-----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, Er3AIKFIGe/z5S7hcXKfMyBXjGyJzp6QbTqM4s08MIhFqwqfztSeC1kgAntn9/Gx /F3s1lRo49qJYD0q6VvScg== 0000950134-96-007023.txt : 19961224 0000950134-96-007023.hdr.sgml : 19961224 ACCESSION NUMBER: 0000950134-96-007023 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19961223 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEFTEL BROADCASTING CORP CENTRAL INDEX KEY: 0000922503 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 990113417 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-14207 FILM NUMBER: 96684646 BUSINESS ADDRESS: STREET 1: 6767 WEST TROPICANA AVE CITY: LAS VEGAS STATE: NV ZIP: 89603 BUSINESS PHONE: 7023673322 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996 REGISTRATION NO. 333-14207 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HEFTEL BROADCASTING CORPORATION (Exact name of Registrant as specified in its charter) 6767 WEST TROPICANA AVENUE, SUITE 102 LAS VEGAS, NEVADA 89103 (702) 367-3322 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) ------------------------ DELAWARE 4832 99-0113417 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification No.) organization)
------------------------ L. LOWRY MAYS HEFTEL BROADCASTING CORPORATION 200 CONCORD PLAZA, SUITE 600 SAN ANTONIO, TEXAS 78216 (210) 822-2828 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: RICHARD C. TILGHMAN, JR., ESQ. STEPHEN C. MOUNT, ESQ. STEPHEN A. RIDDICK, ESQ. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. PIPER & MARBURY L.L.P. 1500 NATIONSBANK PLAZA CHARLES CENTER SOUTH 300 CONVENT STREET 36 SOUTH CHARLES STREET SAN ANTONIO, TEXAS 78205 BALTIMORE, MARYLAND 21202
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION DECEMBER , 1996 3,500,000 SHARES HEFTEL BROADCASTING CORPORATION [LOGO] CLASS A COMMON STOCK ------------------ All of the shares of Class A Common Stock offered hereby are being sold by Heftel Broadcasting Corporation (the "Company"). The Class A Common Stock of the Company is traded on the Nasdaq National Market under the symbol "HBCCA." On , 1996, the last reported sale price of the Class A Common Stock was $44.25 per share. See "Price Range of Class A Common Stock." The Company's authorized capital stock currently includes Class A Common Stock, Class B Common Stock and Preferred Stock. The rights of holders of Class A Common Stock and Class B Common Stock are identical, except currently each share of Class B Common Stock generally entitles its holder to ten votes and each share of Class A Common Stock entitles its holder to one vote. There are no shares of Class B Common Stock outstanding. Upon consummation of the merger of the Company and Tichenor Media System, Inc., the rights of the Class B Common Stock will be amended to provide, among other things, that such shares will have no voting rights except in certain circumstances when such shares will be entitled to a class vote. See "Description of Capital Stock." ------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- PRICE UNDERWRITING PROCEEDS TO DISCOUNTS AND TO PUBLIC COMMISSIONS COMPANY(1) - ------------------------------------------------------------------------------------------------- Per Share......................... $ $ $ - ------------------------------------------------------------------------------------------------- Total(2).......................... $ $ $ - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company estimated at $ . (2) The Company has granted to the Underwriters a 30-day option to purchase up to 525,000 additional shares of Class A Common Stock solely to cover over-allotments, if any. To the extent such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------ The shares of Class A Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the Class A Common Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about , 1996. ALEX. BROWN & SONS INCORPORATED CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS MONTGOMERY SECURITIES SMITH BARNEY INC. THE DATE OF THIS PROSPECTUS IS , 1996 3 [ARTWORK] --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS), IF ANY, OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by (i) the more detailed information appearing elsewhere in this Prospectus and in documents incorporated by reference in this Prospectus and (ii) the financial statements, including notes thereto, appearing in this Prospectus or the documents incorporated by reference into this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes the Underwriters' over-allotment option is not exercised. References herein to the "Company" are to Heftel Broadcasting Corporation, a Delaware corporation, and its consolidated subsidiaries unless the context otherwise requires. References to "Clear Channel" are to Clear Channel Communications, Inc., a Texas corporation, and its consolidated subsidiaries and references to "Tichenor" are to Tichenor Media System, Inc., a Texas corporation, and its consolidated subsidiaries. THE COMPANY The Company is the largest Spanish language radio broadcasting company in the United States and currently owns and programs 17 radio stations, 16 of which serve five of the ten largest Hispanic markets in the United States, including Los Angeles, New York, Miami, Chicago and Dallas/Fort Worth. The Company has agreed to acquire Tichenor, the third largest Spanish language radio broadcasting company in the United States (the "Tichenor Merger"). Tichenor owns or programs 20 radio stations which serve six of the ten largest Hispanic markets in the United States, including San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso. Following the Tichenor Merger, the Company will own or program 37 radio stations in 11 markets, including stations in each of the top ten Hispanic markets in the United States. The Company's strategy is to own and program top performing radio stations, principally in the largest Spanish language radio markets in the United States. The top ten Hispanic markets account for approximately 17.2 million Hispanics, representing approximately 63% of the total Hispanic population in the United States. Upon completion of the Tichenor Merger, the Company will have the largest Spanish language radio station combination, as measured by audience and revenue share, in eight of the top ten Hispanic markets. Additionally, the Company will have the highest rated radio station in any format in four of the top ten Hispanic markets. The Company intends to acquire or develop additional Spanish language stations in the leading Hispanic markets. The following table sets forth certain information regarding the Company's radio stations owned or programmed, assuming completion of the Tichenor Merger:
RANKING OF NO. OF MARKET BY STATIONS HISPANIC ----------- POPULATION(1) MARKET AM FM - ------------- ------------------------------------------------------- --- --- 1 Los Angeles............................................ 1 1 2 New York(2)............................................ 3 0 3 Miami.................................................. 2 2 4 San Francisco/San Jose................................. 0 2 5 Chicago................................................ 2 1 6 Houston................................................ 2 4 7 San Antonio............................................ 2 2 8 McAllen/Brownsville/Harlingen.......................... 1 2 9 Dallas/Fort Worth...................................... 3 3 10 El Paso................................................ 2 1 33 Las Vegas.............................................. 1 0 --- --- Total.................................................. 19 18
-------------------- (1) Ranking of the principal radio market served by the Company's station(s) among all U.S. radio markets by Hispanic population as reported by Strategy Research Corporation -- 1996 U.S. Hispanic Market Study. (2) Includes WGLI-AM serving New York which is currently not broadcasting. 3 5 The Company believes Spanish language radio broadcasting has significant growth potential for the following reasons: - The Hispanic population is the fastest growing population segment in the United States and is expected to grow from an estimated 27.2 million (approximately 10.3% of the total United States population) at the end of 1995 to an estimated 30.7 million (approximately 11.3% of the total United States population) by the year 2000. These estimates imply a growth rate of approximately three times the expected growth rate for the total U.S. population during the same period. - Advertisers have substantially increased their use of Spanish language media in recent years. Total advertising revenues from advertising in Spanish language media rose from $166 million in 1983 to $1.06 billion in 1995. This represents a compound annual growth rate of 16.7%, which is more than double the growth rate of total advertising over the same period. Although Hispanic consumers will spend an estimated $340 billion in 1997, or 6.5% of the total consumer spending in the United States, Spanish language advertising currently represents less than 0.7% of the total advertising expenditures. - Advertisers have begun to target Hispanic households because they are younger and spend a greater percentage of their household income on consumer products than non-Hispanic households. - Hispanics have maintained strong social and cultural ties to their countries of origin, particularly in their continued use of the Spanish language. An estimated 78% of Hispanics speak at least some Spanish and approximately 40% speak it exclusively. Spanish is expected to continue to be the language of preference for Hispanics. - The number of Spanish language media outlets is disproportionately lower than the number of similar English language outlets. In the radio segment, there are currently approximately 400 Spanish language commercial stations, which constitute only 4% of all commercial radio stations in the United States, although the Hispanic population comprises approximately 10.3% of the United States population. The Company's principal executive offices are located at 6767 West Tropicana Avenue, Suite 102, Las Vegas, Nevada 89103 and the telephone number is (702) 367-3322. RECENT DEVELOPMENTS Clear Channel Tender Offer. Clear Channel is a diversified broadcasting company that currently owns or programs 97 radio stations and 18 television stations in 33 markets. On August 5, 1996, Clear Channel completed a tender offer and a related private purchase of stock from existing stockholders of the Company (collectively, the "Tender Offer"). As a result of the Tender Offer, Clear Channel currently owns approximately 63% of the Class A Common Stock of the Company. See "Risk Factors -- Relationship Between the Company and Clear Channel." The Tichenor Merger. On July 9, 1996, Clear Channel and Tichenor entered into an Agreement and Plan of Merger (the "Tichenor Merger Agreement") which, subject to the terms and conditions thereof, provides for the acquisition of Tichenor by the Company. Tichenor is a national radio broadcasting company engaged in the business of acquiring, developing and programming Spanish language radio stations in major Hispanic markets located in the United States. Currently, Tichenor owns or programs 20 radio stations serving six of the top ten Hispanic markets in the United States, including San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso. Pursuant to the Tichenor Merger Agreement, a newly-formed wholly owned subsidiary of the Company will merge with and into Tichenor, and Tichenor shall continue as the surviving corporation as a wholly owned subsidiary of the Company. At the time the Tichenor Merger 4 6 Agreement was executed, Clear Channel had commenced but not completed the Tender Offer. The then existing management and the Board of Directors of the Company were not involved in the negotiations concerning the acquisition of Tichenor. On August 14, 1996, after the consummation of the Tender Offer, Clear Channel offered to assign the Tichenor Merger Agreement to the Company in accordance with the Tichenor Merger Agreement, and on October 10, 1996, the current Board of Directors of the Company approved the Tichenor Merger and the assignment to the Company of the Tichenor Merger Agreement. In approving the Tichenor Merger, the Company considered, among other things, the strength of the combined management of the Company and Tichenor; the marketing and operating benefits of the expansion of the Company's presence into each of the top ten Hispanic markets; and the benefits of diversifying the Company's operations thereby reducing its reliance on any individual market. Pursuant to the Tichenor Merger Agreement, the shareholders and warrant holders of Tichenor, including Clear Channel, will receive an aggregate of 5,689,878 shares of Common Stock and approximately $3.4 million in cash. Upon consummation of the Tichenor Merger, the former shareholders and warrant holders of Tichenor, other than Clear Channel, will own 5,559,464 shares of the Class A Common Stock of the Company, representing approximately 42% of the total outstanding Class A Common Stock of the Company on a fully diluted basis, assuming completion of this offering. The Company will also assume Tichenor's outstanding debt, which was approximately $71.3 million on September 30, 1996. In addition, pursuant to the Tichenor Merger Agreement, Clear Channel will convert all of its shares of Class A Common Stock and shares of common stock of Tichenor into 7,428,235 shares of a redesignated Class B Common Stock ("Nonvoting Common Stock") that will not have any voting rights except as specifically provided for in the charter or as otherwise required by law. As used herein, the term "Common Stock" prior to the consummation of the Tichenor Merger shall mean the Company's Class A Common Stock and the existing Class B Common Stock (none of which is currently outstanding) and, upon consummation of the Tichenor Merger, shall mean the Company's Class A Common Stock and the Nonvoting Common Stock. The Tichenor Merger requires the approval of the Federal Communications Commission ("FCC"). The FCC's cross-interest policy bars a party which holds an attributable interest in one or more radio stations in a market from having a "meaningful relationship" with another radio station in that market. A "meaningful relationship" is construed by the FCC to include a non-voting equity position in excess of 33 1/3% of the total outstanding Common Stock. See "The Company -- Federal Regulation of Radio Broadcasting." After consummation of the Tichenor Merger and this offering, Clear Channel will own approximately 36% of the Common Stock (approximately 35% if the Underwriters' over-allotment option is exercised in full). Clear Channel has informed the Company that it is considering a number of alternatives to comply with FCC regulations upon consummation of the Tichenor Merger. In the event that no other alternative is approved by the FCC, Clear Channel may place any remaining shares of Nonvoting Common Stock above the 33 1/3% maximum in a disposition trust for the purpose of sale, through negotiated block transactions or other types of sales. The use of a disposition trust, and the terms thereof, would be subject to the prior consent of the FCC. Upon consummation of the Tichenor Merger, McHenry T. Tichenor, Jr. will enter into an employment agreement to serve as Chairman, President and Chief Executive Officer of the Company for a five year term. Mr. Tichenor is currently the President and Chief Executive Officer of Tichenor. The Tichenor Merger Agreement also provides that following the consummation of the Tichenor Merger, five designees of Tichenor shall constitute the entire Board of Directors of the Company. Subsequent to the Tichenor Merger, Clear Channel will have no overlapping officers or directors with the Company. See "Management -- Management of the Company Following the Tichenor Merger." The Tichenor Merger will be accounted for using the purchase method of accounting. The Tichenor Merger is subject to a number of conditions, including regulatory approvals, and will not be consummated prior to the closing of this offering (the "Offering"), and the approval of 5 7 the Company's existing holders of Class A Common Stock with respect to certain matters relating to the Tichenor Merger. It is not anticipated that purchasers of the Company's Class A Common Stock in the Offering will be entitled to vote on matters relating to the Tichenor Merger. See "Risk Factors -- Tichenor Merger" and "The Tichenor Merger." Financial Matters. As a result of and in connection with the completion of the Tender Offer and certain other events and transactions, the Company incurred certain one-time restructuring charges and recognized other losses during the quarter ended September 30, 1996 totaling approximately $44.6 million, before tax benefits, including $16.2 million of non-cash charges. Such charges consist of approximately $25.1 million relating to the Tender Offer (including $18.8 million incurred in connection with employment contract settlements with former senior executives of the Company), $7.5 million relating to the Company refinancing its credit agreement and $8.1 million relating to the discontinued operations of the radio network owned by Spanish Coast-to-Coast, Ltd., a wholly owned subsidiary of the Company doing business as Cadena Radio Centro ("CRC"). The remainder of the charges relate to the cost to close and dispose of duplicate facilities and severance payments. THE OFFERING Class A Common Stock offered hereby............................ 3,500,000 shares Common Stock to be outstanding after the Offering...................... 15,047,731 shares of Class A Common Stock 0 shares of Class B Common Stock Common Stock to be outstanding after the Offering and after the consummation of the Tichenor Merger............................ 13,309,374 shares of Class A Common Stock 7,428,235 shares of Nonvoting Common Stock(1) 20,737,609 shares of Common Stock Use of proceeds..................... To reduce borrowing under the Credit Agreement (as defined herein). Such funds may be subsequently re-borrowed for general corporate purposes, including working capital and possible acquisitions of radio stations. See "Use of Proceeds." Nasdaq National Market symbol....... HBCCA - --------------- (1) Pursuant to a Second Amended and Restated Articles of Incorporation to be filed by the Company immediately prior to the completion of the Tichenor Merger, the Class B Common Stock authorized at the time of the Offering will be amended to become Nonvoting Common Stock. See "Description of Capital Stock." 6 8 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (Dollars in thousands, except per share data)
COMPANY PRO FORMA AS ADJUSTED(1) ------------- YEARS ENDED SEPTEMBER 30, YEAR ENDED ------------------------------------- SEPTEMBER 30, 1994(2) 1995(3) 1996 1996 --------- ---------- ---------- ------------- STATEMENT OF OPERATIONS DATA: Net broadcasting revenues................................. $ 27,433 $ 64,160 $ 71,732 $ 119,747 Station operating expenses................................ 15,345 43,643 48,896 85,451 Corporate expenses........................................ 3,454 4,720 5,072 6,945 Depreciation and amortization............................. 1,906 3,344 5,140 16,412 --------- ---------- ---------- ----------- Total operating expenses................................ 20,705 51,707 59,108 108,358 --------- ---------- ---------- ----------- Operating income.......................................... 6,728 12,453 12,624 11,389 Other income (expense): Interest expense, net................................... (2,997) (6,389) (11,034) (9,594) Income in equity of joint venture(4).................... 616 -- -- -- Loss on retirement of debt.............................. (1,738) -- (7,461) (7,461) Restructuring charges................................... -- -- (29,011) (29,011) Other expenses, net..................................... (1,407) (428) (1,671) (1,757) --------- ---------- ---------- ----------- Total other income (expense)............................ (5,526) (6,817) (49,177) (47,823) --------- ---------- ---------- ----------- Income (loss) before minority interest and provision for income taxes............................................ 1,202 5,636 (36,553) (36,434) Minority interest in Viva Media(4)........................ (351) (1,167) -- -- Provision for income taxes................................ (100) (150) (65) 3,541 --------- ---------- ---------- ----------- Income (loss) from continuing operations.................. 751 4,319 (36,618) (32,893) =========== Loss from discontinued operations......................... (285) (626) (9,988) --------- ---------- ---------- Net income (loss)......................................... $ 466 $ 3,693 $ (46,606) ========= ========== ========== Income (loss) from continuing operations per common and common equivalent share................................. $ .14 $ .40 $ (3.56) $ (1.69) ========= ========== ========== ========== Net income (loss) per common and common equivalent share................................................... $ .05 $ .34 $ (4.53) ========= ========== ========== Weighted average common shares and common share equivalents outstanding................................. 5,384,678 10,805,346 10,294,967 19,484,845 ========= ========== ========== ========== OTHER OPERATING DATA: Broadcast cash flow(5).................................... $ 12,088 $ 20,517 $ 22,836 $ 34,296
SEPTEMBER 30, 1996 -------------------------- SEPTEMBER 30, PRO -------------------------------- FORMA AS AS 1994 1995 1996 ADJUSTED(6) ADJUSTED(7) -------- -------- -------- ----------- ----------- BALANCE SHEET DATA: Cash and cash equivalents........................ $ 10,219 $ 5,404 $ 5,132 $ 5,132 $ 6,210 Working capital.................................. 18,366 14,967 7,168 7,168 12,086 Total assets..................................... 113,353 151,637 165,751 165,751 486,237 Long-term debt, less current portion............. 59,898 97,516 137,659 30,159 101,410 Stockholders' equity............................. 44,436 43,581 12,101 119,601 308,541
7 9 - --------------- (1) The unaudited pro forma condensed consolidated statements of operations for the year ended September 30, 1996 assume the Transactions (as defined herein) occurred on October 1, 1995. The pro forma information does not purport to present the actual financial position or results of operations of the Company had the Transactions actually occurred on the date specified, nor is it necessarily indicative of the results of operations that may be achieved in the future. See "The Tichenor Merger," "Notes to Unaudited Pro Forma Condensed Consolidated Financial Information" and the Financial Statements and the Notes thereto for each of the Company, Tichenor and the Tichenor Acquisitions included elsewhere in this Prospectus or incorporated herein by reference. (2) During August 1994, the Company completed three separate business acquisitions and began consolidating its previously unconsolidated investment in Viva America Media Group, a Florida general partnership ("Viva Media"). Total net revenues and net income (loss), adjusted for interest expense on retired debt, relating to these acquisitions and transactions from the respective dates of these transactions to September 30, 1994 were approximately $5,488,000 and $(80,000), respectively. (3) During fiscal 1995, the Company completed several radio station acquisitions. Due to the financial effects of these transactions, the results of operations for 1996 reflect a full fiscal year of operations for these radio stations compared to a partial fiscal year in 1995. Consequently, the results of operations for the two years ended September 30, 1996 are not entirely comparable. (4) Effective August 20, 1994, the Company began accounting for its 49% interest in Viva Media on a consolidated basis. Accordingly, Viva Media's results of operations are included in the consolidated financial statements for the period from August 20, 1994 through September 30, 1994, and for each of the fiscal years ended September 30, 1995 and 1996. Prior to August 20, 1994, the accounts and results of operations of Viva Media were accounted for using the equity method of accounting. (5) Data on station operating income excluding corporate expenses, depreciation and amortization (commonly referred to as "broadcast cash flow"), although not calculated in accordance with generally accepted accounting principles, is widely used in the broadcast industry as a measure of a broadcasting company's operating performance. Nevertheless, this measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measures for determining the Company's operating performance or liquidity, which are calculated in accordance with generally accepted accounting principles. (6) As adjusted to give effect to the Offering (at an assumed offering price of $32.25 per share) and the application of the estimated net proceeds therefrom as if the Offering had been consummated on September 30, 1996. (7) Pro forma as adjusted to give effect to the Transactions, including the Offering (at an assumed offering price of $32.25 per share) and the application of the estimated net proceeds therefrom, as if they had been consummated on September 30, 1996. The effect of the Tichenor Merger is based on preliminary purchase price allocations. The pro forma information does not purport to present the actual financial position of the Company had the Transactions actually occurred on the date specified. See "The Tichenor Merger," "Use of Proceeds," "Capitalization" and the Financial Statements and Notes thereto for each of the Company, Tichenor and the Tichenor Acquisitions included elsewhere in this Prospectus or incorporated herein by reference. 