-----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, BNaDf+uyULoABW0Oe4HOaW3KqvatLqd6nluw9fVAoiD3BRN5us+xk4VyRWBDtdBb XkyTv6Hj9UvdXoygVfZKRg== 0001047469-99-012827.txt : 19990402 0001047469-99-012827.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012827 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24516 FILM NUMBER: 99581778 BUSINESS ADDRESS: STREET 1: 3102 OAK LAWN AVENUE STREET 2: STE 215 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145257700 MAIL ADDRESS: STREET 1: 3102 OAK LAWN AVENUE STREET 2: SUITE 215 CITY: DALLAS STATE: TX ZIP: 75219 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998, or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________. COMMISSION FILE NUMBER 0-24516 HEFTEL BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) Delaware 99-0113417 (State of Incorporation) (I.R.S. Employer Identification No.) 3102 Oak Lawn Avenue, Suite 215 Dallas, Texas 75219 Telephone (214) 525-7700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- On March 19, 1999, the aggregate market price of the Class A Common Stock held by non-affiliates of the Company was approximately $1,078.1 million. (For purposes hereof, directors, executive officers and 10% or greater shareholders have been deemed affiliates). On March 19, 1999, there were 35,182,719 outstanding shares of Class A Common Stock, $.001 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1999 Annual Meeting, expected to be filed within 120 days from the Company's fiscal year-end, are incorporated by reference into Part III. 1 HEFTEL BROADCASTING CORPORATION INDEX TO FORM 10-K
Page Number PART I. Item 1. Business....................................................................... 3 Item 2. Properties.....................................................................16 Item 3. Legal Proceedings..............................................................16 Item 4. Submission of Matters to a Vote of Security Holders............................16 PART II. Item 5. Market for Registrant's Class A Common Stock and Related Stockholder Matters... 17 Item 6. Selected Financial Data........................................................ 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 19 Item 7a. Quantitative and Qualitative Disclosures About Market Risk .................... 23 Item 8. Financial Statements and Supplementary Data ................................... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 44 PART III. Item 10. Directors and Executive Officers of the Registrant............................ 45 Item 11. Executive Compensation........................................................ 45 Item 12. Security Ownership of Certain Beneficial Owners and Management................ 45 Item 13. Certain Relationships and Related Transactions................................ 45 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 46
2 PART I. ITEM 1. BUSINESS GENERAL Heftel Broadcasting Corporation (the "Company") is the largest Spanish language radio broadcasting company in the United States and currently owns or programs 39 radio stations in 12 markets. The Company's stations are located in eleven of the top fifteen Hispanic markets in the United States, including Los Angeles, New York, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen, Dallas/Fort Worth, San Diego and El Paso. The Company's strategy is to own and program top performing Spanish language radio stations, principally in the fifteen largest Spanish language radio markets in the United States. The top fifteen Hispanic markets account for approximately 21,641,400 million Hispanics, representing approximately 71.0% of the total Hispanic population in the United States. The Company currently has the leading Spanish language radio station, as measured by audience share, in 10 of the 12 markets in which the Company operates. The Company intends to acquire or develop additional Spanish language radio stations in the leading Hispanic markets. The Company frequently evaluates strategic opportunities both within and outside its existing line of business which closely relate to serving the Hispanic market, including opportunities outside of the United States. The Company expects from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. Such acquisitions or dispositions could be material. The following table sets forth certain information regarding the Company's radio stations owned or programmed as of December 31, 1998:
Ranking of Market by No. of Hispanic Stations Population (1) Market AM FM - ------------------------------------------------------------------------ ---------- ---------- 1 Los Angeles 1 2 2 New York 1 1 3 Miami 2 2 4 San Francisco/San Jose 0 2 5 Chicago 2 1 6 Houston 2 5 7 San Antonio 2 2 8 Dallas/Fort Worth 2 3 9 McAllen/Brownsville/Harlingen 1 2 10 San Diego 0 2 11 El Paso 2 1 26 Las Vegas 1 0 --------------------- Total 16 23
(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 - 1998 U.S. Hispanic Market Study. 3 The Company believes Spanish language radio broadcasting has significant growth potential for the following reasons: - - THE U.S. HISPANIC POPULATION IS GROWING RAPIDLY. The U.S. Hispanic population is expected to grow from an estimated 27.2 million (approximately 10.4% of the total United States population) at the end of 1995 to an estimated 30.4 million (approximately 11.2% 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 United States population during the same period. - - THE U.S. HISPANIC POPULATION IS CONCENTRATED IN 15 MARKETS. Approximately 71.0%, or approximately 21.6 million, of all U.S. Hispanics live in these markets. The U.S. Hispanic population in the top fifteen markets, as a percentage of the total population in such markets, has increased from approximately 17.0% in 1980 to approximately 26.0% in 1998. The percentage concentration of Hispanics in the top fifteen markets is more than twice the percentage of Hispanics in the U.S. as a whole. Since 1980, the Hispanic population growth has represented approximately 51.1% of the total population growth in the top fifteen Hispanic markets. - - U.S. HISPANICS REPRESENT AN ATTRACTIVE CONSUMER MARKET. Advertisers target Hispanics because, on average, they are younger, their households are larger in size and they routinely spend a greater percentage of their income on many different kinds of goods and services than do non-Hispanic households. The Company believes that, as a result, advertisers have substantially increased their use of Spanish media. Total Spanish language advertising revenues have increased from approximately $721.5 million in 1993 to an estimated $1.7 billion in 1998. This represents a compound annual growth rate of approximately 18.0%, which is substantially greater than the estimated growth rate for total advertising for the comparable period. The Company was incorporated under the laws of the State of Delaware in 1992. The Company's principal executive offices are located at 3102 Oak Lawn Avenue, Suite 215, Dallas, Texas 75219 and the telephone number is (214) 525-7700. RECENT DEVELOPMENTS KISF(FM) ACQUISITION. The Company entered into an asset purchase agreement with Radio Vision, Inc. and George E. Tobin on March 1, 1999, to acquire the assets of KISF(FM) serving the Las Vegas market for $20.3 million. The closing of this asset acquisition is expected to occur during the second quarter of 1999. Immediately after closing, the station's programming will be converted to a Spanish language format. Consummation of the purchase is subject to a number of conditions, including approval by the FCC of the transfer of the FCC licenses. KHOT(FM) ACQUISITION. The Company entered into an asset purchase agreement with New Century Arizona, LLC and New Century Arizona License Partnership on January 27, 1999, to acquire the assets of KHOT(FM) serving the Phoenix market for $18.3 million. The closing of this asset acquisition is expected to occur during the second quarter of 1999. Immediately after closing, the station's programming will be converted to a Spanish language format. Consummation of the purchase is subject to a number of conditions, including approval by the FCC of the transfer of the FCC licenses. KSCA OPTION. On January 2, 1997, the Company acquired an option to purchase all of the assets used in connection with the operation of KSCA(FM) in Los Angeles, California, upon the death of Gene Autry, the indirect principal stockholder of the seller (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company began providing programming to KSCA(FM) under a time brokerage agreement. Gene Autry died on October 2, 1998, and the Company exercised the KSCA Option. The closing of the acquisition of the KSCA(FM) assets is expected to occur during the second quarter of 1999. The Company made a total of $13.0 million in payments under the terms of the KSCA Option which will be credited against the purchase price of the KSCA (FM) assets. If the acquisition closes on June 1, 1999, the purchase price for the KSCA(FM) assets will be approximately $116.6 million ($103.6 million would be paid at closing after the $13.0 million in option payments are credited to the purchase price). Consummation of the acquisition is subject to a number of conditions, including approval by the FCC of the transfer of FCC licenses. KLQV(FM) AND KLNV(FM) ACQUISITION. The Company entered into an asset purchase agreement with Citicasters Co. on May 26, 1998, to acquire the assets of KLQV(FM) and KLNV(FM) (formerly KJQY(FM) and KKLQ(FM)) serving the San Diego market (the "San Diego Acquisition") for $65.2 million. The San Diego Acquisition closed on August 10, 1998. Immediately after closing, the programming of the stations was converted to two Spanish language formats. KLTN(FM) ACQUISITION. On March 25, 1998, the Company announced that it had entered into an agreement with Capstar Broadcasting Corporation to acquire the assets of radio station KLTN(FM) (formerly 4 KKPN(FM)), serving the Houston, Texas market, for $54.0 million in cash (the "KLTN(FM) Acquisition"). The KLTN(FM) Acquisition closed on May 29, 1998. Immediately after closing, the station's programming was converted to a Spanish language format. WCAA(FM) ACQUISITION. On December 1, 1997, the Company announced that it entered into an agreement with Multicultural Radio Broadcasting, Inc. to exchange WPAT(AM), the Company's AM station serving the New York City market, and $115.5 million in cash for the assets of WCAA(FM) (formerly WNWK(FM)), an FM station also serving the New York City market (the "WCAA(FM) Acquisition"). The WCAA(FM) Acquisition closed on May 22, 1998. WCAA(FM) broadcasts on 105.9 MHz from a transmitter site located on the Empire State Building. Immediately following the consummation of the WCAA(FM) Acquisition, the Company converted the station's programming to a Spanish language format. SALE OF CLASS A COMMON STOCK On January 22, 1998, the Company completed the issuance and sale of 5,175,000 shares of Class A Common Stock in an underwritten public offering for a total of $205.1 million in proceeds. The proceeds from the offering were used to repay borrowings under the Company's credit facility and to finance the WCAA(FM) Acquisition, the KLTN(FM) Acquisition, and a portion of the San Diego Acquisition. SPANISH LANGUAGE RADIO INDUSTRY 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 the 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 continuously 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 the Company's programming follows: PROGRAMMING 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 music 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 music 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. 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 primarily sung in Spanish. The on-air talent speak in Spanish and English. CONTEMPORARY. The Contemporary format includes pop, Latin rock, and ballads. This format is similar to English adult contemporary and contemporary hit radio stations. 5 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. COMPANY'S STATIONS The following table sets forth information regarding the radio stations owned or programmed by the Company as of December 31, 1998:
RANKING OF MARKET BY PRIMARY HISPANIC DEMOGRAPHIC POPULATION MARKET(1) STATION STATION FORMAT(2) MARKET - ------------- ------------------------------- ------------------ ------------------- --------------- 1 Los Angeles KLVE(FM) Contemporary A 25-54 KTNQ(AM) News/Talk A 25-54 KSCA(FM)(3) Regional Mexican A 25-54 2 New York WCAA(FM) Tropical A 25-54 WADO(AM) News/Talk A 25+ 3 Miami WAMR(FM) Contemporary A 25-54 WRTO(FM) Tropical A 18-34 WAQI(AM) News/Talk A 35+ WQBA(AM) News/Talk/Sports A 35+ 4 San Francisco/San Jose KSOL(FM) Regional Mexican A 25-54 KZOL(FM) Regional Mexican A 25-54 5 Chicago WOJO(FM) Regional Mexican A 25-54 WIND(AM) Full Service A 35+ WLXX(AM) Tropical A 18-49 6 Houston KLTN(FM) Regional Mexican A 18-49 KOVE(FM) Contemporary A 25-54 KOVA(FM) Contemporary A 25-54 KLTO(FM) Contemporary A 25-54 KLAT(AM) News/Talk A 25-54 KRTX(FM) Tejano A 25-54 KRTX(AM) Tejano A 25-54 7 San Antonio KXTN(FM) Tejano A 25-54 KPOZ(AM)(4) Brokered n/a KROM(FM) Regional Mexican A 25-54 KCOR(AM) Regional Mexican A 35+ 8 Dallas/Fort Worth KESS(AM) Full Service A 18+ KHCK(FM) Tejano A 18-49 KDXT(FM) Contemporary A 18-49 KDXX(FM) Tejano A 18-49 KDXX(AM) Contemporary A 18-49 9 McAllen/Brownsville/Harlingen KGBT(FM) Regional Mexican A 25-54 KGBT(AM) Regional Mexican A 25-54 KIWW(FM) Tejano A 25-54 6 RANKING OF MARKET BY PRIMARY HISPANIC DEMOGRAPHIC POPULATION MARKET(1) STATION STATION FORMAT(2) MARKET - ------------- ------------------------------- ------------------ ------------------- --------------- 10 San Diego KLQV(FM) Contemporary A 25-54 KLNV(FM) Regional Mexican A 18-49 11 El Paso KBNA(FM) Regional Mexican A 25-54 KBNA(AM) Regional Mexican A 25-54 KAMA(AM) Tejano A 25-54 30 Las Vegas KLSQ(AM) Regional Mexican A 18-49
(1) Actual city of license may differ from the metropolitan market served. (2) See "--Programming." (3) The Company operates this station pursuant to the KSCA Time Brokerage Agreement. (4) The Company sells airtime on this station to third parties for broadcast of specialty programming. The following table sets forth selected information with regard to Company owned radio stations:
DATE LICENSE BROADCAST STATION/LOCATION ACQUIRED EXPIRATION DATE FREQUENCY - ------------------------------------------- ------------ ---------------- -------------- KTNQ(AM), Los Angeles, CA 10/85 12/1/05 1020 kHz KLVE(FM), Los Angeles, CA 10/85 12/1/05 107.5 MHz WADO(AM), New York, NY 8/94 6/1/98 (1) 1280 kHz WCAA(FM), New York, NY 5/98 6/1/98 (1) 105.9 MHz WAQI(AM), Miami, FL 10/89 2/1/03 710 kHz WRTO(FM), Miami, FL 10/89 2/1/03 98.3 MHz WQBA(AM), Miami, FL 8/94 2/1/03 1140 kHz WAMR(FM), Miami, FL 8/94 2/1/03 107.5 MHz KSOL(FM), San Francisco/San Jose, CA 2/97 12/1/05 98.9 MHz KZOL(FM), San Francisco/San Jose, CA 2/97 12/1/05 99.1 MHz WOJO(FM), Chicago, IL 2/97 12/1/04 105.1 MHz WIND(AM), Chicago, IL 2/97 12/1/04 560 kHz WLXX(AM), Chicago, IL 7/95 12/1/04 1200 kHz KLTN(FM), Houston, TX 5/98 8/1/05 102.9 MHz KOVE(FM), Houston, TX 2/97 8/1/05 93.3 MHz KOVA(FM), Houston, TX 2/97 8/1/05 104.9 MHz KLTO(FM), Houston, TX 2/97 8/1/05 104.9 MHz KRTX(FM), Houston, TX 2/97 8/1/05 100.7 MHz KLAT(AM), Houston, TX 2/97 8/1/05 1010 kHz KRTX(AM), Houston, TX 2/97 8/1/05 980 kHz KXTN(FM), San Antonio, TX 2/97 8/1/05 107.5 MHz KPOZ(AM), San Antonio, TX 2/97 8/1/05 1310 kHz KROM(FM), San Antonio, TX 2/97 8/1/05 92.9 MHz KCOR(AM), San Antonio, TX 2/97 8/1/05 1350 kHz KGBT(FM), McAllen/Brownsville/Harlingen, TX 2/97 8/1/05 98.5 MHz KGBT(AM), McAllen/Brownsville/Harlingen, TX 2/97 8/1/05 1530 kHz 7 DATE LICENSE BROADCAST STATION/LOCATION ACQUIRED EXPIRATION DATE FREQUENCY - ------------------------------------------- ------------ ---------------- -------------- KIWW(FM), McAllen/Brownsville/Harlingen, TX 2/97 8/1/05 96.1 MHz KESS(AM), Dallas/Ft. Worth, TX 8/94 8/1/05 1270 kHz KDXX(AM), Dallas/Ft. Worth, TX 12/94 8/1/05 1480 kHz KDXX(FM), Dallas/Ft. Worth, TX 4/95 8/1/05 107.9 MHz KDXT(FM), Dallas/Ft. Worth, TX 6/95 8/1/05 106.7 MHz KHCK(FM), Dallas/Ft. Worth, TX 7/95 8/1/05 99.1 MHz KBNA(FM), El Paso, TX 2/97 8/1/05 97.5 MHz KBNA(AM), El Paso, TX 2/97 8/1/05 920 kHz KAMA(AM), El Paso, TX 2/97 8/1/05 750 kHz KLSQ(AM), Las Vegas, NV 8/95 10/1/97 (1) 870 kHz KLNV(FM), San Diego, CA 8/98 12/1/97 (1) 106.5 MHz KLQV(FM), San Diego, CA 8/98 12/1/97 (1) 102.9 MHz
(1) An application for license renewal is currently pending with the FCC. Regulations permit continuing operation of the station during the period the renewal application is pending. Statistical information contained herein regarding the radio industry, population, consumer spending and advertising expenditures are taken from the Arbitron Company 1996-1998 radio metro ratings and national data base (the Company's station rankings were based upon the Arbitron Adults 25-54 category 1998 Fall Book); 1997 U.S. Census; Strategy Research Corporation--1998 U.S. Hispanic Market Study; Hispanic Business (December 1993-1998); The M Street Journal; and Katz Hispanic Media. 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 would 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, the FTC, and the Antitrust Division. Although the Company believes that each of its stations is or will be 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 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. REGULATION OF THE COMPANY'S BUSINESS EXISTING REGULATION AND LEGISLATION. Radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of a radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, 8 to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. The Telecommunications Act of 1996 (the "1996 Act") represents the most comprehensive overhaul of the country's telecommunications laws in more than 60 years. The 1996 Act significantly changes both the broadcast ownership rules and the process for renewal of broadcast station licenses. The 1996 Act also relaxes local radio ownership restrictions. The FCC has already implemented some of these changes through Commission Orders. The 1996 Act establishes a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. Additionally, the 1996 Act substantially liberalizes the broadcast ownership rules, eliminating the national radio limits. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading incumbents (i.e., existing networks and major station groups) has increased sharply the competition for, and the prices of, attractive stations. MULTIPLE OWNERSHIP RESTRICTIONS. The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest, as defined more fully below) in broadcast stations, as well as other specified mass media entities. Prior to the passage of the 1996 Act, these rules included limits on the number of radio stations that could be owned on both a national and local basis. The 1996 Act substantially relaxed the radio ownership limitations. The FCC began its implementation of the 1996 Act with several orders issued on March 8, 1996. The 1996 Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing a single entity to own nationally any number of AM or FM broadcast stations. The 1996 Act and the FCC's new rules also greatly eased local radio ownership restrictions. As with the old rules, the maximum number of radio stations in which a person or entity is allowed to have an attributable interest varies depending on the number of radio stations within a defined market. In markets with more than 45 stations, one company may own, operate or control eight stations, with no more than five in either service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in either service; in markets with 15- 29 stations, one entity may own six stations, with no more than four in either service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in either service. It should be noted, however, that the Department of Justice has precluded certain entities from acquiring the maximum number of radio stations allowed in a market under the 1996 Act because of concerns that antitrust laws would be violated. Thus, it is possible that the Company would, in certain instances, be unable to acquire the maximum number of stations allowed in a market under the 1996 Act. In 1992, the FCC placed limitations on time brokerage (local marketing) agreements ("LMA") through which the licensee of one radio station provides the programming for another licensee's station in the same market. Stations operating in the same service (e.g., where both stations are AM) and in the same market are prohibited from simulcasting more than 25% of their programming. Moreover, in determining the number of stations that a single entity may control, an entity programming a station pursuant to an LMA is required, under certain circumstances, to count that station toward its maximum even though it does not own the station. 9 A number of cross-ownership rules pertain to licensees of television and radio stations. FCC rules, the Communications Act, or both, generally prohibit an individual or entity from having an attributable interest in both a television station and a radio station, daily newspaper or cable television system that is located in the same local market area served by the television station. The FCC has employed a liberal waiver policy with respect to the TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule), generally permitting common ownership of one AM, one FM, and one TV station in any of the 25 largest markets, provided there are at least 30 separately owned stations in the market. The 1996 Act directed the FCC to extend its one-to-a-market waiver policy to the top 50 markets, consistent with the public interest, convenience and necessity. On November 7, 1996, the FCC released a Second Further Notice of Proposed Rulemaking seeking comment on a number of issues relating to the local television ownership rules, including its tentative conclusion that it should extend the presumptive waiver of the one-to-a-market rule to the top 50 markets. The Commission also requested further comment on whether there is a continued need for the rule and, if there is, whether the rule should be further modified. In addition, on September 27, 1996, the FCC released a Notice of Inquiry seeking comment on whether it should relax its policy of granting waivers of the radio/newspaper cross-ownership restriction. Expansion of the Company's broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the FCC to review its remaining ownership rules biennially -- as part of its regulatory reform obligations -- to determine whether its various rules are still necessary. On March 13, 1998, the FCC initiated its first biennial review of its broadcast ownership rules and solicited comment on matters including the effect which the relaxation of the local radio ownership limitations pursuant to the 1996 Act has had on competition in the local advertising markets and in programming. The Company cannot predict the impact of the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules may increase the level of competition in one or more of the markets in which the Company's stations are located, particularly to the extent that any of the Company's competitors may have greater resources and thereby be in a better position to capitalize on such changes. Under the FCC's ownership rules, a direct or indirect purchaser of certain types of securities of the Company could violate FCC regulations if that purchaser owned or acquired an "attributable" or "meaningful" interest in other media properties in the same areas as stations owned by the Company or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee, as well as general partners, limited partners who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee (either directly or indirectly), generally will be deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to ten percent of such outstanding voting stock without being considered "attributable". Under current FCC regulations, debt instruments, non-voting stock, properly insulated limited partnership interests (as to which the licensee certifies that the limited partners are not "materially involved" in the management and operation of the subject media property) and voting stock held by minority stockholders in cases in which there is a single majority stockholder generally are not attributable. The FCC's "cross-interest" policy, which precludes an individual or entity from having a "meaningful" (even though not attributable) interest in one media property and an attributable interest in a broadcast, cable or newspaper property in the same area, may be invoked in certain circumstances to reach interests not expressly covered by the multiple ownership rules. See "--Control by Certain Stockholders--Relationship Between the Company and Clear Channel." In January 1995, the FCC initiated a rulemaking proceeding designed to permit a "thorough review of [its] broadcast media attribution rules." Among the issues on which comment was sought were (i) whether to change the voting stock attribution benchmarks from five percent to ten percent and, for passive investors, from ten percent to twenty percent; (ii) whether there are any circumstances in which non-voting stock interests, which are currently considered non-attributable, should be considered attributable; (iii) whether the FCC should eliminate its single majority shareholder exception (pursuant to which voting interests in excess 10 of five percent are not considered cognizable if a single shareholder owns more than fifty percent of the voting power); (iv) whether to relax insulation standards for business development companies and other widely-held limited partnerships; (v) how to treat limited liability companies and other new business forms for attribution purposes; (vi) whether to eliminate, modify or codify the cross-interest policy; and (vii) whether to adopt a new policy which would consider whether multiple cross interests or other significant business relationships (such as time brokerage agreements, debt relationships or holdings of nonattributable interests), which individually do not raise concerns, raise issues with respect to diversity and competition. On November 7, 1996, the FCC released a Further Notice of Proposed Rulemaking in order to elicit further comment on several issues concerning its review of the broadcast attribution rules. In general, the FCC seeks comment as to whether the recent relaxation of the multiple ownership rules resulting from passage of the 1996 Act should affect the FCC's review of the rules, including whether a combination of debt and equity exceeding a certain threshold should be considered to be an attributable interest. The Company cannot predict with certainty when this proceeding will be concluded or whether any of these standards will be changed. Should the attribution rules be changed, the Company is unable to predict what effect, if any, such changes would have on the Company or its activities. LICENSE GRANT AND RENEWAL. Prior to the passage of the 1996 Act, radio broadcasting licenses generally were granted or renewed for a period of seven years upon a finding by the FCC that the "public interest, convenience, and necessity" had been served thereby. At the time an application was made for renewal of a radio license, parties in interest could file petitions to deny the application, and such parties, including members of the public, could comment upon the service the station had provided during the preceding license term. In addition, prior to passage of the 1996 Act, any person was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications or if issues raised by petitioners to deny such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of up to eight years and the FCC has implemented the eight year license term provision for radio stations. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (3) there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license. Although in the vast majority of cases broadcast licenses are granted by the FCC even when petitions to deny are filed against them, there can be no assurance that any of the Company's stations' licenses will be renewed. ALIEN OWNERSHIP RESTRICTIONS. The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their 11 representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. The Company, which serves as a holding company for subsidiaries that serve as licensees for the stations, therefore may be restricted from having more than one-fourth of its stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non-U.S. citizens or foreign governments, or foreign corporations. OTHER REGULATIONS AFFECTING RADIO BROADCASTING STATIONS. The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. In 1990, the U.S. Supreme Court refused to review a lower court decision that upheld the FCC's 1987 action invalidating most aspects of the Fairness Doctrine, which had required broadcasters to present contrasting views on controversial issues of public importance. The FCC has, however, continued to regulate other aspects of fairness obligations in connection with certain types of broadcasts. In addition, there are FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as political advertising practices, equal employment opportunities, application procedures and other areas affecting the business or operations of broadcast stations. ANTITRUST MATTERS. An important element of the Company's growth strategy involves the acquisition of additional radio stations, many of which are likely to require preacquisition antitrust review by the FTC and the Antitrust Division. Following passage of 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 acquirer already owns one or more radio stations in a particular market and the acquisition involves another radio station in the same market. The Antitrust Division has obtained consent decrees requiring an acquirer to dispose of at least one radio station in a particular market where the acquisition otherwise would have resulted in an undue concentration of market share by the acquirer. 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 of the overall radio market or the Spanish language market segment. ENVIRONMENTAL MATTERS. As the owner, lessee or operator of various real properties and facilities, the Company is subject to various federal, state and local environmental laws and regulations. Historically, compliance with such laws and regulations has not had a material adverse effect on the Company's business. There can be no assurance, however, that compliance with existing or new environmental laws or regulations will not require the Company to make significant expenditures in the future. RECENT DEVELOPMENTS, PROPOSED LEGISLATION AND REGULATION. The FCC is considering ways to introduce new technologies to the radio broadcasting industry, including terrestrial delivery of digital audio broadcasting on both the AM and FM bands. In 1997, the FCC granted two licenses for national, satellite-delivered digital audio broadcasting services. These services will be capable of delivering multiple, high-quality channels of audio. 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 and direct satellite broadcast television companies market service commonly referred to as "cable radio" which provides their subscribers with several high-quality channels of 12 music, news and other information. Technical considerations currently limit this technology to fixed locations. The FCC presently is seeking comment on its policies designed to increase minority ownership of mass media facilities. Congress, however, has enacted legislation that eliminated the minority tax certificate program of the FCC, which gave favorable tax treatment to entities selling broadcast stations to entities controlled by an ethnic minority. In addition, a Supreme Court decision has cast into doubt the continued validity of other FCC programs designed to increase minority ownership of mass media facilities. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of the Company's broadcast properties. For example, the FCC has recently adopted new rules which, with limited exceptions, requires the holder of an FCC construction permit to complete construction of new or modified facilities within three (3) years of grant. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, potential restrictions on the advertising of certain products (liquor, beer and wine, for example) and the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations. Other matters that could affect the Company's broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act, or the 1996 Act, nor of the regulations and policies of the FCC thereunder. The 1996 Act also covers satellite and terrestrial delivery of digital audio radio service, and direct broadcast satellite systems. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. CONCENTRATION OF CASH FLOW FROM LOS ANGELES STATIONS. Broadcast cash flow generated by the Company's Los Angeles stations accounted for approximately 47% of the Company's broadcast cash flow for the year ended December 31, 1998. Increased 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 generated by 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. CONTROL BY CERTAIN STOCKHOLDERS CONTROL BY THE TICHENOR FAMILY. McHenry T. Tichenor, Jr., the Company's Chairman, President and Chief Executive Officer, McHenry T. Tichenor, Sr., the David T. Tichenor Trust, Warren W. Tichenor, William E. Tichenor and Jean T. Russell (collectively, the "Tichenor Family") are parties to a Voting Agreement with one another, dated as of July 1, 1996 (the "Voting Agreement"). As of March 11, 1999, the Tichenor Family had voting control over approximately 20.6% of the shares of Class A Common Stock. This enables the Tichenor Family to exert significant influence over all matters submitted to the stockholders. Such ownership and control by the Tichenor Family could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of depriving stockholders of the opportunity to receive a premium for their shares. Such ownership and control 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. 13 RELATIONSHIP BETWEEN THE COMPANY AND CLEAR CHANNEL. As of March 19, 1999, Clear Channel owned no shares of Class A Common Stock and thus was not entitled to vote in the election of the Company's directors. However, Clear Channel owned all of the outstanding shares of the Company's Class B Common Stock, which accounted for approximately a 28.7% interest in the Common Stock of the Company. As long as Clear Channel owns at least 20.0% of the Company's Common Stock, Clear Channel 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 50.0% 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 Restated Certificate of Incorporation in a manner that adversely affects the rights of the holders of Class B 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 Class B Common Stock are convertible into shares of Class A Common Stock, at the holder's option, subject to any necessary governmental consents, including the consent of the FCC. Because of the FCC's cross interest policy, which bars a party that holds an attributable relationship in one or more radio stations in a market from having a "meaningful relationship" with another radio station in that market, Clear Channel may not presently convert its shares of Class B Common Stock into shares of Class A Common Stock. The provisions of the Class B Common Stock could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of 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. 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 certain markets, and as a result, they are competing with each other for advertising revenues. As of December 31, 1998, Clear Channel owned, programmed or sold airtime for 206 radio stations in 48 domestic markets, as well as radio stations in a number of foreign countries. Clear Channel also owned or programmed 20 television stations and was one of the largest domestic outdoor advertising companies based on its total inventory of advertising display faces. Clear Channel's television and outdoor advertising operations may also be deemed to compete with the Company's business. 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 shares of Common Stock or Preferred Stock, or the payment of dividends by the Company. Although Clear Channel does not currently engage in the domestic Spanish language radio broadcasting business, other than through its ownership of shares in the Company, circumstances could arise that would cause Clear Channel to engage in the domestic Spanish language radio broadcasting business. There can be no assurance that Clear Channel will not engage in the domestic Spanish language radio 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. In addition, Clear Channel may from time to time make international acquisitions of or investments in companies engaged in the Spanish language radio broadcasting business outside the United States and the Company and Clear Channel may compete for such acquisition or investment opportunities. To the extent the Company enters new lines of business, it may be deemed to compete directly or indirectly with Clear Channel, and the Company and Clear Channel may compete in the future with respect to acquisitions and investment opportunities in these areas. 14 FORWARD-LOOKING STATEMENTS Certain statements contained herein are not based upon historical facts, but are forward-looking statements based upon numerous assumptions made as of the date hereof. When used in the preceding and following discussions, the words "believes," "intends," "expects," "anticipates" and similar expressions are intended to identify such forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include, but are not limited to, industrywide market factors and regulatory developments affecting the Company's operations, acquisitions and dispositions of broadcast properties, the financial performance of start-up stations, and efforts by the Company's management to integrate its operating philosophies and practices at the station level. The Company disclaims any obligation to update the forward-looking statements contained herein. INDUSTRY SEGMENTS The Company considers radio broadcasting to be its only operating segment. EMPLOYEES As of March 23, 1999, the Company employed 652 persons on a full-time basis, including corporate employees and 16 employees (at WCAA(FM) and WADO(AM), New York) who are subject to two collective bargaining agreements. The Company considers its employee relations to be good. 15 ITEM 2. PROPERTIES The Company's corporate headquarters is in Dallas, Texas. The Company has leased approximately 11,000 square feet at 3102 Oak Lawn Avenue in Dallas, Texas. The initial term of this lease expires in 2013, and the Company has one option to extend the lease for one additional five-year term. The types of properties required to support each of the Company's radio stations listed in Item 1 above includes offices, studios, transmitter sites and antenna sites. A radio station's studios are generally housed with its offices in downtown or business districts. A radio station's transmitter sites and antenna sites generally are located in a manner that provides maximum market coverage subject to the station's FCC license and FCC rules and regulations. The studios and offices of the Company's radio stations are located in leased or owned facilities. These leases generally have expiration dates that range from three to sixteen years. The Company either owns or leases its transmitter and antenna sites. These leases generally have expiration dates that range from five to thirty years. The Company does not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. A substantial amount of the Company's broadcast cash flow was generated by the Company's Los Angeles stations during 1998. Accordingly, the offices, studios, transmitter sites and antenna sites used in the operation of the Company's Los Angeles stations may be material to the Company's overall operations. As noted in Item 1 above, as of December 31, 1998, the Company owns or programs 39 radio stations in 12 markets throughout the United States. Therefore, except as set forth above, no one property is material to the Company's overall operations. The Company believes that its properties are in good condition and suitable for its operations. The Company owns substantially all of the equipment used in its radio broadcasting business. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, the Company becomes involved in certain legal claims and litigation. In the opinion of management, based upon consultations with legal counsel, the disposition of such litigation pending against the Company will not have a materially adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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 periods presented below, the high and low closing sale prices per share as reported by the Nasdaq National Market.
HIGH LOW ----------- ----------- YEAR ENDED DECEMBER 31, 1997 First Quarter........................... $ 23.31 $ 15.88 Second Quarter.......................... 27.75 22.13 Third Quarter........................... 38.06 27.00 Fourth Quarter.......................... 46.75 32.50 YEAR ENDED DECEMBER 31, 1998 First Quarter........................... $ 50.88 $ 40.38 Second Quarter.......................... 45.50 34.88 Third Quarter........................... 42.81 30.00 Fourth Quarter.......................... 49.25 31.25
As of December 31, 1998, there were approximately 79 holders of the Class A Common Stock. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. 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 restricted from paying any cash dividends on its capital stock under the Credit Agreement. 17 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data for Heftel Broadcasting Corporation and its subsidiaries for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996, and the years ended September 30, 1996, 1995 and 1994 (in thousands, except per share data):
Three Months Year Ended December 31, Ended Year Ended September 30, ------------------------- December 31, ----------------------------------- 1998 1997 1996 1996 1995 1994 -------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: Net revenues $ 164,122 $ 136,584 $ 18,309 $ 71,732 $ 64,160 $ 27,433 Operating expenses 95,784 82,065 11,207 48,896 43,643 15,345 Depreciation and amortization 21,149 14,928 1,747 5,140 3,344 1,906 ----------- ----------- ----------- ---------- ---------- ---------- Operating income before corporate 47,189 39,591 5,355 17,696 17,173 10,182 expenses Corporate expenses 5,451 4,579 368 5,072 4,720 3,454 ----------- ----------- ----------- ---------- ---------- ---------- Operating income 41,738 35,012 4,987 12,624 12,453 6,728 ----------- ----------- ----------- ---------- ---------- ---------- Other income (expense): Interest income (expense), net 2,634 (3,541) (2,841) (11,034) (6,389) (2,997) Income (loss) in equity of joint venture(a) - - - - - 616 Restructuring charges(b) - - - (29,011) - - Other, net 252 (82) 18 (1,671) (428) (1,407) ----------- ----------- ----------- ---------- ---------- ---------- 2,886 (3,623) (2,823) (41,716) (6,817) (3,788) ----------- ----------- ----------- ---------- ---------- ---------- Income (loss) before minority interest and income tax 44,624 31,389 2,164 (29,092) 5,636 2,940 Minority interest(a) - - - - 1,167 351 Income tax 17,740 12,617 100 65 150 100 ----------- ----------- ----------- ---------- ---------- ---------- Income (loss) from continuing operations 26,884 18,772 2,064 (29,157) 4,319 2,489 Loss on discontinued operations of CRC(b) - - - 9,988 626 285 ----------- ----------- ----------- ---------- ---------- ---------- Income (loss) before extraordinary item 26,884 18,772 2,064 (39,145) 3,693 2,204 Extraordinary item - loss on retirement of debt - - - 7,461 - 1,738 ----------- ----------- ----------- ---------- ---------- ---------- Net income (loss) $ 26,884 $ 18,772 $ 2,064 $ (46,606) $ 3,693 $ 466 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- Net income (loss) per common share(c): Basic: Continuing operations $ 0.55 $ 0.45 $ 0.09 $ (1.41) $ 0.21 $ 0.25 Discontinued operations - - - (0.49) (0.03) (0.03) Extraordinary loss - - - (0.36) - (0.19) ----------- ----------- ----------- --------- ---------- ---------- Net income (loss) $ 0.55 $ 0.45 $ 0.09 $ (2.26) $ 0.18 $ 0.03 ----------- ----------- ----------- --------- ---------- ---------- ----------- ----------- ----------- --------- ---------- ---------- Diluted: Continuing operations $ 0.54 $ 0.45 $ 0.09 $ (1.41) $ 0.20 $ 0.22 Discontinued operations - - - (0.49) (0.03) (0.03) Extraordinary loss - - - (0.36) - (0.16) ----------- ----------- ----------- --------- ---------- ---------- Net income (loss) $ 0.54 $ 0.45 $ 0.09 $ (2.26) $ 0.17 $ 0.03 ----------- ----------- ----------- --------- ---------- ---------- ----------- ----------- ----------- --------- ---------- ---------- Weighted average common shares outstanding: Basic 49,021 41,671 23,095 20,590 20,021 9,137 Diluted 49,348 41,792 23,095 20,590 21,611 10,769 OTHER OPERATING DATA: Broadcast cash flow $ 68,338 $ 54,519 $ 7,102 $ 22,836 $ 20,517 $ 12,088 EBITDA 62,887 49,940 6,734 17,764 15,797 8,634 BALANCE SHEET DATA (AT END OF PERIOD): Working capital $ 17,168 $ 10,970 $ 8,429 $ 7,168 $ 14,967 $ 18,366 Net intangible assets 643,955 423,530 120,592 121,742 109,253 70,528 Total assets 744,444 512,249 163,725 165,751 151,637 113,353 Long-term debt, less current portion 1,547 14,122 135,504 137,659 97,516 59,898 Stockholders' equity 622,621 389,960 14,166 12,101 43,581 44,436
(a) Effective August 20, 1994, the Company began accounting for its 49.0% interest in Viva Media on a consolidated basis. Accordingly, Viva Media's result of operations are included in the consolidated financial statements commencing August 20, 1994. The Company acquired the remaining 51.0% of Viva Media on September 7, 1995. Prior to August 20, 1994, the results of operations of Viva Media were accounted for using the equity method of accounting. (b) See Note 4 to Consolidated Financial Statements. (c) All common share and per-common-share amounts have been adjusted retroactively for a two-for-one common stock split effective December 1, 1997. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the consolidated results of operations and cash flows of the Company for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996 and the year ended September 30, 1996 and consolidated financial condition as of December 31, 1998 and 1997 should be read in conjunction with the consolidated financial statements of the Company and the related notes included elsewhere in this report. GENERAL The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow. The two components of broadcast cash flow are net revenues (gross revenues net of agency commissions) and operating expenses (excluding depreciation and amortization and corporate general and administrative expense). The primary source of revenues is the sale of broadcasting time for advertising. The Company's most significant operating expenses for purposes of the computation of broadcast cash flow are employee salaries and commissions, programming expenses, and advertising and promotion expenses. The Company strives to control these expenses by working closely with local station management. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company's first calendar quarter generally produces the lowest revenues. The second and third quarters generally produce the highest revenues. Another measure of operating performance is EBITDA. EBITDA consists of operating income or loss excluding depreciation and amortization and other non-cash and non-recurring charges. Broadcast cash flow and EBITDA are not calculated in accordance with generally accepted accounting principles. These measures should not be considered in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Broadcast cash flow and EBITDA do not take into account the Company's debt service requirements and other commitments and, accordingly, broadcast cash flow and EBITDA are not necessarily indicative of amounts that may be available for dividends, reinvestment in the Company's business or other discretionary uses. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997. The results of operations for the year ended December 31, 1998 are not comparable to results of operations for the same period in 1997 primarily due to (a) the Tichenor Merger which closed February 14, 1997, and (b) the start-up of radio stations KSCA(FM) in Los Angeles on February 5, 1997, WCAA(FM) in New York on May 22, 1998 (WPAT(AM) was exchanged for WCAA(FM)), KRTX(AM/FM) in Houston on May 29, 1998, and KLQV(FM) and KLNV(FM) in San Diego on August 10, 1998. Net revenues for the year ended December 31, 1998 increased by $27.5 million, or 20.1% to $164.1 million compared to $136.6 million for the year ended December 31, 1997. Operating expenses increased by $13.7 million, or 16.7%, to $95.8 million for the year ended December 31, 1998 compared to $82.1 million for the year ended December 31, 1997. Broadcast cash flow increased $13.8 million, or 25.3% to $68.3 million for the year ended December 31, 1998 compared to $54.5 million for the year ended December 31, 1997. The improved operating performance was due to same station revenue growth. Corporate expenses for the year ended December 31, 1998 increased by $0.9 million, or 19.6%, to $5.5 million compared to $4.6 million for the year ended December 31, 1997. The increase was primarily due to higher staffing costs of the Company after the Tichenor Merger. As a result, EBITDA increased $12.9 million, or 25.9% to $62.9 million. Depreciation and amortization for the year ended December 31, 1998 increased 41.6% to $21.1 million compared to $14.9 million for the year ended December 31, 1997. The increase is due to radio 19 station acquisitions, capital expenditures, and the additional depreciation and amortization associated with the Tichenor Merger included in all of the year ended December 31, 1998 compared to a portion of the same period in 1997. Interest expense, net of interest income decreased from $3.5 million for the year ended December 31, 1997 to $2.6 million of interest income, net of interest expense for the year ended December 31, 1998. The reduction in interest expense was the result of the repayment of debt funded from the January 1998 Offering. Interest income increased due to an increase in invested cash from the January 1998 Offering. Other, net decreased from $0.1 million of other expense for the year ended December 31, 1997 to $0.3 million of the other income for the year ended December 31, 1998. In 1998, the Company reversed the remaining balance of an accrual of costs relating to unconsummated acquisitions of $0.3 million which was made in a prior reporting period. Income tax expense increased from $12.6 million for the year ended December 31, 1997 to $17.7 million for the year ended December 31, 1998. The increase was primarily due to income before income tax increasing from $31.4 million for the year ended December 31, 1997 to $44.6 million for the year ended December 31, 1998. The effective tax rates for the years ended December 31, 1997 and 1998 are 40.2% and 39.8%, respectively. Net income of $18.8 million was generated by the Company for the year ended December 31, 1997 compared to net income of $26.9 million for the year ended December 31, 1998. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996. During 1997, the Company completed the Tichenor Merger and entered into the KSCA Option. The results of operations for 1997 do not reflect a full year of operations of Tichenor or KSCA and 1996 results of operations exclude the financial results of these transactions. Consequently, the results of operations for 1997 and 1996 are not entirely comparable. For the year ended December 31, 1997, net revenues increased by $64.9 million, or 90.5% to $136.6 million compared to $71.7 million for the year ended September 30, 1996. Operating expenses increased by $33.2 million, or 67.9%, to $82.1 million for the year ended December 31, 1997 compared to $48.9 million for the year ended September 30, 1996. Broadcast cash flow increased $31.7 million, or 139.0% to $54.5 million for the year ended December 31, 1997 compared to $22.8 million for the year ended September 30, 1996. The improved operating performance was due to contributions from the radio stations acquired in the Tichenor Merger, improved performance from start-up stations, and same station revenue growth. Corporate expenses for the year ended December 31, 1997 were $4.6 million compared to $5.1 million for the year ended September 30, 1996. Following the Tichenor Merger, the Company shut down duplicative corporate headquarters in Las Vegas, Nevada, and consolidated the corporate headquarters in Dallas, Texas. As a result, EBITDA increased $32.2 million, or 181.1% to $49.9 million. Depreciation and amortization increased $9.8 million, or 192.2% to $14.9 million for the year ended December 31, 1997 compared to $5.1 million for the year ended September 30, 1996. The increase is primarily attributable to depreciation and amortization arising from the Tichenor Merger. Interest expense, net of interest income, decreased by $7.5 million, or 67.9% for the year ended December 31, 1997 compared to $11.0 million for the year ended September 30, 1996. The decrease in interest expense was due to a $97.0 million reduction in outstanding debt through the February 1997 Offering and through repayments in debt from the Company's cash flow. 20 Other expenses declined from $41.7 million for the year ended September 30, 1996 to $3.6 million for the year ended December 31, 1997. During fiscal 1996, the Company incurred $29.0 million of restructuring charges and $1.4 million of costs relating to unconsummated acquisitions. The Company did not incur these expenses in 1997. Income tax expense increased from $65,000 for the year ended September 30, 1996 to $12.7 million for the year ended December 31, 1997. The increase was primarily due to an improvement in earnings before taxes from a loss of $29.1 million for the year ended September 30, 1996 to income of $31.4 million for the year ended December 31, 1997. The results of operations for the year ended December 31, 1997 did not include any loss on discontinued operations or any extraordinary loss on the retirement of debt. In 1996, the loss on discontinued operations due to the shut down of CRC was $10.0 million and the extraordinary loss on the retirement of debt was $7.5 million. The Company generated net income of $18.8 million for the year ended December 31, 1997 compared to a net loss of $46.6 million for the year ended September 30, 1996. RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 1996 COMPARED TO THE QUARTER ENDED DECEMBER 31, 1995. On February 14, 1997, the Board of Directors of the Company voted to change the Company's fiscal year from September 30 to December 31. The quarter ended December 31, 1996 represents the transition period. For the quarter ended December 31, 1996, net revenues increased by $0.8 million, or 4.6% to $18.3 million compared to $17.5 million for the quarter ended December 31, 1995. Income from continuing operations increased by $0.8 million, or 58.5%, to $2.1 million for the quarter ended December 31, 1996 compared to $1.3 million for the quarter ended December 31, 1995. A loss on discontinued operations of $0.4 million was recognized in the quarter ended December 31, 1995. The Company generated net income of $2.1 and $0.9 million for the quarters ended December 31, 1996 and 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the years ended December 31, 1998 and 1997 was $57.0 and $43.8 million, respectively. Generally, capital expenditures are financed with cash provided by operations and long-term borrowings. For the years ended December 31, 1998 and 1997, the Company's capital expenditures were $4.7 and $4.0 million, respectively. The increase in capital expenditures was due primarily to the office space improvement costs for New York and the corporate office in Dallas. During 1998 and 1997, the Company spent $236.6 and $1.1 million ($3.2 million to acquire KOVA(FM) net of approximately $2.1 million of cash and cash equivalents acquired in the Tichenor Merger), respectively, to acquire radio stations. STOCKHOLDERS' EQUITY On January 22, 1998, the Company completed the 1998 Offering, selling 5,175,000 shares of Class A Common Stock for $39.75 per share, after underwriters' discounts and commissions. The net proceeds of the offering were approximately $205.1 million. On February 10, 1997, the Company completed the February 1997 Offering selling 4,830,000 (pre-split) shares of its Class A Common Stock for $36.80 (pre-split) per share, after underwriters' discounts and commissions. The net proceeds of the offering were approximately $176.4 million. 