculation, each share of Purchaser Common Stock shall be valued at the Average Disbursement Share Price). 6. Determination of Valid Damage Amount; Final Instruction. For purposes of this Agreement, a "Final Instruction" shall mean a written notice given to the Escrow Agent directing the disbursement of Escrowed Funds in respect of a Damage Amount (which had previously been set forth in a Claim Notice properly delivered in accordance with the provisions of Section 5 hereof), and shall be signed both by Purchaser and by the Stockholder Representative except as otherwise provided below in clause (b) or (d). A Final Instruction shall 7 8 be delivered to the Escrow Agent under the following circumstances, and accompanied by the indicated documentation: (a) If the Stockholder Representative disputes either the validity, amount or calculation of the Claim and/or the Damage Amount, the Stockholder Representative shall give written notice of such dispute to Purchaser, with a copy to the Escrow Agent, within twenty (20) Business Days after the delivery of the Claim Notice by Purchaser to the Stockholder Representative. In such circumstances, no Final Instruction may be given to the Escrow Agent except as provided in (c) or (d) below. (b) If the Stockholder Representative fails to respond to the Claim Notice within twenty (20) Business Days after the delivery to the Stockholder Representative and the Escrow Agent of the Claim Notice, or if the Stockholder Representative notifies the Escrow Agent that there is no dispute with respect to the Claim and the Damage Amount, Purchaser shall have the right to deliver to the Escrow Agent a Final Instruction, signed only by Purchaser, with respect to the Claim and the Damage Amount. (c) If the Stockholder Representative and Purchaser reach an agreement with respect to the proper determination of the Claim and the Damage Amount, the Stockholder Representative and Purchaser shall give to the Escrow Agent a Final Instruction, signed by both the Stockholder Representative and Purchaser, with respect to the Claim and the Damage Amount. (d) If the Stockholder Representative and Purchaser are unable to reach an agreement with respect to the proper determination of the Claim and/or the Damage Amount, the disputed Claim and/or the Damage Amount shall be submitted by Purchaser and the Stockholder Representative to court action to be conducted New Castle County, State of Delaware, as provided in Section 20 of the Stock Purchase Agreement. Upon final, non-appealable resolution of such disputed Claim and/or the Damage Amount, either the Stockholder Representative or Purchaser shall have the right to deliver to the Escrow Agent a Final Instruction with respect to the Claim and the Damage Amount based on and in compliance with the resolution of such court action, signed only by the Stockholder Representative or by Purchaser, as the case may be, and accompanied by a copy of any judgment or other court order with respect thereto. Upon receipt of a Final Instruction in accordance with this Section, the Escrow Agent shall value the Escrowed Funds based on the valuation procedures set forth in Section 8 hereof and shall distribute the Escrowed Funds in accordance with Section 7 hereof. Notwithstanding anything to the contrary in the foregoing, in no event shall the Escrow Agent distribute any portion of the Escrowed Funds to Purchaser with respect to any Claim Notice received by the Escrow Agent after the Claim Expiration Time. The Stockholder Representative acknowledges that a Claim Notice has been made in respect of the ADCO Claim (as defined in the Stock Purchase Agreement) in the amount of the ADCO Amount, which Claim will be treated as a disputed Claim subject to resolution as provided in Section 6(a). The existence and estimation of the ADCO Claim (and the definition 8 9 of the ADCO Amount) shall not preclude Purchaser from making an additional Claim against the Escrow Amount in connection with the ADCO Claim, it being understood that the Total Escrow Amount shall be available if and to the extent required to satisfy the ADCO Claim (with amounts first being charged against the ADCO Amount and thereafter against the Escrow Amount). 7. Distribution of Escrowed Funds. (a) If Purchaser fails to make a Claim on or prior to the Claim Expiration Time in accordance with Section 5 hereof or if any and all Claims have been resolved and paid at such time, then as promptly as practicable thereafter (and in no event later than ten (10) Business Days following the Claim Expiration Time), the Escrow Agent shall deliver the Escrowed Shares with all other Escrowed Funds relating to such Escrowed Shares to the Holders pro rata in accordance with their respective ownership of Escrowed Shares at the time of such distribution. (b) If Purchaser timely makes a Claim or Claims as to which there has been no Final Instruction by the expiration of the Claim Expiration Time, the Escrow Agent promptly shall, at the Claim Expiration Time, (i) multiply the aggregate Damage Amount of all such Claims by 110% (including 110% of the Damage Amount of the ADCO Claim (if any) less the sum of the aggregate ADCO Undeposited Differences and the fair value determined as provided in clause (iii) of this paragraph of all ADCO Accounts) (the "reserve"), (ii) for each General Account, multiply the reserve by the Respective Percentage applicable to the General Account (those opposite Holder names under the caption "Stockholders" being applicable to Initial Shares Accounts and those opposite Holder names under the captions "Optionees" and "Retained Shares" being applicable to Deposited Contingent Share Accounts), (iii) determine the fair value (which for each share of Purchaser Common Stock shall be deemed to be the Average Disbursement Share Price) at the Claim Expiration Time of each Holder's Account(s), and (iv) distribute to each Holder the amount of any excess in his General Account(s) over the reserve applicable to such General Account(s). (c) Upon receipt of a Final Instruction with respect to the ADCO Claim, the Escrow Agent promptly shall, on the date of such receipt, (i) multiply the final Damage Amount for such ADCO Claim by the applicable Respective Percentage(s) (as more particularly described in clause (b) (ii) above), (ii) determine in accordance with Section 8 the fair value on such date of each Holder's ADCO Account(s), (iii) distribute to each Holder the amount of any excess of the amount(s) determined in (ii) over the amount(s) determined in (i), and (iv) distribute the balance of property held in the ADCO Accounts to Purchaser. If any portion of the Damages Amount relating to the ADCO Claim shall remain unsatisfied as a result of ADCO Undeposited Differences in respect of Optionees and/or Holdings (an "ADCO shortfall"), the Escrow Agent shall (x) determine the amount thereof, up to the sum of all ADCO Undeposited Differences, (y) calculate the ADCO Shortfall Responsibility of each Holder with an ADCO Undeposited Difference, and (z) notify Purchaser and such Holders of its determination. For each Holder with an ADCO Shortfall Responsibility, Purchaser shall thereupon reduce the number of shares of Purchaser Common Stock issuable upon exercise of such Holder's Restated Options or Put Right or Redemption Right, as the case may