8 10 RISK FACTORS In addition to the other information contained or incorporated herein by reference in this Prospectus, the following risk factors should be considered carefully in evaluating an investment in the Class A Common Stock offered by this Prospectus. Recent Change of Control. On August 5, 1996, Clear Channel acquired a controlling interest in the Company and replaced the previous Board of Directors with its own slate of directors. The new management team of the Company may have different operating and strategic philosophies than its predecessor which may take time to integrate into the existing business. There can be no assurance that such integration will not adversely affect the operations of the Company. Tichenor Merger. The consummation of the Tichenor Merger requires FCC approval with respect to the transfer of the broadcast licenses of Tichenor to the Company. The Company and Tichenor filed an application seeking FCC approval for the transfer. However, a formal petition to deny the application was filed with the FCC which the Company plans to vigorously oppose. There can be no assurance that the FCC will grant the transfer application, nor any assurance that post-grant objections will not be made. The consummation of the Tichenor Merger is also subject to the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Pursuant to the requirements of the HSR Act, Clear Channel, as the ultimate parent (as defined under the rules) of the Company, filed a Notification and Report Form with respect to the Tichenor Merger with the Antitrust Division of the Department of Justice (the "Antitrust Division") and the Federal Trade Commission ("FTC") on October 4, 1996. Tichenor also filed a Notification and Report Form with respect to the Tichenor Merger on such date. The Antitrust Division commenced an investigation of the Tichenor Merger but declined to pursue any enforcement action. By letter dated December 4, 1996, the FTC informed the Company that the Company had been granted early termination of the applicable waiting period for the Tichenor Merger under the HSR Act, but there can be no assurance that the Antitrust Division or the FTC will not undertake enforcement action against the Company in connection with future radio station acquisitions. Consummation of the Tichenor Merger is subject to numerous other conditions. See "The Tichenor Merger." Therefore, there can be no assurance that the Tichenor Merger will be consummated in a timely manner or on the terms described herein, if at all. Antitrust Matters. An important element of the Company's growth strategy involves the acquisition of additional radio stations, most of which are likely to require preacquisition antitrust review by the FTC and the Antitrust Division. Following passage of the Telecommunications Act of 1996 (the "1996 Act"), the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks, particularly in instances where the proposed acquiror already owns one or more radio stations in a particular market and the acquisition involves another radio station in the same market. Recently, the Antitrust Division has obtained consent decrees requiring an acquiror to dispose of at least one radio station in a particular market where the acquisition otherwise would have resulted in a concentration of market share by the acquiror. Although the Antitrust Division reviewed the antitrust implications of the Tichenor Merger and decided not to undertake any enforcement action, there can be no assurance that the Antitrust Division or the FTC will not seek to bar the Company from acquiring additional radio stations in a market where the Company's existing stations already have a significant market share. Concentration of Cash Flow from Los Angeles Stations. Broadcast cash flow generated by the Company's Los Angeles stations accounted for approximately 68% of the Company's broadcast cash flow for the year ended September 30, 1996. On a pro forma basis, assuming the Tichenor Merger had occurred on October 1, 1995, the Company's Los Angeles stations would have accounted for 46% of the Company's broadcast cash flow for the year ended September 30, 1996. Increased 9 11 competition for advertising dollars with other radio stations and communications media in the Los Angeles metropolitan area, both generally and relative to the broadcasting industry, increased competition from a new format competitor and other competitive and economic factors could cause a decline in revenue from the Company's Los Angeles stations. A significant decline in the revenue of the Los Angeles stations could have a material adverse effect on the Company's overall results of operations and broadcast cash flow. Financial Leverage; Pledge of Assets. After giving effect to the Offering (at an assumed offering price of $32.25 per share) and application of the net proceeds therefrom as set forth in "Use of Proceeds" and the consummation of the Tichenor Merger, the Company's total debt would have been approximately $103.3 million at September 30, 1996. There can be no assurance that the Company will have sufficient cash flow to satisfy its future debt service requirements, particularly if there is a downturn in the operating performance of its radio stations or in economic conditions. Assets of the Company and the stock and partnership interests of the Company's subsidiaries are pledged to secure the Company's obligations under the Credit Agreement dated August 5, 1996, among the Company, the lenders signatory thereto and NationsBank of Texas, N.A., as agent (the "Credit Agreement"). The Credit Agreement contains various financial and operational covenants and other restrictions with which the Company must comply, including limitations on capital expenditures and the incurrence of additional indebtedness, prohibitions on the payment of cash dividends and the redemption or repurchase of capital stock of the Company and restrictions on the use of borrowings. The Credit Agreement may adversely affect the Company's ability to pursue its strategy of further growth through acquisitions. After giving effect to the application of the proceeds from the Offering and the consummation of the Tichenor Merger, the Company will have approximately $51.7 million available under the Credit Agreement for future borrowings. Integration of the Business of the Company and Tichenor. The Tichenor Merger involves the integration of two companies that have previously operated independently. As soon as practicable following the Tichenor Merger, the Company intends to integrate certain aspects of the operations of Tichenor. However, there can be no assurance that the Company will successfully integrate the operations of Tichenor with those of the Company or that all of the benefits expected from such integration will be realized. Any delays or unexpected costs incurred in connection with such integration could have an adverse effect on the Company's business, operating results or financial position. Additionally, there can be no assurance that the operations, management and personnel of the two companies will be compatible or that the Company or Tichenor will not experience the loss of key personnel. Furthermore, upon consummation of the Tichenor Merger, a new management team will be formed. The new management team of the Company may have different operating and strategic philosophies which may take time to integrate into the existing business. There can be no assurance that such integration will not adversely affect the operations of the Company. See "Management -- Management of the Company Following the Tichenor Merger." Control by the Tichenor Family. Following the completion of the Offering and the consummation of the Tichenor Merger, the Tichenor Family (as hereinafter defined) will have voting control over approximately 34% of the shares of Class A Common Stock. See "The Tichenor Merger." This will enable the Tichenor Family to exert significant influence in electing the Board of Directors and over other management decisions. In any event, pursuant to the Tichenor Merger Agreement, upon consummation of the Tichenor Merger, designees of Tichenor will constitute the entire Board of Directors of the Company. See "The Tichenor Merger -- Tichenor Family Ownership" and "Management -- Management of the Company Following the Tichenor Merger." Growth Through Future Acquisitions; Capital Requirements. One of the Company's growth strategies is to acquire additional radio stations. There can be no assurance that the Company will be able to complete any further acquisitions or, if completed, that such acquired radio stations can be operated profitably or assimilated into the Company's business structure in the manner desired by the Company's management. Entities acquired by the Company may have liabilities for which the 10 12 Company may become responsible. Additional debt or equity financing may be required in order to complete future acquisitions, and there can be no assurance that the Company will be able to obtain such financing. The Company may acquire stations which have not previously broadcast Spanish language programming. In converting these stations to a Spanish language format, revenue and cash flow from station operations generated prior to the conversion may not be indicative of future financial performance. Furthermore, such conversions may result in significant operating losses for an undetermined period of time. Government Regulation of Broadcasting Industry. The domestic broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the FCC for the issuance, renewal, transfer and assignment of broadcasting station operating licenses and limits the number of broadcasting properties the Company may acquire. The 1996 Act, which became law on February 8, 1996, creates significant new opportunities for broadcasting companies but also creates uncertainties as to how the FCC and the courts will enforce and interpret the 1996 Act. The Company's business will continue to be dependent upon acquiring and maintaining broadcasting licenses issued by the FCC, which are currently issued for a term of seven years (the 1996 Act authorizes the FCC to extend the license term to eight years, but this provision has not yet been implemented). There can be no assurance that pending or future renewal applications will be approved, or that renewals will not include conditions or qualifications that could adversely affect the Company's operations. Moreover, governmental regulations and policies may change over time and there can be no assurance that such changes would not have a material adverse impact upon the Company's business, financial position and results of operations. In addition, the FTC and the Antitrust Division have been reviewing media acquisitions, including radio station acquisitions, to determine whether they are in compliance with antitrust laws, even in situations in which the acquisition conforms with the ownership restrictions of the 1996 Act. See "-- Antitrust Matters." Competition. Broadcasting is a highly competitive business. The Company's radio stations compete for audiences and advertising revenues with other radio stations of all formats, as well as with other media, such as newspapers, magazines, television, cable television, outdoor advertising and direct mail, within their respective markets. Audience ratings and market shares are subject to change and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. Future operations are further subject to many variables which could have an adverse effect upon the Company's financial performance. These variables include economic conditions, both general and relative to the broadcasting industry; shifts in population and other demographics; the level of competition for advertising dollars with other radio stations and other entertainment and communications media; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in governmental regulations and policies and actions of federal regulatory bodies, including the FCC. Although the Company believes that each of its stations is able to compete effectively in its respective market, there can be no assurance that any such station will be able to maintain or increase its current audience ratings and advertising revenues. Radio stations can quickly change formats. Any radio station currently broadcasting in either English or Spanish could shift its format to duplicate the format of any of the Company's stations. If a station converted its programming to a format similar to that of a station owned by the Company, the ratings and broadcast cash flow of the Company's station could be adversely affected. New Technologies. The FCC is considering ways to introduce new technologies to the radio broadcast industry, including satellite and terrestrial delivery of digital audio broadcasting and the standardization of available technologies which significantly enhance the sound quality of AM broadcasts. The Company is unable to predict the effect any such new technology will have on the Company's financial condition or results of operations. In addition, cable television operators are introducing a new service commonly referred to as "cable radio" which provides cable television 11 13 subscribers with several high-quality channels of music, news and other information, and direct satellite broadcast television companies are supplying subscribers with several high quality music channels. Uncertainty as to Market Price of the Class A Common Stock. Because the market price of the Class A Common Stock is subject to fluctuation, the market value of the shares of the Class A Common Stock may increase or decrease prior to and following the consummation of the Offering. There can be no assurance that at or after the consummation of the Offering the shares of the Class A Common Stock will trade at the prices at which such shares have traded in the past. The prices at which the Class A Common Stock trades after the consummation of the Offering may be influenced by many factors, including the liquidity of the Class A Common Stock, investor perceptions of the Company and the radio broadcasting industry, the operating results of the Company, the Company's dividend policy, possible future changes in regulation of the radio broadcasting industry and general economic and market conditions. Relationship Between the Company and Clear Channel. Control by Clear Channel. Following the completion of the Offering, Clear Channel will have voting control over approximately 48.5% of the shares of Class A Common Stock. This will enable Clear Channel to exert significant influence in electing the Board of Directors and over other management decisions. Future Sales of Common Stock. Upon consummation of the Tichenor Merger and the Offering, Clear Channel will own approximately 36% of the outstanding Common Stock of the Company on a fully diluted basis (approximately 35% if the Underwriter's over-allotment option is exercised in full), less any shares which may be transferred in order to obtain FCC approval to consummate the Tichenor Merger. Any sale of shares of Common Stock owned by Clear Channel could adversely affect the market price for the Common Stock and could impair the ability of the Company to raise money in the equity markets. Clear Channel has indicated to the Company that it does not currently intend to sell any of its shares of the Company's Common Stock (except as may be necessary to consummate the Tichenor Merger, see "The Tichenor Merger"). In addition, pursuant to a Stockholders Agreement to be entered into in connection with the consummation of the Tichenor Merger and an agreement with the Underwriters in connection with the Offering, Clear Channel has agreed not to sell any shares of the Company's Common Stock for 180 days from the effective date of the Tichenor Merger and for 90 days from the closing of the Offering, respectively (except as may be necessary to obtain the FCC's approval of, or to consummate, the Tichenor Merger). However, there can be no assurances that Clear Channel will not sell any of such shares in the future or that any such contractual restrictions will not be waived. Ownership of Nonvoting Common Stock. Following the consummation of the Tichenor Merger, Clear Channel will own no shares of Class A Common Stock and thus will not be entitled to vote in the election of the Company's directors, although Clear Channel will own all of the outstanding shares of the Company's Nonvoting Common Stock, which will have a class vote on certain matters, including the sale of all or substantially all of the assets of the Company, any merger or consolidation involving the Company where the stockholders of the Company immediately prior to the transaction would not own at least 50% of the capital stock of the surviving entity, any reclassification, capitalization, dissolution, liquidation or winding up of the Company, the issuance of any shares of Preferred Stock by the Company, the amendment of the Company's Certificate of Incorporation in a manner that adversely affects the rights of the holders of Nonvoting Common Stock, the declaration or payment of any non-cash dividends on the Company's Common Stock or any amendment to the Company's Certificate of Incorporation concerning the Company's capital stock. Furthermore, shares of Nonvoting Common Stock will be readily convertible into shares of Class A Common Stock, subject to any necessary FCC consents. These provisions relating to the Nonvoting Common Stock could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of 12 14 depriving stockholders of the opportunity to receive a premium for their shares. Such provisions could also have the effect of making the Company less attractive to a potential acquirer and could result in holders of Class A Common Stock receiving less consideration upon a sale of their shares than might otherwise be available in the event of a takeover attempt. See "Description of Capital Stock." Potential Conflicts of Interest. The nature of the respective businesses of the Company and Clear Channel gives rise to potential conflicts of interest between the two companies. The Company and Clear Channel are each engaged in the radio broadcasting business in Miami, and as a result, they are competing with each other for advertising revenues. Upon consummation of the Tichenor Merger, the Company and Clear Channel will begin competing with each other in additional markets. In addition, conflicts could arise with respect to transactions involving the purchase or sale of radio broadcasting companies, particularly Spanish language radio broadcasting companies, the issuance of additional shares of Common Stock, or the payment of dividends by the Company. Clear Channel has advised the Company that it does not currently intend to engage in the Spanish language radio broadcasting business, other than through its ownership of shares in the Company. However, circumstances could arise that would cause Clear Channel to engage in the Spanish language broadcasting business. For example, opportunities could arise which would require greater financial resources than those available to the Company or which are located in areas in which the Company does not intend to operate. Thus, although Clear Channel has no current intention to do so, there can be no assurance that it will not engage in the Spanish language broadcasting business. In addition, as part of Clear Channel's overall acquisition strategy, Clear Channel may from time to time acquire Spanish language radio broadcasting companies individually or as part of a larger group and thereafter engage in the Spanish language radio broadcasting business. Such activities could directly or indirectly compete with the Company's business. Tichenor Loan Agreement. Concurrent with the execution of the Tichenor Merger Agreement, Clear Channel and a subsidiary of Tichenor entered into a Loan Agreement (the "Tichenor Loan Agreement"), pursuant to which Clear Channel loaned a Tichenor subsidiary $40.0 million to finance the acquisition of two radio stations and related assets in San Francisco. The loan is secured by all of the outstanding stock of a subsidiary of the borrower which holds the radio licenses for the two radio stations in San Francisco. The loan is guaranteed by Tichenor, and the guaranty is secured by all of the outstanding stock of the borrower. The loan and the guaranty will remain an obligation of the Tichenor subsidiary and Tichenor, respectively, following the acquisition of Tichenor by the Company pursuant to the Tichenor Merger. Although the Company will not assume or otherwise have any obligations with respect to the loan or the guaranty, potential conflicts of interest could arise between the Company, as the indirect sole stockholder of the Tichenor subsidiary, and Clear Channel, as a creditor. Following the Tichenor Merger, the Company may refinance all or a part of its consolidated indebtedness, including the loan to the Tichenor subsidiary. There can be no assurance, however, that any such refinancing will be consummated, or if consummated, that the terms thereof will be as favorable as those of the Clear Channel loan. Shares Eligible for Future Sale. The 3,500,000 shares of Class A Common Stock sold in the Offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless acquired by "affiliates" (as defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act ("Rule 144")). 3,679,952 of the currently outstanding shares of Class A Common Stock are freely tradeable without restriction or further registration under the Securities Act, unless acquired by "affiliates." Beginning 90 days after the date of this Prospectus, approximately 2,426,108 of the currently outstanding shares of Class A Common Stock owned by Clear Channel will be eligible for sale in the public market, although they will remain subject to the volume and other limitations (other than the two year 13 15 holding period) of Rule 144; provided, however, as long as the Registration Statement on Form S-3 declared effective on February 26, 1996 remains in effect, subject to any contractual limitations, Clear Channel may sell 2,156,799 of such shares without regard to any limitations contained in Rule 144. Clear Channel has indicated to the Company that it does not currently intend to sell any shares of the Company's Common Stock except as may be necessary to obtain the FCC's approval of, or to consummate, the Tichenor Merger. See "The Tichenor Merger -- Conditions to the Tichenor Merger" and "Shares Eligible for Future Sale." Dilution. Persons purchasing shares of Class A Common Stock at the offering price will incur immediate dilution in net tangible book value per share of the common stock. As of September 30, 1996, the deficit in net tangible book value of the common stock was approximately $109.6 million, or $9.49 per share. The deficit in net tangible book value per share represents the amount of total tangible assets of the Company less total liabilities and the liquidation preference of the Series A Preferred Stock, if any, divided by the number of shares of common stock outstanding. After giving effect to the sale of the 3,500,000 shares of Class A Common Stock offered hereby by the Company (at an assumed offering price of $32.25 per share) and the application of the estimated net proceeds thereof as described in "Use of Proceeds" (after deducting underwriting discounts and commissions and estimated offering expenses), the as adjusted deficit in net tangible book value of the common stock at September 30, 1996 would have been approximately $0.14 per share. This represents an immediate increase in net tangible book value per share of $9.35 to existing stockholders and an immediate net tangible book value dilution per share of $32.39 to investors purchasing shares in the Offering. Net tangible book value dilution per share represents the difference between the amount per share paid by new investors in the Offering and the as adjusted deficit in net tangible book value per share after the Offering. Forward-Looking Statements. This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act. Discussions containing such forward-looking statements may be found in the material set forth under "Summary," "The Tichenor Merger" and "The Company," as well as within the Prospectus generally. In addition, when used in this Prospectus, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward-looking statements as a result of the risk factors set forth herein and the matters set forth in the Prospectus generally. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. The Company cautions the reader, however, that this list of risk factors may not be exhaustive. USE OF PROCEEDS The net proceeds to the Company from the sale of 3,500,000 shares of Class A Common Stock offered hereby by the Company at an assumed public offering price of $32.25 per share (after deducting underwriting discounts and commissions and estimated offering expenses) are estimated to be approximately $107.5 million ($123.7 million if the Underwriters' over-allotment option is exercised in full). The Company will use all of the net proceeds to repay borrowings outstanding under the Credit Agreement. Upon repayment of such borrowings, the amount repaid will become available to the Company for reborrowing under the Credit Agreement for general corporate purposes, including working capital and possible acquisitions of additional broadcast properties, including the Tichenor Merger. Borrowings under the Credit Agreement bear interest at a floating rate based on either (i) the London Interbank Offered Rate ("LIBOR") for deposits in United States dollars, or (ii) the higher of the agent bank's prime rate plus an incremental rate or the federal funds rate plus an incremental rate. The average interest rate for borrowings under the Credit Agreement as of September 30, 1996, was 7.315%. Principal outstanding under the Credit Agreement is due in January 1998. The Company regularly reviews potential acquisitions of radio stations. 14 16 PRICE RANGE OF CLASS A COMMON STOCK The Class A Common Stock is traded on the Nasdaq National Market under the symbol "HBCCA." The following table sets forth for each of the quarters in the fiscal years ended September 30, 1995 and 1996 and the first quarter of fiscal 1997 the high and low closing sale prices per share as reported by the Nasdaq National Market.
HIGH LOW ------ ------ FISCAL YEAR 1995 First Quarter............................................................. $16.00 $ 9.50 Second Quarter............................................................ 13.88 10.00 Third Quarter............................................................. 15.75 10.13 Fourth Quarter............................................................ 21.75 15.25 FISCAL YEAR 1996 First Quarter............................................................. $19.50 $14.75 Second Quarter............................................................ 21.00 15.25 Third Quarter............................................................. 29.88 19.50 Fourth Quarter............................................................ 43.63 28.25 FISCAL YEAR 1997 First Quarter (through December 12, 1996)................................. $47.75 $31.75
DIVIDEND POLICY The Company has never paid a cash dividend on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company intends to retain any earnings for use in the growth of its business. The Company currently is prohibited from paying any cash dividends on its capital stock under the Credit Agreement. 15 17 CAPITALIZATION The following table sets forth, as of September 30, 1996, (a) the actual capitalization of the Company, (b) the capitalization of the Company as adjusted to reflect the sale of the 3,500,000 shares of Class A Common Stock offered hereby by the Company at an assumed offering price of $32.25 per share (after deducting the underwriting discounts and commissions and estimated offering expenses) and the application of the estimated net proceeds therefrom as set forth in "Use of Proceeds" and (c) the pro forma capitalization of the Company to reflect the Transactions (as defined herein), as if they had occurred on September 30, 1996.
SEPTEMBER 30, 1996 ------------------------------------- AS PRO FORMA ACTUAL ADJUSTED AS ADJUSTED -------- -------- ----------- (DOLLARS IN THOUSANDS) Cash and cash equivalents................................ $ 5,132 $ 5,132 $ 6,210 ======== ======== ======== Current portion of long-term debt........................ $ 1,859 $ 1,859 $ 1,901 Long-term debt: Credit Agreement....................................... 135,000 27,500 58,748 Other long-term debt................................... 2,659 2,659 42,662 -------- -------- -------- Total long-term debt........................... 137,659 30,159 101,410 Stockholders' equity: Preferred Stock, $0.001 par value, 5,000,000 shares authorized; none issued and outstanding actual, as adjusted, and pro forma as adjusted................. -- -- -- Class A Common Stock, $0.001 par value; 30,000,000 shares authorized actual and as adjusted; 11,547,731 shares issued and outstanding actual; 15,047,731 shares issued and outstanding as adjusted; 50,000,000 shares authorized pro forma as adjusted and 13,309,374 shares issued and outstanding pro forma as adjusted................................... 11 15 13 Class B Common Stock, $0.001 par value; 7,000,000 shares authorized actual; none issued and outstanding actual and as adjusted; 50,000,000 shares authorized pro forma as adjusted and 7,428,235 shares issued and outstanding pro forma as adjusted(1)......................................... -- -- 8 Additional paid-in capital............................. 102,578 210,074 399,008 Accumulated deficit.................................... (90,488) (90,488) (90,488) -------- -------- -------- Total stockholders' equity..................... 12,101 119,601 308,541 -------- -------- -------- Total capitalization...................... $151,619 $151,619 $ 411,852 ======== ======== ========