21 LONG-TERM DEBT On February 12, 1997, the Company repaid borrowings of $143.0 million outstanding under an existing $155 million credit facility with a portion of the proceeds from the February 1997 Offering. On February 14, 1997, the Company entered into a new $300 million credit facility (the "Credit Facility"), replacing the existing credit facility and initially borrowed $46.0 million. The Company used advances under the Credit Facility and a portion of the proceeds from the February 1997 Offering to retire the outstanding debt and senior preferred stock of Tichenor assumed on the date of the Tichenor Merger. At December 31, 1997, the Company had outstanding borrowings of $12.0 million under the Credit Facility. On January 29, 1998, the Company repaid the entire amount outstanding under the Credit Facility. In August 1998, the Company borrowed $18.0 million which was subsequently repaid in December 1998. The Company's ability to make additional borrowings under the Credit Facility is subject to compliance with certain financial ratios and other conditions set forth in the Credit Facility. The Company may elect under the terms of the Credit Facility to increase the facility by $150.0 million. The Credit Facility is secured by the stock of the Company's subsidiaries. Borrowings under the Credit Facility bear interest at a rate based on LIBOR plus an applicable margin as determined by the Company's leverage ratio. Availability under the Credit Facility reduces quarterly commencing September 30, 1999 and ending December 31, 2004. Available cash on hand plus cash provided by operations were sufficient to pay interest due under the Credit Facility and fund capital expenditures during the year ended December 31, 1998. The Company's management believes that it will have sufficient cash flow to finance its operations and satisfy its debt service requirements. The Company regularly reviews potential acquisitions. Future acquisitions are expected to be made from additional borrowings under the Credit Facility and available cash balances. ACCOUNTING PRONOUNCEMENTS In 1998, the Company adopted Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME, and Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The adoption of these new accounting standards did not have a material impact on the Company. YEAR 2000 The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations. The Company has been replacing its software and hardware as part of its long-term technological plans. The new software being implemented functions properly with respect to dates in the year 2000 and thereafter. All software used in the accounting system is in the process of being replaced. The key software components used in the accounting system are the general ledger and traffic system. The general ledger is used to record all transactional activity whereas the traffic system is used to record the airing of commercials, perform billing and maintain the accounts receivable detail. The new general ledger software has been implemented in twelve of the thirteen locations in which the Company operates. The one remaining location will implement the new general ledger software by May 1, 1999. Ten of the twelve radio station markets in which the Company operates have implemented the new traffic software. The two remaining radio station markets will implement the new traffic software at or around June 1999. The Company is in the 22 process of reviewing the hardware used in its operations that might be affected by the Year 2000 problem. Hardware testing for Year 2000 compliance is anticipated to be completed by June 30, 1999. Inquiries of the Company's top ten customers, vendors and service providers regarding Year 2000 compliance will be made during 1999. The Company decided, after the merger with Tichenor Media System, Inc. in February 1997, to change its general ledger and traffic system software so all locations would be on the same system. The replacement of the general ledger and traffic system software was not accelerated due to Year 2000 issues. The Company does not believe the costs related to the Year 2000 compliance project will be material to its financial position or results of operations. Unanticipated failures by critical customers, vendors and service providers, as well as the failure by the Company to execute its own remediation efforts, could have a material adverse effect on the cost of the Year 2000 project, its completion date, and the Company's financial position or results of operations. The Company has not yet established contingency plans in the event of the failure of its system with regard to Year 2000 compliance or those of its significant customers, vendors and service providers. Based on its assessment of the Year 2000 issue, the Company will establish contingency plans, however there is no assurance that such plans will be adequate to meet the Company's needs in the event of any disruption in the Company's operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not have significant market risk exposure since it does not have any outstanding variable rate debt or derivative financial and commodity instruments as of December 31, 1998. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Number ------- Reports of Independent Auditors......................................................................... 25 - 26 Consolidated Balance Sheets as of December 31, 1998 and 1997................................................. 27 Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997, the Three Months Ended December 31, 1996, and the Year Ended September 30, 1996......................... 28 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1997, the Three Months Ended December 31, 1996, and the Year Ended September 30, 1996......................... 29 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997, the Three Months Ended December 31, 1996, and the Year Ended September 30, 1996......................... 30 Notes to Consolidated Financial Statements................................................................... 31
24 INDEPENDENT AUDITORS' REPORT The Board of Directors Heftel Broadcasting Corporation: We have audited the accompanying consolidated balance sheets of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule for these periods included at Item 14(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 Heftel Broadcasting Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Dallas, Texas February 15, 1999 25 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Heftel Broadcasting Corporation We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Heftel Broadcasting Corporation for the three months ended December 31, 1996 and the year ended September 30, 1996. Our audits also included the financial statement schedule included in Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Heftel Broadcasting Corporation for the three months ended December 31, 1996 and the year ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Los Angeles, California July 2, 1997 26 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
December 31, ------------------------------ 1998 1997 --------------- ------------- Current assets: Cash and cash equivalents $ 10,293,241 $ 6,553,271 Accounts receivable, net of allowance of $2,301,286 in 1998 and $2,612,847 in 34,309,106 29,324,324 1997 Prepaid expenses and other current assets 456,843 817,456 ------------ ------------ Total current assets 45,059,190 36,695,051 ------------ ------------ Property and equipment, at cost: Land 7,965,865 11,046,486 Buildings and improvements 7,366,617 7,034,799 Broadcast and other equipment 25,948,994 20,663,573 Furniture and fixtures 8,356,121 5,705,226 ------------ ------------ 49,637,597 44,450,084 Less accumulated depreciation 15,830,226 11,150,167 ------------ ------------ 33,807,371 33,299,917 ------------ ------------ Intangible assets: Broadcast licenses 569,914,391 334,821,684 Cost in excess of fair value of net assets acquired 97,553,319 95,308,112 Other intangible assets 14,861,481 14,351,232 ------------ ------------ 682,329,191 444,481,028 Less accumulated amortization 36,128,832 20,951,102 ------------ ------------ 646,200,359 423,529,926 ------------ ------------ Deferred charges and other assets 21,622,079 18,723,785 ------------ ------------ Total assets $746,688,999 $512,248,679 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,063,294 $ 2,103,419 Accrued expenses 22,200,882 19,832,802 Income taxes payable 3,505,640 3,349,161 Current portion of long-term obligations 121,052 440,097 ------------ ------------ Total current liabilities 27,890,868 25,725,479 ------------ ------------ Long-term obligations, less current portion 1,547,130 14,122,019 ------------ ------------ Deferred income taxes 94,630,353 82,441,601 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred Stock, cumulative, $.001 par value; authorized 5,000,000 shares; no shares issued or outstanding - - Class A Common Stock, $.001 par value; authorized 100,000,000 shares in 1998 and 50,000,000 shares in 1997; issued and outstanding 35,171,980 shares in 1998 and 29,978,748 shares in 1997 35,172 29,979 Class B Common Stock, convertible, $.001 par value; authorized 50,000,000 shares; issued and outstanding 14,156,470 shares 14,156 14,156 Additional paid-in capital 665,339,306 459,567,282 Accumulated deficit (42,767,986) (69,651,837) ------------ ------------ Total stockholders' equity 622,620,648 389,959,580 ------------ ------------ Total liabilities and stockholders' equity $746,688,999 $512,248,679 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements 27 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months YEAR ENDED DECEMBER 31, Ended Year Ended ----------------------------------- December 31, September 30, 1998 1997 1996 1996 ------------------ ---------------- ---------------- ------------------ Revenues $ 186,778,637 $ 154,869,079 $ 20,850,616 $ 81,242,695 Agency commissions 22,657,029 18,285,224 2,541,648 9,510,663 --------------- --------------- ------------- -------------- Net revenues 164,121,608 136,583,855 18,308,968 71,732,032 Operating expenses 95,783,645 82,064,446 11,207,309 48,896,256 Depreciation and amortization 21,149,369 14,928,326 1,746,732 5,140,131 --------------- --------------- ------------- -------------- Operating income before corporate expenses 47,188,594 39,591,083 5,354,927 17,695,645 Corporate expenses 5,451,010 4,579,270 368,074 5,071,859 --------------- --------------- ------------- -------------- Operating income 41,737,584 35,011,813 4,986,853 12,623,786 --------------- --------------- ------------- -------------- Other income (expense): Interest income 4,680,652 406,241 26,290 206,605 Interest expense (2,046,185) (3,947,092) (2,866,872) (11,240,835) Costs relating to unconsummated acquisitions - - - (1,383,187) Restructuring charges - - - (29,011,237) Other, net 251,780 (81,973) 18,044 (287,140) --------------- --------------- ------------- -------------- 2,886,247 (3,622,824) (2,822,538) (41,715,794) --------------- --------------- ------------- -------------- Income (loss) before income tax 44,623,831 31,388,989 2,164,315 (29,092,008) Income tax 17,739,980 12,616,833 100,000 65,000 --------------- --------------- ------------- -------------- Income (loss) from continuing operations 26,883,851 18,772,156 2,064,315 (29,157,008) --------------- --------------- ------------- -------------- Discontinued operations: Loss from operations of CRC - - - 1,844,939 Loss on disposal of CRC - - - 8,142,598 --------------- --------------- ------------- -------------- Total loss on discontinued operations - - - 9,987,537 --------------- --------------- ------------- -------------- Income (loss) before extraordinary item 26,883,851 18,772,156 2,064,315 (39,144,545) Extraordinary item - loss on retirement of debt - - - 7,461,267 --------------- --------------- ------------- -------------- Net income (loss) $ 26,883,851 $ 18,772,156 $ 2,064,315 $ (46,605,812) --------------- --------------- ------------- -------------- --------------- --------------- ------------- -------------- Net income (loss) per common share: Basic: Continuing operations $ 0.55 $ 0.45 $ 0.09 $ (1.41) Discontinued operations - - - (0.49) Extraordinary loss - - - (0.36) --------------- --------------- ------------- -------------- Net income (loss) $ 0.55 $ 0.45 $ 0.09 $ (2.26) --------------- --------------- ------------- -------------- --------------- --------------- ------------- -------------- Diluted: Continuing operations $ 0.54 $ 0.45 $ 0.09 $ (1.41) Discontinued operations - - - (0.49) Extraordinary loss - - - (0.36) --------------- --------------- ------------- -------------- Net income (loss) $ 0.54 $ 0.45 $ 0.09 $ (2.26) --------------- --------------- ------------- -------------- --------------- --------------- ------------- -------------- Weighted average common shares outstanding: Basic 49,020,759 41,671,026 23,095,462 20,589,934 Diluted 49,347,646 41,792,191 23,095,462 20,589,934
See accompanying notes to consolidated financial statements. 28 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Receivables Preferred ------------------------ paid-in Accumulated Treasury for stock Stock Class A Class B Capital Deficit Stock Purchases --------- ---------- ---------- ----------- ------------ ----------- ----------- Balance at September 30, 1995 $ 336 $ 6,192 $ 4,680 $ 95,693,269 $(43,839,535) $(4,019,735) $(4,264,052) Repurchase of preferred stock (336) - - (335,298) - - - Preferred stock dividends - - - - (42,961) - - Retirement of treasury stock - - (811) (4,018,924) - 4,019,735 - Payment on stockholder notes - - - - - - 4,264,052 Common stock issued in connection with: Conversion of Class B to Class A Common Stock - 3,869 (3,869) - - - - Exercise of warrants and options - 1,442 - 10,546,817 - - - Business acquisition - 45 - 692,285 - - - Net loss - - - - (46,605,812) - - --------- ---------- ---------- ------------ ------------ ----------- ----------- Balance at September 30, 1996 - 11,548 - 102,578,149 (90,488,308) - - Net income - - - - 2,064,315 - - --------- ---------- ---------- ------------ ------------ ----------- ----------- Balance at December 31, 1996 - 11,548 - 102,578,149 (88,423,993) - - Net proceeds from issuance of 4,830,000 (pre-split) shares of Class A Common Stock - 4,830 - 176,363,259 - - - Common Stock issued for Tichenor acquisition - 5,560 130 180,647,941 - - - Conversion of Class A Common Stock into Class B Common Stock - (6,948) 6,948 - - - - Two-for-one stock split - 14,989 7,078 (22,067) - - - Net income - - - - 18,772,156 - - --------- ---------- ---------- ------------ ------------ ----------- ----------- Balance at December 31, 1997 - 29,979 14,156 459,567,282 (69,651,837) - - Net proceeds from issuance of 5,193,232 shares of Class A Common Stock - 5,193 - 205,772,024 - - - Net income - - - - 26,883,851 - - --------- ---------- ---------- ------------ ------------ ----------- ----------- Balance at December 31, 1998 $ - $ 35,172 $ 14,156 $665,339,306 $(42,767,986) $ - $ - --------- ---------- ---------- ------------ ------------ ----------- ----------- --------- ---------- ---------- ------------ ------------ ----------- -----------
See accompanying notes to consolidated financial statements. 29 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Year Ended December 31, Ended Year Ended ------------------------------- December 31, September 30, 1998 1997 1996 1996 -------------- -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 26,883,851 $ 18,772,156 $ 2,064,315 $ (46,605,812) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on discontinued operations - - - 9,987,537 Extraordinary loss on debt retirement - - - 7,461,267 Provision for bad debts 1,417,505 2,756,605 722,691 2,871,700 Depreciation and amortization 21,149,369 14,928,326 1,746,732 5,140,131 Amortization of debt facility fee included in interest expense 160,152 133,200 360,000 993,674 Deferred income taxes 9,943,545 8,106,930 - - Non-cash restructuring charges - - - 1,219,048 Changes in operating assets and liabilities: Accounts receivable, net (6,327,755) (4,996,984) (702,939) (4,711,197) Prepaid expenses and other current assets 360,613 360,381 380,441 1,175,118 Accounts payable (26,250) (4,770,977) (341,698) (421,251) Accrued expenses 3,519,021 2,788,673 (1,595,238) 4,087,219 Income taxes payable 156,479 5,506,696 - - Other, net (251,943) 206,987 (27,122) 297,960 -------------- -------------- -------------- -------------- Net cash provided by (used in) operating activities of continuing operations 56,984,587 43,791,993 2,607,182 (18,504,606) Net cash used in discontinued operations - - - (1,594,006) -------------- -------------- -------------- -------------- Net cash provided by (used in) operating activities 56,984,587 43,791,993 2,607,182 (20,098,612) -------------- -------------- -------------- -------------- Cash flows from investing activities: Acquisitions of radio stations (236,648,434) (1,096,424) - (20,150,000) Property and equipment acquisitions (4,745,912) (4,010,775) (400,396) (3,687,780) Additions to intangible assets (56,003) (2,777,245) - (7,000,000) Collection of loans to related parties - - - 2,357,932 Increase in other noncurrent assets (4,875,701) (15,134,257) (397,684) - -------------- -------------- -------------- -------------- Net cash used in investing activities (246,326,050) (23,018,701) (798,080) (28,479,848) -------------- -------------- -------------- -------------- Cash flows from financing activities: Borrowings on long-term obligations 18,000,000 56,000,000 - 163,459,267 Payments on long-term obligations (30,893,934) (250,826,404) (2,153,410) (123,752,057) Payment of deferred financing costs - (1,232,061) - (5,799,878) Proceeds from stock issuances 205,975,367 177,050,792 - 10,548,259 Repurchase of preferred and common stock - - - (335,634) Dividends on preferred stock - - - (42,961) Note payments from stockholders - - - 4,229,114 -------------- -------------- -------------- -------------- Net cash provided by (used in) financing activities 193,081,433 (19,007,673) (2,153,410) 48,306,110 -------------- -------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents 3,739,970 1,765,619 (344,308) (272,350) Cash and cash equivalents at beginning of period 6,553,271 4,787,652 5,131,960 5,404,310 -------------- -------------- -------------- -------------- Cash and cash equivalents at end of period $ 10,293,241 $ 6,553,271 $ 4,787,652 $ 5,131,960 -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
See accompanying notes to consolidated financial statements. 30 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Heftel Broadcasting Corporation (the "Company"), through its subsidiaries, owns and/or operates 39 Spanish language broadcast radio stations serving 12 markets throughout the United States (Los Angeles, New York City, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen, Dallas/Fort Worth, San Diego, El Paso and Las Vegas). CHANGE IN YEAR-END On February 14 1997, the Board of Directors of the Company voted to change the Company's fiscal year-end from September 30 to December 31, beginning with the fiscal year ended December 31, 1997. BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Heftel Broadcasting Corporation and its wholly-owned subsidiaries. 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Actual results could differ from those estimates. CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. 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, 1998 are comprised primarily of 50% interests in entities which own transmission towers that are leased to the Company. PROPERTY AND EQUIPMENT Property and equipment 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 (three to forty years) on a straight-line basis. Leasehold improvements are depreciated 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 are recognized in the statement of operations. 31 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 on a straight-line basis. Intangible assets consist primarily of broadcast licenses and other identifiable intangible assets. The estimated useful lives are as follows: Broadcast licenses 40 years Cost in excess of fair value of net assets acquired 40 years Other intangibles 3 - 40 years
The Company evaluates periodically the propriety of the carrying amount of intangible assets, including goodwill, as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted income before depreciation, amortization, nonrecurring charges and interest for each of the Company's radio stations over the remaining amortization periods of the related intangible assets. If such projections indicate that undiscounted cash flows are not expected to be adequate to recover the carrying amounts of the related intangible assets, a loss is recognized to the extent the carrying amount of the asset exceeds its fair value. At this time, the Company believes that no significant impairment of goodwill and other intangible assets has occurred and that no reduction of the estimated useful lives is warranted. REVENUE RECOGNITION Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. ADVERTISING COSTS The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are charged to expense in the year incurred and totaled approximately $6.4, $4.0, $0.3, and $2.4 million for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996, and the year ended September 30, 1996, respectively. BARTER TRANSACTIONS Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment and services. 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 consolidated financial statements. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. 32 EARNINGS PER SHARE Basic earnings per common share is based on net earnings after preferred stock dividend requirements, if any, and the weighted average number of common shares outstanding during each year. Diluted earnings per common share reflects the incremental increase in the weighted average number of common shares due to the dilutive effect of stock options. DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used, from time to time, to manage well-defined interest rate risks related to interest on the Company's outstanding debt. There were no outstanding swap agreements at December 31, 1998 and 1997. As interest rates change under interest rate swap and cap agreements, the differential to be paid or received is recognized as an adjustment to interest expense. FINANCIAL INSTRUMENTS The carrying amounts of financial instruments, including cash and cash equivalents, trade receivables and accounts payable, approximate fair value due to the relatively short maturity of these instruments. The carrying amount of long-term obligations, including the current portion, approximates fair value based upon quoted interest rates for the same or similar debt issues. CREDIT RISK In the opinion of management, credit risk with respect to trade receivables is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for uncollectible trade receivables are maintained. STOCK BASED COMPENSATION The Company accounts for stock options using the intrinsic-value method as outlined under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations. In accordance with Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has disclosed pro forma net earnings and net earnings per share as if the fair-value method had been applied. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE INCOME. SFAS 130 requires the reporting of comprehensive income in financial statements by all entities that provide a full set of financial statements. The Company's net income is the same as its comprehensive income and no additional disclosures are necessary. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the current year presentation. 33 2. ACQUISITIONS AND DISPOSITIONS 1998 ACQUISITIONS On December 1, 1997, the Company entered into an asset exchange agreement to exchange WPAT(AM), serving the New York City market, and $115.5 million in cash for the assets of WCAA(FM) (formerly WNWK(FM)), serving the New York City market (the "WCAA(FM) Acquisition"). The asset exchange was financed with a portion of the proceeds from the January 1998 secondary public stock offering (the "January 1998 Offering"). The WCAA(FM) Acquisition closed on May 22, 1998. Immediately after closing, the station's programming was converted to a Spanish language format. On March 25, 1998, the Company entered into an asset purchase agreement to acquire the assets of KLTN(FM) (formerly KKPN(FM)), serving the Houston market, for $54.0 million (the "KLTN(FM) Acquisition"). The asset acquisition was financed with a portion of the proceeds from the January 1998 Offering. The KLTN(FM) Acquisition closed on May 29, 1998. Immediately after closing, the station's programming was converted to a Spanish language format. The Company entered into an asset purchase agreement on May 26, 1998, to acquire the assets of KLQV(FM) and KLNV(FM) (formerly KJQY(FM) and KKLQ(FM)) serving the San Diego market (the "San Diego Acquisition") for $65.2 million. The asset acquisition was financed with a portion of the proceeds from the January 1998 Offering, an additional $18.0 million borrowing under the Company's credit agreement and cash generated from operations. The San Diego Acquisition closed on August 10, 1998. Immediately after closing, the programming of the stations was converted to two Spanish language formats. 1997 ACQUISITIONS AND DISPOSITIONS On February 14, 1997, the Company completed its acquisition of Tichenor Media System, Inc. ("Tichenor"), a national radio broadcasting company engaged in the business of acquiring, developing and programming Spanish language radio stations (the "Tichenor Merger"). At the time of the Tichenor Merger, Tichenor owned or programmed 20 radio stations in six of the ten largest Hispanic markets in the United States. The merger was effected through the merger of a wholly-owned subsidiary of the Company with and into Tichenor. In connection with the merger, management of Tichenor assumed management responsibilities of the Company. Pursuant to the Tichenor Merger, the former Tichenor shareholders and warrant holders received an aggregate of 11,379,756 shares of Common Stock. At the time of the Tichenor Merger, Tichenor had outstanding approximately $72.0 million of long-term debt, which was subsequently refinanced by the Company. In addition, all of Tichenor's outstanding shares of 14% Senior Redeemable Cumulative Preferred Stock were redeemed for approximately $3.4 million. The total purchase price, including closing costs, allocated to net assets acquired was approximately $181.2 million. On August 13, 1997, the Company sold the assets of KINF(AM) which is licensed in Denton, Texas. The sales price net of selling expenses was $0.6 million, which approximated the book value of the assets. The Company closed on the purchase of the assets of KLTO(FM) in Rosenberg-Richmond (Houston), Texas on September 22, 1997. The purchase price was $3.2 million and was funded from operations. The final purchase price is contingent on an upgrade of the station's broadcast authorization from the FCC prior to April 1, 2004. Depending on whether the signal is fully or partially upgraded, the purchase price could increase to $14.0 million. 34 1996 ACQUISITION On March 25, 1996, the Company acquired the assets of radio station WPAT(AM) which serves the New York City market for approximately $19.5 million. The asset acquisition was financed through additional borrowings under the Company's credit agreement. Unaudited consolidated condensed pro forma results of operations as if all completed acquisitions occurred as of January 1, 1997 are as follows:
Year Ended December 31, --------------------------------------------- 1998 1997 --------------------- -------------------- Net revenues $ 165,401,849 $ 144,277,581 Operating income 39,425,539 27,447,932 Net income 21,532,287 11,804,576 Net income per common share: Basic 0.44 0.24 Diluted 0.43 0.24
All of the business acquisitions discussed above were accounted for using the purchase method of accounting. Accordingly, the accompanying financial statements include the accounts of the acquired businesses since the respective dates of acquisition. PENDING TRANSACTIONS On January 2, 1997, the Company acquired an option to purchase all of the assets used in connection with the operation of KSCA(FM), Glendale, California (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company began providing programming to KSCA(FM) under a time brokerage agreement on February 5, 1997. The KSCA Option, which is exercisable only upon the death of Gene Autry, the indirect principal stockholder of the seller, had an initial term which expired on December 31, 1997. The KSCA Option was renewable for additional one-year terms during the lifetime of Mr. Autry upon payment by the Company of $3.0 million on or before the then scheduled expiration date of the KSCA Option. On February 4, 1997, the Company made an initial payment of $10.0 million, as required under the option agreement. On December 29, 1997, the Company renewed the KSCA Option through December 31, 1998. All such payments will be credited against the purchase price for the KSCA(FM) assets. The purchase price for the KSCA(FM) assets is the greater of (a) $112.5 million, or (b) the sum of (i) $105.0 million, plus (ii) an amount equal to $13,699 per day during the term of the time brokerage agreement. Gene Autry died on October 2, 1998, and the Company exercised the KSCA Option. The closing is expected to occur during the second quarter of 1999. If the acquisition of KSCA(FM) closes on June 1, 1999, the purchase price for the KSCA(FM) assets will be approximately $116.6 million, and approximately $103.6 million ($116.6 million less $13.0 million in option payments credited against the purchase price) will be paid at closing. Consummation of the purchase is subject to a number of conditions, including approval by the FCC of the transfer of the FCC licenses. On January 27, 1999, the Company entered into an agreement to purchase the assets of KHOT(FM), serving the Phoenix market, for $18.3 million. The closing of this asset acquisition is expected to occur during the second quarter of 1999. Immediately after closing, the station's programming will be converted to a Spanish language format. Consummation of the purchase is subject to a number of conditions, including approval by the FCC of the transfer of the FCC license. 35 All of the pending transactions will be financed with borrowings under the Company's credit agreement and cash generated from operations. 3. CHANGE IN CONTROL OF COMPANY On August 5, 1996, Clear Channel Communications, Inc. ("Clear Channel") completed the purchase of 9,345,092 shares (pre-split) of the Company's Class A and Class B common stock for $23 (pre-split) per share pursuant to a Stockholder Purchase Agreement dated June 1, 1996 between Clear Channel and two executive officers and other related parties. On the same date, Clear Channel also purchased a total of 936,952 (pre-split) shares of the Company's Class A common stock from certain public shareholders and from employees of the Company upon the exercise of their stock purchase options. As a result of these transactions, Clear Channel's ownership of the Company was increased from 21% to 63%. In connection with the change in control of the Company, the employment of two executive officers was terminated pursuant to employment contract settlement agreements which provided for a lump sum payment upon their termination. Also, the two executive officers entered into five-year noncompete agreements with the Company in exchange for the aggregate payment of $7.0 million. As a result of the Tichenor acquisition and the January 1998 Offering, Clear Channel's ownership in the Company was reduced to approximately 29%. 4. DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES The Company's Board of Directors approved a plan to discontinue the operations of the radio network owned by the Company's wholly owned subsidiary Spanish Coast-to-Coast, Ltd., dba Cadena Radio Centro ("CRC") effective August 5, 1996. The charge to operations during the year ended September 30, 1996 was approximately $8.1 million, of which $6.2 million relates to non-cash charges resulting from the write-off of goodwill. No income tax benefit was recognized due to the Company's net operating loss carryforwards. During 1998 and 1997, approximately $0.2 and $0.4 million, respectively was charged against the accrual primarily for operating losses and severance payments. The majority of the remaining accrued balance of approximately $0.4 million at December 31, 1998 is for severance payments to be paid to a former employee through 2000. In connection with the change in control, the Company incurred certain restructuring charges totaling approximately $29.0 million during the year ended September 30, 1996. The material components of the restructuring charges were $18.8 million in payments to two executive officers relating to employment contract settlement agreements, $4.7 million in broker commissions and transaction costs, $2.6 million in costs relating to the planned closing of duplicate facilities, and $1.8 million in severance relating to employee terminations resulting from the restructuring. During 1998 and 1997, approximately $1.4 and $2.5 million, respectively, was charged against the accrual primarily for severance payments. The majority of the remaining accrued balance of approximately $0.5 million at December 31, 1998 consists of accruals for severance payments and expenditures to be incurred relating to the closing of duplicate facilities. The majority of such costs are expected to be incurred and charged against the accrual in 1999. 36 5. LONG-TERM OBLIGATIONS The following is a summary of long-term obligations outstanding as of December 31, 1998 and 1997:
1998 1997 ------------------- -------------------- Revolving credit facility payable to banks; aggregate commitment of $300.0 million; interest rate based on LIBOR plus an applicable margin as determined by the Company's leverage ratio; interest rate of 5.69% at December 31, 1998; interest rates ranged from 5.69% to 6.38% during 1998; payable through December 2004; secured by 100% of the common stock of the Company's wholly-owned subsidiaries; the Company is required to comply with certain financial and nonfinancial covenants $ - $ 12,000,000 Various loans, interest ranging from 8.1% to 9.38%, payable in varying installments through 2001 198,267 1,055,820 Prize awards net of imputed interest (10% to 12%), payable in varying annual installments through 2044 1,469,915 1,506,296 --------------- --------------- 1,668,182 14,562,116 Less current portion (121,052) (440,097) --------------- --------------- $ 1,547,130 $ 14,122,019 --------------- --------------- --------------- ---------------
NEW CREDIT AGREEMENT On February 14, 1997, the Company entered into a new $300 million credit facility (the "Credit Facility"), replacing the existing credit facility. The Company used a $46 million advance under the Credit Facility and a portion of the proceeds from the 1997 secondary public stock offering to retire the outstanding debt and senior preferred stock of Tichenor assumed on the date of the Tichenor Merger. The Company's ability to make additional borrowings under the Credit Facility is subject to compliance with certain financial ratios and other conditions set forth in the Credit Facility. The Credit Facility principal balance begins reducing on September 30, 1999 and continues quarterly through December 31, 2004, when the principal must be paid in full. OLD CREDIT AGREEMENT On August 5, 1996, the Company borrowed $135.0 million under a credit agreement with new lenders which provided a total credit facility of $155.0 million. The proceeds were used to retire all of the outstanding debt under the Company's August 1994 credit agreement and to pay certain noncompete and employment contract settlements plus certain transaction and other costs relating to the Clear Channel transaction previously discussed. 37 Maturities of long-term obligations for the five years subsequent to December 31, 1998 are as follows:
YEAR AMOUNT ---- ------ 1999 $ 121,052 2000 99,703 2001 23,019 2002 6,042 2003 6,714 Thereafter 1,411,652
Interest paid for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996 and the year ended September 30, 1996 amounted to $1.2, $3.9, $2.9, and $11.2 million, respectively. 6. COMMITMENTS AND CONTINGENCIES The Company leases office space and other property under noncancellable operating leases. Terms of the leases vary from two to thirty years. Certain leases have contingent rent clauses whereby rent is increased based on a change in the Consumer Price Index. Various leases have renewal options of five to ten years. Future minimum rental payments under noncancellable operating leases in effect at December 31, 1998 are summarized as follows:
YEAR AMOUNT ---- ------ 1999 $ 3,684,385 2000 3,192,339 2001 3,029,793 2002 2,747,614 2003 2,429,795 Thereafter 11,057,669
Rent expense for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996, and the year ended September 30, 1996 was $3.4, $2.6, $0.3, and $1.7 million, respectively. The Company is subject to legal proceedings and other 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. 7. STOCKHOLDERS' EQUITY COMMON STOCK On January 22, 1998, the Company completed a secondary stock offering of 5,175,000 shares of Class A Common Stock at $39.75 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $205.1 million. On October 6, 1998, the Company filed a Second Amended and Restated Certificate of Incorporation to increase the authorized shares of the Class A Common Stock to 100,000,000 shares. On February 10, 1997, the Company completed a secondary public stock offering selling 4,830,000 (pre-split) shares of its Class A Common Stock for $36.80 (pre-split) per share, net of 38 underwriters' discounts and commissions. The net proceeds of the offering were approximately $176.4 million. On February 14, 1997, all of the outstanding shares of Heftel Common Stock owned by Clear Channel (14,156,470 shares) were converted to Class B Common Stock. The rights of the Class A and Class B Common Stock are identical except that the Class B Common Stock has no voting rights, except in certain matters. Shares of Class B Common Stock are convertible into shares of Class A Common Stock, at Clear Channel's option, subject to any necessary governmental consents, including the consent of the FCC. On November 6, 1997, the Board of Directors of the Company authorized a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The dividend was paid on December 1, 1997 to all holders of common stock at the close of business on November 18, 1997. In connection with the stock split, $22,067 was transferred to common stock from additional paid-in capital. All financial information related to number of shares, per share amounts, stock option data and market prices of the Company's common stock have been restated to give effect to the split, unless otherwise noted. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of $.001 par value Preferred Stock. The Preferred Stock may be issued in series, with the rights and preferences of each series established by the Company's Board of Directors. 8. INCOME TAXES The provision for income tax on income (loss) from continuing operations consists of the following:
Three Months Year Ended December 31, Ended Year Ended ---------------------------------- December 31, September 30, 1998 1997 1996 1996 ---------------- -------------- -------------- -------------- Current: Federal $ 6,103,464 $ 3,144,449 $ - $ - State 1,692,971 1,365,454 100,000 65,000 -------------- -------------- -------------- -------------- Total current tax 7,796,435 4,509,903 100,000 65,000 -------------- -------------- -------------- -------------- Deferred: Federal 9,514,876 7,782,653 - - State 428,669 324,277 - - -------------- -------------- -------------- -------------- Total deferred tax 9,943,545 8,106,930 - - -------------- -------------- -------------- -------------- Total income tax $ 17,739,980 $ 12,616,833 $ 100,000 $ 65,000 -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
39 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1998 and 1997 are as follows:
1998 1997 -------------- -------------- Deferred tax assets: Net operating losses $ 4,161,265 $12,987,833 Other intangible assets 1,668,659 1,668,659 Long-term obligations - prize awards 574,722 587,455 Allowance for doubtful accounts receivable 909,964 1,019,010 Other 919,167 869,649 -------------- -------------- Total deferred tax assets 8,233,777 17,132,606 -------------- -------------- Deferred tax liabilities: Broadcast licenses 93,117,633 91,668,629 Property and equipment 2,095,041 1,139,937 Restructuring charges 7,395,033 6,585,218 Other 256,423 180,423 -------------- -------------- Total deferred tax liabilities 102,864,130 99,574,207 -------------- -------------- Net deferred tax liabilities $ 94,630,353 $ 82,441,601 -------------- -------------- -------------- --------------
The valuation allowance decreased $13.7 million for the year ended December 31, 1997 due in part to a reassessment of the Company's ability to realize its deferred tax asset primarily as a result of the Tichenor Merger. Future reversals of taxable temporary differences created by the Tichenor Merger are sufficient to absorb the benefits of the deferred tax assets. The reduction in the valuation allowance reduced the carrying value of intangibles recognized in the Tichenor Merger. The reconciliation of income tax expense (benefit) computed at the federal statutory tax rate to the Company's actual income tax expense attributable to continuing operations is as follows:
Three Months Year Ended December 31, Ended Year Ended -------------------------------- December 31, September 30, 1998 1997 1996 1996 ----------------------------------------------------------------- Federal income tax (benefit) at statutory rate $ 15,618,341 $ 10,986,146 $ 735,867 $ (9,891,283) State income taxes, net of federal benefit 1,115,009 941,674 66,000 42,900 Nondeductible and non-taxable items, net 1,006,630 689,013 (46,629) 8,490,286 Net operating loss carryforward not recognized - - - 1,423,097 Use of net operating loss carryforwards - - (655,238) - ------------- ------------- ------------ ------------- $ 17,739,980 $ 12,616,833 $ 100,000 $ 65,000 ============= ============= ============ =============
As of December 31, 1998, the Company had tax net operating loss carryforwards for federal and state tax purposes of approximately $10.7 and $14.2 million, respectively. The net operating losses expire in the year 2010 if not used. Income taxes paid for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996, and the year ended September 30, 1996 amounted to $6.0, $2.2 million, $0, and $65,000, respectively. 40 9. EARNINGS (LOSS) PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income (loss) from continuing operations:
Three Months Year Ended December 31, Ended Year Ended ------------------------------------- December 31, September 30, 1998 1997 1996 1996 -------------------------------------------------------------------------- Numerator: Income (loss) from continuing operations $ 26,883,851 $ 18,772,156 $ 2,064,315 $ (29,157,008) Preferred stock dividends - - - 22,823 -------------- -------------- -------------- -------------- Numerator for basic and diluted earnings per share $ 26,883,851 $ 18,772,156 $ 2,064,315 $ (29,179,831) ============== ============== ============== ============== Denominator: Weighted average common shares 49,020,759 41,671,026 23,095,462 20,589,934 Effect of dilutive securities: Stock options 318,094 121,165 - - Employee Stock Purchase Plan 8,793 - - - -------------- -------------- -------------- -------------- Denominator for diluted earnings per share 49,347,646 41,792,191 23,095,462 20,589,934 ============== ============== ============== ==============
10. RETIREMENT PLAN The Company has a defined contribution retirement savings plan (the "Plan"). The Plan covers all employees who have reached the age of 18 years and have been employed by the Company for at least one year. The Company matches participants' contributions to the Plan in an amount not to exceed $1,600. The Company, at the sole discretion of the Board of Directors, may make additional supplemental contributions to the Plan. The Company's expenses related to the Plan for the years ended December 31, 1998 and 1997, the three months ended December 31, 1996, and the year ended September 30, 1996 amounted to $334,050, $237,671, $56,655 and $226,355, respectively. 11. STOCK OPTIONS In December 1995, the Company issued 1,048,678 stock options to various employees of the Company under its (1994 adopted) Stock Option Plan. The exercise price ranged from $7.63 to $9.31 per share, the market price at the date of issuance. The options vest over a period ranging from two to three years. On August 5, 1996, all unexercised and outstanding employee stock options were tendered in connection with the Clear Channel tender offer, as previously described. Other fully vested options and warrants were exercised during the months of June and July 1996. In December 1996, the Company issued to a key employee 6,084 options at $16.44 per share. The options vest ratably over a three year period. In May 1997, the stockholders of the Company approved a stock incentive plan ("Long-Term Incentive Plan"), to be administered by the Board of Directors or by a sub-committee of the Board of Directors. The maximum number of shares of Class A Common Stock that may be the subject of awards 41 at any one time shall be five percent of the total number of shares of Class A Common Stock outstanding. Options granted under the Long-Term Incentive Plan have a ten-year term and vest one third at the end of years three, four and five. The stockholders of the Company also approved an Employee Stock Purchase Plan in May 1997. Under the plan, shares of the Company's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last day of each six-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. During 1998 and 1997, employees purchased 22,222 and 6,753 common shares at average prices of $37.22 and $28.26, respectively. At December 31, 1998, 371,025 shares were reserved for future issuance. In 1997, the Company issued 753,000 stock options to various employees of the Company under its Long-Term Incentive Plan. The exercise prices ranged from $23.50 to $36.19 per share, the market prices at dates of issuance. In 1998, the Company issued 369,650 stock options to various employees of the Company under its Long-Term Incentive Plan. The exercise prices ranged from $31.00 to $43.94 per share, the market prices at dates of issuance. The following is a summary of management incentive stock options granted, exercised and outstanding for the year ended September 30, 1996, the three months ended December 31, 1996, and the years ended December 31, 1997 and 1998:
Number Weighted Average of Shares Exercise Price --------- ---------------- Options outstanding at September 30, 1995 1,845,212 $ 1.90 Granted 1,048,678 7.65 Exercised (2,883,890) 3.39 Canceled (10,000) 5.00 -------------- Options outstanding at September 30, 1996 - - Granted 6,084 16.44 -------------- Options outstanding at December 31, 1996 6,084 16.44 Granted 753,000 23.88 Canceled (36,000) 23.50 -------------- Options outstanding at December 31, 1997 723,084 23.84 Granted 369,650 36.26 Canceled (52,000) 25.71 -------------- Options outstanding at December 31, 1998 1,040,734 28.16 ===============
At December 31, 1998, 19,056 options were exercisable at the weighted average exercise price of $22.31 per share. No compensation expense related to stock option grants was recognized during any of the periods presented because all such options were granted at market value. Pro forma information regarding net earnings and earnings per share is required by Statement of Financial Accounting Standards No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The weighted average fair values for these options were estimated at the dates of grant using a Black-Scholes option pricing model 42 with the following assumptions:
1998 1997 1996 - -------------------------------------------------------------------------------------- Risk-free interest rate 5.22% 6.55% 5.73% Dividend yield 0.00% 0.00% 0.00% Volatility factor 50.67% 50.00% 51.00% Weighted average expected life 6 years 6 years 3 years
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's historical and pro forma net earnings and earnings per share were as follows:
Three Months Year Ended December 31, Ended Year Ended --------------------------------- December 31, September 30, 1998 1997 1996 1996 --------------- -------------- ------------- ------------------ Net earnings - as reported $ 26,883,851 $ 18,772,156 $ 2,064,315 $ (46,605,812) Net earnings - pro forma 25,448,980 18,147,081 2,063,644 (48,509,974) Net earnings per common share - as reported Basic 0.55 0.45 0.09 (2.26) Diluted 0.54 0.45 0.09 (2.26) Net earnings per common share - pro forma Basic 0.52 0.44 0.09 (2.36) Diluted 0.52 0.44 0.09 (2.36) Weighted average fair value of options granted during the year 19.49 13.17 6.51 6.51
The following table summarizes stock options outstanding at December 31, 1998:
Weighted Average Exercise Price Number Weighted Average Remaining Range of Shares Exercise Price Contractual Life -------------- --------- ---------------- ---------------- $16.44 - $23.50 638,084 $ 23.43 8.4 24.69 - 36.25 369,150 35.23 9.3 37.50 - 43.94 33,500 40.24 9.6 --------- 1,040,734 =========
Because the Statement provides for pro forma amounts for options granted beginning in 1995, the pro forma expense will likely increase in future years as the new option grants become subject to the pricing model. 43 12. OTHER FINANCIAL INFORMATION ACCRUED EXPENSES
December 31, --------------------------------------------- 1998 1997 -------------------- --------------------- Wages, salaries and benefits payable $ 3,569,451 $ 3,145,530 Commissions payable 7,160,344 5,969,278 Accrued restructuring and discontinued operation charges 918,732 2,467,200 Advertising payable 2,393,566 1,176,578 Deferred income 1,151,829 816,257 Other accrued expenses 7,006,961 6,257,959 ------------------ ------------------ $ 22,200,882 $ 19,832,802 ================== ==================
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1998 and 1997:
Year ended December 31, 1998: 3/31/98 6/30/98 9/30/98 12/31/98 -------------------------------------------------------------------- Net revenues $ 31,347,088 $ 44,392,528 $ 44,205,828 $ 44,176,164 Net income 4,344,418 7,803,470 7,104,146 7,631,817 Net income per common share - basic and diluted 0.09 0.16 0.14 0.15 Year ended December 31, 1997: 3/31/97 6/30/97 9/30/97 12/31/97 -------------------------------------------------------------------- Net revenues $ 23,029,373 $ 37,980,889 $ 37,196,813 $ 38,376,780 Net income 565,983 5,373,047 5,948,853 6,884,273 Net income per common share - basic and diluted 0.02 0.12 0.13 0.16
14. SUBSEQUENT EVENT (UNAUDITED) The Company entered into an agreement on March 1, 1999 to purchase the assets of KISF(FM), serving the Las Vegas market, for $20.3 million. The closing of this asset acquisition is expected to occur during the second quarter of 1999. Immediately after closing, the station's programming will be converted to a Spanish language format. Consummation of the purchase is subject to a number of conditions, including approval by the FCC of the transfer of the FCC licenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 with respect to the directors, nominees and executive officers of the Company is incorporated by reference to the information set forth under the caption "Election of Directors," "Executive Compensation and Other Matters" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference to the information set forth under the caption "Executive Compensation and Other Matters" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference to the information set forth under the caption "Certain Transactions" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following financial statements have been filed under Item 8 of this report: Reports of Independent Auditors Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997, the Three Months Ended December 31, 1996, and the Year Ended September 30, 1996 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1997, the Three Months Ended December 31, 1996, and the Year Ended September 30, 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997, the Three Months Ended December 31, 1996, and the Year Ended September 30, 1996 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, THE THREE MONTHS ENDED DECEMBER 31, 1996, AND THE YEAR ENDED SEPTEMBER 30, 1996 (Dollars in Thousands)