be, by the number of shares determined by the 9 10 Reduction Formula. To the extent the foregoing does not completely satisfy the ADCO Claim, any balance will be satisfied from General Accounts, subject to paragraph (d). (d) After the Claim Expiration Time, upon receipt of a Final Instruction with respect to all Claims, the Escrow Agent promptly shall, on the date of such receipt, (i) multiply the final unsatisfied Damage Amount (including the Damage Amount of the ADCO Claim less the sum (if any) of the aggregate ADCO Undeposited Differences and the fair value determined in accordance with clause (ii) of this paragraph) of all ADCO Accounts) by the applicable Respective Percentage(s) (as more particularly described in clause (b)(ii) above), (ii) determine in accordance with Section 8 the fair value on such date of receipt of each Holder's Account(s), (iii) distribute to each Holder the amount of any excess of the amount(s) determined in (ii) over the amount(s) determined in (i), and (iv) distribute the balance of property held in the General Accounts to Purchaser. If any portion of the Damage Amount shall remain unsatisfied as a result of an Undeposited Difference in respect of Optionees and/or Holdings (a "shortfall"), the Escrow Agent shall (x) determine the amount thereof, up to the sum of all Undeposited Differences, (y) calculate the Shortfall Responsibility of each Holder with an Undeposited Difference, and (z) notify Purchaser and such Holders of its determinations. For each Holder with a Shortfall Responsibility, Purchaser shall thereupon reduce the number of shares of Purchaser Common Stock issuable upon exercise of such Holder's Restated Options or Put Right or Redemption Right, as the case may be, by the number of shares determined by the Reduction Formula. 8. Valuation of Escrowed Shares; Fractional Shares. For purposes of determining the number of Escrowed Shares to be disbursed from the Escrow Funds under this Agreement with respect to a Damage Amount, each share of Purchaser Common Stock shall be valued at the Average Disbursement Share Price and fractional shares shall be rounded to the nearest whole number. 9. Reliance by Escrow Agent; Liability of Escrow Agent. The Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, certificate, receipt, authorization or other paper or document that the Escrow Agent believes to be genuine and what it purports to be. The Escrow Agent may confer with its own corporate or outside legal counsel in the event of any dispute or question as to the construction of any of the provisions hereof, or its duties hereunder, and shall incur no liability and shall be fully protected in acting in accordance with the written opinions of such counsel. The duties of the Escrow Agent hereunder will be limited to the observance of the express provisions of this Agreement. The Escrow Agent will not be subject to, or be obliged to recognize, any other agreement between the parties hereto or directions or instructions not specifically set forth as provided for herein. The Escrow Agent will not make any payment or disbursement from or out of the Escrow Funds that is not expressly authorized pursuant to this Agreement. The Escrow Agent may rely upon and act upon any instrument received by it pursuant to the provisions of this Agreement that it reasonably believes to be genuine and in conformity with the requirements of this Agreement. The Escrow Agent shall not be held liable for any error in judgment made in good faith by an officer of the Escrow Agent unless it shall be proved that the Escrow Agent was grossly negligent in ascertaining the pertinent facts or acted intentionally in bad faith. The Escrow Agent will not be liable for any action taken or not taken by it under the terms hereof in the 10 11 absence of breach of its obligations hereunder or gross negligence or willful misconduct on its part. Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Escrow Agent had been advised of the likelihood of such loss or damage and regardless of the form of action. 10. Indemnification of Escrow Agent. Purchaser, on the one hand, and the Stockholders collectively (and severally, pro rata in proportion to their Respective Percentages) on the other, will indemnify and hold the Escrow Agent harmless from and against any and all losses, costs, damages or expenses (including, but not limited to, reasonable attorneys' fees) it may sustain by reason of its service as Escrow Agent hereunder, and except such losses, costs, damages or expenses (including, but not limited to, reasonable attorneys' fees) incurred by reason of such acts or omissions for which the Escrow Agent is liable or responsible under the last sentence of Section 9 hereof. Any indemnification amounts payable pursuant to this Section 10 shall be paid one-half by the Purchaser, on the one hand, and one-half by the Stockholders collectively, on the other. 11. Stockholder Representative; Successor Stockholder Representative. (a) The Holders have made, constituted and appointed the Stockholder Representative as their agent and authorized and empowered him to fulfill the role of Stockholder Representative hereunder. In the event of the resignation of the Stockholder Representative, the resigning Stockholder Representative shall appoint a successor either from among the Stockholders or who shall otherwise be acceptable to Purchaser and who shall agree in writing to accept such appointment, and the resigning Stockholder Representative's resignation shall not be effective until such a successor shall exist. The Holders entitled to receive a majority of the Escrowed Shares may remove the Stockholder Representative at any time. If a Stockholder Representative should die or become incapacitated or be removed by the Holders pursuant to this Section 12, his successor shall be appointed within 21 days of his death or incapacity by the remaining Holders entitled to receive a majority of the Escrowed Shares, and such successor either shall be a Stockholder or shall otherwise be acceptable to Purchaser. If the Holders fail to appoint a successor within such 21- day period, then Purchaser shall have the right to appoint the successor from among the Stockholders. The choice of a successor Stockholder Representative appointed in any manner permitted above shall be final and binding upon all of the Holders. The decisions and actions of any successor Stockholder Representative shall be, for all purposes, those of a Stockholder Representative as if originally named herein. (b) Each Holder has made, constituted and appointed the Stockholder Representative as such person's true and lawful attorney in fact and agent, for such person and in such person's name, (i) to receive all notices and communications directed to such Holder under this Agreement and the Stock Purchase Agreement, (ii) to execute and deliver any and all documents required to be executed and delivered by such Holder pursuant to this Agreement in order to effect the transactions contemplated hereby, and (iii) to execute and deliver all instruments and documents of every kind incident to the foregoing to all intents and purposes and with the same effect as such Holder could do personally. Notwithstanding the foregoing, except with respect to administrative and other ministerial tasks, the Stockholder