- --------------- (1) Upon consummation of the Tichenor Merger, the authorized Class B Common Stock will be amended to become Nonvoting Common Stock. 16 18 THE TICHENOR MERGER GENERAL Tichenor is a national radio broadcasting company engaged in the business of acquiring, developing and programming Spanish language radio stations in major Hispanic markets located in the United States. Currently, Tichenor owns or programs 20 radio stations serving six of the top ten Hispanic markets in the United States, including San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso. Individually or through AM-FM station combinations, Tichenor operates the top-rated radio station in any format in three of the top ten Hispanic markets (San Antonio, McAllen/Brownsville/Harlingen and El Paso), as measured by the Arbitron four book average adults 25-54 demographic. Tichenor operates the top-rated Spanish language radio station in five of its six markets as measured by the same audience share statistics. Tichenor recently entered the San Francisco/San Jose market, the fourth largest Hispanic market, by purchasing KSOL-FM and KZOL-FM (formerly KYLZ-FM) for approximately $40 million. These two stations, previously programmed in English, were converted to a Spanish format in August 1996. These two stations will be simulcast under one Spanish format, representing the first full-signal Spanish FM stations to cover the San Francisco/San Jose market. THE TICHENOR MERGER AGREEMENT On July 9, 1996, Clear Channel and Tichenor entered into the Tichenor Merger Agreement which, subject to the terms and conditions thereof, provides for the acquisition of Tichenor by the Company. The then existing management and Board of Directors of the Company were not involved in the negotiations concerning the acquisition of Tichenor. On August 14, 1996, after the consummation of the Tender Offer, Clear Channel offered to assign the Tichenor Merger Agreement to the Company in accordance with the Tichenor Merger Agreement, and on October 10, 1996, the Board of Directors of the Company approved the Tichenor Merger and the assignment to the Company of the Tichenor Merger Agreement. In approving the Tichenor Merger, the Company considered, among other things, the strength of the combined management of the Company and Tichenor; the marketing and operating benefits of the expansion of the Company's presence into each of the top ten Hispanic markets; and the benefits of diversifying the Company's operations thereby reducing its reliance on any individual market. Pursuant to the Tichenor Merger Agreement, a newly-formed wholly owned subsidiary of the Company will be merged with and into Tichenor and the shares of Tichenor capital stock (other than certain preferred stock) will be converted into shares of the Company's Class A Common Stock. Pursuant to the Tichenor Merger Agreement, (i) 684,168.93 shares of outstanding Tichenor common stock will be converted into an aggregate of approximately 5,354,350 shares of the Company's Class A Common Stock, (ii) 35,772.48 shares of Tichenor's outstanding Junior Preferred Stock will be converted into an aggregate of approximately 155,528 shares of the Company's Class A Common Stock, (iii) 3,000 shares of Tichenor's outstanding 14% Senior Redeemable Cumulative Preferred Stock will be converted into the right to receive an aggregate of $3,000,000, plus approximately $379,000 of accrued and unpaid dividends, and (iv) an existing warrant for Tichenor capital stock, or the shares received upon exercise thereof if the warrant is exercised prior to the effective time of the Tichenor Merger, shall be converted into 180,000 shares of the Company's Class A Common Stock. The ratios at which the Company's Class A Common Stock will be exchanged for shares of Tichenor's common and preferred stock were determined in July 1996 in arms-length negotiations between Clear Channel and Tichenor. The aggregate market value of the Company's Common Stock to be received by Tichenor shareholders (including Clear Channel) was $180.7 million, based on a closing price per share of $32.25 on December 12, 1996 and assuming that the market value per share of the Company's Nonvoting Common Stock is the same as that of the Company's Class A Common Stock). As a result of the Tichenor Merger, Tichenor will become a 17 19 wholly owned subsidiary of the Company. The Company will also indirectly assume Tichenor's outstanding debt which was approximately $71.3 million at September 30, 1996. Prior to consummation of the Tichenor Merger, Clear Channel will purchase 16,664 shares of Tichenor common stock from certain shareholders of Tichenor for approximately $3,000,000. At the effective time of the Tichenor Merger, each share of Tichenor common stock owned by Clear Channel will be converted into 7.8261 shares of Nonvoting Common Stock and each share of the Company's Class A Common Stock owned by Clear Channel will be converted into one share of Nonvoting Common Stock. FUTURE MANAGEMENT TEAM The Tichenor Merger Agreement provides that the Company will take such actions necessary so that immediately after the effective time of the Tichenor Merger five designees of Tichenor shall constitute the entire Board of Directors of the Company. The Tichenor Merger Agreement also provides that at or prior to the effective time of the Tichenor Merger, the Company will enter into an employment agreement with McHenry T. Tichenor, Jr. pursuant to which Mr. Tichenor will serve as Chairman, President and Chief Executive Officer of the Company for a five year term. See "Management -- Management of the Company Following the Tichenor Merger" REGISTRATION RIGHTS; STOCKHOLDERS AGREEMENT The Tichenor Merger Agreement also provides that the Company will grant certain demand and "piggyback" registration rights to certain former Tichenor shareholders (including Mr. Tichenor) who will own an aggregate of 5,180,827 shares of Class A Common Stock following the Tichenor Merger (collectively, the "Major Tichenor Shareholders"), and will grant certain demand and piggyback registration rights to Clear Channel with respect to any shares of Class A Common Stock that may be held from time to time by Clear Channel following the Tichenor Merger. It is also contemplated that Clear Channel and the Major Tichenor Shareholders will enter into a Stockholders Agreement with the Company whereby such stockholders will agree to certain restrictions on the transfer of their shares of Common Stock of the Company and will grant certain rights of first refusal and "tag-along" rights with respect to certain sales of such shares. CONDITIONS TO THE TICHENOR MERGER Consummation of the Tichenor Merger is subject to a number of conditions, including, among others, approval of the Tichenor Merger Agreement or matters relating to the Tichenor Merger by the stockholders of the Company and Tichenor; the receipt by the Company of an opinion from a nationally recognized investment banking firm or financial advisor that the consideration to be paid by the Company in the Tichenor Merger is fair to the stockholders of the Company from a financial point of view; expiration or termination of the applicable waiting period under the HSR Act; effectiveness under the Securities Act of a registration statement relating to the securities of the Company to be issued in the Tichenor Merger; no material adverse effect occurring with respect to Tichenor or the Company; and the receipt of all required FCC approvals. In addition, the consummation of the Tichenor Merger may not occur prior to February 6, 1997. There can be no assurance that all of these conditions will be satisfied or waived or that the Tichenor Merger will be consummated. Clear Channel, which will own a majority of the outstanding shares of the Company's Class A Common Stock on the record date for the vote for the Tichenor Merger, intends to vote all such shares in favor of matters presented to the Company's stockholders related to the Tichenor Merger. It is not anticipated that purchasers of shares of the Company's Class A Common Stock in the Offering will be entitled to vote on such matters related to the Tichenor Merger. See "Risk Factors -- Tichenor Merger." Consummation of the Tichenor Merger requires the approval of the FCC. The FCC's cross-interest policy bars a party that holds an attributable interest in one or more radio stations in a 18 20 market from having a "meaningful relationship" with another radio station in that market. A "meaningful relationship" is construed by the FCC to include a non-voting equity position in excess of 33 1/3% of the total outstanding Common Stock. After consummation of the Tichenor Merger and the Offering, Clear Channel will own approximately 36% of the Common Stock. Clear Channel has informed the Company that it is considering a number of alternatives to comply with FCC regulations upon consummation of the Tichenor Merger. In the event that no other alternative is approved by the FCC, Clear Channel may place any remaining shares of Nonvoting Common Stock above the 33 1/3% maximum in a disposition trust for the purpose of sale through negotiated block transactions or other types of sales. The use of a disposition trust, and the terms thereof, would be subject to the prior consent of the FCC. See "Risk Factors -- Tichenor Merger." TICHENOR FAMILY OWNERSHIP Upon consummation of the Tichenor Merger and after giving effect to the Offering, Mr. Tichenor and certain members of his family (collectively, the "Tichenor Family") will own an aggregate of approximately 4,556,486 shares of Class A Common Stock (representing approximately 34% of the then outstanding Class A Common Stock) and may have the ability, if they act together as a group, to control the Company. The members of the Tichenor Family have entered into a Voting Agreement pursuant to which the majority of the shares of Tichenor common stock and Junior Preferred Stock currently held by them, as well as the approximately 4,345,718 shares of the Company's Class A Common Stock to be received in exchange therefor in the Tichenor Merger, shall be voted in accordance with the instructions of McHenry T. Tichenor, Jr. and McHenry T. Tichenor, Sr. until such time as the FCC shall have approved an amendment to such agreement, whereupon the shares subject to the voting agreement shall be voted in accordance with the instructions of the holders of a majority of such shares. CLEAR CHANNEL OWNERSHIP Upon consummation of the Tichenor Merger, Clear Channel will own only Nonvoting Common Stock and thus will not have the right to vote for the election of directors of the Company, although Clear Channel will have certain class voting rights discussed in more detail below. The Nonvoting Common Stock that Clear Channel will receive in the Tichenor Merger will convert into Class A Common Stock automatically upon sale or transfer to a person or entity other than Clear Channel. Each share of the Nonvoting Common Stock will also be convertible into Class A Common Stock at the option of its holder, subject to any necessary FCC consent. In addition, Clear Channel may convert shares of Class A Common Stock held by it into shares of Nonvoting Common Stock at its option. Holders of the Nonvoting Common Stock will in certain circumstances have certain voting rights. Specifically, so long as Clear Channel owns at least 20% of the Company's Common Stock then outstanding, the Company will not be able to, and will not be able to permit any subsidiary to, without the vote or consent by the holders of a majority of the Nonvoting Common Stock voting as a single class, take any of the following actions: (i) effect the sale, lease or other transfer of all or substantially all of the assets of the Company, or any merger or consolidation involving the Company where the stockholders of the Company immediately prior to such transaction would not own at least 50% of the capital stock of the surviving entity, or any reclassification, recapitalization, dissolution, liquidation or winding up of the Company; (ii) authorize, issue or obligate itself to issue any shares of Preferred Stock; (iii) make or permit any amendment to the Company's certificate of incorporation that adversely affects the rights of the holders of Nonvoting Common Stock; (iv) declare or pay any non-cash dividends on or make any other non-cash distribution on its common stock; or (v) make or permit any amendment or modification to the Company's certificate of incorporation concerning the Company's Common Stock. See "Description of Capital Stock." 19 21 LOAN TO TICHENOR Concurrent with the execution of the Tichenor Merger Agreement, Clear Channel and a subsidiary of Tichenor entered into a Loan Agreement (the "Tichenor Loan Agreement"), pursuant to which Clear Channel loaned $40 million to a Tichenor subsidiary to finance the subsidiary's acquisition of two FM radio stations and related assets serving the San Francisco/San Jose market. The loan is secured by all of the outstanding stock of a subsidiary of the borrower which holds the radio licenses for the acquired stations. The loan is guaranteed by Tichenor, and the guaranty is secured by all of the outstanding stock of the borrower. The loan becomes due on January 1, 1998, and must be repaid in full at that time. The loan has no penalty for early repayment and carries a market rate of interest. See "Risk Factors -- Relationship Between the Company and Clear Channel -- Tichenor Loan Agreement." 20 22 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated financial information presents the Company's balance sheet at September 30, 1996 as if at such date, the following transactions (collectively, the "Transactions") had been completed: (i) the Offering (at an assumed offering price of $32.25 per share) and application of the estimated net proceeds therefrom as set forth in "Use of Proceeds;" (ii) the Tichenor Acquisitions (as defined herein); and (iii) the Tichenor Merger. The following unaudited pro forma condensed consolidated statements of operations present the Company's results of operations for the year ended September 30, 1996 and Tichenor's results of operations for the twelve months ended September 30, 1996, as if the Transactions had been completed at October 1, 1995. The pro forma condensed consolidated financial statements also give effect to various acquisitions completed by Tichenor (the "Tichenor Acquisitions") during the periods presented, as more fully described in the Notes hereto. The purchase price of the Tichenor Merger approximates $256.1 million, assuming the issuance of 5,689,878 shares of the Company's Common Stock (with a per share value equal to $31.75, which was the closing price for the Class A Common Stock on July 9, 1996, the day the Tichenor Merger was announced), the Company's assumption of Tichenor's outstanding debt, which was approximately $71.3 million at September 30, 1996 (on a pro forma basis), plus the redemption of 3,000 shares of Tichenor's outstanding 14% Senior Redeemable Cumulative Preferred Stock for $3,000,000, plus approximately $379,000 of accrued and unpaid dividends, less cash of Tichenor on a pro forma basis. Such purchase price will change based on the actual debt and cash of Tichenor on the closing date for the Tichenor Merger. The Tichenor Merger will be accounted for using the purchase method of accounting. The purchase price will be allocated primarily to FCC licenses and other intangible assets and amortized over 40 years. The pro forma condensed consolidated financial information does not purport to present the actual financial position or results of operations of the Company had the Transactions actually occurred on the dates specified, nor is it necessarily indicative of the results of operations that may be achieved in the future. See "The Tichenor Merger," "Use of Proceeds," "Capitalization" and the Financial Statements included elsewhere in this Prospectus or incorporated herein by reference. 21 23 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1996 (Dollars in thousands, except per share data)
COMPANY THE COMPANY TICHENOR(2) TICHENOR AS REPORTED OFFERING(1) AS ADJUSTED AS REPORTED ACQUISITIONS(3) ----------- ----------- ----------- ----------- --------------- Net broadcasting revenues........................... $ 71,732 $ -- $ 71,732 $44,467 $ 3,548 Station operating expenses.......................... 48,896 -- 48,896 32,417 4,166 Corporate expenses.................................. 5,072 -- 5,072 3,578 345 Depreciation and amortization....................... 5,140 -- 5,140 3,018 496 ---------- -------- ---------- ------- ------- Total operating expenses........................... 59,108 -- 59,108 39,013 5,007 ---------- -------- ---------- ------- ------- Operating income (loss)............................. 12,624 -- 12,624 5,454 (1,459) Interest expense, net............................... (11,034) 8,600 (2,434) (3,063) (2,331) Loss on retirement of debt.......................... (7,461) -- (7,461) -- -- Restructuring charges............................... (29,011) -- (29,011) -- -- Other income (expense), net......................... (1,671) -- (1,671) (197) (7) ---------- -------- ---------- ------- ------- Income (loss) before provision for income taxes..... (36,553) 8,600 (27,953) 2,194 (3,797) Income tax (expense) benefit........................ (65) -- (65) (2,457) -- ---------- -------- ---------- ------- ------- Income (loss) from continuing operations............ $ (36,618) $ 8,600 $ (28,018) $ (263) $(3,797) ========== ======== ========== ======= ======= Income (loss) from continuing operations per common and common equivalent share........................ $(3.56) $(2.03) $(.98)(4) ========== ========== ======= Weighted average shares outstanding................. 10,294,967 13,794,967 683,857 ========== ========== ======= OTHER OPERATING DATA: Broadcast cash flow................................. $22,836 $22,836 $12,050 TICHENOR COMPANY TICHENOR MERGER PRO FORMA PRO FORMA TICHENOR PRO FORMA CONDENSED ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED ----------- --------- ----------- ------------ Net broadcasting revenues........................... $ -- $48,015 $ -- $ 119,747 Station operating expenses.......................... (28)(5) 36,555 -- 85,451 Corporate expenses.................................. -- 3,923 (2,500)(9) 6,495 Depreciation and amortization....................... 784(6) 4,298 6,974(10) 16,412 ------- ------- ------- ---------- Total operating expenses........................... 756 44,776 4,474 108,358 ------- ------- ------- ---------- Operating income (loss)............................. (756) 3,239 (4,474) 11,389 Interest expense, net............................... (1,766)(7) (7,160) -- (9,594) Loss on retirement of debt.......................... -- -- -- (7,461) Restructuring charges............................... -- -- -- (29,011) Other income (expense), net......................... 118(5) (86) -- (1,757) ------- ------- ------- ---------- Income (loss) before provision for income taxes..... (1,648) (4,007) (4,474) (36,434) Income tax (expense) benefit........................ 2,263(8) (194) 3,800(11) 3,541 ------- ------- ------- ---------- Income (loss) from continuing operations............ $ (141) $(4,201) $ (674) $ (32,893) ======= ======= ======= ========== Income (loss) from continuing operations per common and common equivalent share........................ $(6.38)(4) $ (1.69) ======= ========== Weighted average shares outstanding................. 683,857 19,484,845 ======= ========== OTHER OPERATING DATA: Broadcast cash flow................................. $11,460 $34,296
22 24 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 (Dollars in thousands)
TICHENOR MERGER COMPANY THE COMPANY AS TICHENOR PRO FORMA AS REPORTED OFFERING(1) ADJUSTED AS REPORTED ADJUSTMENTS(12) ------------ ------------ ---------- ---------- --------------- ASSETS: Cash and cash equivalents............................. $ 5,132 $ -- $ 5,132 $ 5,066 $ (3,988)(13) Accounts receivable, net.............................. 17,015 -- 17,015 9,851 -- Other current assets.................................. 1,012 -- 1,012 868 -- -------- ---------- -------- -------- -------- Total current assets................................ 23,159 -- 23,159 15,785 (3,988) Property and equipment, net........................... 19,836 -- 19,836 9,436 -- Intangible assets, net................................ 121,742 -- 121,742 74,786 222,961(14) Other assets.......................................... 1,014 -- 1,014 1,506 -- -------- ---------- -------- -------- -------- Total assets........................................ $165,751 $ -- $165,751 $ 101,513 $ 218,973 ======== ========== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities................................... 14,132 $ -- $ 14,132 $ 6,837 $ -- Current portion of long-term debt..................... 1,859 -- 1,859 42 -- Long-term debt, net of current portion: Credit Agreement.................................... 135,000 (107,500) 27,500 31,248 -- Other long-term debt................................ 2,659 -- 2,659 40,003 -- -------- ---------- -------- -------- -------- Total long-term debt, net of current portion........ 137,659 (107,500) 30,159 71,251 -- Deferred income taxes................................. -- -- -- 3,818 49,598 (15) Senior preferred stock................................ -- -- -- 3,379 (3,379)(16) Common stock purchase warrant......................... -- -- -- 4,140 (4,140)(17) -------- ---------- -------- -------- -------- Total liabilities................................... 153,650 (107,500) 46,150 89,467 42,079 Preferred stock....................................... -- -- -- -- -- Junior preferred stock................................ -- -- -- 368 (368)(17) Class A common stock.................................. 11 4 15 -- (2)(17) Class B common stock*................................. -- -- -- -- 8 (17) Common stock (Tichenor)............................... -- -- -- 744 (744)(17) Additional paid-in capital............................ 102,578 107,496 210,074 4,357 180,437 (17) Notes receivable from stockholders.................... -- -- -- (158) 158 (17) (Accumulated deficit) Retained earnings............... (90,488) -- (90,488) 8,130 (8,130)(18) Less treasury stock, at cost.......................... -- -- -- (1,395) 1,395 (17) -------- ---------- -------- -------- -------- Total stockholders' equity.......................... 12,101 107,500 119,601 12,046 172,754 -------- ---------- -------- -------- -------- Total liabilities and stockholders' equity.......... $165,751 $ -- $165,751 $ 101,513 $ 218,973 ======== ========== ======== ======== ======== COMPANY PRO FORMA CONDENSED CONSOLIDATED ------------- ASSETS: Cash and cash equivalents............................. $ 6,210 Accounts receivable, net.............................. 26,866 Other current assets.................................. 1,880 --------- Total current assets................................ 34,956 Property and equipment, net........................... 29,272 Intangible assets, net................................ 419,489 Other assets.......................................... 2,520 --------- Total assets........................................ $ 486,237 ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities................................... $ 20,969 Current portion of long-term debt..................... 1,901 Long-term debt, net of current portion: Credit Agreement.................................... 58,748 Other long-term debt................................ 42,662 --------- Total long-term debt, net of current portion........ 101,410 Deferred income taxes................................. 53,416 Senior preferred stock................................ -- Common stock purchase warrant......................... -- --------- Total liabilities................................... 177,696 Preferred stock....................................... -- Junior preferred stock................................ -- Class A common stock.................................. 13 Class B common stock*................................. 8 Common stock (Tichenor)............................... -- Additional paid-in capital............................ 399,008 Notes receivable from stockholders.................... -- (Accumulated deficit) Retained earnings............... (90,488) Less treasury stock, at cost.......................... -- --------- Total stockholders' equity.......................... 308,541 --------- Total liabilities and stockholders' equity.......... $ 486,237 =========
* Includes Class B referred to in this Prospectus as Nonvoting Common Stock. 23 25 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) Reflects the application of the estimated net proceeds from the Offering, assuming an offering price of $32.25 per share, toward the paydown of debt outstanding under the Credit Agreement and the related effects on interest expense and the effect of the Offering on the Company's Common Stock and additional paid-in capital. (2) Represents the historical operating results of Tichenor for the twelve months ended September 30, 1996 obtained by adding Tichenor operating results for the three months ended December 31, 1995 to operating results for the nine months ended September 30, 1996. Net revenues and net loss for the three months ended December 31, 1995 were $11,354,882 and ($622,892), respectively. (3) Represents the historical operating results of the Tichenor Acquisitions for the period of October 1, 1995 to the respective dates on which Tichenor began operating the acquired stations as a result of the purchase of station assets or entering into time brokerage agreements as follows:
KSOL-FM KYLZ-FM ----------------------------------------------------- PERIOD KQXX-FM THREE MONTHS JULY 1, YEAR ENDED ENDED SIX MONTHS 1996 TO SEPTEMBER 30, DECEMBER 31, ENDED JUNE AUGUST 15, 1996 1995 30, 1996 1996 SUBTOTAL TOTAL ------------- ------------ ----------- ---------- ----------- ----------- Revenues...................... $ 153,804 $ 979,412 $ 1,948,688 $ 467,683 $ 3,413,781 $ 3,547,685 Station operating expenses excluding depreciation and amortization................ 129,100 1,091,720 2,366,525 414,705 4,030,963 4,166,053 Corporate expense............. -- 68,407 200,000 49,247 344,730 344,730 Depreciation and amortization................ 5,600 132,610 287,805 70,069 450,484 490,064 Interest expense.............. -- 701,528 1,296,502 333,005 2,331,033 2,331,035 Other expense................. -- 14,630 (8,757) 874 6,817 6,817 --------- ----------- ----------- ---------- ----------- ----------- Total expense......... 134,700 2,028,988 4,151,031 1,030,003 7,210,018 7,344,719 --------- ----------- ----------- ---------- ----------- ----------- Net loss.............. $ (896) $(1,049,573 ) $(2,204,345) $(642,320) $(3,788,258) $(3,797,134) ========= =========== =========== ========== =========== ===========
(4) Net income per common and common equivalent share for Tichenor is calculated by deducting from net income senior preferred stock dividends and accretion of stock warrant totaling $404,304 for the twelve months ended September 30, 1996 and dividing such result by the weighted average shares outstanding for the respective period. As a result of the Tichenor Merger, the senior preferred stock and stock warrant will be retired and the related dividend and accretion requirements will be eliminated. (5) Represents the elimination of local marketing agreement fees relating to KQXX-FM and KRTX-FM of $146,000 for the year ended September 30, 1996. (6) Represents incremental depreciation and amortization expense for the twelve months ended September 30, 1996 resulting from the Tichenor Acquisitions for the period of October 1, 1995 through the respective dates of purchase as follows:
KSOL-FM/ KRTX-FM KQXX-FM KLTP-FM KYLZ-FM TOTAL ------- -------- ------- --------- ---------- Depreciation...................... $ -- $33,085 $18,589 $206,877 $ 258,551 Amortization...................... 36,458 156,281 14,551 814,460 1,021,751 Less historical................... -- (5,600) -- (490,484) (496,084) ------- -------- ------- -------- ---------- Total................... $36,458 $183,766 $33,140 $530,853 $ 784,218 ======= ======== ======= ======== ==========
The estimated weighted average useful lives of fixed assets, FCC licenses, going concern and other intangibles are assumed to be seven, forty, fifteen and five years, respectively. 24 26 (7) Represents incremental interest expense for the twelve months ended September 30, 1996 associated with borrowings in connection with the Tichenor Acquisitions as if such borrowings were outstanding for the entire periods presented. The purchases of KRTX-FM, KQXX-FM and KLTP-FM were funded with cash from operations and borrowings under Tichenor's credit facility. The purchase of KSOL-FM/KYLZ-FM was funded with a note payable issued to Clear Channel with a weighted average interest rate of 11%. The weighted average interest rate under Tichenor's credit facility during the respective periods is 8% based on historical borrowing costs.
LESS KSOL-FM/ HISTORICAL KRTX-FM KQXX-FM KLTP-FM KYLZ-FM BALANCES TOTAL -------- -------- ------- ---------- ----------- ---------- Interest expense........ $120,000 $ 86,667 $40,000 $3,850,000 $(2,331,035) $1,765,632 ======== ======== ======== ========== =========== ==========
(8) Represents the incremental income tax effect of the pro forma adjustments at an estimated effective income tax rate of 38%. (9) Reflects the elimination of executive compensation and related benefits of approximately $2,500,000 for the year ended September 30, 1996, relating to former officers of the Company terminated in connection with the consummation of the Tender Offer. (10) Reflects incremental amortization expense of approximately $6,974,000 for the year ended September 30, 1996, consisting of (a) the amortization over forty years of additional intangible assets allocated and recorded as a result of the Tichenor Merger of $5,574,000 plus (b) $1,400,000 relating to the amortization of five-year non-compete agreements entered into with former senior management in connection with the termination of their employment in connection with the consummation of the Tender Offer. (11) Reflects the tax benefit assuming the utilization of Heftel's net operating losses against Tichenor's deferred tax liability. (12) Summary of purchase price components and allocation to assets and liabilities acquired: Purchase price: Number of shares of Class A Common Stock to be issued.................... 5,689,878 Assumed per share price.................................................. 31.75 ----------- Purchase price paid in stock............................................. 180,653,627 Amount payable for Tichenor Senior Preferred Stock and related dividends............................................................. 3,379,000 Estimated legal and other transaction costs.............................. 767,373 ----------- Total cash to be paid.................................................... 4,146,373 ----------- Purchase price excluding assumed Tichenor debt........................... 184,800,000 Assumption of Tichenor debt.............................................. 71,293,000 ----------- Total purchase price............................................. 256,093,000 =========== Allocation of purchase price: FCC licenses and other intangible assets................................. 234,398,000 Deferred income tax liability............................................ (49,598,000) Long-term debt........................................................... 71,293,000 ----------- Total purchase price............................................. 256,093,000 ===========
(13) Reflects net cash paid in connection with the Tichenor Merger as follows: Payment of Tichenor Senior Preferred Stock and related dividends...... $(3,379,000) Estimated legal and other transaction cost............................ (767,000) Cash received in collection of notes receivable from Tichenor stockholders........................................................ 158,000 ----------- Net cash paid............................................... $(3,988,000) ===========
25 27 (13) Represents the allocation to intangible assets of the excess purchase price over the fair value of net working capital, tangible assets and long-term liabilities acquired in connection with the Tichenor Merger. For purposes of the preliminary allocation of the purchase price, the carrying amounts of net working capital, tangible assets and long-term liabilities (excluding deferred tax liabilities) are assumed to approximate their fair value. (14) Represents the deferred tax liability resulting from the Tichenor Merger. The deferred tax liability is calculated by applying an assumed effective tax rate of 38% to the difference between the pro forma book and tax basis of the combined entities. Deferred tax assets are recognized to the extent that such assets are expected to be utilized in the carryforward period. (15) Represents the retirement of Tichenor's senior preferred stock at its carrying value with cash of $3,378,749. (16) Represents the conversion of the Tichenor stock warrant and junior preferred stock to Tichenor common stock, the retirement of Tichenor's notes receivable from stockholders and the exchange of each outstanding share of Tichenor common stock into 7.8261 shares of the Class A Common Stock with a per share value of $31.75 in connection with the Tichenor Merger. Also reflects the conversion of 7,428,235 shares of Class A Common Stock ($.001 par value) held by Clear Channel into an equal number of shares of Nonvoting Common Stock. (17) Represents the elimination of the historical retained earnings of Tichenor. 26 28 SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share data) The selected consolidated balance sheet data as of September 30, 1994, 1995 and 1996, and the consolidated statement of operations data for each of the fiscal years then ended are derived from the Company's consolidated financial statements incorporated by reference into this Prospectus.