Additions ------------------------- Balance at Charged to Charged Balance Beginning Costs and to other at end Description of period expenses accounts Deductions of period - ------------------------------------------------ ------------ ------------ ------------ ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 1998: Allowance for Doubtful Accounts $ 2,613 $ 1,417 $ - $ 1,729 $ 2,301 FOR THE YEAR ENDED DECEMBER 31, 1997: Allowance for Doubtful Accounts 1,128 2,757 - 1,272 2,613 FOR THE THREE MONTHS ENDED DECEMBER 31, 1996: Allowance for Doubtful Accounts 1,658 723 - 1,253 1,128 FOR THE YEAR ENDED SEPTEMBER 30, 1996: Allowance for Doubtful Accounts 1,492 2,872 - 2,706 1,658
46 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Second Amended and Restated Certificate of Incorporation of the Registrant dated February 14, 1997 (incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K filed March 3, 1997). 3.2 Amended and Restated Bylaws of the Registrant. (1) 4 Specimen certificate for the Class A Common Stock. (1) 10.1 Lease dated May 15, 1987, between the Registrant and Hollywood and Vine Development Co. (incorporated by reference to Exhibit 10.15 of Registrant's Registration Statement on Form S-1 (Registration No. 33-78370) filed on April 29, 1994, as amended ("Registrant's S-1")). 10.2 Tower Lease Agreement, dated April 13, 1990, between the Registrant and KTNQ/KLVE, Inc. (formerly Heftel Broadcasting of California, Inc.), together with the Assignment and Assumption Agreement dated April 13, 1990 between the Registrant and The Tower Company (incorporated by referenceto Exhibit 10.16 of Registrant's S-1). 10.3 Lease Agreement dated June 18, 1991 between Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.17 of Registrant's S-1). 10.4 Reciprocal Easement Agreement, dated June 18 1991, between Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.18 of Registrant's S-1). 10.5 Lease dated April 26, 1994, between the Registrant and Tropicana Trail Limited Partnership (incorporated by reference to Exhibit 10.14 of Registrant's S-1). 10.6 Stock Option Plan (incorporated by reference to Exhibit 10.4 of Registrant's S-1). 10.7 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 of Registrant's S-1). 10.8 Employment Agreement between KTNQ/KLVE, Inc. and Richard Heftel (incorporated by reference to Exhibit 10.23 of Registrant's S-1). 10.9 Amendment No. 1 to Employment Agreement dated May 31, 1996, between KTNQ/KLVE, Inc. and Richard Heftel (incorporated by reference to Exhibit 10.5 of Registrant's Form 10-Q/A filed on November 6, 1996). 10.10 Lease Agreement, dated July 17, 1995, between the Registrant and 485 Madison Associates, a New York Limited Partnership (incorporated by reference to Exhibit 10.20 of Registrant's Form 10-K filed on December 29, 1995). 47 EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.11 Option Agreement, dated as of December 23, 1996, among Clear Channel, Golden West Broadcasters ("GWB"), and Gene Autry and Stanley B. Schneider, as co-trustees of the Autry Survivor's Trust, with Exhibits (Schedules omitted) (incorporated by reference to Exhibit 2.5.14 to the Registrant's Registration Statement on Form S-3, as amended (Reg. No. 333-14207)). 10.12 Time Brokerage Agreement, dated as of December 23, 1996, between GWB and Clear Channel (Exhibits omitted) (incorporated by reference to Exhibit 2.5.15 to the Registrant's Registration Statement on Form S-3, as amended (Reg. No. 333-14207)). 10.13 Option Agreement, dated February 3, 1997, by and between Tichenor Media System, Inc. and Heart Unlimited Company (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed on May 14, 1997). 10.14 Time Brokerage Agreement, dated as of February 3, 1997, by and between Tichenor Media System, Inc. and Heart Unlimited Company (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on May 14, 1997). 10.15 Registration Rights Agreement, dated February 14, 1997, by and among the Registrant, 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 Hinson and David D. Lykes (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed March 3, 1997). 10.16 Employment Agreement, dated February 14, 1997, by and between the Registrant and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed March 3, 1997). 10.17 Stockholders Agreement, dated February 14, 1997, by and among the Registrant and each of the stockholders listed on the signature pages thereto (incorporated by reference to Exhibit 10.4 to Schedule 13D of McHenry T. Tichenor, Jr. filed February 14, 1997). 10.18 Registration Rights Agreement, dated February 14, 1997, by and among the Registrant and Clear Channel Communications, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant's Form 8-K filed March 3, 1997). 10.19 Credit Agreement among the Registrant and its subsidiaries, The Chase Manhattan Bank, as administrative agent, and certain other lenders, dated February 14, 1997 without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 10.5 to the Registrant's Form 8-K filed on May 14, 1997). 10.20 Heftel Broadcasting Corporation Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive Proxy Statement filed on April 24, 1997 (Commission File No. 000-24516)). 48 EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.21 Heftel Broadcasting Corporation Amended and Restated 1997 Employee Stock Purchase Plan (incorporated by reference to the Registrant's Form S-8 filed on December 31, 1997). 10.22 Asset Purchase Agreement, dated March 25, 1998, by and between HBC Houston, Inc., HBC Houston License Corporation and SBI Holding Corporation (incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q filed May 13, 1998). 10.23 Assets Purchase Agreement, dated May 26, 1998, by and between Citicasters Co. and Heftel Broadcasting Corporation, HBC San Diego, Inc. and HBC San Diego License Corporation (incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q filed August 6, 1998). 10.24 Asset Purchase Agreement, dated January 27, 1999, by and between New Century Arizona LLC, New Century Arizona License Partnership and Heftel Broadcasting Corporation. 10.25 Asset Purchase Agreement, dated March 1, 1999, by and between Radio Vision, Inc., George E. Tobin and Heftel Broadcasting Corporation. 11 Statement Regarding Computations of Per Share Earnings. 21 Subsidiaries of the Registrant 23.1 Consent of KPMG LLP 23.2 Consent of Ernst & Young LLP 24 Power of Attorney (included on Signature Page) 27 Financial Data Schedule
Registrant agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. (1) 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) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Registrant during the fourth quarter of 1998. 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 1999. HEFTEL BROADCASTING CORPORATION By: /s/ McHENRY T. TICHENOR, JR. ------------------------------------- McHenry T. Tichenor, Jr. President and Chief Executive Officer Each person whose signature appears below authorizes McHenry T. Tichenor, Jr. and Jeffrey T. Hinson, or either of them, each of whom may act without joinder of the other, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ MCHENRY T. TICHENOR, JR. President, Chief Executive Officer and Chairman March 31, 1999 - ------------------------------------ of the Board of Directors McHenry T. Tichenor, Jr. /s/ JEFFREY T. HINSON Senior Vice President, Chief Financial Officer March 31, 1999 - ------------------------------------ and Treasurer Jeffrey T. Hinson (Principal Financial Officer) /s/ DAVID P. GEROW Vice President and Controller March 31, 1999 - ------------------------------------ (Principal Accounting Officer) David P. Gerow /s/ MCHENRY T. TICHENOR Director March 31, 1999 - ------------------------------------ McHenry T. Tichenor /s/ ROBERT W. HUGHES Director March 31, 1999 - ------------------------------------ Robert W. Hughes /s/ JAMES M. RAINES Director March 31, 1999 - ------------------------------------ James M. Raines /s/ ERNESTO CRUZ Director March 31, 1999 - ------------------------------------ Ernesto Cruz
50 EX-10.24 2 EXHIBIT 10.24 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made the 27th day of January, 1999, by and between New Century Arizona, LLC ("NCA"), New Century Arizona License Partnership ("NCALP"; and together with NCA, "Seller") and Heftel Broadcasting Corporation ("Purchaser"). W I T N E S S E T H: WHEREAS, NCALP is the licensee of Radio Station KHOT-FM (the "Station"), licensed to Paradise Valley, Arizona and authorized by the Federal Communications Commission (the "FCC"), and Seller owns, or is the lessee of, the assets which are used in the operation of the Station; and WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, certain properties and assets relating to the Station as described herein under the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. PURCHASE AND SALE OF ASSETS. 1.1 PURCHASE AND SALE OF STATION ASSETS. Subject to the conditions set forth in this Agreement, at the Closing (as defined hereinafter), Seller shall, or if necessary shall cause its affiliated companies to, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase from Seller and such affiliates of Seller, the fee, licensee or lessee interest in and to the following assets used in the operation of the Station (the "Station Assets"), free and clear of all liens, security interests, charges, encumbrances and rights of others, except as provided below: (a) The licenses, construction permits or authorizations issued by or pending before the FCC or any other governmental authority for use in the operation of the Station that are set forth on Schedule I attached hereto, together with any and all renewals, extensions and modifications thereof (the "Governmental Licenses"); (b) The real and personal property, tangible or intangible, owned or leased by Seller and used in the operation of the Station set forth on Schedule II hereto, together with replacements thereof and additions thereto made between the date hereof and the Closing; (c) The KHOT-FM call letters; (d) Advertising credits (not less than $150,000 in amount and in form and type acceptable to Purchaser) in favor of the Seller and/or the Station from the Univision television broadcasting station affiliate in the Phoenix market; and (e) Copies of the Station's FCC logs, all materials maintained in the Station's FCC public file, technical data and records relating to the Station Assets. All other assets of any nature whatsoever shall be retained by Seller and no rights therein shall be transferred to Purchaser. 1.2 ASSUMED LIABILITIES. At the Closing, Purchaser shall assume the specified contractual obligations of the Station listed on Schedule III hereto, as such contracts may be amended through the Closing Date with the mutual consent of Seller and Purchaser (collectively, the "Assumed Liabilities"), and Purchaser agrees to pay and perform the Assumed Liabilities after the Closing Date, when and as such payment and performance obligations come due. Except as specifically set forth on such Schedule III, Purchaser does not assume and shall in no event be liable for any debt, obligation, responsibility or liability of the Station or Seller. Purchaser is and shall remain liable for any obligation and/or liability incurred by Purchaser at any time. 2. CONSIDERATION; CLOSING. 2.1 PURCHASE PRICE. The consideration to be received by Seller in exchange for the Station Assets shall be $18,300,000 in cash, payable in immediately available funds at Closing. Purchaser and Seller agree to allocate the foregoing purchase price for federal income tax purposes among the Station Assets in the manner set forth on Schedule IV. Purchaser shall bear the costs of any appraisals of the Station Assets made for such purposes. Such appraisals shall be made by Bond & Pecaro, or such other qualified appraisers selected by Purchaser. 2.2 TIME OF CLOSING. (a) A closing (the "Closing") for the sale and purchase of the Station Assets shall be held at the offices of Seller's counsel in Phoenix, Arizona (or such other place as may be agreed upon by the parties in writing) on the date which is the latest of (i) the 10th day after the FCC Order (as defined hereinafter) or (ii) the second business day after the satisfaction of all of the conditions precedent to the obligations of Purchaser and Seller hereunder, or (iii) such other date as may be mutually agreed upon by the parties in writing (the "Closing Date"). Notwithstanding the foregoing, in no event shall the Closing occur prior to January 15, 1999. The Closing shall be deemed to be effective as of 12:01 a.m. on the Closing Date. (b) In order to consummate the transfer of the Station Assets, Seller and Purchaser agree to use their best efforts and cooperation to file, within ten business days after the date hereof, an assignment of license application (the "FCC Application") requesting FCC consent to the assignment from Seller to Purchaser of all Governmental Licenses used in the operation of the Station. The parties agree that the FCC Application will be prosecuted with mutual cooperation, reasonable best efforts, in good faith and with due diligence. The parties agree to use their reasonable best efforts to file additional information or amendments requested by the FCC orally or in writing as rapidly as possible after such request and, in any event, to commence preparation of such additional information or amendments immediately upon request and to complete and file the same with the FCC as rapidly as practical. Each party will be solely responsible for the expenses incurred by it in the preparation, filing and prosecution of the FCC Application (it being understood that the parties will bear equally the FCC filing fee). As used herein, the term "FCC Order" shall mean that the FCC has granted or given its consent, without any condition materially adverse to Purchaser or Seller, to the assignment of the Governmental Licenses; and the term "Final Order" shall mean that the FCC Order shall have become final, that the normally applicable time period for filing any protests, requests for stay, reconsideration by the FCC, petitions for rehearing or appeal of such order shall have expired, and that no protest, request for stay, reconsideration by the FCC, petition for rehearing or appeal of such order shall be pending. (c) To the extent required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act"), the parties further agree to use their best efforts to make any necessary filings under the HSR Act, within ten days after the date hereof. The fees associated with any filings made pursuant to the HSR Act shall be split equally between the parties (it being understood that the Purchaser shall advance Seller's portion of such fee at the time of filing and be reimbursed in the form of a deduction from the purchase price). 2.3 CLOSING PROCEDURE. At the Closing, Seller shall deliver to Purchaser such bills of sale, instruments of assignment, transfer and conveyance and similar documents as Purchaser shall reasonably request. Against such delivery, Purchaser shall (i) issue and deliver to Seller the purchase price in accordance with Section 2.1 above and (ii) execute and deliver the assumption agreements with respect to the Assumed Liabilities as are contemplated by Section 1.2 hereof. Each party will cause to be prepared, executed and delivered all other documents required to be delivered by such party pursuant to this Agreement and all other appropriate and customary documents as another party or its counsel may reasonably request for the purpose of consummating the transactions contemplated by this Agreement. All actions taken at the Closing shall be deemed to have been taken simultaneously at the time the last of any such actions is taken or completed. 3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Purchaser, as follows: 3.1 ORGANIZATION; GOOD STANDING. NCA is a limited liability company duly organized, validly existing and in good standing under the laws of the state of Delaware, and has all requisite power and authority to own and lease its properties and carry on its business as currently conducted. NCALP is a general partnership duly organized, validly existing and in good standing under the laws of the state of Delaware, and has all requisite power and authority to own and lease its properties and carry on its business as currently conducted. 3.2 DUE AUTHORIZATION. Subject to the FCC Order and the Final Order, Seller has full power and authority to enter into and perform this Agreement and to carry out the transactions contemplated hereby. Seller has taken all necessary action to approve the execution and delivery of this Agreement and the transactions contemplated hereby. This Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, except as may be limited by the availability of equitable remedies or by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally. 3.3 EXECUTION AND DELIVERY. Neither the execution and delivery by Seller of this Agreement nor the consummation by it of the transactions contemplated hereby will: (i) conflict with or result in a breach of the Certificate of Formation, Operating Agreement or Partnership Agreement, as applicable, of Seller (ii) subject to the FCC Order and Final Order, violate any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority, which violation, either individually or in the aggregate, might reasonably be expected to have a material adverse effect on the business or operations of Seller or Purchaser's ownership of the Station Assets; or (iii) except as disclosed on Schedule V, violate or conflict with or constitute a default under (or give rise to any right of termination, cancellation or acceleration under), or result in the creation of any lien on any of the Station Assets pursuant to, any material agreement, indenture, mortgage or other instrument to which Seller is a party or by which it is bound or affected. Notwithstanding the foregoing, Seller believes that upon the filing of the FCC Application or shortly thereafter, the Station will lose a substantial number of employees and a substantial amount of its revenues. 3.4 GOVERNMENTAL CONSENTS. No approval, authorization, consent, order or other action of, or filing with, any governmental authority or administrative agency is required in connection with the execution and delivery by Seller of this Agreement or the consummation of the transactions contemplated hereby or thereby, other than those of the FCC or under the HSR Act. 3.5 TITLE TO PERSONAL PROPERTY ASSETS. Except for leased or licensed property, Seller is the sole and exclusive legal owner of all right, title and interest in, and when delivered to Purchaser, the Station Assets constituting personal property shall be free and clear of liens, claims and encumbrances except liens for taxes not yet payable, and liens permitted or incurred by Purchaser. 3.6 REAL ESTATE. (a) Subject to the following sentence, Seller has a valid, binding and enforceable leasehold interest at its transmitter site located at 11138 North 148th Street, Mountain Hills, Arizona (the "Real Estate"). A true, complete and correct copy of the lease with respect to the Real Estate has been furnished to Purchaser. (b) Seller has not received any notice of, and has no knowledge of, any material violation of any zoning, building, health, fire, water use or similar statute, ordinance, law, regulation or code in connection with any of the Real Estate. To the knowledge of Seller, no fact or condition exists which would result in the termination or impairment of access of the Station to the Real Estate or discontinuation of necessary sewer, water, electrical, gas, telephone or other utilities or services. (c) To Seller's knowledge, no hazardous or toxic material (as hereinafter defined) exists in any structure located on, or exists on or under the surface of, any of the Real Estate which is, in any case, in material violation by Seller of applicable environmental law. For purposes of this Section, "hazardous or toxic material" shall mean waste, substance, materials, smoke, gas or particulate matter designated as hazardous, toxic or dangerous under any environmental law. For purposes of this Section, "environmental law" shall include the Comprehensive Environmental Response Compensation and Liability Act, the Clean Air Act, the Clean Water Act and any other applicable federal, state or local environmental, health or safety law, rule or regulation relating to or imposing liability or standards concerning or in connection with hazardous, toxic or dangerous waste, substance, materials, smoke, gas or particulate matter. 3.7 GOVERNMENTAL LICENSES AND REPORTS. (a) Schedule I lists and accurately describes all of the Governmental Licenses. Seller has furnished to Purchaser true and accurate copies of all such Governmental Licenses. Each Governmental License is in full force and effect and is valid under applicable federal, state and local laws; and Seller has not done anything which (whether with or without notice, lapse of time or the happening or occurrence of any other event) is reasonably likely to result in the revocation or termination of any Governmental License or the imposition of any restriction of such a nature as might reasonably be expected to adversely affect the operation of the Station as now conducted, except for proceedings of a legislative or rule-making nature intended to affect the broadcasting industry generally. (b) With respect to the Station, Seller has duly filed all material reports required to be filed by law or applicable rule, regulation, order, writ or decree of any court, governmental commission, body or instrumentality and has made payment of all charges and other payments, if any, shown by such reports to be due and payable, except where the failure to so file or make payment would not have a material adverse effect upon the operations of the Station or where such payments are being contested in good faith. All reports required to be filed by Seller with the FCC with respect to the Station have been filed, except where the failure to so file would not have a material adverse effect upon the Station. 3.8 TAXES. All tax reports and returns required to be filed by or relating to the Station Assets or operations of the Station (including sales, use, property and employment taxes) have been filed with the appropriate federal, state and local governmental agencies, and there have been paid all taxes, penalties, interest, deficiencies, assessments or other charges due as reflected on the filed returns or claimed to be due by such federal, state or local taxing authorities (other than taxes, deficiencies, assessments or claims which are being contested in good faith and which in the aggregate are not material); (ii) there are no examinations or audits pending or unresolved examinations or audit issues with respect to Seller's federal, state or local tax returns; (iii) all additional taxes, if any, assessed as a result of such examinations or audits have been paid; and (iv) there are no pending claims or proceedings relating to, or asserted for, taxes, penalties, interest, deficiencies or assessments against the Station Assets. 3.9 LITIGATION. There is no order of any court, governmental agency or authority and no action, suit, proceeding or publicly disclosed investigation, judicial, administrative or otherwise that is pending or, to Seller's knowledge, threatened against the Station which, if adversely determined, might materially and adversely affect the business, operations, properties, assets or conditions (financial or otherwise) of the Station or which challenges the validity or propriety of any of the transactions contemplated by this Agreement. 3.10 CALL LETTERS. Other than as set forth on Schedule 3.10 hereto, there are no agreements in effect relating to the use of the KHOT-FM call letters by the Station or by Seller. 3.11 FINDERS AND BROKERS. Other than Star Media Group (the fees and expenses of which shall be borne by Seller), no person has as a result of any agreement entered into by Seller any valid claim against any of the parties hereto for a brokerage commission, finder's fee or other like payment. 3.12 NO OTHER REPRESENTATIONS. Except for the express representations and warranties contained in this Section 3, Seller makes no other representations or warranties of any nature whatsoever, and Seller hereby disclaims any other representations and warranties of any nature whatsoever. 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and warrants to Seller as follows: 4.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own and lease its properties and carry on its business as currently conducted. 4.2 DUE AUTHORIZATION. Subject to the FCC Order and Final Order, Purchaser has full power and authority to enter into and perform this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally or general equitable principles. 4.3 EXECUTION AND DELIVERY. Neither the execution and delivery by Purchaser of this Agreement nor the consummation by it of the transactions contemplated hereby will: (i) conflict with or result in a breach of the Articles of Incorporation or Bylaws of Purchaser; (ii) subject to the FCC Order and Final Order, violate any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default under (or give rise to any right of termination, cancellation or acceleration under) any indenture, mortgage, lease, contract or other instrument to which Purchaser is a party or by which it is bound or affected. 4.4 CONSENTS. No consent, approval, authorization, license, exemption of, filing or registration with any court, governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign, is required by Purchaser in connection with the execution and delivery of this Agreement or the consummation by it of any transaction contemplated hereby, other than the consent of the FCC or under the HSR Act. No approval, authorization or consent of any other third party is required in connection with the execution and delivery by Purchaser of this Agreement and the consummation of the transactions contemplated hereby, except as may have been previously obtained by Purchaser. Purchaser warrants that it is legally qualified to become a licensee of the Station and is aware of no impediment to the approval by the FCC of the assignment of the Governmental Licenses to Purchaser. To Purchaser's knowledge, Purchaser's acquisition of the Station Assets will not require a waiver of any FCC rule, regulation or policy, and Purchaser knows of no fact that would cause the FCC to materially delay the processing or grant of the FCC Order (including approval of the FCC Application), including facts relating to Purchaser's market share in any locality within the Station's primary service contour. 