Representative 11 12 is required and entitled to act only at the written direction of Holders entitled to receive a majority of the Escrowed Shares. (c) It is acknowledged by the Holders appointing the Stockholder Representative that the designation of the Stockholder Representative as attorney-in-fact is coupled with an interest and is binding upon such Holders notwithstanding the death, incapacity or dissolution of any such Holder. If any such event shall occur prior to the completion of the transactions contemplated by this Agreement, the Stockholder Representative is, nevertheless, to the extent that he is legally able to do so, authorized and directed to complete all transactions and act pursuant to this authority as if such event had not occurred. Purchaser is entitled to deal solely with the Stockholder Representative in connection with this Agreement and is entitled to rely upon the provisions hereof and the authority granted to the Stockholder Representative to act on behalf of the Holders. (d) The Stockholder Representative's acceptance of his duties under this Agreement is subject to the following terms and conditions, which the parties hereto agree shall govern and control with respect to his rights, duties, liabilities and immunities as Stockholder Representative (but not in his capacity as a Stockholder or as an officer, director, or employee of the Company): (i) The Stockholder Representative makes no representation and has no responsibility as to the validity of this Agreement or of any other instrument referred to herein, or as to the correctness of any statement contained herein, and he shall not be required to inquire as to the performance of any obligation under this Agreement. (ii) The Stockholder Representative shall be protected in acting upon written notice, request, waiver, consent, receipt or other paper or document, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth of any information therein contained, which he in good faith believes to be genuine and what it purports to be. (iii) The Stockholder Representative shall not be liable for any error of judgment, or for any act done or step taken or omitted by him in good faith, or for any mistake of fact or law, or for anything which he may do or refrain from doing in connection therewith, except his own gross negligence or willful misconduct. (iv) The Stockholder Representative may consult with competent and responsible legal counsel selected by him, and he shall not be liable for any action taken or omitted by him in good faith in accordance with the advice of such counsel. (v) The Holders shall bear pro rata all expenses (including transfer taxes and other governmental charges) incurred by the Stockholder Representative in connection with his duties hereunder and shall indemnify him against and save him harmless from any and all claims, liabilities, costs, payments and expenses, including fees of counsel (who may be selected by the Stockholder Representative), for anything done or omitted by him in the 12 13 performance of this Agreement or the Stock Purchase Agreement, except as a result of his own gross negligence or willful misconduct. (vi) The Stockholder Representative shall have no duties or responsibilities except those expressly set forth herein and in the Stock Purchase Agreement. He shall not be bound by any modification of this Agreement or the Stock Purchase Agreement unless in writing and signed by the other parties hereto or thereto and if his duties as Stockholder Representative hereunder or thereunder are affected, unless he shall have given prior written consent thereto. 12. Fees and Expenses of the Escrow Agent. All fees of the Escrow Agent for its services hereunder, together with any expenses reasonably incurred by the Escrow Agent in connection with this Agreement, shall be paid one- half by Purchaser, on the one hand, and one-half by the Holders collectively, on the other. 13. Resignation of the Escrow Agent. The Escrow Agent may resign from its duties hereunder by giving each of the parties hereto not less than sixty (60) days prior written notice of the effective date of such resignation (which effective date shall be at least sixty (60) days after the date such notice is given). The parties hereto intend that a substitute Escrow Agent will be appointed by mutual agreement of Purchaser and the Stockholder Representative to fulfill the duties of the Escrow Agent hereunder for the remaining term of this Agreement in the event of the Escrow Agent's resignation. If on or before the effective date of such resignation, a substitute Escrow Agent has not been appointed, the Escrow Agent will thereupon deposit the Escrowed Funds into the registry of a court of competent jurisdiction. 14. Successor Escrow Agent. Any corporation into which the Escrow Agent in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity may be transferred, shall be the Escrow Agent under this Agreement without further act. 15. Designees for Instructions. Purchaser, may, by notice to the Escrow Agent, designate one or more persons who will execute notices and from whom the Escrow Agent may take instructions hereunder. Such designations may be changed from time to time upon notice to the Escrow Agent from Purchaser. The Escrow Agent will be entitled to rely conclusively on any notices or instructions from any person so designated by Purchaser. 16. Inspection. All property held as part of the escrow shall at all times be clearly identified as being held by the Escrow Agent hereunder. Any party hereto may at any time during the Escrow Agent's business hours (with reasonable notice) inspect any records or reports relating to the Escrowed Funds. 17. Voting of Escrowed Shares. With respect to any matter on which the Escrowed Shares or any other shares of Purchaser Common Stock in the Escrowed Funds are entitled to vote, the Escrow Agent shall seek voting instructions from the Holders. With respect to Holders 13 14 who timely provide such instruction, the Escrow Agent shall vote the Escrowed Shares that would be distributed to such Holders (assuming no Claim is made) in accordance with the instructions received by such Holders, but shall not otherwise vote such shares. 18. Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. Notwithstanding the foregoing, a Claim Notice delivered pursuant to Section 5 hereof and a Final Instruction provided pursuant to Section 6 hereof shall be deemed to have been duly given only if delivered personally, by recognized overnight delivery or by certified or registered mail and if receipt of such Claim Notice or such Final Instruction, as the case may be, was acknowledged in writing. In each case notice shall be sent to: (a) If to Purchaser: Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Randall T. Mays Telephone: (210) 822-2828 Telecopy: (210) 822-2299 with a copy to: Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Kenneth E. Wyker, Esq. Telephone: (210) 822-2828 Telecopy: (210) 822-2299 Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201 Attention: R.W. Smith, Jr., Esq. Telephone: (410) 539-2530 Telecopy: (410) 576-1700 (b) If to the Stockholder Representative: Paul J. Meyer, Esq. c/o Eller Media Corporation 2850 East Camelback Road, Suite 300 Phoenix, Arizona 85016 Telephone: (602) 957-8116 Telecopy: (602) 381-5740 14 15 with a copy to: H & F Investors III, Inc. One Maritime Plaza, 12th Floor San Francisco, California 94111 Attention: John L. Bunce, Jr. Telephone: (415) 788-5111 Telecopy: (415) 788-0176 Heller, Ehrman, White & McAuliffe 333 Bush Street San Francisco, California 94104 Attention: Paul J. Mundie, Esq. Telephone: (415) 772-6000 Telecopy: (415) 772-6168 Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071-2007 Attention: Thomas W. Dobson, Esq. Telephone: (213) 485-1234 Telecopy: (213) 891-8763 (c) If to Holdings: Karl Eller c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Telephone: (602) 957-8116 Telecopy: (602) 957-8602 Scott S. Eller c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Telephone: (602) 957-8116 Telecopy: (602) 957-8602 with a copy to: Paul J. Meyer, Esq. c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Telephone: (602) 957-8116 Telecopy: (602) 957-8602 15 16 Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Thomas W. Dobson, Esq. Telephone: (213) 485-1234 Telecopy: (213) 891-8763 (d) If to the Escrow Agent: Chase Trust Company of California 101 California St., Suite 2725 San Francisco, CA 94111 Attention: Hans H. Helley Telephone: (415) 954-9506 Telecopy: (415) 693-8850 or to such other place and with such other copies as either party may designate as to itself by written notice to the others. 19. Assignment; Binding Effect. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other parties. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 20. Amendment and Termination. This Agreement may be amended or modified by and upon written notice to the Escrow Agent given jointly by Purchaser, Holdings and the Stockholder Representative, but the duties and responsibilities of the Escrow Agent may not be increased without its written consent. This Agreement will terminate on the date on which all the Escrowed Funds have been distributed in accordance with the terms set forth herein. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. Severability and Further Assurances. This Agreement constitutes the entire agreement among the parties and supersedes all prior and contemporaneous agreements and undertakings on the parties in connection herewith. No failure or delay of the Escrow Agent in exercising any right, power or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power or remedy preclude any other or further exercise of any right, power or remedy. In the event that any one or more of the provisions contained in this Agreement, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. Each of the parties hereto shall, at the request of any other party, deliver to the requesting party all further documents or other assurances as may reasonably be necessary or desirable in connection with this Agreement. 16 17 23. Titles. The titles, captions or headings of the Sections herein are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 24. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware without regard to the principles of conflicts of laws. 25. Tax Reporting. Unless otherwise required by Treasury Regulations issued in the future, the parties will treat the Escrowed Shares and any other shares of Purchaser Common Stock deposited with the Escrow Agent hereunder for purposes of Section 468B(g) of the Internal Revenue Code of 1986, as amended, and for all other income tax purposes as being owned by the Holders during the period such shares are held in escrow, and therefore any income earned on such shares during such period will be allocated and reported to the Holders as such income is earned. The parties will make any elections or filings required to characterize such shares in a manner consistent with the preceding sentence. Each party to this Agreement (other than the Escrow Agent), including the Stockholder Representative on behalf of each Stockholder, shall provide a completed I.R.S. Form W-8 or Form W-9 to the Escrow Agent at the signing of this Agreement. For purposes of reporting to tax authorities, the Escrow Agent will treat all income earned by the escrow as paid upon distribution. Purchaser, the Stockholder Representative, Holdings and the Stockholders, jointly and severally, covenant and agree to indemnify and hold the Escrow Agent harmless against all liability for tax withholding and/or reporting for any payments made by the Escrow Agent pursuant to this Agreement (it, being agreed; however, that as between the parties each is responsible for its or his tax payments or reporting). [SIGNATURE PAGE FOLLOWS] 17 18 IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date first written above. CLEAR CHANNEL COMMUNICATIONS, INC. By -------------------------------------- Name: Title: EM HOLDINGS LLC By -------------------------------------- Karl Eller Managing Member CHASE TRUST COMPANY OF CALIFORNIA By -------------------------------------- Hans H. Helley Assistant Vice President, As Escrow Agent ---------------------------------------- Paul J. Meyer, as Stockholder Representative EX-10.30 5 STOCKHOLDERS AGREEMENT 1 EXHIBIT 10.30 EXECUTION COPY STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of April 9, 1997, is entered into by and among Eller Media Corporation, a Delaware corporation (the "Company"), Clear Channel Communications, Inc., a Texas corporation ("CCC"), and EM Holdings LLC, an Arizona limited liability company ("Holdings"). RECITALS WHEREAS, the Company, CCC and the persons set forth on Exhibit A thereto (the "Selling Stockholders") have entered into that certain Stock Purchase Agreement, dated as of February 25, 1997, as amended (the "Stock Purchase Agreement"), pursuant to which the Selling Stockholders have agreed to sell to CCC, and CCC has agreed to purchase from the Selling Stockholders, an aggregate of 1,793.504 shares of outstanding Common Stock, par value $.01 per share ("Company Common Stock"), of the Company; WHEREAS, as a result of the transactions contemplated by the Stock Purchase Agreement, CCC will own 1,793.504 shares of Company Common Stock and Holdings will own 140.450 shares of Company Common Stock; and WHEREAS, Holdings, CCC and the Company desire to enter into this Agreement to regulate certain aspects of their relationship and to provide for, among other things, restrictions on the transfer or other disposition of securities of the Company, and to agree with respect to certain other matters as more fully set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Agreement" has the meaning specified in the heading of this Agreement. "Business Day" shall mean any weekday on which commercial banks in New York City are open. Any action, notice or right which is to be exercised or lapses on or by a given date which is not a Business Day may be taken, given or exercised, and shall not lapse, until the end of the next Business Day. "CCC" has the meaning specified in the heading of this Agreement. 