YEARS ENDED SEPTEMBER 30, ----------------------------------- 1994(1) 1995(2) 1996 --------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Net broadcasting revenues..................................................... $ 27,433 $ 64,160 $ 71,732 Station operating expenses.................................................... 15,345 43,643 48,896 Corporate expenses............................................................ 3,454 4,720 5,072 Depreciation and amortization................................................. 1,906 3,344 5,140 --------- ---------- ---------- Total operating expenses.................................................... 20,705 51,707 59,108 --------- ---------- ---------- Operating income.............................................................. 6,728 12,453 12,624 Other income (expense): Interest expense, net....................................................... (2,997) (6,389) (11,034) Income in equity of joint venture(3)........................................ 616 -- -- Loss on retirement of debt.................................................. (1,738) -- (7,461) Restructuring charges....................................................... -- -- (29,011) Other expenses, net......................................................... (1,407) (428) (1,671) --------- ---------- ---------- Total other income (expense)............................................ (5,526) (6,817) (49,177) --------- ---------- ---------- Income before minority interest and provision for income taxes................ 1,202 5,636 (36,553) Minority interest in Viva Media(3)............................................ (351) (1,167) -- Provision for income taxes.................................................... (100) (150) (65) --------- ---------- ---------- Income from continuing operations............................................. 751 4,319 (36,618) Loss from discontinued operations............................................. (285) (626) (9,988) --------- ---------- ---------- Net income (loss)............................................................. $ 466 $ 3,693 $ (46,606) ========= ========== ========== Income from continuing operations per common and common equivalent share...... $ .14 $ .40 $ (3.56) ========= ========== ========== Net income (loss) per common and common equivalent share...................... $ .05 $ .34 $ (4.53) ========= ========== ========== Weighted average common shares and common shares equivalents outstanding...... 5,384,678 10,805,346 10,294,967 ========= ========== ========== OTHER OPERATING DATA: Broadcast cash flow(4)........................................................ $ 12,088 $ 20,517 $ 22,836
SEPTEMBER 30, 1996 SEPTEMBER 30, ----------------------------- ------------------------------------- AS PRO FORMA, 1994 1995 1996 ADJUSTED(5) AS ADJUSTED(6) --------- ---------- ---------- ----------- -------------- BALANCE SHEET DATA: Cash and cash equivalents.................. $ 10,219 $ 5,404 $ 5,132 $ 5,132 $ 6,210 Working capital............................ 18,366 14,967 7,168 7,168 12,086 Total assets............................... 113,353 151,637 165,751 165,751 486,237 Long-term debt, less current portion....... 59,898 97,516 137,659 30,159 101,410 Stockholders' equity (deficiency).......... 44,436 43,581 12,101 119,601 308,541
- --------------- (1) During August 1994, the Company completed three separate business acquisitions and began consolidating its previously unconsolidated investment in Viva Media. Total net revenues and net income (loss), adjusted for interest expense on retired debt, relating to these acquisitions and transaction from the respective dates of these transactions to September 30, 1994 were approximately $5,488,000 and $(80,000), respectively. (2) During fiscal 1995, the Company completed several radio station acquisitions. Due to the financial effects of these transactions, the results of operations for 1996 reflect a full fiscal year of operations for these radio stations compared to a partial fiscal year in 1995. Consequently, the results of operations for the two years ended September 30, 1996 are not entirely comparable. (3) Effective August 20, 1994, the Company began accounting for its 49% interest in Viva Media on a consolidated basis. Accordingly Viva Media's results of operations are included in the consolidated financial statements for the period from August 20, 1994 through September 30, 1994 and for each of the fiscal years ended September 30, 1995 and 1996. Prior to August 20, 1994, the accounts and results of operations of Viva Media were accounted for using the equity method of accounting. (4) Data on station operating income excluding corporate expenses, depreciation and amortization (commonly referred to as "broadcast cash flow"), although not calculated in accordance with generally accepted accounting principles, is widely used in the broadcast industry as a measure of a broadcast company's operating performance. Nevertheless, this measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measures for determining the Company's operating performance or liquidity which are calculated in accordance with generally accepted accounting principles. (5) As adjusted to give effect to the Offering (at an assumed offering price of $32.25 per share) and the application of the estimated net proceeds therefrom as if the Offering had been consummated on September 30, 1996. (6) Pro forma as adjusted to give effect to the Transactions, including the Offering (at an assumed price of $32.25 per share) and the application of the estimated net proceeds therefrom, as if they had been consummated on September 30, 1996. The effect of the Tichenor Merger is based on preliminary purchase price allocations. The pro forma information does not purport to present the actual financial position of the Company had the Transactions actually occurred on the date specified. See "The Tichenor Merger," "Use of Proceeds," "Capitalization" and the Financial Statements and Notes thereto for each of the Company, Tichenor and the Tichenor Acquisitions included elsewhere in this Prospectus or incorporated herein by reference. 27 29 THE COMPANY GENERAL The Company was incorporated under the laws of the State of Delaware in 1992, as the successor to a radio broadcasting company which began operations in 1974. The Company is the largest Spanish language radio broadcasting company in the United States and currently owns and programs 17 radio stations, 16 of which are in five of the ten largest Hispanic markets in the United States, including Los Angeles, New York, Miami, Chicago and Dallas/Fort Worth. The Board of Directors of the Company has approved the Tichenor Merger Agreement to acquire Tichenor, the third largest Spanish language radio broadcasting company in the United States. Tichenor owns or programs 20 stations, which serve six of the ten largest Hispanic markets in the United States, including San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso. Following the Tichenor Merger, the Company will own or program 37 radio stations in 11 markets, including stations in each of the top ten Hispanic markets in the United States. The Company's strategy is to own and program top performing radio stations, principally in the largest Spanish language radio markets in the United States. The top ten Hispanic markets account for approximately 17.2 million Hispanics, representing approximately 63% of the total Hispanic population in the United States. Upon completion of the Tichenor Merger, the Company will have the largest Spanish language radio station combination, as measured by audience and revenue share, in eight of the top ten Hispanic markets. Additionally, the Company will have the highest rated radio station in any format in four of the top ten Hispanic markets. The Company intends to acquire or develop additional Spanish language stations in the leading Hispanic markets. When evaluating a potential acquisition, the Company considers the following factors: (i) the ability to generate satisfactory rates of return on its investment, (ii) the ability to increase operating cash flow at the station, (iii) the strategic importance of the station to the Company's overall business objectives, (iv) the size and projected rates of growth of the market's broadcasting revenues, Hispanic population and consumer spending and (v) the number of competitive stations in the market. SPANISH LANGUAGE RADIO The Company believes Spanish language radio broadcasting has significant growth potential for the following reasons: - The Hispanic population is the fastest growing population segment in the United States and is expected to grow from an estimated 27.2 million (approximately 10.3% of the total United States population) at the end of 1995 to an estimated 30.7 million (approximately 11.3% of the total United States population) by the year 2000. These estimates imply a growth rate of approximately three times the expected growth rate for the total U.S. population during the same period. The Company estimates that by the end of 1996 approximately 26% of the overall population of the ten largest Hispanic markets will be of Hispanic origin. - Advertisers have substantially increased their use of Spanish language media in recent years. Total advertising revenues from advertising in Spanish language media rose from $166 million in 1983 to $1.06 billion in 1995. This represents a compound annual growth rate of 16.7%, which is more than double the growth rate of total advertising over the same period. Although Hispanic consumers will spend an estimated $340 billion in 1997, or 6.5% of the total consumer spending in the United States, Spanish language advertising currently represents less than 0.7% of total advertising expenditures. - Advertisers have begun to target Hispanic households because they are younger and spend a greater percentage of their household income on consumer products than non-Hispanic households. Hispanic households in the United States average 3.5 persons, compared to an 28 30 average of 2.5 persons for non-Hispanic households. In addition, 82% of Hispanic households in the United States are family units, compared to 71% of all households in the United States. During the 1990's, one in four new households in the United States is expected to be headed by a person of Hispanic origin. - Hispanics have maintained strong social and cultural ties to their countries of origin, particularly the continued use of the Spanish language. An estimated 78% of Hispanics speak at least some Spanish and approximately 40% speak it exclusively. Spanish is expected to continue to be the language of preference for Hispanics. - The number of Spanish language media outlets is disproportionately lower than the number of similar English language outlets. In the radio segment, there are currently approximately 400 Spanish language commercial stations, which constitute only approximately 4% of all commercial radio stations in the United States, although the Hispanic population comprises approximately 10.3% of the United States population. PROGRAMMING Due to differences in origin, Hispanics are not a homogeneous group. The music, culture, customs and Spanish dialects vary from one radio market to another. Consequently, the Company programs its stations in a manner responsive to the local preferences of a target demographic audience in each of the markets it serves. A well-researched mix of music and on-air programming at an individual station can attract a wide audience targeted by Spanish language advertisers. Programming is consistently monitored to maintain its quality and relevance to the target audience. Most music formats are primarily variations of Regional Mexican, Tropical, Tejano and Contemporary music styles. The local program director will select music from the various music styles that best reflect the music preferences of the local Hispanic audiences. A brief description of each follows: Regional Mexican. Regional Mexican consists of various types of music played in different regions of Mexico. Ranchera music, originating in Jalisco, Mexico, is a traditional folkloric sound commonly referred to as Mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who have lived in the country towns. Nortena means northern, and is representative of Northern Mexico. Featuring an accordion, Nortena has a Polka sound with a distinct Mexican flavor. Banda is a regional format from the state of Sinaloa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers. Regional Mexican also includes Cumbia music, which originates in Colombia. Contemporary. The Contemporary format includes pop, Latin rock, and ballads. This format is similar to English adult contemporary and contemporary hit radio stations. Tropical. The Tropical format primarily consists of Salsa, Merengue, and Cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz. Salsa symbolizes music from Puerto Rico, Cuba, and the Dominican Republic and is popular with Hispanics living in New York, Miami and Chicago. Merengue music is up-tempo dance music originating in the Dominican Republic. Tejano. Tejano music originated in Texas and is based on Mexican themes but is indigenous to Texas. It is a combination of contemporary rock, Ranchera, and country music. The lyrics are sung in both Spanish and English. The on-air talent speak in Spanish and English. Full Service. The Full Service format includes all the traditional radio services: music, news, sports, traffic reports, special information programs and weather. News/Talk. News includes local, national, international reports and weather, business, traffic and sports. Talk includes commentary, analysis, discussion, interviews, call-ins and information shows. 29 31 COMPANY'S STATIONS The following table sets forth information regarding the Company's radio stations, assuming completion of the Tichenor Merger:
PRIMARY MARKET (HISPANIC HEFTEL/ DEMOGRAPHIC FCC MARKET RANK) STATION(1) TICHENOR STATION FORMAT(2) TARGET FREQUENCY - ------------------- ------------ -------- ----------------- ----------- --------- Los Angeles(1) KLVE-FM Heftel Contemporary A 25-54 107.5 MHZ KTNQ-AM Heftel News/Talk A 25-54 1020 kHz New York(2) WADO-AM Heftel News/Talk A 25+ 1280 kHz WPAT-AM(3) Heftel Brokered n/a 930 kHz WGLI-AM Heftel n/a n/a n/a Adult Miami(3) WAMR-FM Heftel Contemporary A 25-54 107.5 MHZ WRTO-FM Heftel Tropical A 18-34 98.3 MHZ WAQI-AM Heftel News/Talk A 35+ 710 kHz WQBA-AM Heftel News/Talk/Sports A 35+ 1140 kHz San Francisco/ San Jose(4) KSOL-FM Tichenor Regional Mexican A 25-54 98.9 MHZ KZOL-FM Tichenor Regional Mexican A 25-54 99.1 MHZ Chicago(5) WOJO-FM(4) Tichenor Regional Mexican A 25-54 105.1 MHZ WIND-AM(4) Tichenor Full Service A 35+ 560 kHz WLXX-AM(4) Heftel Tropical A 18-49 1200 kHz Houston(6) KLTN-FM Tichenor Regional Mexican A 18-49 93.3 MHZ KLTO-FM(5) Tichenor Regional Mexican A 25-54 104.9 MHZ KLTP-FM Tichenor Regional Mexican A 25-54 104.9 MHZ KRTX-FM Tichenor Tejano A 25-54 100.7 MHZ KLAT-AM Tichenor Full Service A 25-54 1010 kHz KMPQ-AM(6) Tichenor n/a n/a 980 kHz San Antonio(7) KXTN-FM Tichenor Tejano A 25-54 107.5 MHZ KXTN-AM Tichenor Tejano A 25-54 1310 kHz KROM-FM Tichenor Regional Mexican A 25-54 92.9 MHZ KCOR-AM Tichenor Regional Mexican A 35+ 1350 kHz McAllen/Brownsville/ Harlingen(8) KQXX-FM Tichenor Regional Mexican A 25-54 98.5 MHZ KGBT-AM Tichenor Regional Mexican A 25-54 1530 kHz KIWW-FM Tichenor Tejano A 25-54 96.1 MHZ Dallas/Fort Worth(9) KESS-AM Heftel Full Service A 18+ 1270 kHz KHCK-FM Heftel Tejano A 18-49 99.1 MHZ KMRT-FM Heftel Contemporary A 18-49 106.7 MHZ KINF-AM Heftel Talk A 18-49 1440 kHz KICI-FM Heftel Tejano A 18-49 107.9 MHZ KMRT-AM Heftel Contemporary A 18-49 1480 kHz El Paso(10) KBNA-FM Tichenor Regional Mexican A 25-54 97.5 MHZ KBNA-AM Tichenor Regional Mexican A 25-54 920 kHz KAMA-AM Tichenor Tejano A 25-54 750 kHz Las Vegas(33) KLSQ-AM Heftel Regional Mexican A 18-49 870 kHz
- --------------- (1) Actual city of License may differ from the metropolitan market served. (2) See "Programming." (3) The Company sells airtime on this station to third parties for broadcast of specialty programming. (4) Application for renewal of license pending with the FCC. (5) Tichenor programs this station under a local marketing agreement. (6) Tichenor has entered into a local marketing agreement with Kidstar Interactive Media, Inc., which provides children's programming. Statistical information contained herein regarding the radio industry, population, consumer spending and advertising expenditures are taken from the Arbitron Company 1995-1996; radio metro ratings; 1990 U.S. Census; the Hispanic Consumer Market Report (DRI/McGraw Hill, June 1992); 30 32 SRDS -- Standard Rate & Data Services (August 1996); Advertising Age (September 30, 1996); Sales and Marketing Management's Survey of Buying Power; Strategy Research Corporation -- 1996 U.S. Hispanic Market Study; Duncan's Radio Market Guide (1996 Edition); Hispanic Business (December 1995); Market Segment Research, Inc., and Paul Kagan Associates, Inc. MANAGEMENT MANAGEMENT OF COMPANY FOLLOWING THE TICHENOR MERGER Upon consummation of the Tichenor Merger, the Company will enter into a five year employment contract with McHenry Tichenor, Jr. to serve as the Company's President and Chief Executive Officer (the "Employment Agreement"). Mr. Tichenor, 41, has been the President and Chief Executive Officer and a director of Tichenor since 1981. The Employment Agreement provides for an annual salary of $260,000 plus incentive compensation as determined by the Compensation Committee of the Company's Board of Directors. Upon termination by the Company without cause or by Mr. Tichenor for good reason, the Company shall be obligated to pay to Mr. Tichenor a lump sum amount equal to the estimated payments of salary and bonus remaining through the end of the term of the agreement. Furthermore, the Employment Agreement provides that Mr. Tichenor agrees not to compete with the Company for a period of one year following the date the Employment Agreement is terminated. Tichenor has indicated to the Company that, in addition to McHenry Tichenor, Jr., the following individuals will serve as executive officers of the Company following the consummation of the Tichenor Merger: David L. Lykes. Mr. Lykes, 61, is Senior Vice President and a Director of Tichenor. Mr. Lykes began his career at Tichenor in 1958. Mr. Lykes is responsible for the day-to-day operation of Tichenor's stations. Jeffrey T. Hinson. Mr. Hinson, 41, joined Tichenor as Chief Financial Officer, Treasurer, and a Director in October 1995. From October 1991 to October 1995, Mr. Hinson was President of Alliance Investors Holdings, Ltd., a privately-held merchant bank located in Houston, Texas. For two years prior to joining Tichenor, Mr. Hinson acted as a consultant for Tichenor. Ricardo del Castillo. Mr. Castillo, 50, has been Vice President of Operations of Tichenor since 1988 and became a director of Tichenor in February 1989. The Tichenor Merger Agreement also provides that following the consummation of the Tichenor Merger, five designees of Tichenor shall constitute the entire Board of Directors of the Company. Tichenor has informed the Company that its designees are: McHenry T. Tichenor, Jr. Mr. Tichenor, 41, has been the President and Chief Executive Officer and a director of Tichenor since 1981. McHenry T. Tichenor, Sr. Mr. Tichenor, 64, is the Chairman and a Director of Tichenor and has served as the Vice Chairman and a Director of Tichenor since . McHenry T. Tichenor, Sr. is the father of McHenry T. Tichenor, Jr. Robert W. Hughes. Mr. Hughes, 61, is Chairman of the Prime Management Group, Austin, Texas. In that capacity, he also serves as Chairman of Prime Cable, Prime Video, Prime Venture I and Prime New Venture Management. Mr. Hughes serves on the Board of Directors of Atlantic Cellular, Providence, R.I. and Hawaiian Wireless, Honolulu, Hawaii. For the past 28 years, he has primarily been involved in the cable television industry. He served as Chairman of the National Cable Television Association in 1978-79. James M. Raines. Mr. Raines became a director of the Company on August 5, 1996. Mr. Raines has been the President of James M. Raines & Company for more than five years. Mr. Raines also serves as a director of 50-OFF Stores, Inc. 31 33 Ernesto Cruz. Mr. Cruz became a director of the Company on August 5, 1996. Mr. Cruz has been a Managing Director of Credit Suisse First Boston Corp. for more than five years. CURRENT EXECUTIVE OFFICERS AND DIRECTORS The current directors and executive officers of the Company are as follows:
NAME AGE POSITION - ------------------------------------- --- ------------------------------------------------ L. Lowry Mays(1)..................... 61 President, Chief Executive Officer and Director John T. Kendrick..................... 44 Senior Vice President and Chief Financial Officer Ernesto Cruz(1)...................... 42 Director B. J. McCombs........................ 68 Director James M. Raines(1)(2)................ 56 Director John H. Williams(2).................. 62 Director
- --------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. All directors hold office until the annual meeting of stockholders next following their election, or until their successors are elected and qualified. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. The Board has two committees, the Compensation Committee and the Audit Committee. The basic function of the Compensation Committee is to determine stock option grants to executive officers and other key employees, as well as to review salaries, bonuses, and other elements of compensation of executive officers and other key employees and make recommendations on such matters to the full Board of Directors. The basic function of the Audit Committee is to review the financial statements of the Company, to consult with the Company's independent auditors and to consider such other matters with respect to the internal and external audit of the financial affairs of the Company as may be necessary or appropriate in order to facilitate accurate financial reporting. Information with respect to the business experience and affiliations of the current directors, other than for Messrs. Raines and Cruz (who will remain directors after completion of the Tichenor Merger), and executive officers of the Company is set forth below. Mr. Mays became President, Chief Executive Officer and director of the Company on August 5, 1996. Mr. Mays is also President, Chief Executive Officer and director of Clear Channel and has served as such since 1972. Mr. Kendrick joined the Company as Vice President, Finance in September 1993. In December 1993, he was promoted to Senior Vice President and Chief Financial Officer. From October 1992 through September 1993, Mr. Kendrick provided financial consulting to the entertainment and computer software industries. From June 1988 through October 1992, Mr. Kendrick served as Senior Vice President and Chief Financial Officer of Skouras Pictures, Inc. Mr. McCombs became a director of the Company on August 5, 1996. Mr. McCombs also serves as a director of Clear Channel. Mr. McCombs is and has been a private investor for more than five years. Mr. Williams became a director of the Company on August 5, 1996. Mr. Williams also serves as a director of Clear Channel and of GAINSCO, Inc. Mr. Williams is Senior Vice President of Everon Securities, Inc., and has served in such a position for more than five years. SHARES ELIGIBLE FOR FUTURE SALE GENERAL Upon completion of the Offering, the Company will have 15,047,731 shares of Class A Common Stock outstanding (assuming no exercise of the Underwriters' overallotment option). All of the 3,500,000 shares offered hereby (plus up to 525,000 additional shares in the event the Underwriters 32 34 exercise their over-allotment option) will be freely transferable without restriction or further registration under the Securities Act, unless purchased by an "affiliate" of the Company (as that term is defined under the Securities Act). The 7,297,821 shares of Class A Common Stock owned by Clear Channel will be "control securities" within the meaning of Rule 144, and are subject to agreements with the Underwriters pursuant to which they may not be offered for sale, sold or otherwise disposed of for 90 days after the date of this Prospectus without the consent of Alex. Brown & Sons Incorporated or as may be required to obtain the FCC's approval to consummate the Tichenor Merger. See "The Tichenor Merger." Following this 90 day period, 2,426,108 shares of the Class A Common Stock owned by Clear Channel will become eligible for sale, although they will remain subject to the volume and other limitations (other than the two year holding period) of Rule 144; provided, however, as long as the Registration Statement on Form S-3 (declared effective on February 26, 1996) remains in effect, subject to any contractual limitations, Clear Channel may sell 2,156,799 of such shares without regard to any limitations contained in Rule 144. Clear Channel has indicated to the Company that it does not currently intend to sell any shares of the Company's Common Stock except as may be necessary to obtain the FCC's approval to consummate the Tichenor Merger. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned shares of Class A Common Stock for at least two years is entitled to sell, within any three-month period, a number of such shares which does not exceed the greater of 1% of the then-outstanding shares of Class A Common Stock (15,047,731 shares immediately after the Offering) or the average weekly public trading volume of the Class A Common Stock during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. Any person (or persons whose shares are aggregated) who has not been an affiliate of the Company at any time during the three months preceding a sale and who has owned shares of Class A Common Stock for at least three years is entitled to sell such shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information or notice requirements of Rule 144. The Company cannot make any predictions as to the effect, if any, sales of shares of Class A Common Stock, or the availability of shares for future sale, will have on the market price of the Class A Common Stock prevailing from time to time. REGISTRATION RIGHTS; STOCKHOLDERS AGREEMENT Upon consummation of the Tichenor Merger, the Company will enter into a registration rights agreement with each of Clear Channel and certain shareholders of Tichenor who receive Class A Common Stock in the Merger pursuant to which Clear Channel and such Tichenor shareholders will have certain demand and piggyback registration rights with respect to shares of Class A Common Stock owned by them. In addition, upon consummation of the Merger, it is anticipated that Clear Channel and the Major Tichenor Stockholders will enter into the Stockholders Agreement whereby such stockholders will agree to certain restrictions on the transfer of their shares of Common Stock of the Company and will grant certain rights of first refusal and "tag-along" rights with respect to certain sales of such shares. See "The Tichenor Merger -- Registration Rights; Stockholders Agreement." 33 35 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 30,000,000 shares of Class A Common Stock, $.001 par value, 7,000,000 shares of Class B Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value. As of September 30, 1996, 11,547,731 shares of Class A Common Stock were outstanding and no shares of Class B Common Stock or Preferred Stock were outstanding. Upon consummation of the Tichenor Merger, the authorized shares of each of Class A Common Stock and Class B Common Stock will increase to 50,000,000. COMMON STOCK General. All of the outstanding shares of Common Stock are, and the shares of Class A Common Stock offered hereby will be, validly issued, fully paid and nonassessable. The rights of holders of shares of Class A Common Stock and Class B Common Stock are identical except for voting rights. Currently, there are no outstanding shares of Class B Common Stock. Voting Rights. Holders of shares of Common Stock vote as a single class on all matters submitted to a vote of the stockholders, with each share of Class A Common Stock entitled to one vote and each share of Class B Common Stock generally entitled to ten votes. However, each share of Class A Common Stock and Class B Common Stock is entitled to one vote when required by law. Holders of Common Stock are not entitled to cumulate votes in the election of directors. There are no shares of Class B Common Stock currently outstanding. Upon consummation of the Tichenor Merger, the Certificate of Incorporation of the Company will be amended to provide that the rights of the Class B Common Stock will be modified as described herein under "Nonvoting Common Stock." Under Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of any class of Common Stock which is entitled to vote is required to approve any amendment to the Certificate of Incorporation of the Company which would increase or decrease the aggregate number of authorized shares of any class, increase or decrease the par value of the shares of any class, or modify or change the powers, preferences or special rights of the shares of any class so as to affect such class adversely. Nonvoting Common Stock. If approved by the Board of Directors and stockholders of the Company, the Company will amend its certificate of incorporation (the "Charter Amendment") to authorize 50,000,000 shares of the Class B Common Stock and amend the rights of the holders thereof, as further described herein. For purposes of this Prospectus, the Class B Common Stock, after giving effect to the amendment to the rights thereof, has been referred to herein as the "Nonvoting Common Stock." The Nonvoting Common Stock will be issued in exchange for shares of Class A Common Stock held by Clear Channel in the Tichenor Merger. Holders of the Nonvoting Common Stock will, in certain circumstances, have certain voting rights, with each share of Nonvoting Common Stock being entitled to one vote. Specifically, so long as Clear Channel and its affiliates own at least 20% of the Common Stock then outstanding, the Company will not be able to, and will not be able to permit any subsidiary to, without the vote or consent by the holders of a majority of the Nonvoting Common Stock voting as a single class, take any of the following actions: (i) effect the sale, lease or other transfer of all or substantially all of the assets of the Company, or any merger or consolidation involving the Company where the stockholders of the Company immediately prior to such transaction would not own at least 50% of the capital stock of the surviving entity, or any reclassification, recapitalization, dissolution, liquidation or winding up of the Company; (ii) authorize, issue or obligate itself to issue any shares of Preferred Stock; (iii) make or permit any amendment to the Company's certificate of incorporation that adversely affects the rights of the holders of Nonvoting Common Stock; (iv) declare or pay any non-cash dividends on or make any other non-cash distribution on the Company's Common Stock; or (v) make or permit any amendment or modification to the Company's certificate of incorporation concerning the Company's capital stock. 