4.5 FINDERS AND BROKERS. No person has as a result of any agreement entered into by Purchaser any valid claim against any of the parties hereto for a brokerage commission, finder's fee or other like payment. 4.6 PURCHASER'S QUALIFICATION. Purchaser is in all material respects qualified legally, financially and otherwise to be the licensee of the Station, and has or shall have sufficient resources to pay in full all amounts due to Seller under this Agreement when such amounts are due. In furtherance of the foregoing, during the last 12 months, Purchaser has had no applications in front of the FCC rejected, reconsidered or withdrawn. 4.7 LITIGATION. There are no suits, legal proceedings, or known investigations of any nature pending or, to Purchaser's knowledge, threatened against or affecting Purchaser that would affect Purchaser's ability to carry out the transactions contemplated hereby, or would affect Purchaser's qualifications to own and operate the Station under the Communications Act and the rules, regulations and policies of the FCC. 4.8 MISCELLANEOUS MATTERS. Purchaser acknowledges that no other representations or warranties have been made by Seller, and Purchaser has not and will not rely on any statements made by Seller or its representatives or agents other than those expressly set forth herein. 5. CERTAIN COVENANTS AND AGREEMENTS. 5.1 REASONABLE EFFORTS. Each of Seller and Purchaser shall take all reasonable action necessary and cooperate in good faith to consummate the transactions contemplated by this Agreement and will use all necessary and reasonable means at its disposal to obtain all necessary consents and approvals of other persons and governmental authorities required to enable it to consummate the transactions contemplated by this Agreement. Except as otherwise provided herein, each of Seller and Purchaser acknowledges and agrees that it shall pay all costs, fees and expenses incurred by it in obtaining such necessary consents and approvals. Each party shall make all filings, applications, statements and reports to all governmental agencies or entities which are required to be made prior to the Closing Date by or on its behalf pursuant to any statute, rule or regulation in connection with the transactions contemplated by this Agreement, and copies of all such filings, applications, statements and reports shall be provided to the other. If the FCC determines that the transactions contemplated hereby or a portion thereof are inconsistent or violative of FCC rules or regulations, the parties agree that they will negotiate in good faith to amend, modify or restructure the transactions contemplated hereby so as to be consistent with FCC rules and regulations; provided, that the amount or timing of payment of the purchase price shall not be amended or modified. 5.2 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, all notices to third parties and other publicity relating to the transaction contemplated by this Agreement shall be jointly planned and agreed to by Seller and Purchaser. 5.3 PARTIES ACTION PENDING THE CLOSING. During the period from the date hereof to the Closing Date, unless the prior consent of the other party is first obtained, neither party shall knowingly take any action which would cause any representation and warranty made by such party hereunder to be untrue as of the Closing Date. 5.4 TRANSITION CONSULTING FEE. In the event that, subsequent to the Closing, the Purchaser elects to occupy the Seller's studio location, as set forth in the Sublease (as described in Section 6.5), the Purchaser will pay to Seller a consulting fee for the months in which the Sublease is in effect as follows: (i) $4,000 per month during the months prior to April 1999, (ii) $9,000 per month for April 1999 through June 1999 and (iii) $49,000 per month for July 1999 and each subsequent month. 6. CONDITIONS TO PURCHASER'S CLOSING. All obligations of Purchaser under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions, it being understood that Purchaser may, in its sole discretion, waive any or all of such conditions in whole or in part: 6.1 REPRESENTATIONS, ETC. Seller shall have performed in all material respects the covenants and agreements contained in this Agreement that are to be performed by it as of the Closing, and the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made at such time (except as contemplated or permitted by this Agreement). 6.2 CONSENTS. All consents and approvals from the FCC (other than the Final Order) and under the HSR Act required to consummate the transactions contemplated by this Agreement shall have been obtained without material cost (except for regularly scheduled filing fees, and attorneys' and other experts fees incurred in connection therewith) or other materially adverse consequence to Purchaser and shall be in full force and effect. All consents and approvals required from third parties under the Assumed Liabilities shall have been obtained without material cost to Purchaser. 6.3 NO ADVERSE LITIGATION. No order or temporary, preliminary or permanent injunction or restraining order shall have been entered and no action, suit or other legal or administrative proceeding by any court or governmental authority, agency or other person shall be pending or threatened on the Closing Date which may have the effect of (i) making any of the transactions contemplated hereby illegal, (ii) materially adversely affecting the value of the Station Assets or (iii) making Purchaser liable for the payment of damages to any person in respect of the Station or the Station's Assets. 6.4 STATION UPGRADE. The FCC shall have approved Seller's application for a "one-step" upgrade of the Station's broadcast authorization to Class C2 status, and such approval shall have become final, that the normally applicable time period for filing any protests, requests for stay, reconsideration by the FCC, petitions for rehearing or appeal of such order shall have expired, and that no protest, request for stay, reconsideration by the FCC, petition for rehearing or appeal of such order shall be pending. 6.5 SUBLEASE. Seller and Purchaser shall have entered into the Sublease in the form of Exhibit A attached hereto (the "Sublease"). 6.6 UNWIND AGREEMENT. Seller and Purchaser shall have entered into the Unwind Agreement in the form of Exhibit B attached hereto (the "Unwind Agreement"). 6.7 CLOSING DELIVERIES. Purchaser shall have received each of the documents or items required to be delivered to it pursuant to Section 8.1 hereof. 7. CONDITIONS TO SELLER'S CLOSING. All obligations of Seller under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions, it being understood that Seller may, in its sole discretion, waive any or all of such conditions in whole or in part: 7.1 REPRESENTATIONS, ETC. Purchaser shall have performed in all material respects the covenants and agreements contained in this Agreement that are to be performed by Purchaser as of the Closing, and the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made at such time (except as contemplated or permitted by this Agreement). 7.2 NO ADVERSE LITIGATION. No order or temporary, preliminary or permanent injunction or restraining order shall have been entered and no action, suit or other legal or administrative proceeding by any court or governmental authority, agency or other person shall be pending or threatened on the Closing Date which may have the effect of making any of the transactions contemplated hereby illegal, or (ii) making Seller liable for the payment of damages to any person in respect of the Station or the Station's Assets. 7.3 CONSENTS. All consents and approvals from the FCC (other than the Final Order) and under the HSR Act required to consummate the transactions contemplated by this Agreement shall have been obtained without material cost (except for regularly scheduled filing fees, and attorneys' and other experts fees incurred in connection therewith) or other materially adverse consequence to Seller and shall be in full force and effect. All consents and approvals required from third parties under the Assumed Liabilities shall have been obtained without material cost to Seller. 7.4 SUBLEASE. Seller and Purchaser shall have entered into the Sublease. 7.5 UNWIND AGREEMENT. Seller and Purchaser shall have entered into the Unwind Agreement. 7.6 CLOSING DELIVERIES. Seller shall have received each of the documents or items required to be delivered to it pursuant to Section 8.2. 8. DOCUMENTS TO BE DELIVERED AT CLOSING. 8.1 TO PURCHASER. At the Closing, there shall be delivered to Purchaser: (a) The warranty deeds, bills of sale, agreements of assignment and similar instruments of transfer to the Station Assets contemplated by Section 2.3 hereof. (b) A certificate, signed by an executive officer of Seller, as to the fulfillment of the conditions set forth in Sections 6.1 through 6.3 hereof. (c) All other items reasonably requested by Purchaser. 8.2 TO SELLER. At the Closing, there shall be delivered to Seller: (a) The balance of the purchase price contemplated by Section 2.1 hereof, in the form of wire transfer or cashier's or certified check as Seller may direct. (b) A certificate, signed by an executive officer of Purchaser, as to the fulfillment of the conditions set forth in Sections 7.1 through 7.3. (c) An assumption agreement pursuant to which Purchaser shall assume the Assumed Liabilities. (d) All other items reasonably requested by Seller. 9. SURVIVAL. All representations, warranties, covenants and agreements made by any party to this Agreement or pursuant hereto shall be deemed to have been relied upon by the parties hereto and shall survive the Closing for a period of one year (except for the provisions of Section 5.4 which shall survive until such provision expires in accordance with its terms), and notice of any claim of any nature hereunder seeking indemnification or any other remedy must be given within one year from the Closing Date, and if not, shall be deemed waived and forfeited. The representations and warranties hereunder shall not be affected or diminished by any investigation at any time by or on behalf of the party for whose benefit such representations and warranties were made. No representation or warranty contained herein shall be deemed to be made at any time after the date of this Agreement or, if made in a certificate, the date of such certificate. 10. INDEMNIFICATION OF PURCHASER. Subject to the limitations set forth in Sections 9 and 12, Seller shall indemnify and hold Purchaser harmless from, against, for and in respect of: (a) any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action and encumbrances suffered, sustained, incurred or required to be paid by Purchaser because of the breach of any written representation, warranty, agreement or covenant of Seller contained in this Agreement or any document, certificate or agreement executed in connection with this Agreement; (b) any and all liabilities, obligations, claims and demands arising out of the ownership and operation of the Station at all times prior to the Closing Date (other than the Assumed Liabilities); and (c) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by Purchaser in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 10. 11. INDEMNIFICATION OF SELLER. Subject to the limitations set forth in Sections 9 and 12, Purchaser shall indemnify and hold Seller harmless from, against, for and in respect of: (a) any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action and encumbrances suffered, sustained, incurred or required to be paid by Seller because of the breach of any written representation, warranty, agreement or covenant of Purchaser contained in this Agreement or any document, certificate or agreement executed in connection with this Agreement; (b) any and all liabilities, obligations, claims and demands arising out of the ownership and operation of the Station on and after the Closing Date, except to the extent the same arises from a breach of any written representation, warranty, agreement or covenant of Seller contained in this Agreement or any document, certificate or agreement executed in connection with this Agreement; (c) any of the Assumed Liabilities; and (d) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by Seller in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 11. 12. GENERAL RULES REGARDING INDEMNIFICATION. The obligations and liabilities of each indemnifying party hereunder with respect to claims resulting from the assertion of liability by the other party or indemnified third parties shall be subject to the following terms and conditions: (a) The indemnified party shall give prompt written notice (which in no event shall exceed 20 days from the date on which the indemnified party first became aware of such claim or assertion) to the indemnifying party of any claim which might give rise to a claim by the indemnified party against the indemnifying party based on the indemnity agreements contained in Section 10 or 11 hereof, stating the nature and basis of said claims and the amounts thereof, to the extent known; (b) If any action, suit or proceeding is brought against the indemnified party with respect to which the indemnifying party may have liability under the indemnity agreements contained in Section 10 or 11 hereof, the action, suit or proceeding shall, upon the written acknowledgment by the indemnifying party that it is obligated to indemnify under such indemnity agreement, be defended (including all proceedings on appeal or for review which counsel for the indemnified party shall deem appropriate) by the indemnifying party. The indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the indemnified party's own expense unless (A) the employment of such counsel and the payment of such fees and expenses both shall have been specifically authorized in writing by the indemnifying party in connection with the defense of such action, suit or proceeding, or (B) counsel to such indemnified party shall have reasonably concluded and specifically notified the indemnifying party that there may be specific defenses available to it which are different from those available to the indemnifying party, in any of which events the indemnifying party, to the extent made necessary by such defenses, shall not have the right to direct the defense of such action, suit or proceeding on behalf of the indemnified party. In the latter such case only that portion of such fees and expenses of the indemnified party's separate counsel reasonably related to matters covered by the indemnity agreements contained in Section 10 or 11 hereof shall be borne by the indemnifying party. The indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not it is represented by separate counsel. (c) The indemnified party shall make available to the indemnifying party and its attorneys and accountants all books and records of the indemnified party relating to such proceedings or litigation and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding. (d) The indemnified party shall not make any settlement of any claims without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. (e) If any claims are made by an indemnified party for which an indemnifying party would be liable, and it appears likely that such claims might also be covered by the indemnified party's insurance policies, the indemnified party shall make a timely claim under such policies and to the extent that such party obtains any recovery from such insurance, such recovery shall be offset against any sums due from an indemnifying party (or shall be repaid to the indemnifying party by the indemnified party to the extent that an indemnifying party has already paid any such amounts). In addition, any claim for indemnity hereunder shall reduced by any tax-related benefit reasonably expected by Purchaser to be received or actually received by Purchaser. (f) The indemnified party shall not make any claim unless and until it has incurred indemnified losses, damages and expenses in the cumulative aggregate amount of $25,000, and then only in respect of the excess over such $25,000 minimum. All claims for indemnification shall not, in any event, exceed $3.6 million. (g) Purchaser and Seller acknowledge and agree that the foregoing indemnification provisions in Sections 10, 11 and 12 hereof shall be the sole and exclusive remedies for breaches or defaults of any representation, warranty, covenant or agreement contained herein or in any other document or instrument delivered in connection herewith. 13. TERMINATION. This Agreement may be terminated by the mutual consent of Purchaser and Seller, or by either Purchaser or Seller, if the terminating party is not then in material breach of its obligations hereunder, upon written notice to the other upon the occurrence of any of the following: (a) By the terminating party, if the other party is in material breach of its obligations hereunder and such breach has not been cured by the other party within 30 days of written notice of such breach; (b) If the FCC designates the FCC Application contemplated by Section 2.2(b) hereof for hearing at any time; or (c) If the Closing has not occurred on or before December 31, 1999. In the event that this Agreement is terminated as a result of either party's material breach of this Agreement, the non-breaching party will incur substantial damages that are difficult to quantify. In such event, the sum of $4,000,000 (the "Break-up Fee") is deemed by the parties to be an amount which is a fair and reasonable estimate of the damage the non-breaching party may incur. Accordingly, in the event of such termination, the breaching party will pay the Break-up Fee to the non-breaching party within 10 days of such termination, with interest thereon (if not paid during such 10 day period) at an annual rate of 15%. In the event that the non-breaching party's actual damages exceed the amount of the Break-up Fee, the non-breaching party may seek, and shall be entitled to recover from the breaching party, any such excess damages. 14. RISK OF LOSS. If any material portion of the Station Assets shall suffer any "material physical damage or destruction" (as defined below) prior to the Closing Date, the parties shall promptly notify one another in writing of such physical damage or destruction, and the party at fault (or if no fault, Seller) shall promptly take all necessary steps to restore, repair or replace such assets at its sole expense, and shall advise the other in writing of the estimated cost to complete such restoration, repair or replacement and all amounts actually paid as of the date of the estimate. If such restoration, repair or replacement is not accomplished prior to the Closing Date, and only if it is Seller's obligation to restore, repair or replace (i.e., Purchaser is not at fault), Buyer shall receive all insurance proceeds paid or payable to Seller in respect of such damage or destruction, close this Agreement and thereafter complete such restoration, repair or replacement at its sole expense; provided, however, Seller shall have no further liabilities with respect to such damage or destruction after payment to Purchaser of such insurance proceeds. For purposes hereof, "material physical damage or destruction" shall mean any damage or destruction to a material portion of the Station Assets, which damage or destruction exceeds $250,000, in the aggregate and which is not covered by insurance (other than a reasonable deductible). 15. MISCELLANEOUS PROVISIONS. 15.1 EXPENSES. Except as otherwise expressly provided herein, each party shall pay the fees and expenses incurred by it in connection with the transactions contemplated by this Agreement. If any action is brought for breach of this Agreement or to enforce any provision of this Agreement, the prevailing party shall be entitled to recover court costs, arbitration expenses and reasonable attorneys' fees. 15.2 PRORATIONS. All items of income and expense arising from the operation of the Station with respect to the Station Assets and the Assumed Liabilities on or before the close of business on the Closing Date shall be for the account of Seller and thereafter shall be for the account of Purchaser. Proration of the items described below between Seller and Purchaser shall be effective as of 11:59 p.m., local time, on such date and shall occur as follows with respect to those rights, liabilities and obligations of Seller transferred to and assumed by Purchaser hereunder: (a) Liability for state and local taxes assessed on the Station Assets payable with respect to the tax year in which the Closing Date falls shall be prorated as between Seller and Purchaser on the basis of the number of days of the tax year elapsed to and including such date, appropriately adjusted with respect to improvements to the Station Assets effected by Purchaser after the Closing Date. (b) Prepaid items and accruals such as water, electricity, telephone, other utility and service charges, lease expenses, license fees (if any) and payments under any contracts to be assumed by Purchaser shall be prorated between Seller and Purchaser on the basis of the period of time to which such liabilities, prepaid items and accruals apply. All prorations shall be made and paid insofar as feasible on the Closing Date with a final settlement to be made on the Closing Date. Seller and Purchaser agree to assume, pay and perform all costs, liabilities and expenses allocated to each of them pursuant to this Section 15.2. 15.3 AMENDMENT. This Agreement may be amended at any time but only by an instrument in writing signed by the parties hereto. 15.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if mailed by certified mail, return receipt requested, or by nationally recognized "next-day" delivery service, to the parties at the addresses set forth below (or at such other address for a party as shall be specified by like notice), or sent by facsimile to the number set forth below (or such other number for a party as shall be specified by proper notice hereunder): If to Purchaser: 3102 Oak Lawn, Suite 215 Dallas, Texas 75219 Attn: McHenry T. Tichenor, Jr., President Fax: (214) 525-7750 If to Seller: 190 Queen Anne Avenue North, Suite 100 Seattle, Washington 98109 Attn: Lance Anderson Fax: (206) 286-2376 With a copy to : Tom D. Wippman, Esq . 650 Dundee Road, Suite 370 Northbrook, Illinois 60062 Fax: (847)480-1251 15.5 ASSIGNMENT. This Agreement may not be assigned by either party without the prior consent of the other party; provided, however, that Purchaser may assign its rights to one or more of its subsidiaries so long as Heftel Broadcasting Corporation remains liable for all obligations of the Purchaser hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs and permitted assigns. 15.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15.7 HEADINGS. The headings of the Sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 15.8 ENTIRE AGREEMENT. This Agreement and the documents referred to herein contain the entire understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, conveyances or undertakings other than those expressly set forth herein. This Agreement supersedes any prior agreements and understandings between the parties with respect to the subject matter. 15.9 WAIVER. No attempted waiver of compliance with any provision or condition hereof, or consent pursuant to this Agreement, will be effective unless evidenced by an instrument in writing by the party against whom the enforcement of any such waiver or consent is sought. 15.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. 15.11 CERTAIN DEFINITIONS. As used in this Agreement, "affiliates" of a party shall mean persons or entities that directly, or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, such party. 15.12 INTENDED BENEFICIARIES. The rights and obligations contained in this Agreement are hereby declared by the parties hereto to have been provided expressly for the exclusive benefit of such entities as set forth herein and shall not benefit, and do not benefit, any unrelated third parties. 15.13 MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, no provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NEW CENTURY ARIZONA LICENSE PARTNERSHIP By /s/ George Kristi ------------------------------- General Partner NEW CENTURY ARIZONA LLC By /s/ George Kristi ------------------------------- Managing Member HEFTEL BROADCASTING CORPORATION By /s/ Jeffrey T. Hinson ------------------------------- Senior Vice President EX-10.25 3 EXHIBIT 10.25 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made as of the 1st day of March, 1999, by and among Radio Vision, Inc. ("Seller"), George E. Tobin ("Shareholder") and Heftel Broadcasting Corporation ("Purchaser"). W I T N E S S E T H: WHEREAS, Seller is the licensee of Radio Station KISF-FM (the "Station"), licensed to Las Vegas, Nevada and authorized by the Federal Communications Commission (the "Commission" or "FCC"), and the Seller owns the assets which are used in the operation of the Station; and WHEREAS, Shareholder is the controlling shareholder of the Seller; and WHEREAS, the Seller desires to sell to Purchaser, and Purchaser desires to purchase from the Seller, certain of the radio station properties and assets relating to the Station as described herein under the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. PURCHASE AND SALE OF ASSETS. 1.1 PURCHASE AND SALE OF STATION ASSETS. Subject to the conditions set forth in this Agreement, at the Closing (as defined hereinafter), the Seller shall, or if necessary shall cause its affiliated companies to, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase from the Seller, all right, title and interest in and to the following assets relating to the Station (the "Station Assets"), free and clear of all liens, security interests, charges, encumbrances and rights of others (other than liens and charges for which a proration adjustment is made pursuant to Section 15.2 hereof): (a) All licenses, construction permits or authorizations issued by or pending before the FCC or any other governmental authority for use in the operation of the Station that are set forth on Schedule I attached hereto, together with any and all renewals, extensions and modifications thereof (the "Governmental Licenses"); (b) All real and personal property, tangible or intangible, owned by Seller which is used or useful in the operation of the Station, including, but not limited to, broadcast towers and antennas, transmitters, the transmitter and studio equipment listed on Schedule II hereto, tapes and record libraries, together with replacements thereof and additions thereto made between the date hereof and the Closing; (c) Programming materials, market data, research and similar items relating to the Station's intellectual property (to the extent that Seller has any transferable interest therein); (d) The KISF call letters; (e) All deposits made by the Seller to third parties in connection with the transmitter site and the Assumed Contracts (defined below), for which proration shall be made in accordance with Section 15.2; and (f) Copies of the Station's FCC logs, all materials maintained in the Station's FCC public file, technical data and records relating to the Station Assets. The foregoing notwithstanding, in no event shall the Station Assets be deemed to include (i) the cash and cash equivalents of the Seller, (ii) any accounts receivable, notes receivable or other receivables of the Seller (including tax refunds), (iii) the Station's "Supervan" or other vehicles, (iv) the Seller's corporate seal, minute books, charter documents, corporate stock record books and other books and records that pertain to the organization of Seller, (v) securities of any kind owned by Seller, (vi) insurance contracts or proceeds thereof or (vii) claims arising out of acts occurring before the Closing Date. 1.2 ASSUMED CONTRACTS. At the Closing, the Purchaser shall assume the specified contractual obligations of the Station listed on Schedule III hereto (the "Assumed Contracts"), and the Purchaser agrees to pay and perform the Assumed Contracts after the Closing Date. Except as specifically set forth on such Schedule III, Purchaser does not assume and shall in no event be liable for any debt, obligation, responsibility or liability of the Station or Seller, including without limitation, employee obligations, taxes, accounts payable and barter obligations of the Station. 