2 "CCC Common Stock" shall mean the Common Stock, par value $.10 per share, of CCC, as constituted on the date hereof. If the CCC Common Stock is after the date hereof reclassified or changed into other shares of capital stock or other securities or property, including by reason of a merger, consolidation, reorganization or recapitalization, or if CCC pays a dividend or makes a distribution on the CCC Common Stock in shares of capital stock or other securities or property (excluding cash) or subdivides (or combines) its outstanding shares of CCC Common Stock into a greater (or smaller) number of shares of CCC Common Stock, a share of CCC Common Stock shall be deemed to be such number of shares of stock and amount of other securities or property (excluding cash) to which a holder of CCC Common Stock would be entitled if such holder were a record holder of a share of CCC Common Stock on the date hereof and continuously to the date of determination. "CCC Stockholders" shall mean CCC and each of its direct and indirect Permitted Transferees, so long as any such Person shall hold Company Shares. "Change of Control" shall mean (a) 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, (b) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are defined in Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, or (c) the adoption of a plan relating to the liquidation or dissolution of the Company; provided, however, that a transaction in which the Company becomes a subsidiary of another entity shall not constitute a Change of Control if (a) the stockholders of the Company immediately prior to such transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, at least a majority of the voting power of the outstanding voting stock of the Company immediately following the consummation of such transaction and (b) immediately following the consummation of such transaction, no "person" or "group" (as such terms are defined above), other than such other entity (but including holders of equity interests of such other entity), "beneficially owns" (as such term is defined above), directly or indirectly through one or more intermediaries, more than 50% of the voting power of the outstanding voting stock of the Company. "Company" has the meaning specified in the heading of this Agreement. "Company Common Stock" has the meaning specified in the first recital of this Agreement. "Company Shares" shall mean the Company Common Stock as constituted on the date hereof. If the Company Common Stock is after the date hereof reclassified or changed into other shares of capital stock or other securities or property, including by reason of a merger, consolidation, reorganization or recapitalization, or if the Company pays a dividend or makes a distribution on the Company Common Stock in shares of capital stock or other securities or 2 3 property (excluding cash) or subdivides (or combines) its outstanding shares of Company Common Stock into a greater (or smaller) number of shares of Company Common Stock, a share of Company Common Stock shall be deemed to be such number of shares of stock and amount of other securities or property (excluding cash) to which a holder of Company Common Stock would be entitled if such holder were a record holder of a share of Company Common Stock on the date hereof and continuously to the date of determination. "Eller Stockholders" shall mean Scott Eller, Loel Ranches, Inc., Red River Resources, Inc., Eller Family L.L.C., Elissa Eller Goodman, Karl Eller and Joan Eller. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Holdings" has the meaning specified in the heading of this Agreement. "Holdings Stockholders" shall mean Holdings and each of its direct and indirect Permitted Transferees, so long as any such Person shall hold Company Shares. "Permitted Transferee" shall mean: (a) as to any Holdings Stockholder, (i) any Eller Stockholder; (ii) any person who is the spouse or former spouse of, or any lineal descendent of, or any spouse of such lineal descendant of, or the grandparent, parent, brother or sister of, or spouse of such brother or sister of, an Eller Stockholder or a Permitted Transferee of such person; (iii) upon the death of any Eller Stockholder or any Permitted Transferee of such person, the executors of the estate of such Eller Stockholder or Permitted Transferee, any of such Eller Stockholder's or such Permitted Transferee's heirs, testamentary trustees, devisees, or legatees; (iv) any trust principally for the benefit of one or more of the Eller Stockholders or Permitted Transferees (including a charitable lead or remainder trust); (v) upon the disability of any Eller Stockholder or Permitted Transferee, any guardian or conservator of such Eller Stockholder or Permitted Transferee or (vi) any other transferee approved by CCC, provided that in each case such transferee assumes and agrees to perform and becomes a party to this Agreement; and (b) as to CCC, any transferee who assumes and agrees to perform and becomes a party to this Agreement. "Person" shall mean any individual, corporation, partnership, limited liability company, joint venture association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Put Date" has the meaning specified in Section 3(a)(ii) of this Agreement. "Put Notice" has the meaning specified in Section 3(a)(ii) of this Agreement. "Put Obligation" has the meaning specified in Section 3(a)(i) of this Agreement. 3 4 "Put Option Shares" has the meaning specified in Section 3(a)(i) of this Agreement. "Put Right" has the meaning specified in Section 3(a)(i) of this Agreement. "Redemption Date" has the meaning specified in Section 3(b)(ii) of this Agreement. "Redemption Notice" has the meaning specified in Section 3(b)(ii) of this Agreement. "Redemption Right" has the meaning specified in Section 3(b)(i) of this Agreement. "Registration Rights Agreement" shall mean that certain Registration Rights Agreement, dated as of the date hereof, among CCC and the persons listed on the signature pages thereof, as the same may be amended, modified, supplemented or restated from time to time. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Selling Stockholders" has the meaning specified in the first recital of this Agreement. "Stockholders" shall mean each of the Holdings Stockholders and the CCC Stockholders. "Stock Purchase Agreement" has the meaning specified in the first recital of this Agreement. "Transfer" means, with respect to any security, any direct or indirect, sale, assignment, hypothecation, pledge or other disposition of such security or any interests therein. "Transfer Price" shall mean, with respect to each Company Share (or fraction thereof), the sum of (a) 7,700 shares of CCC Common Stock (or the equivalent fraction thereof, as the case may be), subject to adjustment as provided in the definition of CCC Common Stock and subject to the Escrow Agreement (as defined in the Stock Purchase Agreement), plus, without duplication, (b) any cash dividends or other cash distributions which would have been payable to the holder of such Company Share (without interest thereon), if, on the date hereof, he had become and remained until the date of determination a record holder of such shares of CCC Common Stock, plus (c) any cash payment in lieu of fractional shares that the holder of such Company Share is entitled to receive pursuant to Section 3(c) hereof, less (d) any cash dividends or other cash distributions paid to the holder of such Company Share after the date hereof and until the date of determination (without interest thereon). 