34 36 Conversion of Nonvoting Common Stock. The Company's Restated Certificate of Incorporation will provide that only Clear Channel and its affiliates may own shares of Nonvoting Common Stock. The Nonvoting Common Stock that Clear Channel and its affiliates will receive in the Tichenor Merger will convert into Class A Common Stock automatically upon sale, gift or other transfer to a person or entity other than Clear Channel or an affiliate of Clear Channel. Each share of the Nonvoting Common Stock will also be convertible into Class A Common Stock at the option of its holder subject to necessary FCC consents. In addition, Clear Channel may convert shares of Class A Common Stock held by it into shares of Nonvoting Common Stock at its option. Other Provisions. Subject to the rights of any Preferred Stock, the holders of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors in it discretion from funds legally available therefor, and upon liquidation or dissolution are entitled to receive all assets available for distribution to the stockholders. The holders of the Common Stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. PREFERRED STOCK The shares of Preferred Stock may be issued in series with such designations, preferences, limitations and relative rights as the Company's Board of Directors may determine. CERTAIN ANTITAKEOVER EFFECTS OF CHARTER AMENDMENT AND DELAWARE LAW Certain provisions of the Charter Amendment and the Delaware General Corporation Law ("DGCL") may have the effect of impeding the acquisition of control of the Company by means of a tender offer, proxy fight, open market purchases or otherwise. As provided in the Charter Amendment, holders of Nonvoting Common Stock will have the right to vote separately as a class on certain matters, including a merger of the Company or sale of all or substantially all of its assets. In addition, shares of Nonvoting Common Stock are convertible into shares of Class A Common Stock at the holder's option. Section 203 of the DGCL restricts a wide range of transactions ("business combinations") between a corporation and an interested stockholder. An "interested stockholder" is, generally, any person who beneficially owns, directly or indirectly, 15% or more of the corporation's outstanding voting stock. Business combinations are broadly defined to include (i) mergers or consolidations with, (ii) sales or other dispositions of more than 10% of the corporation's assets to, (iii) certain transactions which would result in increasing the proportionate share of stock of the corporation or any subsidiary owned by, or (iv) receipt of the benefit (other than proportionately as a stockholder) or any loans, advances or other financial benefits by, an interested stockholder. Section 203 provides that an interested stockholder may not engage in a business combination with the corporation for a period of three years from the time of becoming an interested stockholder unless (i) the board of directors approved either the business combination or the transaction which resulted in the person becoming an interested stockholder prior to the time such person became an interested stockholder; (ii) upon consummation of the transaction which resulted in the person becoming an interested stockholder, that person owned at least 85% of the corporation's voting stock (excluding shares owned by persons who are officers and also directors and shares owned by certain employee stock plans); or (iii) the business combination is approved by the board of directors and authorized by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the interested stockholder. ALIEN OWNERSHIP The Company's Restated Certificate of Incorporation restricts the ownership and voting of the Company's capital stock, including its Class A Common Stock, in accordance with the Communications Act and the rules of the FCC to prohibit ownership of more than 25% of the Company's 35 37 outstanding capital stock (or control of more than 25% of the voting power it represents) by or for the account of aliens, foreign governments, or non-U.S. corporations or corporations otherwise subject to control by such persons or entities. The Restated Certificate of Incorporation also prohibits any transfer of the Company's capital stock which would cause the Company to violate this prohibition. In addition, the Restated Certificate of Incorporation authorizes the Company's Board of Directors to adopt such provisions as it deems necessary to enforce these prohibitions. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Class A Common Stock is Harris Trust Company of California. 36 38 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their Representatives, Alex. Brown & Sons Incorporated, CS First Boston Corporation, Lehman Brothers Inc., Montgomery Securities and Smith Barney Inc. (the "Representatives"), have severally agreed to purchase from the Company the following respective number of shares of Class A Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES - -------------------------------------------------------------------------------- --------- Alex. Brown & Sons Incorporated................................................. Credit Suisse First Boston Corp. ............................................... Lehman Brothers Inc............................................................. Montgomery Securities........................................................... Smith Barney Inc................................................................ --------- Total........................................................................... 3,500,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of Class A Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Underwriters that the Underwriters propose to offer the shares of Class A Common Stock to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 525,000 additional shares of Class A Common Stock at the public offering price less the underwriting discounts and commission set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Class A Common Stock to be purchased by it shown in the above table bears to 3,500,000, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of Class A Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those in which the 3,500,000 shares are being offered. The Underwriting Agreement contains covenants of indemnity and contribution between the Company and the Underwriters with respect to certain liabilities, including liabilities under the Securities Act. The Company, its directors and executive officers and its stockholders have agreed that they will not, directly or indirectly, offer, sell or otherwise dispose of any equity securities of the Company or any securities convertible into, or exchangeable for, or any rights to purchase or acquire, equity securities of the Company (other than employee stock options granted by the Company in the ordinary course of business) for a period of 90 days after the date of this Prospectus, without the prior written consent of Alex. Brown & Sons Incorporated. This restriction shall not apply to any sale of shares of Common Stock made by Clear Channel in order to comply with FCC regulations upon consummation of the Tichenor Merger. One or more of the Underwriters currently act as market makers for the Class A Common Stock and may engage in "passive market making" in such securities on the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of 37 39 certain condition, underwriters participating in a distribution that are also Nasdaq market makers in the security being distributed to engage in limited market making transactions during the period when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity. Rule 10b-6 prohibits underwriters engaged in passive market making generally from entering a bid or effecting a purchase at a price that exceeds the highest bid for those securities displayed on the Nasdaq National Market by a market maker that is not participating in the distribution. Under Rule 10b-6A, each underwriter engaged in passive market making is subject to a daily net purchase limitation equal to 30% of such entity's average daily trading volume during the two full consecutive calendar months immediately preceding the date of the filing of the registration statement under the Securities Act pertaining to the security to be distributed. LEGAL OPINIONS Certain legal matters in connection with the shares of Class A Common Stock offered hereby will be passed upon for the Company by its special counsel, Akin, Gump, Strauss, Hauer & Feld, L.L.P. (a partnership including professional corporations), San Antonio, Texas. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by their counsel, Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements of Heftel Broadcasting Corporation appearing in Heftel Broadcasting Corporation's Annual Report (Form 10-K) for the year ended September 30, 1996 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Tichenor Media System, Inc. as of December 31, 1994 and 1995 and for each of the years in the three-year period ended December 31, 1995, are included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants included herein, and upon the authority of said firm as experts in accounting and auditing. The combined financial statements of KSOL-FM and KYLZ-FM (Divisions of Crescent Communications, L.P.) as of December 31, 1994 and 1995 and for the period April 1, 1994 to December 31, 1994 and for the year ended December 31, 1995 are incorporated herein, in reliance upon the report of Miller, Kaplan, Arase & Co., independent certified public accountants incorporated herein, and upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy and information statements filed by the Company with the Commission pursuant to the information requirements of the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, Seven World Trade Center, 13th Floor, New York, New York, 10048, Los Angeles Regional Office, Suite 1100, 5670 Wilshire Boulevard, Los Angeles, California, 90036, and Chicago Regional Office, 500 W. Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or through the Internet from the SEC's home page on the World Wide Web at 38 40 http://www.sec.gov. In addition, reports, proxy statements and other information concerning the Company can be inspected and copied at the offices of the Nasdaq National Market, Report Section, 1735 K Street, N.W., Washington, D.C. 20006. This Prospectus, which constitutes a part of a Registration Statement filed by the Company with the Commission under the Securities Act, omits certain information contained in the Registration Statement, and reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Company and the Class A Common Stock offered hereby. Statements contained herein concerning provisions of any document are not necessarily complete, and each statement is qualified in its entirety by reference to the copy of such document filed with the Commission. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission by Company pursuant to the Exchange Act are incorporated by reference in this Prospectus: 1. The Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996; and 2. The description of the Company's Common Stock contained in the section entitled "Description of Capital Stock" contained in the Registration Statement on Form S-1 of the Company, as amended, filed with the Securities and Exchange Commission on April 29, 1994 (No. 33-78370) and incorporated by reference into the Registration Statement on Form 8-A under the Securities Exchange Act of 1934, as amended, of the Company filed with the Commission on July 8, 1994, and the Registration Statement on Form S-3, of the Company, as amended, filed with the Commission on February 26, 1996 (No. 333-1060). Any documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. To the extent that any proxy statement is incorporated by reference herein, such incorporation shall not include any information contained in such proxy statement which is not, pursuant to the Commission's rules, deemed to be "filed" with the Commission or subject to the liabilities of Section 18 of the Exchange Act. The Company will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon the written or oral request of any such person, a copy of any document described above (other than exhibits, unless such exhibits are specifically incorporated by reference). Requests for such copies should be directed to John T. Kendrick, Senior Vice President, Chief Financial Officer and Assistant Secretary, Heftel Broadcasting Corporation, 6767 West Tropicana Avenue, Suite 102, Las Vegas, Nevada 89103 (telephone: (702) 367-3322). 39 41 INDEX TO FINANCIAL STATEMENTS TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES Independent Auditors' Report........................................................ F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (unaudited)...................................................................... F-3 Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1995 and 1996 (unaudited)........... F-4 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine Months Ended September 30, 1996 (unaudited)...................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996 (unaudited)... F-6 Notes to Consolidated Financial Statements.......................................... F-7 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) Independent Auditor's Report........................................................ F-16 Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)...................................................................... F-17 Combined Statements of Operations and Partners' Deficiency for the Nine Months Ended December 31, 1994, the Year Ended December 31, 1995 and for the Six Months Ended June 30, 1995 and 1996 (unaudited)............................................... F-18 Combined Statements of Cash Flows for the Nine Months Ended December 31, 1994, the Year Ended December 31, 1995 and for the Six Months Ended June 30, 1995 and 1996 (unaudited)...................................................................... F-19 Notes to Combined Financial Statements.............................................. F-20
F-1 42 INDEPENDENT AUDITORS' REPORT The Board of Directors Tichenor Media System, Inc.: We have audited the accompanying consolidated financial statements of Tichenor Media System, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tichenor Media System, Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas May 6, 1996 F-2 43 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31 --------------------------- SEPTEMBER 30, 1994 1995 1996 ----------- ----------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents................................... $ 2,331,014 $ 3,593,955 $ 5,065,872 Accounts receivable, net of allowance of $228,282 in 1994, $756,808 in 1995 and $443,001 in 1996..................... 7,465,380 8,275,427 9,851,274 Income tax receivable, including accrued interest........... 5,156,081 -- -- Amounts receivable from officers and stockholders........... 54,930 99,168 121,451 Prepaid expenses and other current assets................... 241,547 358,640 746,827 ----------- ----------- ------------ Total current assets................................. 15,248,952 12,327,190 15,785,424 ----------- ----------- ------------ Investments, at equity........................................ 249,892 221,458 206,583 ----------- ----------- ------------ Property and equipment, at cost: Land........................................................ 1,541,152 2,095,690 2,093,190 Buildings and improvements.................................. 2,823,251 2,553,595 2,794,970 Broadcast and other equipment............................... 10,985,817 12,075,807 14,296,563 Furniture and fixtures...................................... 2,136,571 2,253,794 2,474,034 ----------- ----------- ------------ 17,486,791 18,978,886 21,658,757 Less accumulated depreciation............................... 11,107,206 11,449,267 (12,222,272) ----------- ----------- ------------ 6,379,585 7,529,619 9,436,485 ----------- ----------- ------------ Intangible assets: Broadcast licenses.......................................... 26,792,702 31,981,514 76,339,610 Cost in excess of fair value of net assets acquired......... 363,100 363,100 363,100 Other intangible assets..................................... 4,667,207 6,098,796 6,615,466 ----------- ----------- ------------ 31,823,009 38,443,410 83,318,176 Less accumulated amortization............................... 5,417,195 6,975,960 8,532,480 ----------- ----------- ------------ 26,405,814 31,467,450 74,785,696 ----------- ----------- ------------ Other noncurrent assets: Deferred charges, net....................................... 847,164 853,730 731,938 Notes receivable from related parties....................... 578,439 571,439 566,439 ----------- ----------- ------------ 1,425,603 1,425,169 1,298,377 ----------- ----------- ------------ Total assets......................................... $49,709,846 $52,970,886 $101,512,565 =========== =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................ $ 1,872,925 $ 1,213,979 $ 1,836,280 Accrued expenses............................................ 1,656,247 2,743,274 4,200,855 Income taxes payable........................................ 584,931 565,574 615,081 Amounts payable to officers and stockholders................ 211,152 270,184 184,419 Current portion of long-term obligations.................... 5,608,823 47,611 42,468 ----------- ----------- ------------ Total current liabilities............................ 9,934,078 4,840,622 6,879,103 ----------- ----------- ------------ Long-term obligations, less current portion................... 18,541,055 25,381,706 71,251,200 ----------- ----------- ------------ Deferred income taxes......................................... 3,691,480 3,582,421 3,818,064 ----------- ----------- ------------ 14% senior redeemable cumulative preferred stock and accrued dividends, $1,000 par value; authorized, issued and outstanding 3,000 shares.................................... 3,359,680 3,378,749 3,378,749 ----------- ----------- ------------ Common stock purchase warrant subject to mandatory redemption, at accreted value........................................... 2,394,520 3,828,520 4,140,000 ----------- ----------- ------------ Commitments and contingencies Stockholders' equity: 10.5% junior noncumulative preferred stock, $10 par value; authorized 100,000 shares; issued 42,829 shares; outstanding 35,919 shares in 1994 and 35,772 shares in 1995 and 1996 (liquidation preference of $3,682,950)...... 368,295 368,295 368,295 Common stock, $1 par value; authorized 9,897,000 shares; issued 743,704 shares; outstanding 678,897 shares in 1994, 684,420 shares in 1995 and 684,169 shares in 1996......... 743,704 743,704 743,704 Additional paid-in capital.................................. 4,212,814 4,357,038 4,357,038 Retained earnings........................................... 8,031,391 8,081,638 8,130,477 Less treasury stock at cost................................. (1,470,073) (1,379,263) (1,395,535) Receivables for stock purchases............................. (97,098) (212,544) (158,530) ----------- ----------- ------------ Stockholders' equity................................. 11,789,033 11,958,868 12,045,449 ----------- ----------- ------------ Total liabilities and stockholders' equity........... $49,709,846 $52,970,886 $101,512,565 =========== =========== ============
See accompanying notes to consolidated financial statements. F-3 44 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30 --------------------------------------- ------------------------- 1993 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Revenues.................................. $35,349,367 $41,099,785 $46,377,676 $33,745,932 $37,202,302 Agency commissions........................ (3,550,029) (4,238,805) (4,776,415) (3,499,553) (4,090,677) ----------- ----------- ----------- ----------- ----------- Net revenues..................... 31,799,338 36,860,980 41,601,261 30,246,379 33,111,625 ----------- ----------- ----------- ----------- ----------- Operating expenses: Selling................................. 10,968,783 13,203,789 13,864,947 9,609,062 10,096,635 Programming............................. 3,998,801 4,866,974 5,452,060 3,978,874 4,896,413 Promotion and market research........... 1,143,868 1,701,147 1,730,225 1,286,512 1,793,533 Engineering............................. 906,199 983,014 1,038,024 760,617 935,986 General and administrative.............. 6,765,544 7,087,274 7,659,303 5,481,595 6,066,585 Corporate expenses...................... 2,238,115 2,484,121 2,685,541 1,852,179 2,744,737 Depreciation and amortization........... 1,930,783 2,368,113 2,467,056 1,821,191 2,371,824 ----------- ----------- ----------- ----------- ----------- Total operating expenses......... 27,952,093 32,694,432 34,897,156 24,790,030 28,905,713 ----------- ----------- ----------- ----------- ----------- Operating income.......................... 3,847,245 4,166,548 6,704,105 5,456,349 4,205,912 ----------- ----------- ----------- ----------- ----------- Other income (expense): Interest income......................... 113,358 2,852,011 190,390 214,747 61,480 Interest expense........................ (2,145,519) (2,594,590) (2,230,009) (1,641,038) (2,511,031) Costs relating to unconsummated acquisitions.......................... -- -- (123,300) (10,569) (358) Other, net.............................. (199,920) (429,492) 161,814 190,780 (54,641) ----------- ----------- ----------- ----------- ----------- (2,232,081) (172,071) (2,001,105) (1,246,080) (2,504,550) ----------- ----------- ----------- ----------- ----------- Income before income taxes and extraordinary loss...................... 1,615,164 3,994,477 4,703,000 4,210,269 1,701,362 Income taxes.............................. 125,000 1,292,647 2,779,684 1,664,061 1,341,043 ----------- ----------- ----------- ----------- ----------- Income before extraordinary loss........................... 1,490,164 2,701,830 1,923,316 1,588,046 1,237,312 Extraordinary loss on retirement of debt, net of income tax benefit of $224,030... -- (381,456) -- -- -- ----------- ----------- ----------- ----------- ----------- Net income....................... 1,490,164 2,320,374 1,923,316 2,546,208 360,319 Preferred stock dividends................. (228,667) (431,013) (439,069) (329,245) -- Accretion of stock warrant to redemption value................................... (1,516,000) (715,000) (1,434,000) (414,000) (311,480) ----------- ----------- ----------- ----------- ----------- Net income (loss) applicable to common shareholders............ $ (254,503) $ 1,174,361 $ 50,247 $ 1,802,963 $ 48,839 =========== =========== =========== =========== =========== Net income (loss) per share: Income before extraordinary loss........ $ (.39) $ 2.00 $ .07 $ 2.44 $ .07 =========== =========== =========== =========== =========== Net income.............................. $ (.39) $ 1.51 $ .07 $ 2.44 $ .07 =========== =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding......... 654,651 778,211 740,150 738,431 747,523 =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 45 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
JUNIOR PREFERRED STOCK COMMON STOCK RECEIVABLES -------------------- -------------------- ADDITIONAL FOR NUMBER NUMBER PAID-IN TREASURY STOCK RETAINED OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STOCK PURCHASES EARNINGS --------- -------- --------- -------- ---------- ----------- ----------- ----------- Balance at December 31, 1992....................... 42,829 $428,295 726,523 $726,523 $4,447,765 $(1,681,180) $ (2,052) $ 7,170,163 Accretion of stock warrant to redemption value........... -- -- -- -- -- -- -- (1,516,000) Senior redeemable preferred stock dividends............ -- -- -- -- -- -- -- (228,667) Issuance costs of senior redeemable preferred stock...................... -- -- -- -- (321,836) -- -- -- Sale of treasury stock....... -- -- -- -- -- 181,129 (91,250) (58,630) Collection of stock purchase receivables................ -- -- -- -- -- -- 30,514 -- Net income................... -- -- -- -- -- -- -- 1,490,164 ------ -------- ------- -------- ---------- ----------- --------- ----------- Balance at December 31, 1993....................... 42,829 428,295 726,523 726,523 4,125,929 (1,500,051) (62,788) 6,857,030 Conversion of junior preferred stock to common stock...................... (6,000) (60,000) 17,181 17,181 42,819 -- -- -- Accretion of stock warrant to redemption value........... -- -- -- -- -- -- -- (715,000) Senior redeemable preferred stock dividends............ -- -- -- -- -- -- -- (431,013) Purchase of treasury stock... -- -- -- -- -- (36,957) -- -- Sale of treasury stock....... -- -- -- -- 44,066 66,935 (81,000) -- Collection of stock purchase receivables................ -- -- -- -- -- -- 46,690 -- Net income................... -- -- -- -- -- -- -- 2,320,374 ------ -------- ------- -------- ---------- ----------- --------- ----------- Balance at December 31, 1994....................... 36,829 368,295 743,704 743,704 4,212,814 (1,470,073) (97,098) 8,031,391 Accretion of stock warrant to redemption value........... -- -- -- -- -- -- -- (1,434,000) Senior redeemable preferred stock dividends............ -- -- -- -- -- -- -- (439,069) Purchase of treasury stock... -- -- -- -- -- (41,467) -- -- Sale of treasury stock....... -- -- -- -- 144,224 132,277 (219,000) -- Collection of receivables for stock...................... -- -- -- -- -- -- 103,554 -- Net income................... -- -- -- -- -- -- -- 1,923,316 ------ -------- ------- -------- ---------- ----------- --------- ----------- Balance at December 31, 1995....................... 36,829 368,295 743,704 743,704 4,357,038 (1,379,263) (212,544) 8,081,638 Accretion of stock warrant to redemption value (unaudited)................ -- -- -- -- -- -- -- (311,000) Purchase of treasury stock (unaudited)................ -- -- -- -- -- (16,272) 2,376 -- Collection of stock purchase receivables (unaudited).... -- -- -- -- -- -- 51,630 -- Net income (unaudited)....... -- -- -- -- -- -- -- 360,319 ------ -------- ------- -------- ---------- ----------- --------- ----------- Balance at September 30, 1996 (unaudited)................ 36,829 $368,295 743,704 $743,704 $4,357,038 $(1,395,535) $(158,530) $ 8,130,477 ====== ======== ======= ======== ========== =========== ========= ===========