2. CONSIDERATION; CLOSING. 2.1 PURCHASE PRICE; RESERVE. (a) The consideration to be received by the Seller in exchange for the Station Assets shall be $20,290,000 in cash. The Purchaser and Seller agree to allocate the foregoing purchase price for federal income tax purposes among the Station Assets in a manner not inconsistent with Section 1060 of the Internal Revenue Code of 1986, as amended, and the related Treasury Regulations issued thereunder. The Purchaser shall bear the costs of obtaining appraisals, if any such appraisals are required to be obtained by the Purchaser, of the Station Assets. Such appraisals shall be made by Bond & Pecaro, or such other qualified appraisers selected by the Purchaser. 2 (b) At the Closing, the Seller shall set aside and pay to Purchaser a portion of the purchase price in the amount of $50,000, which the Purchaser shall use in its sole discretion as a reserve (the "Reserve") in order to satisfy certain obligations in connection with the Assumed Contracts. 2.2 TIME OF CLOSING. (a) A closing (the "Closing") for the sale and purchase of the Station Assets shall be held at the offices of the Station in Las Vegas, Nevada (or such other place as may be agreed upon by the parties in writing) on the date which is the later of (i) the 5th day after the FCC Order (as defined hereinafter) or (ii) the satisfaction of all of the conditions precedent to the obligations of Purchaser and Seller hereunder, or on such other date as may be agreed upon by the parties in writing (the "Closing Date"). The Closing shall be deemed to be effective as of 12:01 a.m. on the Closing Date. (b) In order to consummate the transfer of the Station Assets, Seller and Purchaser agree to use their best efforts to file, within five days after the date hereof, an assignment of license application (the "Application") requesting FCC consent to the assignment from the Seller to Purchaser of all Governmental Licenses relating to the operation of the Station. The parties agree that the Application will be prosecuted with best reasonable efforts, in good faith and with due diligence. The parties agree to use their reasonable best efforts to file additional information or amendments requested by the FCC orally or in writing within five business days after such request and, in any event, to commence preparation of such additional information or amendments immediately upon request and to complete and file the same with the FCC as rapidly as practical. Each party will be solely responsible for the expenses incurred by it in the preparation, filing and prosecution of the Application (it being understood that the parties will bear equally the FCC filing fee). As used herein, the term "FCC Order" shall mean that the FCC staff has granted or given its consent, without any condition materially adverse to Purchaser or Seller, to the assignment of the Governmental Licenses; and the term "Final Order" shall mean that the FCC Order shall have become final, that the time period for filing any protests, requests for stay, reconsideration by the FCC, petitions for rehearing or appeal of such order shall have expired, and that no protest, request for stay, reconsideration by the FCC, petition for rehearing or appeal of such order shall be pending. (c) To the extent required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act"), the parties further agree to use their best efforts to make any necessary filings under the HSR Act. The fees associated with any filings made pursuant to the HSR Act shall be paid by the Purchaser. 2.3 CLOSING PROCEDURE. At the Closing, the Seller shall deliver to Purchaser such bills of sale, instruments of assignment, transfer and conveyance and similar 3 documents as Purchaser shall reasonably request. Against such delivery, Purchaser shall (i) issue and deliver to Seller the purchase price in accordance with Section 2.1 above and (ii) execute and deliver the assumption agreements with respect to the Assumed Contracts as are contemplated by Section 1.2 hereof. Each party will cause to be prepared, executed and delivered all other documents required to be delivered by such party pursuant to this Agreement and all other appropriate and customary documents as another party or its counsel may reasonably request for the purpose of consummating the transactions contemplated by this Agreement. All actions taken at the Closing shall be deemed to have been taken simultaneously at the time the last of any such actions is taken or completed. 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDER. Each of the Shareholder and the Seller, jointly and severally, hereby represents and warrants to the Purchaser, as follows: 3.1 ORGANIZATION; GOOD STANDING. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of Nevada, and has all requisite corporate power and authority to own and lease its properties and carry on its business as currently conducted. 3.2 DUE AUTHORIZATION. Subject to the FCC Order and the Final Order, the Seller has full power and authority, and the Shareholder has the capacity, to enter into and perform this Agreement and to carry out the transactions contemplated hereby. The Seller has taken all necessary corporate action to approve the execution and delivery of this Agreement and the transactions contemplated hereby. This Agreement constitutes the legal, valid and binding obligation of the Seller and Shareholder, enforceable against each of them in accordance with its terms, except as may be limited by the availability of equitable remedies or by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally. 3.3 EXECUTION AND DELIVERY. Neither the execution and delivery by the Seller and Shareholder of this Agreement nor the consummation by them of the transactions contemplated hereby will: (i) conflict with or result in a breach of the Articles of Incorporation or bylaws of Seller (ii) subject to the FCC Order and Final Order, violate any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority, which violation, either individually or in the aggregate, might reasonably be expected to have a material adverse effect on the business or operations of the Seller or Purchaser's ownership of the Station Assets; or (iii) violate or conflict with or constitute a default under (or give rise to any right of termination, cancellation or acceleration under), or result in the creation of any lien on any of the Station Assets pursuant to, any material agreement, indenture, mortgage or other 4 instrument to which the Seller is a party or by which it or its assets may be bound or affected. 3.4 GOVERNMENTAL CONSENTS. No approval, authorization, consent, order or other action of, or filing with, any governmental authority or administrative agency is required in connection with the execution and delivery by the Seller of this Agreement or the consummation of the transactions contemplated hereby or thereby, other than those of the FCC or under the HSR Act. 3.5 TITLE TO PERSONAL PROPERTY ASSETS. Except for leased property, the Seller is the sole and exclusive legal owner of all right, title and interest in, and has good and marketable title to, all of the Station Assets constituting personal property, free and clear of liens, claims and encumbrances except (i) liens for taxes not yet payable and (ii) the Assumed Contracts. 3.6 TRANSMITTER SITE. (a) Seller has a valid, binding and enforceable leasehold interest, which is (except as disclosed in the Transmitter Site Lease relating thereto) free and clear of liens, claims, encumbrances, subleases or other restrictions, in and to the transmitter site from which the Station's signal is broadcast, and the buildings, structures and improvements situated thereon (the "Transmitter Site"). A true, complete and correct copy of the lease evidencing such interest (the "Transmitter Site Lease") has been furnished to Purchaser. Neither Seller nor, to Seller's knowledge, any other party is in default under the Transmitter Site Lease and no notice of termination or default has been given. (b) Except as set forth in Schedule V, Seller has not received any notice of, and has no knowledge of, any material violation of any zoning, building, health, fire, water use or similar statute, ordinance, law, regulation or code in connection with the Transmitter Site. To the knowledge of Seller and Shareholder, except as set forth on Schedule V, no fact or condition exists which would result in the termination or impairment of access of the Station to the Transmitter Site or discontinuation of necessary sewer, water, electrical, gas, telephone or other utilities or services. (c) To Seller's and Shareholder's knowledge, no hazardous or toxic material (as hereinafter defined) exists in any structure located on, or exists on or under the surface of, the Transmitter Site which is, in any case, in material violation by Seller of applicable environmental law. For purposes of this Section, "hazardous or toxic material" shall mean waste, substance, materials, smoke, gas or particulate matter designated as hazardous, toxic or dangerous under any environmental law. For purposes of this Section, "environmental law" shall include the Comprehensive Environmental Response Compensation and Liability Act, the Clean Air Act, the Clean Water Act and any other applicable federal, state or local environmental, health or 5 safety law, rule or regulation relating to or imposing liability or standards concerning or in connection with hazardous, toxic or dangerous waste, substance, materials, smoke, gas or particulate matter. 3.7 GOVERNMENTAL LICENSES AND REPORTS. (a) Schedule I lists and accurately describes all material Governmental Licenses. The Seller has furnished to Purchaser true and accurate copies of all such Governmental Licenses. Each Governmental License is in full force and effect and is valid under applicable federal, state and local laws; and, to the knowledge of Seller and Shareholder, no event has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) is reasonably likely to result in the revocation or termination of any Governmental License or the imposition of any restriction of such a nature as might adversely affect the ownership or operation of the Station as now conducted, except for proceedings of a legislative or rule-making nature intended to affect the broadcasting industry generally. (b) The Seller has duly filed all material reports required to be filed by law or applicable rule, regulation, order, writ or decree of any court, governmental commission, body or instrumentality and has made payment of all charges and other payments, if any, shown by such reports to be due and payable, except where the failure to so file or make payment would not have a material adverse effect upon the operations of the Station. All reports required to be filed by the Seller with the FCC with respect to the Station have been filed, except where the failure to so file would not have a material adverse effect upon the Station. 3.8 TAXES. All tax reports and returns required to be filed by or relating to the Station Assets or operations of the Station (including sales, use, property and employment taxes) have been filed with the appropriate federal, state and local governmental agencies, and there have been paid all taxes, penalties, interest, deficiencies, assessments or other charges due as reflected on the filed returns or claimed to be due by such federal, state or local taxing authorities (other than taxes, deficiencies, assessments or claims which are being contested in good faith and which in the aggregate are not material); (ii) Seller has not received any written notice of any examinations or audits pending or unresolved examinations or audit issues with respect to the Seller's federal, state or local tax returns; (iii) all additional taxes, if any, assessed as a result of such examinations or audits have been paid; and (iv) to Seller's knowledge, there are no pending claims or proceedings relating to, or asserted for, taxes, penalties, interest, deficiencies or assessments against the Station Assets. 3.9 LITIGATION. There is no order of any court, governmental agency or authority and no action, suit, proceeding or investigation, judicial, administrative or otherwise that is pending or, to Seller's and Shareholder's knowledge, threatened against or affecting the Station which, if adversely determined, might materially and 6 adversely affect the business, operations, properties, assets or conditions (financial or otherwise) of the Station or which challenges the validity or propriety of any of the transactions contemplated by this Agreement. 3.10 THIRD PARTY CONSENTS. By the Closing Date, the Seller will have used all reasonable efforts to obtain all consents from any person or entity which are required in connection with the execution and delivery by Purchaser of this Agreement and the consummation of the transactions contemplated hereby, which consents are described on Schedule IV. 3.11 SHAREHOLDER'S NET ASSETS. The value of the Shareholder's assets (using the net book value of all business assets, such as the Station, and the most recent market value of personal investments, but excluding the value of personal assets such as home and automobile) as of the most recent date available does not exceed $10 million. 3.12 FINDERS AND BROKERS. No person has as a result of any agreement entered into by the Seller any valid claim against any of the parties hereto for a brokerage commission, finder's fee or other like payment. 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and warrants to the Seller and Shareholder as follows: 4.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to own and lease its properties and carry on its business as currently conducted. 4.2 DUE AUTHORIZATION. Subject to the FCC Order and Final Order, Purchaser has full power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally or general equitable principles. 4.3 EXECUTION AND DELIVERY. Neither the execution and delivery by Purchaser of this Agreement nor the consummation of the transactions contemplated hereby will: (i) conflict with or result in a breach of the Articles of Incorporation or Bylaws of 7 Purchaser; (ii) subject to the FCC Order and Final Order, violate any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental authority; or (iii) violate or conflict with or constitute a default under (or give rise to any right of termination, cancellation or acceleration under) any indenture, mortgage, lease, contract or other instrument to which Purchaser is a party or by which it is bound or affected. 4.4 CONSENTS. No consent, approval, authorization, license, exemption of, filing or registration with any court, governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign, is required by Purchaser in connection with the execution and delivery of this Agreement or the consummation by it of any transaction contemplated hereby, other than the consent of the FCC or under the HSR Act. No approval, authorization or consent of any other third party is required in connection with the execution and delivery by Purchaser of this Agreement and the consummation of the transactions contemplated hereby, except as may have been previously obtained by Purchaser. Purchaser warrants that it is legally qualified to become a licensee of the Station and is aware of no impediment to the approval by the FCC of the assignment of the Governmental Licenses to Purchaser. 4.5 FINDERS AND BROKERS. No person has as a result of any agreement entered into by the Purchaser any valid claim against any of the parties hereto for a brokerage commission, finder's fee or other like payment. 4.6 PURCHASER'S QUALIFICATION. The Purchaser is in all material respects qualified legally, financially and otherwise to be the licensee of the Station, and has or shall have sufficient resources to pay in full all amounts due to the Seller under this Agreement when such amounts are due. 5. CERTAIN COVENANTS AND AGREEMENTS. 5.1 REASONABLE EFFORTS. Each of the Seller and Purchaser shall take all reasonable action necessary to consummate the transactions contemplated by this Agreement and will use all necessary and reasonable means at its disposal to obtain all necessary consents and approvals of other persons and governmental authorities required to enable it to consummate the transactions contemplated by this Agreement. Except as otherwise provided herein, each of the Seller and Purchaser acknowledges and agrees that it shall pay all costs, fees and expenses incurred by it in obtaining such necessary consents and approvals. Each party shall make all filings, applications, statements and reports to all governmental agencies or entities which are required to be made prior to the Closing Date by or on its behalf pursuant to any statute, rule or regulation in connection with the transactions contemplated by this Agreement, and copies of all such filings, applications, statements and reports shall be provided to the other. If the FCC determines that the transactions contemplated hereby or a portion thereof are inconsistent or violative of FCC rules or regulations, the parties agree that 8 they will negotiate in good faith to amend, modify or restructure the transactions contemplated hereby so as to be consistent with FCC rules and regulations. 5.2 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, all notices to third parties and other publicity relating to the transaction contemplated by this Agreement shall be jointly planned and agreed to by the Seller and Purchaser. 5.3 ORDINARY COURSE OF BUSINESS. During the period from the date hereof to the Closing Date, unless the prior consent of Purchaser is first obtained, the Seller shall cause the Station to (i) conduct its operations in the ordinary course of business consistent with past and current practices (it being understood that a material decline in advertising revenues or a significant departure of Station employees will not be deemed to be a deviation from conduct in the ordinary course of business) and (ii) not knowingly take any action which would cause any representation contained in Article 3 to be untrue as of the Closing Date. 6. CONDITIONS TO PURCHASER'S CLOSING. All obligations of Purchaser under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions, it being understood that Purchaser may, in its sole discretion, waive any or all of such conditions in whole or in part: 6.1 REPRESENTATIONS, ETC. The Seller shall have performed in all material respects the covenants and agreements contained in this Agreement that are to be performed by it at or prior to the Closing, and the representations and warranties of the Seller contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made at such time (except as contemplated or permitted by this Agreement). 6.2 CONSENTS. All consents and approvals from the FCC and governmental agencies required to consummate the transactions contemplated by this Agreement shall have been obtained without material cost or other materially adverse consequence to Purchaser and shall be in full force and effect, and the FCC Order shall, at the Closing, be in full force and effect. 6.3 NO ADVERSE LITIGATION. No order or temporary, preliminary or permanent injunction or restraining order shall have been entered and no action, suit or other legal or administrative proceeding by any court or governmental authority, agency or other person shall be pending or threatened on the Closing Date which may have the effect of (i) making any of the transactions contemplated hereby illegal or (ii) materially adversely affecting the value of the Station Assets. 9 6.4 TRANSMITTER SITE. The lessor of the Transmitter Site shall have consented to the assignment of the Transmitter Site Lease to Purchaser. 6.5 STUDIO LEASE. The lessor of the Seller's studio lease shall have provided to the Purchaser a consent to remove from the premises the studio assets included in the Purchased Assets. 6.6 CLOSING DELIVERIES. Purchaser shall have received each of the documents or items required to be delivered to it pursuant to Section 8.1 hereof. 7. CONDITIONS TO SELLER'S CLOSING. All obligations of the Seller under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions, it being understood that the Seller may, in its sole discretion, waive any or all of such conditions in whole or in part: 7.1 REPRESENTATIONS, ETC. Purchaser shall have performed in all material respects the covenants and agreements contained in this Agreement that are to be performed by Purchaser as of the Closing, and the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made at such time (except as contemplated or permitted by this Agreement). 7.2 NO ADVERSE LITIGATION. No order or temporary, preliminary or permanent injunction or restraining order shall have been entered and no action, suit or other legal or administrative proceeding by any court or governmental authority, agency or other person shall be pending or threatened on the Closing Date which may have the effect of (i) making any of the transactions contemplated hereby illegal or (ii) materially adversely affecting the value of the Station Assets. 7.3 CLOSING DELIVERIES. The Seller shall have received each of the documents or items required to be delivered to it pursuant to Section 8.2. 7.4 CONSENTS. All consents and approvals from the FCC and governmental agencies required to consummate the transactions contemplated by this Agreement shall have been obtained without material cost or other materially adverse consequence to Seller and shall be in full force and effect, and the FCC Order shall, at the Closing, be in full force and effect. 10 8. DOCUMENTS TO BE DELIVERED AT CLOSING. 8.1 TO PURCHASER. At the Closing, there shall be delivered to Purchaser: (a) The warranty deeds, bills of sale, agreements of assignment and similar instruments of transfer to the Station Assets contemplated by Section 2.3 hereof. (b) A certificate, signed by an executive officer of Seller, as to the fulfillment of the conditions set forth in Sections 6.1 through 6.3 hereof. (c) An Unwind Agreement in the form of Exhibit A hereto (the "Unwind Agreement"). 8.2 TO SELLER. At the Closing, there shall be delivered to the Seller: (a) The purchase price contemplated by Section 2.1 hereof, in the form of wire transfer or cashier's or certified check as the Seller may direct. (b) A certificate, signed by an executive officer of Purchaser, as to the fulfillment of the conditions set forth in Sections 7.1 and 7.2 hereof. (c) An assumption agreement pursuant to which Purchaser shall assume the Assumed Contracts. (d) The Unwind Agreement. 9. SURVIVAL. All representations, warranties, covenants and agreements made by any party to this Agreement or pursuant hereto shall be deemed to be material and to have been relied upon by the parties hereto and shall survive the Closing; provided, however, that notice of any claim against the Purchaser or Seller, whether made under the indemnification provisions hereof or otherwise, based on a breach of a representation, warranty, covenant or agreement must be given within one year from the Closing Date; and provided, further, that notice of any claim made against the Shareholder, whether made under the indemnification provisions hereof or otherwise, based on a breach of a representation, warranty, covenant or agreement must be given within six months from the Closing Date. The representations and warranties hereunder shall not be affected or diminished by any investigation at any time by or on behalf of the party for whose benefit such representations and warranties were made. No representation or warranty contained herein shall be deemed to be made at any time after the date of this Agreement. 11 10. INDEMNIFICATION OF PURCHASER. Subject to the limitations set forth in Sections 9 and 12, the Seller and Shareholder, jointly and severally, shall indemnify and hold Purchaser harmless from, against, for and in respect of: (a) any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action and encumbrances suffered, sustained, incurred or required to be paid by Purchaser because of the breach of any written representation, warranty, agreement or covenant of the Seller or Shareholder contained in this Agreement; (b) any and all liabilities, obligations, claims and demands arising out of the ownership and operation of the Station at all times prior to the Closing Date (other than the contractual liabilities specifically assumed as set forth in Section 1.2 hereto); and (c) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by Purchaser in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 10. 11. INDEMNIFICATION OF SELLER AND SHAREHOLDER. Subject to the limitations set forth in Sections 9 and 12, Purchaser shall indemnify and hold the Seller and Shareholder harmless from, against, for and in respect of: (a) any and all damages, losses, settlement payments, obligations, liabilities, claims, actions or causes of action and encumbrances suffered, sustained, incurred or required to be paid by the Seller or Shareholder because of the breach of any written representation, warranty, agreement or covenant of Purchaser contained in this Agreement; (b) any and all liabilities, obligations, claims and demands arising out of the ownership and operation of the Station on and after the Closing Date, except to the extent the same arises from a breach of any written representation, warranty, agreement or covenant of the Seller or Shareholder contained in this Agreement or any document, certificate or agreement executed in connection with this Agreement; (c) any of the Assumed Contracts specifically assumed as set forth in Section 1.2; and 12 (d) all reasonable costs and expenses (including, without limitation, attorneys' fees, interest and penalties) incurred by the Seller or Shareholder in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against in this Section 11. 