4 5 2. Transfers of Company Shares. (a) Restrictions Generally; Securities Act. (i) Each Stockholder agrees that it will not, directly or indirectly, Transfer any Company Shares except in accordance with the terms of this Agreement. In the event a Transfer of any Company Shares is attempted in violation of the provisions of this Agreement, such Transfer shall be void and of no effect, the Company shall not register or have any obligation to register the Transfer of such shares, and no dividend of any kind whatsoever nor any distribution pursuant to liquidation or otherwise shall be paid by the Company to the transferee in respect to such shares (all such dividends and distributions being deemed waived by the transferee), and the voting rights of such shares, if any, on any matter whatsoever, and all other rights in connection with such shares, shall remain vested in the transferor during the period commencing with such party's initial failure of compliance and ending when compliance shall have occurred. (ii) Each Stockholder agrees that, in addition to the other requirements herein relating to Transfer, it will not Transfer any Company Shares except pursuant to an effective registration statement under the Securities Act, or pursuant to an available exemption from registration under the Securities Act. (b) Legends. (i) Each certificate representing Company Shares shall be endorsed with the following legends and such other legends as may be required by applicable state securities laws: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS, RIGHTS TO REPURCHASE AND RIGHTS TO REQUIRE TRANSFERS CONTAINED IN A STOCKHOLDERS AGREEMENT, DATED AS OF APRIL 9, 1997 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER HEREOF)." "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE." (ii) Any certificate issued at any time in exchange or substitution for any certificate bearing such legends shall also bear such legends, as applicable, unless in the opinion of counsel for the Company, the Company Shares represented thereby are no longer subject to the provisions of this Agreement or the restrictions imposed under the Securities Act or state securities laws, in which case the applicable legend (or legends) may be removed. 5 6 (c) Transfers by Stockholders. Each of the Stockholders agrees that it will not Transfer any Company Shares except (i) pursuant to the provisions of this Agreement or (ii) to a Permitted Transferee. 3. Put Right; Redemption Right. (a) Put Right. (i) At any time and from time to time commencing on the date hereof and ending on the fifth anniversary of the date hereof, the Holdings Stockholders, and each of them, shall have the right (a "Put Right"), individually or together, to sell to CCC, in one or more transactions, in whole or in part, any or all of the outstanding Company Shares then owned by such Holdings Stockholders (the "Put Option Shares"), subject to the notice provisions set forth in Section 3(a)(ii) hereof, and CCC shall be obligated to purchase (a "Put Obligation") from such Holdings Stockholders the Put Option Shares; provided, however, that the Holding Stockholders may only exercise the Put Right on three occasions. The price per share of the Put Option Shares shall equal the Transfer Price on the Put Date (as defined below). (ii) In order to exercise the rights granted to them pursuant to Section 3(a)(i) hereof, the Holdings Stockholder or Holdings Stockholders who desire to exercise such rights (by action in accordance with Section 8 hereof) shall notify CCC in writing (a "Put Notice") of the exercise of their rights hereunder not less than ten (10) nor more than twenty (20) days prior to the date fixed for such purchase. Such Put Notice shall state the following: (A) the purchase date (the "Put Date"); and (B) the number of outstanding Company Shares held by such Holdings Stockholder or Holdings Stockholders to be sold to CCC. (iii) In the event that as of any Put Date, CCC shall not fully satisfy its Put Obligation on such Put Date, interest will accrue from the date of default until the date that such Put Obligation and any accrued interest thereon is satisfied in full, at the rate of 10% per annum (to the extent permitted by law), compounded daily, on an amount equal to the aggregate Transfer Price to be paid on the Put Date with respect to the Company Shares to be purchased. Such interest will be payable in cash. All amounts paid by CCC with respect to any outstanding Put Obligation shall be applied first to any accrued but unpaid interest thereon. (b) Redemption Right. (i) At any time commencing on the seventh anniversary of the date hereof and ending on the tenth anniversary of the date hereof, CCC shall have the right (the "Redemption Right") to call for purchase by CCC all, but not less than all, of the outstanding Company Shares then owned by the Holdings Stockholders, subject to the notice provisions set forth in Section 3(b)(ii) hereof; provided, however, that in the event that CCC or the Company enters into any transaction or agreement which will result in a Change of Control, such Redemption Right may be exercised by CCC immediately prior to such Change of Control. The 6 7 price for each Company Share called for purchase by CCC shall equal the Transfer Price on the Redemption Date (as defined below). (ii) In order to exercise the rights granted to it pursuant to Section 3(b)(i) hereof, CCC (by action in accordance with Section 8 hereof) shall notify the Holdings Stockholders in writing (the "Redemption Notice") of the purchase of Company Shares hereunder not less than ten (10) nor more than twenty (20) days prior to the date fixed for such redemption. The Redemption Notice shall state the following: (A) the redemption date (the "Redemption Date"); (B) that all outstanding Company Shares held by the Holdings Stockholders are to be purchased; and (C) the requisite Transfer Price deliverable upon redemption of each Company Share to be purchased. (c) No Fractional Shares. No fractional shares of CCC Common Stock shall be issued upon the purchase of any Company Shares. Instead of any fractional interest in a share of CCC Common Stock which would otherwise be deliverable upon the purchase of a Company Share, CCC shall pay the holder of such share an amount in cash (computed to the nearest cent) equal to the product of (i) the fraction of a share of CCC Common Stock to which such holder would otherwise be entitled multiplied by (ii) the closing price of the CCC Common Stock on the New York Stock Exchange (or such other securities exchange or automated interdealer quotation system, if any, on which such securities are then listed or quoted) on the trading date immediately prior to the Put Date or the Redemption Date, as the case may be. If more than one share shall be surrendered for purchase at one time, the number of full shares of CCC Common Stock issuable upon purchase thereof shall be computed on the basis of the aggregate number of Company Shares so surrendered. (d) Deposit of Shares and Funds. CCC's obligation to deliver the requisite Transfer Price in accordance with Section 3(a) and Section 3(b) shall be deemed fulfilled if, on or before a Put Date or a Redemption Date, as the case may be, CCC shall deposit, with a bank or trust company, or an affiliate of a bank or trust company, having an office or agency in New York City or Phoenix, Arizona and having a capital and surplus of at least $500,000,000, the aggregate Transfer Price required to be