See accompanying notes to consolidated financial statements. F-5 46 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30 ---------------------------------------- ------------------------- 1993 1994 1995 1995 1996 ------------ ----------- ----------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Adjustments to reconcile net income to net cash provided by operating activities: Net income................................ $ 1,490,164 $ 2,320,374 $ 1,923,316 $ 2,546,208 $ 360,319 Provision for bad debts................... 330,727 491,750 767,614 397,950 344,992 Depreciation and amortization............. 1,930,783 2,368,113 2,467,056 1,821,191 2,371,824 Barter transactions, net.................. (214,222) (312,926) (34,450) 163,559 (131,514) Amortization of debt facility fee included in interest expense..................... 201,158 112,565 134,608 101,956 100,956 Loss (gain) from unconsolidated partnership interests................... 55,291 (109,624) 19,834 14,874 14,875 Loss (gain) from sale of investments...... -- -- (6,081) -- -- Valuation adjustments on notes receivable, investments and other noncurrent assets.................................. 691,978 12,600 -- -- -- Loss (gain) on disposition of assets...... (223,348) 325,676 (260,619) (270,845) 5,608 Deferred income taxes..................... -- 3,691,480 (109,059) (81,794) 235,643 Loss on retirement of debt................ -- 605,486 -- -- -- Changes in operating assets and liabilities: Accounts receivable, net................ (1,919,735) (1,459,841) (1,543,211) (2,254,953) (1,789,325) Income tax receivable................... -- (5,156,081) 5,156,081 5,156,081 -- Amounts receivable from officers and stockholders......................... 6,261 105,120 (44,238) (25,138) (22,283) Prepaid expenses and other current assets............................... (68,199) 263,534 (117,093) (239,677) (388,187) Accounts payable........................ 1,298,235 (438,554) (658,946) (931,037) 622,301 Accrued expenses........................ 714,089 (259,329) 1,087,027 1,722,811 1,457,581 Income taxes payable.................... 125,000 459,931 (19,357) (192,245) 49,507 Amounts payable to officers and stockholders......................... 43,390 138,898 59,032 (81,964) (85,765) ------------ ----------- ----------- ----------- ----------- Net cash provided by operating activities......................... 4,461,572 3,159,172 8,821,514 7,846,977 3,146,532 ------------ ----------- ----------- ----------- ----------- Cash flows from investing activities: Investment sales, distributions and additions................................. (31,277) 25,000 14,681 8,526 -- Acquisitions of radio stations.............. (14,800,000) -- (6,740,000) (6,250,000) (46,500,000) Property and equipment acquisitions......... (600,350) (899,762) (1,279,915) (969,747) (1,167,019) Dispositions of property and equipment...... 339,529 652,080 644,737 643,682 2,950 Increase in intangible assets............... (437,706) (303,223) (1,042,929) (924,219) 61,525 Decrease (increase) in other noncurrent assets.................................... (65,789) (150,362) (134,174) (146,316) 25,836 ------------ ----------- ----------- ----------- ----------- Net cash used in investing activities......................... (15,595,593) (676,267) (8,537,600) (7,638,074) (47,576,708) ------------ ----------- ----------- ----------- ----------- Cash flows from financing activities: Borrowings on long-term obligations......... 26,803,922 -- 7,150,000 6,650,000 45,900,000 Payments on long-term obligations........... (16,119,907) (3,014,894) (5,870,561) (5,857,941) (35,649) Dividends on senior preferred stock......... -- (300,000) (420,000) (420,000) -- Net proceeds from issuance of senior preferred stock........................... 2,678,164 -- -- -- -- Payment of deferred financing costs......... (717,742) (897,389) -- -- -- Proceeds from issuance of common stock purchase warrant.......................... 163,520 -- -- -- -- Sales of treasury stock..................... 31,249 30,001 57,501 -- -- Note payments from stockholders............. 28,462 46,690 103,554 48,384 51,638 Purchases of treasury stock................. -- (36,957) (41,467) (41,466) (13,896) ------------ ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities............... 12,867,668 (4,172,549) 979,027 378,977 45,902,093 ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents................................. 1,733,647 (1,689,644) 1,262,941 587,880 1,471,917 Cash and cash equivalents at beginning of period...................................... 2,287,011 4,020,658 2,331,014 2,331,014 3,593,955 ------------ ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period.... $ 4,020,658 $ 2,331,014 $ 3,593,955 $ 2,918,894 $ 5,065,872 ============ =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-6 47 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Tichenor Media System, Inc. was formed on August 17, 1982 for the purpose of owning and operating a group of Spanish language broadcast radio stations. The Company's radio stations are located in San Antonio, McAllen-Brownsville, Houston and El Paso, Texas and Chicago, Illinois. Basis of Consolidation The accompanying consolidated financial statements include the accounts of Tichenor Media System, Inc. and its wholly-owned subsidiaries, Tichenor License Corporation ("TLC"), WADO Radio, Inc. ("WRI") and TC Television, Inc. ("TCTV") (collectively, the "Company"). The Company consolidates the accounts of subsidiaries when it has a controlling financial interest (over 50%) in the outstanding voting shares of the subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Debt instruments with original maturities of three months or less are considered to be cash equivalents. Cash equivalents at December 31, 1994 and 1995 are comprised of treasury bills, other government securities and money market funds and totalled $1,813,793 and $461,029, respectively. Investments The Company uses the equity method to account for investments when it does not have a controlling interest but has the ability to exercise significant influence over the operating and/or financial decisions of the investee. Investments where the Company does not exert significant influence are accounted for using the cost method. Investments at December 31, 1994 and 1995 are comprised primarily of a 50% interest in a general partnership which owns a transmission tower that is leased to the Company. Property, Equipment and Land Property, equipment and land are recorded at cost. Expenditures for significant renewals and betterments are capitalized. Repairs and maintenance are charged to expense as incurred. Depreciation is provided in amounts sufficient to relate the asset cost to operations over the estimated useful lives (five to forty years) on a straight-line basis. Leasehold improvements are amortized over the life of the lease or the estimated service life of the asset, whichever is shorter. Gains or losses from disposition of property and equipment is recognized in the statement of operations. F-7 48 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) Intangible Assets Intangible assets are recorded at cost. Amortization of intangible assets is provided in amounts sufficient to relate the asset cost to operations over the estimated useful lives (two to forty years) on a straight-line basis. Advertising Costs Advertising costs are charged to operations in the year incurred and totaled $779,582, $894,982 and $1,232,255 for the years ended December 31, 1993, 1994 and 1995, respectively. Barter Transactions Barter transactions are recorded at the estimated fair value of the goods or services received. Revenues from barter transactions are recognized as income when advertisements are broadcast. Expenses are recognized when goods or services are received or used. Barter amounts are not significant to the Company's financial statements. Income Taxes The Company follows Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings Per Share Net income or loss per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of common and dilutive common equivalent shares (junior preferred stock) outstanding during each year. The stock warrant has been excluded from the computation as its effect would be antidilutive. Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents, trade receivables and accounts payable approximated fair value as of December 31, 1994 and 1995, because of the relatively short maturity of these instruments. The carrying value of long-term obligations, including the current portion, approximated fair value as of December 31, 1994 and 1995, based upon quoted market prices for the same or similar debt issues. Interim Financial Statements In the opinion of management, the accompanying unaudited consolidated financial statements as of June 30, 1996 and for the six-month periods ended June 30, 1995 and 1996 reflect all adjustments (none of which were other than normal recurring accruals) necessary to a fair presentation of the Company's financial position and results of operations for such periods. The results of operations for the six-month period ended June 30, 1996 are not necessarily indicative of F-8 49 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) results to be achieved for the full year. The unaudited interim financial statements do not include all disclosures required by generally accepted accounting principles. 2. ACQUISITIONS OF RADIO STATIONS On June 1, 1995, certain tangible and intangible assets of radio station KMPQ-AM in Rosenberg-Richmond (Houston), Texas were acquired for $2,500,000. The intangible assets acquired are amortized using the straight line method over 15 to 40 years. This acquisition, along with a deposit for $500,000 related to the KMIA-FM acquisition, was funded with bank financing. On June 16, 1995, the Company purchased certain tangible and intangible assets of KLTN-FM in Port Arthur (Houston), Texas for $3,650,000. The intangible assets acquired are amortized using the straight line method over 15 to 40 years. Bank financing was used to fund this acquisition. On June 23, 1995, TCTV purchased certain tangible and intangible assets associated with the television program known as "Tejano Country." The purchase price was $100,000 and was funded from operations. The Company acquired certain tangible and intangible assets of radio station KAMA-AM in El Paso, Texas on October 11, 1995. The purchase price was $300,000. In addition, a two-year non-competition agreement was acquired for $190,000. The intangible assets acquired are amortized using the straight line method over 2 to 40 years. These assets together with $10,000 in working capital were funded with bank financing. Prior to the acquisitions of KMPQ-AM, KLTN-FM and KAMA-AM, the Company operated the stations under time brokerage agreements. The time brokerage agreements provided that the Company retain all revenues associated with advertising time and pay certain operating expenses. These agreements were effective December 1, 1994, April 27, 1992, and June 23, 1995, for KMPQ-AM, KLTN-FM and KAMA-AM, respectively. Time brokerage agreement fees related to these stations for the years ended December 31, 1994 and 1995 are $579,404 and $91,463, respectively. Unaudited consolidated condensed pro forma results of operations as if all acquisitions occurred as of the beginning of the periods presented are as follows:
1994 1995 ----------- ----------- Net revenues........................................... $34,294,803 $38,229,370 Operating income....................................... 2,988,834 6,251,306 Net income............................................. 562,712 1,204,873 Net loss per common share.............................. (.83) (.91)
3. ACCRUED EXPENSES The following is a summary of accrued expenses as of December 31, 1994 and 1995:
1994 1995 ---------- ---------- Commissions payable....................................... $1,200,128 $1,431,253 Accrued interest.......................................... -- 796,933 Other accrued expenses.................................... 456,119 515,088 ---------- ---------- Total accrued expenses.......................... $1,656,247 $2,743,274 ========== ==========
F-9 50 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 4. LONG-TERM OBLIGATIONS The following is a summary of long-term obligations outstanding as of December 31, 1994 and 1995:
1994 1995 ----------- ----------- Bank loans, aggregate commitment of $50 million, interest rate based on LIBOR and prime plus an applicable margin as determined by the Company's total leverage ratio; interest rates ranging from 7.44% to 9.25% at December 31, 1995; interest rates ranged from 7.32% to 9.75% during 1995; payable through 2001; collateralized by all of the Company's assets (including the stock of TLC, WRI, and TCTV) excluding FCC licenses; the Company is required to comply with certain financial and nonfinancial covenants............................................ $23,616,033 $25,348,217 Loans from related parties, interest at 10%, payable on demand............................................... 404,263 -- Various loans, interest ranging from 11.75% to 12.38%, payable through 1997................................. 58,203 38,456 Obligations under capital leases, implicit interest rates of 5.8% to 12.2%, payable through 1997......... 71,379 42,644 ----------- ----------- 24,149,878 25,429,317 Less current portion................................... (5,608,823) (47,611) ----------- ----------- $18,541,055 $25,381,706 =========== ===========
Maturities of long-term obligations for the five years subsequent to December 31, 1995 and thereafter are as follows:
YEAR AMOUNT -------------------------------------------- ----------- 1996........................................ $ 47,611 1997........................................ 33,490 1998........................................ -- 1999........................................ 4,098,216 2000........................................ 13,750,000 Thereafter.................................. 7,500,000
After April 30, 1997, the bank loan agreement requires principal reductions in the loan equal to 50% of excess cash flow, as defined. On August 9, 1994, the Company refinanced its bank loan. An extraordinary loss of $605,486 has been recognized due to the write-off of the unamortized deferred financing costs of the loan. To reduce the impact of changes in interest rates on its floating rate long-term bank loan, the Company entered into an interest rate swap agreement. As of December 31, 1994, $10,370,000 of the notional amount of the agreement was outstanding. The outstanding swap agreement matured in December 1995 and effectively fixed the interest rate on the corresponding amount of the loan at 7.31%, which was based on the 90 day LIBOR plus an incremental rate. Amounts receivable or F-10 51 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) payable under the agreement were recognized currently in interest expense. Interest expense (income) recognized under the agreement totalled $279,309, $140,767 and ($57,241) for the years ended December 31, 1993, 1994 and 1995, respectively. The bank loan agreement requires the Company to enter into an interest rate swap agreement covering 50% of the outstanding obligation by December 31, 1996. Interest paid for the years ended December 31, 1993, 1994 and 1995 amounted to $1,478,879, $2,221,643 and $2,091,919, respectively. 5. STOCKHOLDERS' EQUITY The senior preferred stock has a preference as to dividends and assets in the event of a partial or complete liquidation. Dividends are cumulative and accrue at 14% per annum, compounded annually, on the sum of the par value of the stock and all accrued and unpaid dividends. As of December 31, 1994 and 1995, accrued and unpaid dividends were $359,680 and $378,749, respectively. In the event of a partial or complete liquidation, the senior preferred stock is entitled to receive the sum of the par value of the stock and all accrued and unpaid dividends ("Redemption Price") before payment of the preferential amount owed with respect to the junior preferred stock. The senior preferred stock has no voting rights; however, the holders of the senior preferred stock are entitled to elect one director of the Company. Each director is entitled to one vote, but if certain covenants to the investment agreement with the preferred shareholders are not met, the senior preferred stock director is entitled to 100 votes, whereas other directors will have one vote. The preferred stock director in this situation will have the power to cause the Company to sell certain assets to satisfy first the bank obligation in full and then redeem the senior preferred stock and repurchase the stock warrant discussed in the following paragraph. The senior preferred shareholders were issued a warrant to purchase common stock for $38,000 on or before June 15, 2003. The stock warrant is for the purchase of common stock in an amount up to 4% of the Company's total common stock outstanding at the time of exercise of the warrant, computed on a fully diluted basis. The difference between the carrying value of the warrant and its estimated fair value, as determined by management on an annual basis, is being accreted over the term of the warrant through charges to retained earnings. The Company has the option to redeem all the senior preferred stock at the Redemption Price and repurchase the stock warrant after December 31, 1996. The stock warrant would be repurchased at a value which approximates 4% of the sum of the fair market value of the Company's net assets. The mandatory redemption date for the senior preferred stock is June 30, 2001. Both the option to redeem the senior preferred stock and the mandatory redemption provision require the Company to simultaneously repurchase the stock warrant. The junior preferred stock has a preference as to dividends and assets in the event of a partial or complete liquidation. The payment of dividends on this class of stock is restricted by the bank credit agreement. In the event of a partial or complete liquidation, holders of the junior preferred stock are entitled to receive $100 per share after full payment of amounts owed to holders of the senior preferred stock and before any distribution on the common stock. The holders of the junior preferred stock have the right to convert their shares into common stock. The conversion rate for each share of junior preferred stock is the quotient of $100 divided by the fair market value of one share of common stock on the date of conversion. The number of shares to be converted is multiplied by such quotient. F-11 52 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) The holders of the junior preferred stock have voting rights equal in the aggregate to 45% of the voting rights of all outstanding voting shares. The holders of the common stock have voting rights equal to the remaining 55%. As of December 31, 1995, treasury stock is comprised of 59,284 shares of common stock at an aggregate cost of $1,273,563 and 1,057 shares of junior preferred stock at an aggregate cost of $105,700. Except for the purchase of 147 shares of junior preferred stock at a cost of $14,700 in 1995, all other treasury stock transactions during the three years ended December 31, 1995 and the six months ended June 30, 1996 represent purchases and sales of common stock. 6. INCOME TAXES The provision (benefit) for income taxes on earnings before extraordinary item for the years ended December 31, 1993, 1994, and 1995 consists of the following:
1993 1994 1995 -------- ----------- ---------- Current: Federal..................................... $125,000 $(2,481,971) $2,532,002 State....................................... -- 83,138 356,741 -------- ----------- ---------- Total current tax expense (benefit)......................... 125,000 (2,398,833) 2,888,743 -------- ----------- ---------- Deferred: Federal..................................... -- 3,392,171 (219,425) State....................................... -- 299,309 110,366 -------- ----------- ---------- Total deferred tax expense (benefit)......................... -- 3,691,480 (109,059) -------- ----------- ---------- Total income tax expense............ $125,000 $ 1,292,647 $2,779,684 ======== =========== ==========
In 1994, an income tax benefit of $224,030 was allocated to the extraordinary charge discussed in note 3. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1994 and 1995 are as follows:
1994 1995 ----------- ----------- Deferred tax assets: Intangible assets.................................... $ 280,654 $ 444,800 Allowance for doubtful accounts receivable........... 84,464 290,540 Other................................................ 60,976 68,000 ----------- ----------- Total deferred tax assets.................... 426,094 803,340 ----------- ----------- Deferred tax liabilities: Broadcast licenses................................... (4,107,838) (4,356,131) Other................................................ (9,736) (29,630) ----------- ----------- Total deferred tax liabilities............... (4,117,574) (4,385,761) ----------- ----------- Net deferred tax liabilities................. $(3,691,480) $(3,582,421) =========== ===========
F-12 53 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) The reconciliation of income tax expense computed at the federal statutory tax rate to the Company's actual income tax expense for the years ended December 31, 1993, 1994, and 1995 is as follows:
1993 1994 1995 --------- ---------- ---------- Federal income tax at statutory rate........ $ 549,156 $1,358,122 $1,599,020 State income taxes, net of federal benefit................................... -- 252,415 308,291 Nondeductible intangible asset amortization.............................. -- 33,150 140,927 Use of net operating loss carryforwards..... (424,156) (288,600) -- Other....................................... -- (62,440) 731,446 --------- ---------- ---------- $ 125,000 $1,292,647 $2,779,684 ========= ========== ==========
Income taxes paid for the years ended December 31, 1993, 1994, and 1995 amounted to $0, $21,958, and $2,908,100, respectively. 7. COMMITMENTS AND CONTINGENCIES The Company is the lessor of office space, transmitter towers, and parcels of land. Included in buildings and equipment as of December 31, 1994 and 1995 is $2,186,261 and $2,005,433 of assets leased to others under operating leases and the related accumulated depreciation of $617,571 and $623,711. Included in land as of December 31, 1994 and 1995 is $52,396 representing a parcel of land which is leased to another party under an operating lease. The Company operates certain radio stations and the corporate offices from leased facilities. Terms of the office space leases vary from three to ten years. None of the leases contain contingent rent clauses; however, certain leases contain five year renewal options. Other leases have terms which vary from a month-to-month term to ten years. Certain leases have contingent rent clauses providing for increases based on the Consumer Price Index. These leases have renewal options of one to ten years. Future minimum rental payments under noncancellable operating leases in effect at December 31, 1995 are summarized as follows:
YEAR AMOUNT ------------------------------------------------ ---------- 1996............................................ $1,103,301 1997............................................ 1,080,089 1998............................................ 998,124 1999............................................ 898,354 2000............................................ 831,457 Thereafter...................................... 3,873,064
Rent expense for the years ended December 31, 1993, 1994 and 1995 was $933,685, $936,128 and $1,075,400, respectively. In December 1994, the Company entered into a time brokerage agreement to provide programming to, and sell advertising time on, radio station KMPQ-FM in Rosenberg-Richmond (Houston), Texas, and acquired an option to purchase the station. The time brokerage agreement provides that the Company will retain all revenues associated with advertising time and pay certain operating expenses effective December 1, 1994. The KMPQ-FM time brokerage agreement provides for F-13 54 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) payments of $12,500 a month to the licensee until the earlier of November 30, 1997 or the Company exercises its option to purchase the station. If the grantor obtains an upgrade of the station's broadcast authorization status and relocates the transmitter site, the purchase price of the station's assets would be $14,000,000. If this upgrade is not accomplished, the purchase price is the fair market value as defined in the agreement. If the upgrade of KMPQ-FM is not completed at the expiration of the initial term of the time brokerage agreement, the agreement may be extended for two, two-year periods with payments to the licensee of $15,000 per month. If the upgrade becomes final, as defined in the agreement, during the initial term or any extension of the agreement, the fee paid to the licensee can increase to $150,000 per month. On December 15, 1995, the Company entered into a time brokerage agreement to provide programming to, and sell advertising time on, radio station KRTX-FM in Galveston (Houston), Texas. Also, on December 15, 1995, the Company entered into an asset purchase agreement related to this station. The time brokerage agreement provides that the Company will retain all revenues associated with advertising time and pay certain operating expenses effective December 15, 1995. The KRTX-FM time brokerage agreement provides for payments of $13,000 per month to the licensee until the earlier of the closing of the transactions contemplated by the asset purchase agreement or the termination of such agreement. The asset purchase agreement for KRTX-FM provides for the purchase of certain tangible and intangible assets. The purchase price is $900,000. As of December 31, 1995, the Company was waiting for approval from the Federal Communications Commission ("FCC") before it could close on the purchase. Time brokerage agreement fees for the years ended December 31, 1994 and 1995 were $12,500 (KMPQ-FM) and $155,000 (KMPQ-FM and KRTX-FM), respectively. Spanish Radio Network ("SRN"), a partnership in which the Company was previously a partner, was examined by the Internal Revenue Service ("IRS") for the tax years ended December 31, 1992 and 1993. SRN owned and operated radio stations. The IRS disagrees with SRN's radio station purchase price allocations and has allocated a portion of the purchase price of certain amortizable intangible assets to nonamortizable going concern value. The tax effect of these adjustments to the Company, before interest, is approximately $326,000. The Company intends to protest the adjustments through the appeals process of the IRS and believes these adjustments will be reduced. The IRS audited the Company's federal income tax returns for the tax years ended February 29, 1984, and February 28, 1985, 1986 and 1987 and the Company petitioned the United States Tax Court related to certain proposed adjustments. The Company reached an agreement with the IRS on June 16, 1994, and all issues were settled. At December 31, 1994, the Company accrued a tax refund receivable of approximately $5,794,000 for the aforementioned tax years which includes net interest income of approximately $2,671,000. The refund was received on April 24, 1995. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of its business and have not been fully adjudicated. These actions, when ultimately concluded, will not, in the opinion of management, have a material adverse effect upon the financial position or results of operations of the Company. 8. SUBSEQUENT EVENTS The Company closed on the purchase of the assets of KMIA-FM (subsequently renamed KRTX-FM) in Jasper (Houston), Texas on March 25, 1996. The purchase price was $3,500,000. A $3,000,000 bank loan was used to finance this acquisition of assets. F-14 55 TICHENOR MEDIA SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) On March 31, 1996, the Company entered into a time brokerage agreement to provide programming to, and sell advertising time on, radio station KQXX-FM in McAllen, Texas. The Company also entered into an asset purchase agreement related to this radio station. The time brokerage agreement provides that the Company will retain all revenues associated with advertising time and pay certain operating expenses effective April 1, 1996. The Company pays $12,500 monthly to the licensee of KQXX-FM until the earlier of the closing date or termination of the asset purchase agreement. 9. OTHER SUBSEQUENT EVENTS (UNAUDITED) The Company closed on the purchase of the assets of KLTP-FM (formerly KRTX-FM) in Galveston (Houston), Texas on July 31, 1996. The purchase price was $900,000. A $600,000 bank loan was used to finance this acquisition. The Company closed on the purchase of the assets of KQXX-FM in McAllen, Texas on August 1, 1996. The purchase price of KQXX-FM was $1,300,000. Also, a five year non-competition agreement from the seller was purchased for $800,000. A $1,300,000 bank loan was used to finance this acquisition. On August 16, 1996, the Company purchased the assets of KSOL-FM and KYLZ-FM in San Francisco and Santa Cruz (San Jose), California. The purchase price was $40,000,000. The acquisition was financed with a $40,000,000 loan from Clear Channel Communications, Inc. The interest rate on the loan starts at 9% and escalates to 13% over the loan term. The loan matures on September 30, 1997. The Company has entered into an Agreement and Plan of Merger whereby it will merge with a wholly owned subsidiary of Heftel Broadcasting Corporation ("Heftel"). In connection with the merger, management of the Company will assume management responsibilities of Heftel. Upon consummation of the merger, the Company's senior preferred stock will be redeemed and the common stock warrant will be repurchased. The senior preferred stock will be redeemed for $3,378,749 and 23,000 shares of common stock will be issued to repurchase the warrant. The merger is expected to become effective in early 1997. F-15 56 INDEPENDENT AUDITOR'S REPORT KSOL-FM and KYLZ-FM (Divisions of Crescent Communications, L.P.) San Francisco, California To the Partners: We have audited the accompanying combined balance sheets of KSOL-FM and KYLZ-FM (Divisions of Crescent Communications, L.P.) as of December 31, 1994 and 1995 and the related combined statements of operations and partners' deficiency, and cash flows for the nine months ended December 31, 1994 and the year ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of KSOL-FM and KYLZ-FM (Divisions of Crescent Communications, L.P.) as of December 31, 1994 and 1995, and the results of their operations and their cash flows for the nine months ended December 31, 1994 and the year ended December 31, 1995 in accordance with generally accepted accounting principles. MILLER, KAPLAN, ARASE & CO. North Hollywood, California March 1, 1996 (Except for Note 11 as to which the date is August 16, 1996). F-16 57 EXHIBIT "A" KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) COMBINED BALANCE SHEETS
DECEMBER 31, -------------------------- JUNE 30, 1994 1995 1996 ----------- ----------- ----------- (UNAUDITED) ASSETS: Cash............................................. $ 500 $ 500 $ 500 Accounts receivable (net of allowance for doubtful accounts of $65,869, $95,537 and $105,411)..................................... 443,840 643,752 722,446 Trade receivable................................. -- 4,156 11,391 Other receivables................................ 1,537 9,759 14,802 Other prepaid expenses........................... 154,320 410,990 35,903 ----------- ----------- ----------- Total current assets..................... 600,197 1,069,157 785,042 Property and equipment, net of accumulated depreciation (Note 2)............................ 50,840 554,502 496,604 Intangible assets, net of accumulated amortization (Note 3)......................................... 84,805 15,428,597 15,210,071 ----------- ----------- ----------- Total assets............................. $ 735,842 $17,052,256 $16,491,717 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses............ $ 109,178 $ 199,497 $ 121,416 Accrued wages and commissions.................... 108,681 52,300 76,074 Trade liability.................................. 90,931 285,356 285,356 Deferred income.................................. 16,192 6,928 5,272 ----------- ----------- ----------- Total current liabilities................ 324,982 544,081 488,118 Interdivisional payable (Note 4)................... 2,811,206 22,740,589 24,440,358 ----------- ----------- ----------- Total liabilities........................ 3,136,188 23,284,670 24,928,476 Commitments and contingencies (Notes 5 and 6) Partners' deficiency............................. (2,400,346) (6,232,414) (8,436,759) ----------- ----------- ----------- Total liabilities and partners' deficiency............................. $ 735,842 $17,052,256 $16,491,717 =========== =========== ===========
(Attached notes are an integral part of this statement) F-17 58 EXHIBIT "B" KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIENCY
SIX MONTHS ENDED NINE MONTHS JUNE 30, ENDED YEAR ENDED (UNAUDITED) DECEMBER 31, DECEMBER 31, -------------------------- 1994 1995 1995 1996 ----------- ----------- ----------- ----------- Net Revenues......................... $ 1,796,162 $ 3,411,596 $ 1,631,085 $ 1,946,686 ----------- ----------- ----------- ----------- Operation Expenses: Operating expenses excluding Depreciation and amortization, General and administrative, and Corporate expenses.............. 2,249,380 2,886,877 1,342,712 1,729,652 Depreciation and amortization...... 6,942 430,609 146,035 287,805 General and administrative expense......................... 704,309 1,082,252 474,054 638,873 Corporate expense.................. 1,235,877 755,573 543,727 206,986 ----------- ----------- ----------- ----------- Total operating expenses... 4,196,508 5,155,311 2,506,528 2,863,316 ----------- ----------- ----------- ----------- Loss from operations....... (2,400,346) (1,743,715) (875,443) (916,630) ----------- ----------- ----------- ----------- Other income (expense): Interest expense................... -- (2,104,583) (547,049) (1,296,502) Other income....................... -- 16,230 9,140 8,787 ----------- ----------- ----------- ----------- Net other (expense)........ -- (2,088,353) (537,909) (1,287,715) ----------- ----------- ----------- ----------- Net loss............................. (2,400,346) (3,832,068) (1,413,352) (2,204,345) Partners' deficiency -- beginning of period............................. -- (2,400,346) (2,400,346) (6,232,414) ----------- ----------- ----------- ----------- Partners' deficiency -- end of period............................. $(2,400,346) $(6,232,414) $(3,813,698) $(8,436,759) =========== =========== =========== ===========
(Attached notes are an integral part of this statement) F-18 59 EXHIBIT "C" KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NINE MONTHS JUNE 30, ENDED YEAR ENDED (UNAUDITED) DECEMBER 31, DECEMBER 31, -------------------------- 1994 1995 1995 1996 ------------ ------------ ----------- ----------- Cash Flows From Operating Activities: Net loss.......................... $(2,400,346) $(3,832,068) $(1,413,352) $(2,204,345) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation................... 6,942 102,570 29,275 69,279 Amortization................... -- 328,039 116,760 218,526 (Increase) decrease in: Accounts receivable.......... (443,840) (199,912) (258,457) (78,695) Trade receivable............. -- (4,156) (103,133) (7,235) Other receivables............ (1,537) (8,222) (18,899) (5,043) Other prepaid expenses....... (154,320) (171,865) 206,766 375,087 Increase (decrease) in: Accounts payable and accrued expenses.................. 109,178 90,319 68,501 (78,081) Accrued wages and commissions............... 108,681 (56,381) (55,386) 23,774 Trade liability.............. 90,931 194,425 57,285 -- Deferred revenue............. 16,192 (9,264) (16,192) (1,656) Interdivisional payable...... 2,811,206 3,929,383 1,726,966 1,699,769 ----------- ----------- ----------- ----------- Net cash provided by operating activities.... 143,087 362,868 340,134 11,380 ----------- ----------- ----------- ----------- Cash Flows From Investing Activities: Purchase of property and equipment...................... (57,782) (59,942) (37,208) (11,380) Purchase of intangibles........... (84,805) (302,926) (302,926) -- ----------- ----------- ----------- ----------- Net cash used by investing activities.............. (142,587) (362,868) (340,134) (11,380) ----------- ----------- ----------- ----------- Net increase (decrease) in cash..... 500 -- -- -- Cash, beginning of period........... -- 500 500 500 ----------- ----------- ----------- ----------- Cash, end of period................. $ 500 $ 500 $ 500 $ 500 =========== =========== =========== ===========
Supplemental Disclosure of Non-Cash Activity: The Partnership purchased KSOL-FM and KYLZ-FM on March 22, 1995 by incurring approximately $16,000,000 in additional debt. This transaction was recorded on the station's books through the interdivisional payable account. (Attached notes are an integral part of this statement.) F-19 60 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) NOTES TO COMBINED FINANCIAL STATEMENTS NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED) YEAR ENDED DECEMBER 31, 1995 (AUDITED) SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Nature of Business and Basis of Presentation Radio stations KSOL-FM and KYLZ-FM ("the stations"), licensed to San Francisco, California and Santa Cruz, California, respectively, are divisions of Crescent Communications, L.P. ("the Partnership"). The Partnership was established as a limited partnership for the purpose of acquiring and operating radio stations and commenced operations on November 19, 1993. The Partnership purchased radio stations KSOL-FM and KYLZ-FM on March 22, 1995 which it had been operating on a contract basis since April 1, 1994. KYLZ-FM was simulcast with another station owned by the Partnership since April 1, 1994. The accompanying combined financial statements present only the accounts of KSOL-FM and KYLZ-FM, after eliminating all significant interdivisional accounts and transactions between the stations. B. Unaudited Interim Information In the opinion of management, the combined financial statements for the six month periods ended June 30, 1995 and 1996 (unaudited) include all adjustments necessary for a fair presentation in accordance with generally accepted accounting principles consisting solely of normal recurring accruals and adjustments. The results of operations and cash flows for the six months ended June 30, 1995 and 1996 are not necessarily indicative of results which would be expected for a full year. C. Revenue Recognition Revenue is recognized when commercial spot announcements are aired. Unbilled commercial air time is accrued at year end and included in accounts receivable. Payments received in advance are included in deferred revenue. D. Property and Equipment Property and equipment are stated at cost. Amounts expended for improvements which increase the useful life or replace major units of property and equipment are capitalized, while expenditures for repairs, maintenance and minor renewals are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss is reflected in current year earnings. E. Depreciation Depreciation of property and equipment is computed using the straight-line method over the estimated economic lives of the assets as follows: Broadcasting Equipment............................................. 5 years Furniture and Fixtures............................................. 7 years Music Library...................................................... 5 years Vehicles........................................................... 3 years Computers.......................................................... 3 years
F-20 61 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED) YEAR ENDED DECEMBER 31, 1995 (AUDITED) SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) F. Amortization Amortization of intangible assets is computed using the straight-line method over the estimated lives of the assets as follows: FCC License....................................................... 40 years Goodwill.......................................................... 40 years Going Concern Value............................................... 40 years Acquisition Costs................................................. 5 years
G. Trades Under trade agreements with certain advertisers, the Partnership provides commercial spot announcements in exchange for goods and services, as is customary in the broadcasting industry. These transactions are recorded at the estimated fair market value of the goods and services received. Trade sales are recognized when commercial spot announcements are broadcast and the value of goods or services is recorded when received or utilized. The value of air time provided and goods or services received are reflected in the balance sheet as a trade receivable and a trade liability until they are paid for and earned, respectively. H. Concentration of Risk Financial instruments that potentially subject the Partnership to credit risk consist of accounts receivable. Concentration of credit risk with respect to accounts receivable is limited due to the large number of diversified customers and the geographic diversification of KSOL-FM and KYLZ-FM's national customer base. I. Allowance for Doubtful Accounts The allowance for doubtful accounts is based on management's estimate of the collectability of accounts receivable. J. Income Taxes As a Limited Partnership, all income and losses of Crescent Communications, L.P. are passed directly to the partners for federal and state income tax purposes. Accordingly, income tax expense is not reflected on the statements of operations and partners' deficiency. K. Accounting Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires that management use estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Corporate and interest expenses were allocated among the individual radio station divisions of Crescent Communications, L.P. on a pro rata basis. Corporate expenses were allocated based on F-21 62 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED) YEAR ENDED DECEMBER 31, 1995 (AUDITED) SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) revenues and interest expenses were allocated based on station purchase price. The amounts allocated to KSOL-FM and KYLZ-FM have been reflected in these financial statements. The accounting records of KYLZ-FM were combined with those of another station also owned by Crescent Communications, L.P. Approximately 12.7% of the combined revenues and expenses were allocated to KYLZ-FM based on a combination of wattage, sales price and spot rate. NOTE 2 -- PROPERTY AND EQUIPMENT Property and Equipment consist of the following at December 31,:
1994 1995 ------- --------- Broadcasting Equipment........................................ $20,671 $ 438,922 Furniture and Fixtures........................................ 618 88,768 Music Library................................................. -- 47,600 Vehicles...................................................... 22,181 38,881 Computers..................................................... 14,312 49,842 ------- --------- 57,782 664,013 Accumulated Depreciation...................................... (6,942) (109,511) ------- --------- $50,840 $ 554,502 ======= =========
NOTE 3 -- INTANGIBLE ASSETS Intangible assets consist of the following at December 31,:
1994 1995 ------- ----------- FCC Licenses................................................ $ -- $15,000,000 Goodwill.................................................... -- 409,004 Going Concern Value......................................... -- 100,000 Acquisition Costs........................................... 84,805 247,632 ------- ----------- 84,805 15,756,636 Accumulated Amortization.................................... -- (328,039) ------- ----------- $84,805 $15,428,597 ======= ===========
The majority of the intangibles were acquired in the March 22, 1995 purchase of KSOL-FM and KYLZ-FM. NOTE 4 -- INTERDIVISIONAL PAYABLE As discussed in Note 1A, these combined financial statements present only the accounts of KSOL-FM and KYLZ-FM. The interdivisional transactions which would have been eliminated had the financial statements been prepared on a consolidated basis have resulted in an interdivisional payable to those entities which have not been included herein. This payable consists primarily of KSOL-FM and KYLZ-FM station acquisition debt recorded on the books of the Partnership, and interdivisional allocations of Corporate and interest expenses. F-22 63 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED) YEAR ENDED DECEMBER 31, 1995 (AUDITED) SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) Since KSOL-FM and KYLZ-FM do not maintain significant cash balances, all of the receipts and disbursements of the stations are also recorded through this account. NOTE 5 -- COMMITMENTS A. Long-Term Debt The secured long-term debt of the Partnership is not reflected in these financial statements although interest expense has been allocated to the stations as discussed in Note 1K. This long-term debt is secured by a lien on all tangible and intangible assets of the Partnership, including KSOL-FM and KYLZ-FM. This secured long-term debt outstanding of the Partnership totaled $8,800,000 and $40,755,000 at December 31, 1994 and 1995, respectively. On August 16, 1996, immediately subsequent to the sale of KSOL-FM and KYLZ-FM to Tichenor Media System, Inc. (see Note 11) the debt mentioned above was retired and all liens on the Stations were released. At December 31, 1995, loan covenant violations had been waived by certain Partnership lenders concerning outstanding debt totaling $40,755,000. B. Lease Commitments The Partnership is committed to four KSOL-FM and KYLZ-FM operating lease agreements for office space, transmitter facilities and equipment, which expire in various years through February, 2000. Payments on these leases range from $600 to $10,200 per month. One of the leases includes a renewal option and calls for an annual rental increase ranging from $270 to $2,290 per year as provided in the lease agreement. KSOL-FM and KYLZ-FM rental expense for the nine months ended December 31, 1994 and the year ended December 31, 1995 was $159,103 and $206,359, respectively. Future KSOL-FM and KYLZ-FM minimum rental payments under these lease agreements for each of the years ending December 31 are as follows: 1996............................................. $204,746 1997............................................. 116,026 1998............................................. 108,533 1999............................................. 104,157 2000............................................. 14,400
NOTE 6 -- COMMITMENTS -- RELATED PARTY A. Management Agreements The Partnership entered into a two year management agreement with a series of one year automatic renewals with Crescent Communications Corporation. Two key management members of this corporation are also related party stockholders of S&W LP Corporation (Note 7). During the year ended December 31, 1995, the Partnership paid $520,000 to Crescent Communications Corporation for 1995 management fees which included a bonus of $89,874 based on 1994's operating cash flow. During the nine months ended December 31, 1994 and the year ended December 31, 1995, $386,714 and $476,207 was charged to corporate expenses of which $90,491 and $136,195 has been allocated to KSOL-FM and KYLZ-FM on a pro rata basis. F-23 64 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED) YEAR ENDED DECEMBER 31, 1995 (AUDITED) SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) Crescent Communications Corporation incurs certain costs on behalf of the Partnership, which are periodically reimbursed. These reimbursable expenses totalled $113,626 and $132,581 during the nine months ended December 31, 1994 and the year ended December 31, 1995 of which $26,588 and $32,918 have been allocated to KSOL-FM and KYLZ-FM on a pro rata basis, respectively. B. Capital Bonus Plan During the nine months ended December 31, 1994 and the year ended December 31, 1995, the Partnership implemented a Capital Bonus Plan as an incentive for certain key employees of the Partnership whereby the Board of Directors may award "units" representing the right to receive a percentage of the net equity growth of the stations owned by the Partnership including KSOL-FM and KYLZ-FM. No bonuses were awarded under the plan for the year ended December 31, 1995. NOTE 7 -- OTHER RELATED PARTY ACTIVITY During the nine months ended December 31, 1994 and the year ended December 31, 1995, the Partnership incurred reimbursable expenses to a related party stockholder of S&W LP Corporation (a partner of Crescent Communications, L.P.) for expenses paid on behalf of the Partnership totalling $7,013 and $22,887, of which $1,642 and $6,546 has been allocated to KSOL-FM and KYLZ-FM on a pro rata basis, respectively. NOTE 8 -- EMPLOYEE BENEFIT PLAN The Partnership has adopted a Savings Retirement Program (the "Program") under Section 401(k) of the Internal Revenue Code. The Program allows all employees who are at least 21 years of age and have been employed with the Company for a minimum of three months with a full time status to defer up to 15% of their income on a pretax basis through contributions to the Program, limited to an annual maximum ($9,240 in 1994 and 1995). The Program does not provide for any matching of contributions, but the Partnership pays the annual administration fee which was $1,700 and $2,226 for the nine months ended December 31, 1994 and the year ended December 31, 1995, respectively. NOTE 9 -- RADIO STATION PURCHASE On March 22, 1995, Crescent Communications L.P. purchased substantially all the assets of radio stations KSRY-FM (operating as KSOL-FM under a Program Service and Time Brokerage Agreement since April 1, 1994) licensed to San Francisco, California and KSRI-FM (operating as KYLZ-FM under LMA since April 1, 1994) licensed to Santa Cruz, California for an aggregate price of $16,000,000. F-24 65 KSOL-FM AND KYLZ-FM (DIVISIONS OF CRESCENT COMMUNICATIONS, L.P.) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NINE MONTHS ENDED DECEMBER 31, 1994 (AUDITED) YEAR ENDED DECEMBER 31, 1995 (AUDITED) SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) NOTE 10 -- LOCAL MARKETING AGREEMENTS As mentioned in Note 9, the Partnership entered into a Program Service and Time Brokerage Agreement (the "LMA") with the sellers of KSRY-FM and KSRI-FM under which the Partnership operated the Stations until the purchase closed (March 22, 1995). During this time, the Partnership retained all the revenues and paid virtually all the expenses related to the Stations' operations. In addition, the Partnership paid the sellers the following monthly fees while the LMA was in effect: April - July, 1994....................................................... $100,000 August - November, 1994.................................................. 125,000 December, 1994 - March, 1995............................................. 150,000
During the nine months ended December 31, 1994 and the year ended December 31, 1995, an aggregate amount of $1,050,000 and $401,613 was paid under the above agreement and is included in corporate expenses. NOTE 11 -- SUBSEQUENT EVENTS Sale of Stations On May 3, 1996, the Partnership entered into an Asset Purchase Agreement to sell substantially all the assets of radio stations KSOL-FM and KYLZ-FM for $40,000,000 in cash pending FCC approval. On August 15, 1996, subsequent to the FCC approval the sale closed transferring ownership of KSOL-FM and KYLZ-FM to Tichenor Media System, Inc. F-25 66 ------------------------------------------------------ ------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... Risk Factors........................... Use of Proceeds........................ Price Range of Class A Common Stock.... Dividend Policy........................ Capitalization......................... The Tichenor Merger.................... Unaudited Pro Forma Financial Information.......................... Selected Consolidated Financial Data... The Company............................ Management............................. Shares Eligible For Future Sale........ Description of Capital Stock........... Underwriting........................... Legal Opinions......................... Experts................................ Available Information.................. Incorporation of Certain Documents by Reference............................
====================================================== ====================================================== 3,500,000 SHARES HEFTEL BROADCASTING CORPORATION CLASS A COMMON STOCK ------------------- PROSPECTUS ------------------- ALEX. BROWN & SONS INCORPORATED CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS MONTGOMERY SECURITIES SMITH BARNEY INC. , 1996 ====================================================== 67 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses (other than underwriting discounts and commissions) in connection with the issuance and distribution of the Class A Common Stock registered hereby are as follows: SEC registration fee...................................................... $ 50,617 NASD filing fee........................................................... 17,405 NASDAQ National Market listing fee........................................ 17,500 Legal fees and expenses................................................... 75,000 Accounting fees and expenses.............................................. 100,000 Blue Sky fees and expenses................................................ 1,660 Printing and engraving expenses........................................... 100,000 Miscellaneous............................................................. 137,818 -------- Total........................................................... $500,000 ========
- --------------- * Estimated. The foregoing expenses will be paid by the Registrant. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to provisions of the Delaware General Corporation Law, the Restated Certificate of Incorporation of Registrant (the "Company") includes a provision which eliminates the personal liability of its directors to the Company and its stockholders for monetary damage to the fullest extent permissible under Delaware law. This provision does not eliminate liability (a) for any breach of a director's duty of loyalty to the Company or its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) in connection with payment of any illegal dividend or an illegal stock repurchase; or (d) for any transaction from which the director derives an improper personal benefit. Further, this provision has no effect on claims arising under federal or state securities laws and does not affect the availability of injunctions and other equitable remedies available to the Company's stockholders for any violation of a director's fiduciary duty to the Company or its stockholders. The Company's Restated Certificate of Incorporation authorizes the Company to indemnify its officers, directors and other agents to the fullest extent permitted by Delaware law, exclusive of rights provided through bylaw provisions, agreements, vote of stockholders or disinterested directors or otherwise. The Company's Restated Certificate of Incorporation also authorizes the Company to indemnify its officers, directors and agents for breach of duty to the corporation and its stockholders through bylaw provisions, agreements or both, in excess of the indemnification otherwise permitted under Delaware law, subject to certain limitations. The Company has entered into indemnification agreements with all of its directors and executive officers whereby the Company will indemnify each such person (an "indemnitee") against certain claims arising out of certain past, present or future acts, omissions or breaches of duty committed by an indemnitee while serving in his employment capacity. Such indemnification does not apply to acts or omissions which are knowingly fraudulent, deliberately dishonest or arise from willful misconduct. Indemnification will only be provided to the extent the indemnitee has not already received payments in respect of such claim from the Company or from an insurance company. Under certain circumstances, such indemnification (including reimbursement of expenses incurred) will be allowed for liability arising under the Securities Act of 1933. II-1 68 The Bylaws of the Company require the Company to provide indemnification for directors and officers to the fullest extent permitted under Delaware law and the Company's Restated Certificate of Incorporation. The Underwriting Agreement provides for indemnification by the Underwriters of the Registrant, its directors and officers, and by the Registrant of the Underwriters, for certain liabilities, including liabilities arising under the Securities Act. An insurance policy obtained by the registrant provides for indemnification of officers and directors of the Registrant and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. ITEM 16. EXHIBITS
EXHIBITS. DESCRIPTION ----------------------------------------------------------------------------- 1 Form of Underwriting Agreement 2.1.1 Amended and Restated Agreement and Plan of Reorganization, dated September 7, 1995, among the Company, Viva Acquisition Corporation, Mambisa Broadcasting Corporation ("Mambisa"), SFS Management Corporation, Amancio Victor Suarez, Charles Fernandez and Amancio Jorge Suarez, Jr., (such three individuals are referred to herein collectively as the ("Stockholders") (the "Purchase Agreement") (Schedules omitted) (incorporated by reference to Exhibit 1.1.1 to Registrant's Form 8-K filed on September 22, 1995) 2.1.2 Escrow Agreement, dated September 7, 1995, among the Company, Mambisa, the Stockholders and Citibank, N.A. (incorporated by reference to Exhibit 1.1.2 to Registrant's Form 8-K filed on September 22, 1995) 2.1.3 Mutual Release, dated September 7, 1995, among the parties to the Purchase Agreement and other parties (incorporated by reference to Exhibit 1.1.3 to Company's Form 8-K filed on September 22, 1995) 2.1.4 Agreement of Purchase and Sale, dated September 7, 1995, among the Company, Mambisa, Amancio Victor Suarez and Amancio Jorge Suarez, Jr. (incorporated by reference to Exhibit 1.1.4 to Registrant's Form 8-K filed on September 22, 1995) 2.1.5 Promissory Note dated January 9, 1996, executed by the Company and HBC Florida, Inc. to the order of Mambisa Broadcasting Corporation (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 13, 1996.) 2.2.1 Tender Offer Agreement, dated June 1, 1996, between the Company and Clear Channel Radio, Inc. ("Clear Channel") (incorporated herein by reference to Exhibit 99(c)(1) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.2.2 Amendment No. 1 to Tender Offer Agreement, dated June 6, 1996 (incorporated herein by reference to Exhibit 99(c)(9) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.2.3 Amendment No. 2 to Tender Offer Agreement, dated June 20, 1996 (incorporated by reference to Exhibit (c)(3) of the Company's Schedule 14D-9 dated June 20, 1996) 2.2.4 Amendment No. 3 to Tender Offer Agreement, dated July 2, 1996 (incorporated by reference to Exhibit 99(c)(15) of Amendment No. 2 to the Schedule 14D-1 of Clear Channel filed on July 9, 1996) 2.3 Confidentiality Letter Agreement dated May 31, 1996, between the Company and Clear Channel (incorporated herein by reference to Exhibit 99(c)(12) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.4.1 Asset Purchase Agreement, dated November 1, 1995, between HBC New York, Inc. and Park Radio of Greater New York, Inc. (incorporated by reference to Exhibit 2.2 of Company's Form 10-K filed on December 29, 1995)
II-2 69
EXHIBITS. DESCRIPTION ------------ 2.4.2 First Amendment to Asset Purchase Agreement, dated March 25, 1996 between HBC New York, Inc. and Park Radio of Greater New York, Inc. (incorporated by reference to Exhibit 1.1.2 of Company's Form 8-K filed on March 28, 1996) 2.5.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. with Exhibits (Schedules omitted) (incorporated by reference to Exhibit 99(c)(16) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.2 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Sr. (incorporated by reference to Exhibit 99(c)(17) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.3 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 99(c)(18) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.4 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Warren Tichenor (incorporated by reference to Exhibit 99(c)(19) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.5 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and William Tichenor (incorporated by reference to Exhibit 99(c)(20) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.6 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Jean Russell (incorporated by reference to Exhibit 99(c)(21) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.7 Amended and Restated Agreement and Plan of Merger, dated October 10, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. without Exhibits (Schedules omitted) (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.) 2.5.8 Assignment Agreement, dated October 10, 1996 by Company and Heftel Merger Sub, Inc. (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.) 2.5.9 Form of Registration Rights Agreement by and among the Company, McHenry T. Tichenor, Sr., McHenry T. Tichenor, Jr., Warren W. Tichenor, William E. Tichenor, Jean T. Russell, McHenry T. Tichenor, Jr., as Custodian for David T. Tichenor, Alta Subordinated Debt Partners III, L.P., Prime II Management, LP, PrimeComm, LP, Ricardo A. del Castillo, Jeffrey T. Hinson and David D. Lykes. (included in Exhibit 2.5.1) 2.5.10 Form of Employment Agreement by and between the Company and McHenry T. Tichenor, Jr. (included in Exhibit 2.5.1) 2.5.11 Form of Stockholders Agreement by and among the Company and each of the stockholders listed on the signature pages thereto. (included in Exhibit 2.5.1) 2.5.12 Form of the Company's Indemnification Agreement. (included in Exhibit 2.5.1) 2.5.13 Form of Registration Rights Agreement by and among the Company and Clear Channel Communications, Inc. (included in Exhibit 2.5.1) 4.1 Specimen certificate for the Class A Common Stock (a) 4.2 Article 4 of the Restated Certificate of Incorporation (b)
II-3 70
EXHIBITS. DESCRIPTION ------------ 4.3 Credit Agreement, dated August 5, 1996, among the Company, NationsBank of Texas, N.A. and the other lenders signatory thereto (incorporated by reference to Exhibit 1.0 of Registrant's Form 8-K filed on August 20, 1996.) 4.4 Form of Second Amended and Restated Certificate of Incorporation of the Company. (included in Exhibit 2.5.7) 4.5 Loan Agreement, dated July 9, 1996, between Clear Channel Communications, Inc., as the lender, and TMS Assets California, Inc., as the borrower. (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.)(c) 4.6 Guarantee, dated July 9, 1996, by Tichenor Media System, Inc., in favor of Clear Channel Communications, Inc. (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.)(c) 5 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. 23.1.1 Consent of Ernst & Young LLP 23.1.5 Consent of KPMG Peat Marwick LLP 23.1.6 Consent of Miller, Kaplan, Arase & Co. 23.2.1 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in Exhibit 5) 24 Power of Attorney (included on signature pages) 99.1 Consent of McHenry T. Tichenor, Jr. 99.2 Consent of McHenry T. Tichenor, Sr. 99.3 Consent of Robert W. Hughes
- --------------- (a) Incorporated by reference to the identically numbered exhibit to the Company's Registration Statement on Form S-1, as amended (Reg. No. 33-78370). (b) Incorporated by reference to Exhibit No. 4.3 to the Company's Registration Statement on Form S-1, as amended (Reg. No. 33-78370). (c) The Company is not a party to this agreement. Upon consummation of the Tichenor Merger, a subsidiary of the Registrant will be the beneficiary of this agreement. The Company agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new II-4 71 registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions set forth or described in Item 15 of the Registration Statement, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Exchange Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Exchange Act and will be governed by the final adjudication of such issue. II-5 72 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, State of Texas, on December 23, 1996. HEFTEL BROADCASTING CORPORATION By: /s/ L. LOWRY MAYS ------------------------------------ L. Lowry Mays President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints L. Lowry Mays and John T. Kendrick, and each of them, each with full power to act without the other, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement (including post-effective amendments), including this Amendment No. 1 to this Registration Statement, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person hereby ratifying and confirming that each of said attorneys-in-fact and agents or his substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated below.