delivered by CCC pursuant to Section 3(a) or Section 3(b), upon the occurrence of the related purchase or redemption, in trust for the account of the holders of the shares to be purchased or redeemed (and so as to be and continue to be available therefor), with irrevocable instructions and authority to such bank or trust company that such shares and funds be delivered upon purchase or redemption of the Company Shares to be purchased or called for redemption. Any interest accrued on the Transfer Price shall be paid to CCC. Any amount of the Transfer Price so deposited and unclaimed at the end of one year from such Put Date or Redemption Date shall be repaid and released to CCC after which the holder or holders of such Company Shares subject to purchase or called for redemption shall look only to CCC for delivery of the requisite Transfer Price, subject to escheat and similar abandoned property laws. 7 8 (e) Surrender of Certificates. Each holder of Company Shares to be purchased or redeemed shall surrender the certificates evidencing such shares (properly endorsed or assigned for transfer) to the bank or trust company or affiliate thereof where CCC has deposited the Transfer Price pursuant to Section 3(d), or, in the event no such deposit has been made, to CCC at the office of CCC, and shall thereupon be entitled to receive the Transfer Price payable pursuant to this Section 3 following such surrender and following the date of such purchase or redemption. In the case fewer than all the shares represented by any such surrendered certificate are to be purchased pursuant to Section 3(a), a new certificate shall be issued at the expense of CCC representing the unpurchased shares. If such notice of purchase or redemption shall have been given, and if on the date fixed for purchase or redemption, the requisite Transfer Price necessary for the purchase or redemption shall have been either set aside by CCC separate and apart from its other funds or assets in trust for the account of the holders of the shares to be purchased or redeemed (and so as to be and continue to be available therefor) or deposited with a bank or trust company or affiliate thereof as provided in Section 3(d) hereof, then, notwithstanding that the certificates evidencing any Company Shares to be purchased or redeemed shall not have been surrendered, the shares represented thereby subject to purchase or redemption shall be deemed no longer outstanding and all rights with respect to such shares shall forthwith after such date cease and terminate, except for the right of the holders to the requisite Transfer Price payable pursuant to this Section 3 without interest upon surrender of their certificates therefor. (f) Notice of Adjustments. Whenever the Transfer Price is adjusted as herein provided, CCC shall: (i) forthwith compute the adjusted Transfer Price and prepare a certificate signed by the Chief Executive Officer, the Chief Financial Officer, any Vice President, the Treasurer or the Controller of CCC setting forth the adjusted Transfer Price, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, and file such certificate forthwith with the transfer agent or agents for the Company Shares and the CCC Common Stock; and (ii) mail a notice stating that the Transfer Price has been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Transfer Price to the Holdings Stockholders at or prior to the time CCC mails an interim statement to its stockholders covering the fiscal quarter during which the facts requiring such adjustment occurred, but in any event within forty-five (45) days of the end of such fiscal quarter. (g) Payment of Taxes. CCC will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of CCC Common Stock on the purchase or redemption of Company Shares pursuant to this Section 3; provided, however, that CCC shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of CCC Common Stock in a name other than that of the registered holder of Company Shares purchased or redeemed or to be purchased or redeemed, and no such issue or delivery shall be made unless 8 9 and until the person requesting such issue has paid to CCC the amount of any such tax or has established, to the satisfaction of CCC, that such tax has been paid. (h) Reservation of Shares. CCC shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued CCC Common Stock and its issued CCC Common Stock held in its treasury, for the purpose of satisfying Put Obligations pursuant to Section 3(a) or purchasing the Company Shares pursuant to Section 3(b), the full number of shares of CCC Common Stock (or other securities or property) then deliverable upon the exercise in full of the Put Right or the Redemption Right, as the case may be. 4. Notice of and Covenant Regarding Corporate Events. The Company and CCC shall give written notice to the Holdings Stockholders at least thirty (30) days prior to any merger or consolidation to which the Company is a party and in which it is not the surviving corporation or the adoption of a plan relating to the liquidation or dissolution of the Company. Furthermore, the Company and CCC agree that, prior to the fifth anniversary of the date hereof, and other than in connection with a Change of Control, the Company will not be a party to any merger or consolidation in which it is not the surviving corporation, or adopt a plan of liquidation or dissolution. 5. Investment. The Holdings Stockholders: (a) understand that the shares of CCC Common Stock to be issued upon exercise of the Put Right and the Redemption Right have not been, and will not be, except as contemplated by the Registration Rights Agreement, registered under the Securities Act, or under any state securities laws, and, upon exercise of the Put Right or the Redemption Right, as the case may be, will be offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering; (b) acknowledge that shares of CCC Common Stock to be issued upon exercise of the Put Right and the Redemption Right will be acquired solely for their own account and not with a view to the distribution thereof, except in accordance with the Securities Act or as contemplated by the Registration Rights Agreement; (c) are sophisticated investors with knowledge and experience in business and financial matters; (d) have received certain information concerning CCC and have had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding shares of CCC Common Stock issuable upon exercise of the Put Right and the Redemption Right; and (e) are able to bear the economic risk and lack of liquidity inherent in holding shares of CCC Common Stock issuable upon exercise of the Put Right and the Redemption Right. 