NAME TITLE DATE - --------------------------------------------- -------------------------- ------------------- /s/ L. LOWRY MAYS President, Chief Executive December 23, 1996 - --------------------------------------------- Officer and Director L. Lowry Mays /s/ JOHN T. KENDRICK Senior Vice President, Chief December 23, 1996 - --------------------------------------------- Financial Officer and John T. Kendrick Assistant Secretary (Principal Financial and Accounting Officer) /s/ ERNESTO CRUZ Director December 23, 1996 - --------------------------------------------- Ernesto Cruz /s/ B.J. MCCOMBS Director December 23, 1996 - --------------------------------------------- B.J. McCombs /s/ JAMES M. RAINES Director December 23, 1996 - --------------------------------------------- James M. Raines /s/ JOHN H. WILLIAMS Director December 23, 1996 - --------------------------------------------- John H. Williams
II-6 73 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - -------------------- ------------------------------------------------------------- ----------- 1 Form of Underwriting Agreement 2.1.1 Amended and Restated Agreement and Plan of Reorganization, dated September 7, 1995, among the Company, Viva Acquisition Corporation, Mambisa Broadcasting Corporation ("Mambisa"), SFS Management Corporation, Amancio Victor Suarez, Charles Fernandez and Amancio Jorge Suarez, Jr., (such three individuals are referred to herein collectively as the ("Stockholders") (the "Purchase Agreement") (Schedules omitted) (incorporated by reference to Exhibit 1.1.1 to Registrant's Form 8-K filed on September 22, 1995) 2.1.2 Escrow Agreement, dated September 7, 1995, among the Company, Mambisa, the Stockholders and Citibank, N.A. (incorporated by reference to Exhibit 1.1.2 to Registrant's Form 8-K filed on September 22, 1995) 2.1.3 Mutual Release, dated September 7, 1995, among the parties to the Purchase Agreement and other parties (incorporated by reference to Exhibit 1.1.3 to Company's Form 8-K filed on September 22, 1995) 2.1.4 Agreement of Purchase and Sale, dated September 7, 1995, among the Company, Mambisa, Amancio Victor Suarez and Amancio Jorge Suarez, Jr. (incorporated by reference to Exhibit 1.1.4 to Registrant's Form 8-K filed on September 22, 1995) 2.1.5 Promissory Note dated January 9, 1996, executed by the Company and HBC Florida, Inc. to the order of Mambisa Broadcasting Corporation (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 13, 1996.) 2.2.1 Tender Offer Agreement, dated June 1, 1996, between the Company and Clear Channel Radio, Inc. ("Clear Channel") (incorporated herein by reference to Exhibit 99(c)(1) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.2.2 Amendment No. 1 to Tender Offer Agreement, dated June 6, 1996 (incorporated herein by reference to Exhibit 99(c)(9) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.2.3 Amendment No. 2 to Tender Offer Agreement, dated June 20, 1996 (incorporated by reference to Exhibit (c)(3) of the Company's Schedule 14D-9 dated June 20, 1996) 2.2.4 Amendment No. 3 to Tender Offer Agreement, dated July 2, 1996 (incorporated by reference to Exhibit 99(c)(15) of Amendment No. 2 to the Schedule 14D-1 of Clear Channel filed on July 9, 1996) 2.3 Confidentiality Letter Agreement dated May 31, 1996, between the Company and Clear Channel (incorporated herein by reference to Exhibit 99(c)(12) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.4.1 Asset Purchase Agreement, dated November 1, 1995, between HBC New York, Inc. and Park Radio of Greater New York, Inc. (incorporated by reference to Exhibit 2.2 of Company's Form 10-K filed on December 29, 1995) 2.4.2 First Amendment to Asset Purchase Agreement, dated March 25, 1996 between HBC New York, Inc. and Park Radio of Greater New York, Inc. (incorporated by reference to Exhibit 1.1.2 of Company's Form 8-K filed on March 28, 1996)
74
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ----------- ---------------------------------------------------------------------- ----------- 2.5.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. with Exhibits (Schedules omitted) (incorporated by reference to Exhibit 99(c)(16) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.2 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Sr. (incorporated by reference to Exhibit 99(c)(17) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.3 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 99(c)(18) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.4 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Warren Tichenor (incorporated by reference to Exhibit 99(c)(19) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.5 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and William Tichenor (incorporated by reference to Exhibit 99(c)(20) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.6 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Jean Russell (incorporated by reference to Exhibit 99(c)(21) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.7 Amended and Restated Agreement and Plan of Merger, dated October 10, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. without Exhibits (Schedules omitted) (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.) 2.5.8 Assignment Agreement, dated October 10, 1996 by Company and Heftel Merger Sub, Inc. (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.) 2.5.9 Form of Registration Rights Agreement by and among the Company, McHenry T. Tichenor, Sr., McHenry T. Tichenor, Jr., Warren W. Tichenor, William E. Tichenor, Jean T. Russell, McHenry T. Tichenor, Jr., as Custodian for David T. Tichenor, Alta Subordinated Debt Partners III, L.P., Prime II Management, LP, PrimeComm, LP, Ricardo A. del Castillo, Jeffrey T. Hinson and David D. Lykes. (included in Exhibit 2.5.1) 2.5.10 Form of Employment Agreement by and between the Company and McHenry T. Tichenor, Jr. (included in Exhibit 2.5.1) 2.5.11 Form of Stockholders Agreement by and among the Company and each of the stockholders listed on the signature pages thereto. (included in Exhibit 2.5.1)
75
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ------------ ------------------------------------------------------------- ------------- 2.5.12 Form of the Company's Indemnification Agreement. (included in Exhibit 2.5.1) 2.5.13 Form of Registration Rights Agreement by and among the Company and Clear Channel Communications, Inc. (included in Exhibit 2.5.1) 4.1 Specimen certificate for the Class A Common Stock (a) 4.2 Article 4 of the Restated Certificate of Incorporation (b) 4.3 Credit Agreement, dated August 5, 1996, among the Company, NationsBank of Texas, N.A. and the other lenders signatory thereto (incorporated by reference to Exhibit 1.0 of Registrant's Form 8-K filed on August 20, 1996.) 4.4 Form of Second Amended and Restated Certificate of Incorporation of the Company. (included in Exhibit 2.5.7) 4.5 Loan Agreement, dated July 9, 1996, between Clear Channel Communications, Inc., as the lender, and TMS Assets California, Inc., as the borrower. (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.)(c) 4.6 Guarantee, dated July 9, 1996, by Tichenor Media System, Inc., in favor of Clear Channel Communications, Inc. (incorporated by reference to the identically numbered exhibit to the Company's Form 10-K filed on December 23, 1996.)(c) 5 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. 23.1.1 Consent of Ernst & Young LLP 23.1.5 Consent of KPMG Peat Marwick LLP 23.1.6 Consent of Miller, Kaplan, Arase & Co. 23.2.1 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in Exhibit 5) 24 Power of Attorney (included on signature pages) 99.1 Consent of McHenry T. Tichenor, Jr. 99.2 Consent of McHenry T. Tichenor, Sr. 99.3 Consent of Robert W. Hughes
- --------------- (a) Incorporated by reference to the identically numbered exhibit to the Company's Registration Statement on Form S-1, as amended (Reg. No. 33-78370). (b) Incorporated by reference to Exhibit No. 4.3 to the Company's Registration Statement on Form S-1, as amended (Reg. No. 33-78370). (c) The Company is not a party to this agreement. Upon consummation of the Tichenor Merger, a subsidiary of the Company will be the beneficiary of this agreement. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3,500,000 SHARES HEFTEL BROADCASTING CORPORATION CLASS A COMMON STOCK ------------------------ UNDERWRITING AGREEMENT ------------------------ , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 3,500,000 SHARES HEFTEL BROADCASTING CORPORATION CLASS A COMMON STOCK UNDERWRITING AGREEMENT , 1996 ALEX. BROWN & SONS INCORPORATED CS FIRST BOSTON CORPORATION LEHMAN BROTHERS INC. MONTGOMERY SECURITIES SMITH BARNEY INC. As Representatives of the Several Underwriters c/o Alex. Brown & Sons Incorporated 135 East Baltimore Street Baltimore, Maryland 21202 Gentlemen: Heftel Broadcasting Corporation, a Delaware corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") 3,500,000 shares of the Company's Class A Common Stock, $.001 par value (the "Firm Shares"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. The Company also proposes to sell at the Underwriters' option an aggregate of up to 525,000 additional shares of the Company's Class A Common Stock (the "Option Shares") as set forth below. As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company. The Company represents and warrants as follows: (a) A registration statement on Form S-3 (File No. 33- ) with respect to the Shares has been carefully prepared by the Company in conformity in all material respects with the requirements of the Securities Act of 1933, as amended, (the "Act") and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission under the Act. The Company has complied with the conditions for the use of Form S-3. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of Rule 430A of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462(b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has been declared effective by the Commission under the Act and no -1- 3 post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (i) the form of prospectus first filed by the Company with the Commission pursuant to its Rule 424(b) or (ii) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with any term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." Any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein, as of the date of such Preliminary Prospectus or Prospectus, as the case may be, and, in the case of any reference herein to any Prospectus, also shall be deemed to include any documents incorporated by reference therein, and any supplements or amendments thereto, filed with the Commission after the date of filing of the Prospectus under Rules 424(b) and 430A, and prior to the termination of the offering of the Shares by the Underwriters. (b) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Registration Statement; each of the subsidiaries of the Company as listed in Exhibit A hereto (collectively, the "Subsidiaries") has been duly organized and, except as set forth in Exhibit A hereto, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification and a failure to qualify would have a materially adverse effect upon the business or financial condition of the Company and the Subsidiaries taken as a whole; the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of all liens, encumbrances and security interests except for a lien on 100% of the outstanding capital stock of each of the Subsidiaries granted to NationsBank of Texas, N.A., as agent on behalf of multiple lenders, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding. (c) The 7,000,000 authorized shares of Class B Common Stock of the Company have been duly authorized. The outstanding shares of Class A Common Stock of the Company have been duly authorized and are validly issued, fully-paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully-paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (d) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. The Shares conform in all material respects with the statements concerning them in the Registration Statement. (e) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. The Registration Statement contains and the Prospectus and any amendments or supplements thereto will contain all statements which are required to be stated therein by, and in all material respects conform or will conform, as the case may be, to the requirements of, the Act and the Rules and Regulations. The documents incorporated by reference in the Prospectus, at the time they were filed with the Commission conformed in all material respects to the requirements of the -2- 4 Securities Exchange Act of 1934 or the Act, as applicable, and the Rules and Regulations of the Commission thereunder. Neither the Registration Statement nor any amendment thereto, and neither the Prospectus nor any supplement thereto, including any documents incorporated by reference therein, contains or will contain, as the case may be, any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, or any documents incorporated by reference therein in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. (f) The consolidated financial statements of the Company and the Subsidiaries, together with related notes and schedules included in the Registration Statement, present fairly the financial position and the results of operations of the Company and Subsidiaries consolidated, at the indicated dates and for the indicated periods. Such financial statements have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made. The selected and summary financial and statistical data included in the Registration Statement presents fairly the information shown therein and have been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. The pro forma financial statements and other pro forma financial information included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (g) Except for those license renewal applications of the Company or its Subsidiaries currently pending before the Federal Communications Commission (the "FCC"), there is no action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency which might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) of the Company and of the Subsidiaries (taken as a whole), except as set forth in the Registration Statement. (h) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the financial statements hereinabove described (or as described in the Registration Statement) subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company and the Subsidiaries occupy their leased properties under valid leases with such exceptions as are not material to the Company and the Subsidiaries taken as a whole and do not materially interfere with the use made and proposed to be made of such properties by the Company and the Subsidiaries. (i) The Company and the Subsidiaries have filed all Federal, State and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith. The Company has no knowledge of any tax deficiency that has been or might be asserted against the Company. (j) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or business -3- 5 prospects of the Company and its Subsidiaries (taken as a whole), whether or not occurring in the ordinary course of business, other than general economic and industry conditions changes in the ordinary course of business and changes or transactions described or contemplated in the Registration Statement and there has not been any material transaction entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions contemplated by the Registration Statement, as it may be amended or supplemented. None of the Company or the Subsidiaries have any material contingent obligations which are not disclosed in the Registration Statement, as it may be amended or supplemented. (k) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be in default under its Certificate of Incorporation or By-Laws or any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the business or financial condition of the Company and its Subsidiaries (taken as a whole). The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company or any Subsidiary is a party, or of the Certificate of Incorporation or by-laws of the Company or any order, rule or regulation applicable to the Company or any Subsidiary, or of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction, except in all cases a conflict, breach or default which would not have a materially adverse effect on the business or financial condition of the Company and the Subsidiaries (taken as a whole). (l) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Shares for public offering by the Underwriters under State securities or Blue Sky laws) has been obtained or made and is in full force and effect. (m) The Company and each of the Subsidiaries hold all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses; and neither the Company nor any of the Subsidiaries has received notice of any infringement of any material patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company and the Subsidiaries (taken as a whole). (n) Ernst & Young LLP, who have certified the consolidated financial statements of the Company, filed with the Commission as part of, or incorporated by reference in, the Registration Statement and Prospectus, are to the knowledge of the Company independent public accountants as required by the Act and the Rules and Regulations. (o) To the best of the Company's knowledge, there are no affiliations or association between any member of the National Association of Securities Dealers, Inc. and any of the Company's officers, directors or 5% or greater security holders, except as set forth in the Registration Statement or as otherwise disclosed in writing to the Representatives. (p) Neither the Company, nor to the Company's knowledge, any of the Subsidiaries, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. The Company acknowledges that the Underwriters may engage in passive market making transactions in the Shares on The Nasdaq Stock Market in accordance (and in compliance) with Rule 10b-6A under the Exchange Act. -4- 6 (q) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (r) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (s) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (t) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended t be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (u) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. 2. Purchase, Sale and Delivery of the Shares. (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees to sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase at a price of $ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section hereof. (b) Payment for the Firm Shares to be sold hereunder is to be made via wire transfer of immediately available funds or such other payment procedures agreed to by the parties. Such payment and delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the Nasdaq Stock Market (National Market) is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the second full business day -5- 7 prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. (c) In addition, on the basis of representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The option granted hereby may be exercised in whole or in part by giving written notice only once within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company, setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than ten full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date via wire transfer of immediately available funds or other payment procedures agreed to by the parties against delivery of certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland. 3. Offering by the Underwriters. It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. Covenants of the Company. The Company covenants and agrees with the several Underwriters that: (a) The Company will (i) prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, (ii) not file any amendment to the Registration Statement or supplement to the Prospectus or documents incorporated by reference therein of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations and (iii) file on a timely basis all reports and any definitive proxy or information statements required to be filed by the Company with the Commission subsequent to the date of the Prospectus and prior to the termination of the offering of the Shares by the Underwriters. (b) The Company will advise the Representatives promptly of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, or of the issuance by the Commission of any stop order suspending the -6- 8 effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose, and the Company will use reasonable efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (d) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement, but without exhibits, and of all amendments thereto, as the Representatives may reasonably request, including documents incorporated by reference therein. (e) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. (f) The Company will, for a period of five years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (g) No offering, sale, short sale or other disposition of any Common Stock of the Company will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder, or with the prior written consent of Alex. Brown & Sons Incorporated, except that the Company may, without such consent, issue shares as consideration for future acquisitions and grant options or issue shares of Common Stock pursuant to the exercise of options granted under the Company's current option plans. (h) The Company will comply with the Act and the Rules and Regulations, and the Exchange Act, and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will either (i) prepare and file with the -7- 9 Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus or (ii) prepare and file with the Commission an appropriate filing under the Exchange Act which shall be incorporated by reference in the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (i) The Company will use its best efforts to list, subject to notice of issuance, the Shares on the Nasdaq Stock Market. (j) The Company has caused each of Clear Channel Communications, Inc., a Texas corporation and each executive officer and director and each of their affiliates to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company or other capital stock of the Company, or any other securities convertible, exchangeable or exercisable for common shares or derivative of common shares owned by such person or request the registration for the offer or sale of any of the foregoing (or as to which such person has the right to direct the disposition of) for a period of 90 days after the date of this Agreement, directly or indirectly, except with the prior written consent of Alex. Brown & Sons Incorporated ("Lockup Agreements"). This restriction shall not apply to any sale of shares of Common Stock made by Clear Channel Communications, Inc. or its affiliates in order to comply with certain FCC regulations specified in the Prospectus in connection with consummation of the business combination involving the Company described therein. (k) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). (l) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (m) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. Costs and Expenses. The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Invitation Letter, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees of the NASD; and the expenses, including the fees and disbursements of counsel for the Underwriters, up to $10,000, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under State securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 7 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 6 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on its part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. -8- 10 6. Conditions of Obligations of the Underwriters. The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company contained herein, and to the performance by the Company of its covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the Company, or Jeffer, Mangels, Butler & Marmoro LLP, counsel for the Company (as such respective counsel shall mutually determine) dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters to the effect that: (i) The Company is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; each of the Subsidiaries has been duly incorporated and, except as set forth in Exhibit A hereto, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Subsidiaries taken as a whole; and the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company or a Subsidiary; and, to the best of such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries are owned free and clear of all liens, encumbrances and security interests, except for a lien on 100% of the outstanding shares of each of the Subsidiaries granted to NationsBank of Texas, N.A., as agent on behalf of multiple lenders, and no options, warrants or other rights to purchase, agreements or other obligations to issue, or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding. (ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of its Class A and Class B Common Stock have been duly authorized; the outstanding shares of its Class A Common Stock have been duly authorized and validly issued and are fully-paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the Shares, including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement; and, to the best knowledge of such counsel, no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. (iii) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants, or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or -9- 11 evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Stock or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (iv) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act. (v) The Registration Statement, all Preliminary Prospectuses, the Prospectus and each amendment or supplement thereto and documents incorporated by reference therein comply as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to, the statistical information contained in the Prospectus or financial statements, schedules and other financial information incorporated by reference therein). The conditions for the use of Form S-3, set forth in the General Instructions thereto, have been satisfied. (vi) The statements under the captions "Risk Factors -- Tichenor Merger," "-- Relationship Between the Company and Clear Channel," "The Tichenor Merger," "Management -- Management of the Company following the Tichenor Merger," "Shares Eligible for Future Sale -- Registration Rights" and "Description of Capital Stock" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present the information called for with respect to such documents and matters. (vii) To the best of such counsel's knowledge, there are no contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus (excluding any document incorporated therein by reference) which are not so filed or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus (excluding any document incorporated therein by reference) are fairly summarized in all material respects. (viii) To the best of such counsel's knowledge, there are no material legal proceedings pending or threatened against the Company or any of the Subsidiaries which is of a character required to be disclosed in the Prospectus and which has not been properly disclosed therein. (ix) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company, or any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound (other than licenses or permits granted by the Federal Communications Commission, on which such counsel need not express any opinion), except a conflict, breach or default which would not have a materially adverse effect on the business or financial condition of the Company and the Subsidiaries taken as a whole. (x) This Agreement has been duly authorized, executed and delivered by the Company. (xi) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body having jurisdiction over the Company is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the National Association of Securities Dealers, Inc. or as required by State securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. -10- 12 (xii) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net proceeds therefor as described in the Prospectus, required to register as an investment company under the 1940 Act. In rendering such opinion, such counsel may rely (A) as to matters governed by the laws of states other than California and Delaware or Federal laws on local counsel in such jurisdictions, provided that in each case such counsel shall state that they believe that they and the Underwriters are justified in relying on such other counsel and (B) as to matters of fact, on certificates of responsible officers of the Company and certificates or other written statements of officers or departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and any Subsidiary. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, as of the time it became effective under the Act, the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b) and the Registration Statement and the Prospectus, or any amendment or supplement thereto, as of the Closing Date or the Option Closing Date, as the case may be, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to matters pertaining to statistical information contained in the Prospectus or financial statements, schedules and other financial information contained or incorporated by reference in the Prospectus). With respect to such statement, such counsel may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Wiley, Rein and Fielding, special Federal Communications Commission counsel to the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters to the effect that: (i) The statements under the captions "Federal Regulation of Radio Broadcasting" and "Risk Factors -- Government Regulation of Broadcasting Industry contained in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present the information called for with respect to such documents and matters. (ii) No approval, consent, order, authorization, designation, declaration or filing by or with the Federal Communications Commission is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated except such as have been obtained or made, specifying the same. (d) The Representatives shall have received from Piper & Marbury L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (ii), (iv), (v) and (x) of Paragraph (b) of this Section 6, and that the Company is a validly organized and existing corporation under the laws of the State of Delaware. In rendering such opinion Piper & Marbury L.L.P. may rely as to all matters governed other than by the laws of the State of Maryland and Delaware or Federal laws on the opinion of counsel referred to in paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, as of the time it became effective under the Act, and the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b) and the Registration Statement and the Prospectus, or any amendment or supplement thereto, as of the Closing Date or the Option Closing Date, as the case may be, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). With respect to such -11- 13 statement, Piper & Marbury L.L.P. may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (e) The Representatives shall have received at or prior to the Closing Date from Piper & Marbury L.L.P. a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (f) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, signed letters from Ernst & Young LLP[,] [and], KPMG Peat Marwick LLP [and ], dated the Closing Date or the Option Closing Date, as the case may be, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letters signed by such firms and dated and delivered to the Representatives on the date hereof that nothing has come to their attention during the period from the date five days prior to the date hereof, to a date not more than five days prior to the Closing Date or the Option Closing Date, as the case may be, which would require any change in their letter dated the date hereof if it were required to be dated and delivered on the Closing Date or the Option Closing Date, as the case may be. All such letters shall be in form and substance satisfactory to the Representatives. (g) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission. (ii) He does not know of any litigation instituted or threatened against the Company of a character required to be disclosed in the Registration Statement which is not so disclosed; he does not know of any material contract required to be filed as an exhibit to the Registration Statement which is not so filed; and the representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be. (iii) He has carefully examined the Registration Statement and the Prospectus and, in his opinion to the best of his knowledge, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct in all material respects, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and, in his opinion, since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment. (h) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties contained herein and related matters as the Representatives may reasonably have requested. (i) The Firm Shares and Option Shares, if any, have been approved for designation upon official notice of issuance on the Nasdaq Stock Market (National Market). The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Piper & Marbury L.L.P., counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated -12- 14 by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. Conditions of the Obligations of the Company. The obligations of the Company to sell and deliver the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. Indemnification (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act against any losses, claims, damages or liabilities to which such Underwriter or such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof, and provided further that the Company shall not be liable with respect to any untrue statement contained in or any omission from a Preliminary Prospectus if the untrue statement contained in or such omission from such Preliminary Prospectus was corrected in the applicable Prospectus and the person asserting any such loss, liability, claim or damage was not given or sent a copy of the applicable Prospectus (excluding the documents incorporated by reference therein) in the manner and at such time as required by the Act, providing the Company has furnished you copies of such applicable Prospectus. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, nominee for director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by such Underwriter or through the Representatives on behalf of such Underwriter specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. -13- 15 (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No party shall be held liable for contribution with respect to any claim or action settled without its consent which shall not be unreasonably withheld. Such consent shall be given within three business days from the date on which the party requesting consent provides a written request to the other party. -14- 16 The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers of any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. Default by Underwriters. If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company), you, as Representatives of the Underwriters, shall use your best efforts to procure within 24 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 24 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 24-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the -15- 17 Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. Notices. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered or telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention: Jeffrey S. Amling, Managing Director; if to the Company, to Heftel Broadcasting Corporation, 6767 West Tropicana Avenue, Las Vegas, Nevada 89103, Attention: John T. Kendrick, Senior Vice President and Chief Financial Officer, with a copy to Heftel Broadcasting Corporation, 200 Concord Plaza, Suite 600, San Antonio, Texas 78216, Attention: L. Lowry Mays, President and Chief Executive Officer. 11. Termination. This Agreement may be terminated by you by notice to the Company as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 A.M. on the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the effective date of the Registration Statement, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business affairs, management or business prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak of hostilities or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make the offering or delivery of the Shares impracticable, (iii) suspension of trading in securities on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your reasonable opinion materially and adversely affects or will materially or adversely affect the business or operations of the Company and the Subsidiaries taken as a whole, (v) declaration of a banking moratorium by either federal or New York State authorities, (vi) the suspension of trading of the Company's common stock by the Commission on the Nasdaq Stock Market or (vii) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 9 of this Agreement. This Agreement also may be terminated by you, by notice to the Company, as to any obligation of the Underwriters to purchase the Option Shares, upon the occurrence at any time prior to the Option Closing Date of any of the events described in subparagraph (b) above or as provided in Sections 6 and 9 of this Agreement. 12. Successors. This Agreement has been and is made solely for the benefit of the Underwriters, the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Shares merely because of such purchase. 13. Information Provided by Underwriters. The Company and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. Miscellaneous. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and -16- 18 effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms. Very truly yours, HEFTEL BROADCASTING CORPORATION By _____________________________ L. Lowry Mays President and Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ALEX. BROWN & SONS INCORPORATED CS FIRST BOSTON INCORPORATED LEHMAN BROTHERS INC. MONTGOMERY SECURITIES SMITH BARNEY INC. As Representatives of the several Underwriters listed on Schedule I By ALEX. BROWN & SONS INCORPORATED By ____________________________ Authorized Officer -17- 19 SCHEDULE I SCHEDULE OF UNDERWRITERS
NUMBER OF FIRM SHARES UNDERWRITER TO BE PURCHASED - ------------------------------------------------------------------------- --------------------- Alex. Brown & Sons Incorporated.......................................... CS First Boston Incorporated............................................. Lehman Brothers Inc...................................................... Montgomery Securities.................................................... Smith Barney Inc......................................................... --------------- Total.......................................................... 3,500,000 ===============
-18- EX-5 3 OPINION OF AKIN, GUMP, STRAUSS, HAUER & FELD LLP 1 EXHIBIT 5 AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. 1500 NATIONSBANK PLAZA 300 CONVENT STREET SAN ANTONIO, TEXAS 78205 (210) 270-0800 December 19, 1996 Heftel Broadcasting Corporation 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Gentlemen: We have acted as counsel to Heftel Broadcasting Corporation, a Delaware corporation (the "Company"), in connection with the proposed public offering of up to 4,025,000 shares of the Company's Class A Common Stock, $.001 par value (the "Common Stock"), as described in the Registration Statement on Form S-3, file No. 333-14207 (the "Registration Statement"), originally filed with the Securities and Exchange Commission on October 16, 1996. We have, as counsel, examined such corporate records, certificates and other documents and reviewed such questions of law as we have deemed necessary, relevant or appropriate to enable us to render the opinions expressed below. In rendering such opinions, we have assumed the genuineness of all signatures and the authenticity of all documents examined by us. As to various questions of fact material to such opinions, we have relied upon representations of the Company. Based upon such examination and representations, we advise you that, in our opinion: 1. The shares of Common Stock which are to be sold and delivered by the Company as contemplated by the Underwriting Agreement (the "Underwriting Agreement"), the form of which is filed as Exhibit 1 to the Registration Statement, have been duly and validly authorized by the Company. 2. The shares of Common Stock which are to be sold and delivered by the Company as contemplated by the Underwriting Agreement, when issued and delivered in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid, and non-assessable. We consent to the filing of this opinion as Exhibit 5 to the Registration Statement and to the reference of this firm under the caption "Legal Opinions" in the Prospectus contained therein. Very truly yours, AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. EX-23.1.1 4 CONSENT OF INDEPENDENT AUDITORS ERNST & YOUNG 1 EXHIBIT 23.1.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-14207) and related Prospectus of Heftel Broadcasting Corporation for the registration of 3,500,000 shares of its Class A Common Stock and to the incorporation by reference therein of our report dated November 7, 1996, with respect to the consolidated financial statements of Heftel Broadcasting Corporation included in its Annual Report (Form 10-K) for the year ended September 30, 1996, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Ernst & Young LLP Los Angeles, California December 20, 1996 EX-23.1.5 5 INDEPENDENT AUDITORS CONSENT KPMG PEAT MARWICK 1 EXHIBIT 23.1.5 INDEPENDENT AUDITORS' CONSENT The Board of Directors Tichenor Media System, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the Prospectus. /s/ KPMG PEAT MARWICK LLP KPMG Peat Marwick LLP Dallas, Texas December 20, 1996 EX-23.1.6 6 CONSENT OF MILLER, KAPLAN, ARASE & CO. 1 EXHIBIT 23.1.6 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the incorporation of our report dated March 1, 1996 (except for Notes 5A and 11) as to which the date is August 16, 1996.), with respect to the financial statements of KSOL-FM and KYLZ-FM (Divisions of Crescent Communications, L.P.) for the nine months ended December 31, 1994 and year ended December 31, 1995 included in the Registration Statement on Form S-3 and the related Prospectus of Heftel Broadcasting Corporation for the registration of 3,500,000 shares of its Class A Common Stock. /s/ MILLER, KAPLAN, ARASE & CO. ------------------------------------ Miller, Kaplan, Arase & Co. North Hollywood, California December 20, 1996 EX-99.1 7 CONSENT OF MCHENRY T. TICHENOR, JR. 1 EXHIBIT 99.1 December 12, 1996 Heftel Broadcasting Corporation 6767 West Tropicana Avenue Las Vegas, Nevada 89103 Ladies and Gentlemen: The undersigned hereby consents to being named as designee for appointment to the board of directors of Heftel Broadcasting Corporation, a Delaware corporation (the "Company"), in (a) the Company's Registration Statement on Form S-4 and the Joint Proxy Statement/Prospectus included therein filed with the Securities and Exchange Commission on or about December 16, 1996, and (b) the Company's Registration Statement on Form S-3 filed with the Commission on October 16, 1996, and any amendments, supplements or additional registration statements filed pursuant to Rule 462 with respect to either of the foregoing registration statements. /s/ MCHENRY T. TICHENOR, JR. ----------------------------- McHenry T. Tichenor, Jr. EX-99.2 8 CONSENT OF MCHENRY T. TICHENOR, SR. 1 EXHIBIT 99.2 December 12, 1996 Heftel Broadcasting Corporation 6767 West Tropicanas Avenue Las Vegas, Nevada 89103 Ladies and Gentlemen: The undersigned hereby consents to being named as designee for appointment to the board of directors of Heftel Broadcasting Corporation, a Delaware corporation (the "Company"), in (a) the Company's Registration Statement on Form S-4 and the Joint Proxy Statement/Prospectus included therein filed with the Securities and Exchange Commission on or about December 16, 1996, and (b) the Company's Registration Statement on Form S-3 filed with the Commission on October 16, 1996, and any amendments, supplements or additional registration statements filed pursuant to Rule 462 with respect to either of the foregoing registration statements. /s/ MCHENRY T. TICHENOR, SR. ----------------------------- McHenry T. Tichenor, Sr. EX-99.3 9 CONSENT OF ROBERT W. HUGHES 1 EXHIBIT 99.3 December 12, 1996 Heftel Broadcasting Corporation 6767 West Tropicans Avenue Las Vegas, Nevada 89103 Ladies and Gentlemen: The undersigned hereby consents to being named as designee for appointment to the board of directors of Heftel Broadcasting Corporation, a Delaware corporation (the "Company"), in (a) the Company's Registration Statement on Form S-4 and the Joint Proxy Statement/Prospectus included therein filed with the Securities and Exchange Commission on or about December 16, 1996, and (b) the Company's Registration Statement on Form S-3 filed with the Commission on October 16, 1996, and any amendments, supplements or additional registration statements filed pursuant to Rule 462 with respect to either of the foregoing registration statements. /s/ ROBERT W. HUGHES -------------------- Robert W. Hughes -----END PRIVACY-ENHANCED MESSAGE-----