9 10 6. Term. This Agreement shall terminate upon the earliest of (a) the tenth anniversary of the date hereof, (b) the date on which the Holdings Stockholders no longer own Company Shares, and (c) April 30, 1997, in the event the transactions contemplated by the Stock Purchase Agreement have not been consummated on or before such date. 7. Injunctive Relief. The parties acknowledge that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved person or entity will be irreparably damaged and will not have an adequate remedy at law. Any such person or entity shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties shall raise the defense that there is an adequate remedy at law. 8. Notices. Any notices or other communications required or permitted hereunder, shall be sufficiently given if in writing and personally delivered or sent by pre-paid first class mail, overnight courier, telex or facsimile, addressed as follows or to such other address as the parties shall have given notice of pursuant hereto: In the case of the Company: Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Attention: Paul J. Meyer, Esq. Telecopy: (602) 381-5740 With a copy to: Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Thomas W. Dobson, Esq. Telecopy: (213) 891-8763 In the case of CCC or any CCC Stockholder: Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Randall T. Mays Telecopy: (210) 822-2299 10 11 With a copy to: Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Kenneth E. Wyker, Esq. Telecopy: (210) 822-2299 Piper & Marbury L.L.P. 36 South Charles Street Baltimore, Maryland 21201 Attention: R.W. Smith, Jr., Esq. Telecopy: (410) 576-1700 In the case of any Holdings Stockholder: Karl Eller c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Telecopy: (602) 957-8602 Scott S. Eller c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Telecopy: (602) 957-8602 With a copy to: Paul J. Meyer, Esq. c/o Eller Media Corporation 2850 E. Camelback Road, Suite 300 Phoenix, Arizona 85016 Telecopy: (602) 957-8602 Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Thomas W. Dobson, Esq. Telecopy: (213) 891-8763 All such notices and communications shall be deemed to have been duly given: when personally delivered; three Business Days after being deposited in the mail, as aforesaid; next day, if by overnight courier with guaranteed delivery; when answered back, if telexed; and when receipt is acknowledged, if transmitted by facsimile. 11 12 9. Entire Agreement. This Agreement and the other agreements referred to herein represent the entire understanding and agreement among the parties hereto with respect to the subject matter hereof and thereof and supersedes all prior understandings and agreements, whether written or oral. 10. Amendments and Waivers. No modification, amendment or waiver of any provision of this Agreement will be effective unless approved in writing by the Company, CCC and the Holdings Stockholders owning a majority of the Company Shares then subject to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 11. Successors and Assigns. This Agreement will bind and inure to the benefit of and be enforceable by the Company and its successors and assigns, and the Stockholders and the respective successors and assigns of each of them so long as they hold Company Shares; provided, however, that nothing contained herein shall be construed as granting any Stockholder the right to Transfer any of its Company Shares except in accordance with this Agreement. 12. No Inconsistent Agreements. Neither the Company nor CCC will hereafter enter into any agreement, arrangement or understanding with any Person which expressly restricts the performance by the Company or CCC, as the case may be, of their respective obligations hereunder, including, without limitation, the respective obligations of the Company and CCC under Section 3 hereof. 13. Choice of Law. (a) This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Delaware (without reference to the choice of law provisions of Delaware law) except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. (b) Each of the parties hereto irrevocably consents to the service of any process, pleading, notices or other papers by the mailing of copies thereof by registered, certified or first class mail, postage prepaid, to such party at such party's address set forth herein, or by any other method provided or permitted under Delaware law. Additionally, each party hereby appoints RL&F Service Corp., One Rodney Square, Wilmington, Delaware 19810, as agent for service of process in Delaware. (c) Each party irrevocably and unconditionally agrees and consents that any suit, action or other legal proceeding arising out of or related to this Agreement shall be brought and heard in New Castle County, State of Delaware, and each party irrevocably consents to personal jurisdiction in any and all tribunals in said County. 12 13 14. Severability. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby. Upon any such holding that any provision of this Agreement is null, void or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant to an order or judgment of a court or other competent authority, such party shall incur no liability or obligation unless such party did not in good faith seek to resist or object to the imposition or entering of such order or judgment. 15. Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." This Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. All terms defined in this Agreement in the singular shall have the same comparable meanings when used in the plural and vice versa, unless otherwise specified. 16. Attorneys' Fees. If any party to this Agreement brings an action to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including without limitation reasonable attorneys' fees, incurred in connection with such action, including any appeal of such action. 17. Cumulative Remedies. All rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 13 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ELLER MEDIA CORPORATION By ------------------------------------- Karl Eller Chief Executive Officer CLEAR CHANNEL COMMUNICATIONS, INC. By ------------------------------------- Randall T. Mays Executive Vice President EM HOLDINGS LLC By ------------------------------------- Karl Eller Managing Member EX-21 6 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 Subsidiaries of Registrant, Clear Channel Communications, Inc. Name State of Incorporation Clear Channel Communications of Memphis, Inc. Texas Clear Channel Television, Inc. Nevada Clear Channel Radio, Inc. Nevada Clear Channel Management, Inc. Delaware Clear Channel Radio Licenses, Inc. Nevada Clear Channel Television Licenses, Inc. Nevada Clear Channel Productions, Inc. Nevada Clear Channel Metroplex, Inc. Nevada Clear Channel Metroplex Licenses, Inc. Nevada Clear Channel Holdings, Inc. Nevada CCR Houston-Nevada, Inc. Nevada Clear Channel Real Estate Nevada EX-23.1 7 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 Consent of Arthur Andersen LLP As independent public accountants, we hereby consent to the use of our reports included in or made a part of this current report on Form 8-K. It should be noted that we have not audited any consolidated financial statements of Eller Media Corporation subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of the report. ARTHUR ANDERSEN LLP Phoenix, Arizona, April 16, 1997 EX-23.2 8 CONSENT OF KPMG PEAT MARWICK, LLC 1 EXHIBIT 23.2 Consent of KPMG Peat Marwick LLP The Board of Directors PMG Holdings, Inc. We consent to the inclusion of our report dated April 27, 1995, with respect to the consolidated balance sheet of PMG Holdings, Inc. and subsidiaries as of December 31, 1994 and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the year then ended, which report appears in the Form 8-K of Clear Channel Communications, Inc. dated April 17, 1997. KPMG Peat Marwick LLP Stamford, Connecticut April 16, 1997 -----END PRIVACY-ENHANCED MESSAGE-----