12. GENERAL RULES REGARDING INDEMNIFICATION. The obligations and liabilities of each indemnifying party hereunder with respect to claims resulting from the assertion of liability by the other party or indemnified third parties shall be subject to the following terms and conditions: (a) The indemnified party shall give prompt written notice (which in no event shall exceed 30 days from the date on which the indemnified party first became aware of such claim or assertion) to the indemnifying party of any claim which might give rise to a claim by the indemnified party against the indemnifying party based on the indemnity agreements contained in Section 10 or 11 hereof, stating the nature and basis of said claims and the amounts thereof, to the extent known; (b) If any action, suit or proceeding is brought against the indemnified party with respect to which the indemnifying party may have liability under the indemnity agreements contained in Section 10 or 11 hereof, the action, suit or proceeding shall, upon the written acknowledgment by the indemnifying party that it is obligated to indemnify under such indemnity agreement, be defended (including all proceedings on appeal or for review which counsel for the indemnified party shall deem appropriate) by the indemnifying party. The indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the indemnified party's own expense unless (A) the employment of such counsel and the payment of such fees and expenses both shall have been specifically authorized in writing by the indemnifying party in connection with the defense of such action, suit or proceeding, or (B) counsel to such indemnified party shall have reasonably concluded and specifically notified the indemnifying party that there may be specific defenses available to it which are different from or additional to those available to the indemnifying party or that such action, suit or proceeding involves or could have an effect upon matters beyond the scope of the indemnity agreements contained in Sections 10 and 11 hereof, in any of which events the indemnifying party, to the extent made necessary by such defenses, shall not have the right to direct the defense of such action, suit or proceeding on behalf of the indemnified party. In the latter such case only that portion of such fees and expenses of the indemnified party's separate counsel reasonably related to matters covered by the indemnity agreements contained in Section 10 or 11 hereof shall be borne by the indemnifying party. The indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not it is represented by separate counsel. 13 (c) The indemnified party shall make available to the indemnifying party and its attorneys and accountants all books and records of the indemnified party relating to such proceedings or litigation and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding. (d) The indemnified party shall not make any settlement of any claims without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. (e) If any claims are made by third parties against an indemnified party for which an indemnifying party would be liable, and it appears likely that such claims might also be covered by the indemnified party's insurance policies, the indemnified party shall make a timely claim under such policies and to the extent that such party obtains any recovery from such insurance, such recovery shall be offset against any sums due from an indemnifying party (or shall be repaid by the indemnified party to the extent that an indemnifying party has already paid any such amounts). The parties acknowledge, however, that if an indemnified party is self-insured as to any matters, either directly or through an insurer which assesses retroactive premiums based on loss experience, then to the extent that the indemnified party bears the economic burden of any claims through self-insurance or retroactive premiums or insurance ratings, the indemnifying party's obligation shall only be reduced by any insurance recovery in excess of the amount paid or to be paid by the indemnified party in insurance premiums. (f) The indemnified party shall not make any claim unless and until it has incurred indemnified losses, damages and expenses in the cumulative aggregate amount of $25,000, and then only in respect of the excess over such $25,000 minimum. (g) Except as herein expressly provided, the remedies provided in Sections 10 through 12 hereof shall be cumulative and shall not preclude assertion by any party of any other rights or the seeking of any other rights or remedies against any other party hereto. 13. TERMINATION. This Agreement may be terminated by the mutual consent of Purchaser and Seller, or by either Purchaser or Seller, if the terminating party is not then in material breach of its obligations hereunder, upon written notice to the other upon the occurrence of any of the following: (a) By the terminating party, if the other party is in material breach of its obligations hereunder, and such breach has not been cured by the other party within 30 days of written notice of such breach (or such longer period of time if the breach 14 cannot be reasonably cured within 30 days and the breaching party is diligently attempting to cure such breach); (b) If the FCC designates the FCC Application contemplated by Section 2.2(b) hereof for hearing at any time; or (c) If the Closing has not occurred on or before August 31, 1999. In the event that this Agreement is terminated as a result of either party's material breach of this Agreement, the non-breaching party will incur substantial damages that are difficult to quantify. In such event, the sum of $2,000,000 (the "Break-up Fee") is deemed by the parties to be an amount which is a fair and reasonable estimate of the damage the non-breaching party may incur. Accordingly, in the event of such termination, the breaching party will pay the Break-up Fee to the non-breaching party within 10 days of such termination; provided, however, that the Shareholder shall not have any personal liability for such payment (it being understood that the Company will be solely liable in the event that the Company and/or the Shareholder are the breaching party). 14. RISK OF LOSS. The Seller shall bear the risk of all damage to, loss of or destruction of any of the Station Assets between the date of this Agreement and the Closing Date. If any material portion of the Station Assets shall suffer any material damage or destruction prior to the Closing Date, the Seller shall promptly notify the Purchaser in writing of such damage or destruction, shall promptly take all necessary steps to restore, repair or replace such assets at its sole expense, and shall advise the Purchaser in writing of the estimated cost to complete such restoration, repair or replacement and all amounts actually paid as of the date of the estimate. The Purchaser or Seller may extend the Closing Date for a period not exceeding 45 days to accomplish such restoration, repair or replacement, but is not required to do so. If such restoration, repair or replacement is not accomplished prior to the Closing Date, as the same may be extended as provided herein, the Purchaser may, at its option: (a) terminate this Agreement upon written notice to Seller; or (b) receive all insurance proceeds paid or payable to Seller close this Agreement and thereafter complete such restoration, repair or replacement at its sole expense; provided, however, Seller shall have no further liabilities with respect to such damage or destruction after payment to Purchaser of such insurance proceeds. 15. MISCELLANEOUS PROVISIONS. 15.1 EXPENSES. Except as otherwise expressly provided herein, each party shall pay the fees and expenses incurred by it in connection with the transactions contemplated by this Agreement. If any action is brought for breach of this 15 Agreement or to enforce any provision of this Agreement, the prevailing party shall be entitled to recover court costs and reasonable attorneys' fees. 15.2 PRORATIONS. All items of income and expense arising from the operation of the Station with respect to the Station Assets and the Assumed Contracts on or before the close of business on the Closing Date shall be for the account of the Seller and thereafter shall be for the account of the Purchaser. Proration of the items described below between the Seller and the Purchaser shall be effective as of 11:59 p.m., local time, on such date and shall occur as follows with respect to those rights, liabilities and obligations of the Seller transferred to and assumed by the Purchaser hereunder. (a) Liability for state and local taxes assessed on the Station Assets payable with respect to the tax year in which the Closing Date falls and the annual FCC regulatory fee for the Station payable with respect to the year in which the Closing Date falls shall each be prorated as between the Seller and the Purchaser on the basis of the number of days of the tax year elapsed to and including such date. (b) Prepaid items, deposits, credits and accruals such as water, electricity, telephone, other utility and service charges, lease expenses, license fees (if any) and payments under any contracts to be assumed by the Purchaser shall be prorated between the Seller and the Purchaser on the basis of the period of time to which such liabilities, prepaid items and accruals apply. All prorations shall be made and paid insofar as feasible on the Closing Date; any prorations not made on such date shall be made as soon as practicable (not to exceed 90 days) thereafter. The Seller and the Purchaser agree to assume, pay and perform all costs, liabilities and expenses allocated to each of them pursuant to this Section 15.2. 15.3 AMENDMENT. This Agreement may be amended at any time but only by an instrument in writing signed by the parties hereto (it being understood that email does not constitute a signed writing). 15.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if mailed by certified mail, return receipt requested, or by nationally recognized "next-day" delivery service, to the parties at the addresses set forth below (or at such other address for a party as shall be specified by like notice), or sent by facsimile to the number set forth below (or such other number for a party as shall be specified by proper notice hereunder): 16 If to the Purchaser: 3102 Oak Lawn, Suite 215 Dallas, Texas 75219 Attn: McHenry T. Tichenor, Jr., President Fax: (214) 525-7750 If to the Seller or Shareholder: 1455 East Tropicana Avenue, Suite 720 Las Vegas, Nevada 89119 Attn: George E. Tobin, President Fax: 15.5 ASSIGNMENT. This Agreement may not be assigned by either party without the prior consent of the other party, which shall not be unreasonably withheld; provided, however, that Purchaser may assign its rights to one or more subsidiaries so long as Heftel Broadcasting Corporation remains liable for the payment of the Break-up Fee and the purchase price hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs and permitted assigns. 15.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15.7 HEADINGS. The headings of the Sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 15.8 ENTIRE AGREEMENT. This Agreement and the documents referred to herein contain the entire understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, conveyances or undertakings other than those expressly set forth herein. This Agreement supersedes any prior agreements and understandings between the parties with respect to the subject matter. 15.9 WAIVER. No attempted waiver of compliance with any provision or condition hereof, or consent pursuant to this Agreement, will be effective unless evidenced by an instrument in writing by the party against whom the enforcement of any such waiver or consent is sought. 17 15.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada. Venue with respect to any dispute or controversy shall be proper only in Las Vegas, Nevada. 15.11 CERTAIN DEFINITIONS. As used in this Agreement, "affiliates" of a party shall mean persons or entities that directly, or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, such party. 15.12 INTENDED BENEFICIARIES. The rights and obligations contained in this Agreement are hereby declared by the parties hereto to have been provided expressly for the exclusive benefit of such entities as set forth herein and shall not benefit, and do not benefit, any unrelated third parties. 15.13 MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, no provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. [signatures on following page] 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RADIO VISION, INC. By: /s/ George E. Tobin ------------------------------------ George E. Tobin President /s/ George E. Tobin --------------------------------------- George E. Tobin, individually HEFTEL BROADCASTING CORPORATION By: /s/ McHenry T. Tichenor, Jr. ------------------------------------ McHenry T. Tichenor, Jr. President 19 Schedule I Governmental Licenses 1. Main Station License BRH970602E7 2. Auxiliary remote pick-up KP5727 3. Auxiliary STL WLI603 4. KISF-FM call letters
Schedule II Detailed Equipment Listing KISF (FM) Transmitter Site Black Mountain Henderson, Nevada 1. Broadcast Electronics FM-30 (model A early driver) #125a shipped 12-88 2. Broadcast Electronics FX-30 FM exciter 3. 2 Marti Electronics R-10 Studio Receivers 4. Moseley MRC-1600 remote control unit 5. 2 Wacom bandpass cavities 6. Marti MTS-1 splitter 7. Coaxial cable to STL dish on roof 8. STL dish on roof 9. Custom bracket for STL dish 10. Moseley Associates TSK-2 temperature sensor 11. RE: America Radio Broadcast Data Service Encoder 12. Orban Associates Optimod 8100-A-XT2 audio processor 13. Modulation Sciences CP803 14. Extra Andrews connector for 3 1/8 inch line 15. Empty boxes for tubes 16. Trak systems 8821 gps clock 17. IBM rackmount PC 18. Skydata 8465 multirate receiver 19. Best Uninteruptible power supply 20. Small rack (has Seiko subcarrier equipment and related items) Note: Items 16 through 20, included for informational purposes only, are used to generate the FM subcarrier and are probably not owned by station or seller 21. Extra used tube 4CX300 22. RG-8 type Line out to GPS receiver antenna 23. Shiveley Labs 10 bay antenna (half wave spaced) 24. 2 nitrogen tanks 25. Nitrogen regulator Note: Items 21 through 25, included for informational purposes only, are probably not owned by station or seller 26. 360 feet four inch flexible feedline and 40 feet four inch rigid line to antenna 27. hangers and hardware for attaching line to tower and cable ladders 28. Chain to hold tanks upright 29. Wall mounted electrical disconnect panel 30. Extra power line fuses 31. Station owned electrical meter 32. Eagle Hill power line protection KISF(FM) Studios East Tropicana Las Vegas, NV Control Studio 1. Pacific Research and Engineering Airwave console 2. Arrakis Systems cabinets 3. 360 systems instant Replay recorder/playbak device 4. 3 mike (Announcer microphone and two guest mikes) 5. mike stands 6. PC for recording, editing, and playing back phone calls 7. PC for playing commercials & music 8. cassette deck 9. CD players Commercial Production Studio 11. Pacific Research and Engineering Airwave console 12. Arrakis Systems cabinets 13. 360 systems Instant Replay recorder/playback device 14. 3 mike (Announcer microphone and two guest mikes) 15. mike stands 16. Arrakis furniture Creative Production Studio 16. small console 17. PC with soundcard and SAW+ software 18. Arrakis furniture Central Wiring 21. Sage Alerting Emergency Alert Unit 22. 2 Marti Electronics STL-10 studio/transmitter link units 23. Marti Electronics HRC-1 combiner for sti transmitters 24. Flexible, coaxial line to dish on roof 25. STL dish 26. Orban Associates Optimod 810-ST studio chassis Equipment associated with Vehicles 1. Transmission equipment located in Station van a. Marti Electronics RPT- transmitter for remotes b. Cable for antenna c. Yagi type antenna d. Stand-up mast and custom base e. Miscellaneous microphones, amplifiers, speakers and stands
Schedule III Assumed Contracts 1. Lease Agreement dated September 7, 1988, as amended by Extension and Modification of Lease Agreement, by and between the Seller and TeleCom Towers, LLC. 2. Agreements dated November 14, 1995 and October 29, 1998 between the Seller and The Arbitron Company for reports for use by Station (in each case expiring September 30, 2000). 3. Agreement dated June 3, 1996, by and between the Seller and Marketron, Inc. (expiring September 1, 1999, subject to automatic extension) 4. Subcarrier agreement with Seiko Digital Paging (month to month until December 31, 1999)
Schedule IV Third Party Consents 1. Telecom Towers, LLC, as lessor under the Station's transmitter site lease.
Schedule V During the last license period, questions had been raised by the FCC concerning electromagnetic fields and radio frequency radiation (RFR) at the transmitter and the site's compliance with the ANSI standards ("Safety Levels with respect to Human Exposure to Radio Frequency Electromagnetic Fields, 3 kHz to 300GHz"). As a result, there was a joint study and a joint effort by the affected licensees at the transmitter site to resolve the issue to the FCC's satisfaction. It is Seller's belief that the matter was resolved to the FCC's satisfaction by the relocation of one transmitter to a different site and the placing of warning signs concerning certain restricted areas. EXHIBIT A UNWIND AGREEMENT The Unwind Agreement ("Agreement") is entered as of [closing date], by and among Radio Vision, Inc., a Nevada corporation ("Seller"), HBC Las Vegas, Inc., a Delaware corporation ("Asset Buyer") and HBC License Corp., a Delaware corporation ("License Buyer"), which hereby agree as follows: 1. RECITALS. (a) Heftel Broadcasting Corporation ("Heftel") and Seller entered into an Asset Purchase Agreement ("Purchase Agreement") dated as of March 1, 1999, providing for the sale and assignment to Asset Buyer, subject to approval by the Federal Communications Commission (the "Commission"), of assets (the "Station Assets") relating to Seller's radio station KISF-FM (the "Station"), including the licenses issued by the Commission (the "Licenses")for the operation of the Station. Heftel has assigned its rights under the Purchase Agreement (i) to purchase the Licenses to License Buyer and (ii) to purchase the remaining Station Assets to Asset Buyer. All capitalized terms not otherwise defined herein shall have the meaning given to them in the Purchase Agreement. (b) The Commission has issued an order consenting (the "FCC Order") to the assignment of the Licenses to License Buyer, but the FCC Order has not yet become final and is still subject to Commission reconsideration and judicial review; and (c) Seller, Asset Buyer and License Buyer believe to to be desirable and in the public interest that the transactions provided for in the Purchase Agreement be consummated promptly; provided, however, that subject to Commission approval, Seller, Asset Buyer and License Buyer desire to make provision for the retransfer to Seller (or its assignees or designees) of the Licenses and other Station Assets. (d) In order to protect the interests of Seller, Asset Buyer and License Buyer in the event a retransfer is necessary, the parties to this Agreement have agreed upon the terms under which each shall act until the FCC Order becomes a Final Order or in the event that a retransfer of the Licenses or the other Station Assets is necessary. 2. CLOSING OF PURCHASE AGREEMENT. Seller, Asset Buyer and License Buyer agree that: (a) The Closing under the Purchase Agreement shall occur and be effective as of the date hereof ("Closing Date"), and the purchase by Asset Buyer and License Buyer of the Station Assets (the "Purchase") for the Station shall be subject to revocation or rescission (a "Rescission Event") if the FCC Order is set aside and there is a final and unappealable order of the Commission returning, or requiring the reassignment of, the Licenses to Seller or otherwise materially and adversely affecting Asset Buyer's and License Buyer's right to broadcast on the Station, or own the Licenses. (b) To the extent any of the actions contained herein are inconsistent with any statute, law or any Commission rule or regulation, the parties agree to conform this Agreement to the Commission's requirements. 3. FCC DENIAL AND RESCISSION OF TRANSACTION. (a) If a Rescission Event occurs, it is the intent of Seller, Asset Buyer and License Buyer that the sale of the Station Assets consummated at Closing pursuant to the Purchase Agreement shall be rescinded in a manner that shall, as nearly as practicable in the circumstances, restore to the respective parties the respective rights, titles and interests enjoyed by each of them immediately prior to Closing in and to the cash, properties, rights and interests which were transferred at Closing. Accordingly, upon the occurrence of Rescission Event, the Seller, Asset Buyer and License Buyer agree promptly and in good faith to extend such cooperation, execute such instruments, and generally take such action as may be needed to formulate and implement a rescission of the transaction and reassignment of rights and obligations which effectively carries out the intent of Seller, Asset Buyer and License Buyer as hereinabove expressed, including without limitation, submitting to the Commission the requisite applications for consent to the assignment of the Station Assets from Asset Buyer and License Buyer to Seller (the "Unwind Application") within seven business days after the event or deadline requiring the unwinding of the transactions contemplated by the Purchase Agreement. The unwind closing shall occur within 15 days after the Commission public notice is issued that the Commission (whether by delegated authority or at the Commission level) has given its initial consent to the Unwind Application. (b) In the event a rescission is necessary, it is agreed that Asset Buyer and License Buyer shall retain for their own account any profit (and shall be fully responsible for any loss) relating to the operations of the Station during the period from the Closing Date to 12:01 AM on the effective date of rescission. It is further agreed that Asset Buyer and License Buyer shall be responsible for all accounts payable, expenses and other obligations through 12:01 AM on the effective date of rescission attributable to the operation of the Station during the period from the Closing Date to 12:01 AM on the effective date of rescission. 4. REPAYMENT OF PURCHASE PRICE. In connection with any rescission of the Purchase after a Rescission Event, Seller agrees to pay to Asset Buyer and License Buyer at the unwind closing the purchase price delivered to Seller for the Station (the "Reimbursement"). Asset Buyer and License Buyer agree that upon receipt of the 2 Reimbursement to return the Station Assets to the Seller in substantially the same condition as such Station Assets exist on the date hereof, ordinary wear and tear excepted. 5. INDEMNIFICATION. Seller agrees to indemnify, defend and hold harmless Asset Buyer and License Buyer and its officers, directors, successors, assigns and representatives from and against any and all demands, losses, damages (excluding any and all special, consequential or incidental damages), fines, penalties, causes of action, claims, liabilities, obligations, judgments, costs or expenses (including, without limitation, attorneys' fees and court costs) (hereinafter all of the foregoing being referred to collectively or individually as "Claim"), claimed against, incurred, suffered or sustained by it, him or them, or any of them, arising out of, caused by, incident to or in any manner connected with the rescission of the Purchase, unless such Claim is caused in whole or in part by the gross negligence or willful misconduct of Asset Buyer and License Buyer. Asset Buyer and License Buyer agree to indemnify the Seller for any Claim arising out of a breach by Asset Buyer and License Buyer of this Agreement and for any Claim arising out of the operations of the Station Assets by Asset Buyer and License Buyer after the Closing Date through the date of the unwind closing, unless such Claim is caused in whole or in part by the gross negligence or willful misconduct of Seller. 6. COVENANTS OF ASSET BUYER AND LICENSE BUYER. From and after the date hereof and up to the date the FCC Order becomes a Final Order or such later date for retransfer of the Licenses and other Station Assets as contemplated in Section 3 and 4 hereof, and except as specifically agreed to in writing by Seller, Asset Buyer and License Buyer covenant and agree that, with respect to the Station and the Station Assets, License Buyer shall not, by any act or omission within its control, surrender, modify, forfeit or fail to maintain or renew under regular terms the Licenses, cause the Commission to institute any proceeding for the revocation, suspension or modification of any such License, or fail to prosecute with due diligence any pending applications with respect to the Licenses. 7. NOTICES. All notices, demands and requests required or permitted to be given under the provisions of this Unwind Agreement shall be in the manner set forth in the Purchase Agreement. 8. EFFECT OF AGREEMENT. This Agreement shall be binding on, inure to the benefit of and be enforceable by Asset Buyer, License Buyer and Seller and their respective heirs, successors and assigns. 9. SECTION AND PARAGRAPH HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 3 10. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Nevada. 11. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 12. ENTIRE AGREEMENT. Except as expressly set forth herein, the terms of the Asset Purchase Agreement shall not be amended or modified in any respect. Except for the Asset Purchase Agreement and the agreements referenced therein, this Agreement contains all the terms and conditions agreed upon by the parties hereto with respect to the transaction contemplated hereby, and shall not be amended or modified except by written instrument signed by all of the parties. 13. ASSIGNMENT. Any assignment of the rights and duties under this Agreement by Asset Buyer and License Buyer, on the one hand, or Seller, on the other, may be made only with the prior written approval of the other party. 14. ATTORNEYS' FEES. If any action is brought for breach of this Agreement or to enforce any provision of this Agreement, the prevailing party shall be entitled to recover court costs, arbitration expenses and reasonable attorneys' fees. [signatures on following page] 4 IN WITNESS WHEREOF, this Unwind Agreement is executed on the day and year first written above. RADIO VISION, INC. By: --------------------------------- HBC LAS VEGAS, INC. By: --------------------------------- HBC LICENSE CORP. By: --------------------------------- 5 EX-11 4 EXHIBIT 11 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (In Thousands, Except Per-Share Data)
Three Months Year Ended December 31, Ended Year Ended September 30, -------------------------- December 31 ----------------------------------- 1998 1997 1996 1996 1995 1994 ------------ ------------ ----------- ---------- ---------- ---------- EARNINGS: Income (loss) from continuing operations $ 26,884 $ 18,772 $ 2,064 $ (29,157) $ 4,319 $ 2,489 Preferred stock dividends - - - 23 27 184 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stockholders $ 26,884 18,772 $ 2,064 $ (29,180) $ 4,292 $ 2,305 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- BASIC EARNINGS PER SHARE: Continuing operations $ 0.55 $ 0.45 $ 0.09 $ (1.41) $ 0.21 $ 0.25 Discontinued operations - - - (0.49) (0.03) (0.03) Extraordinary loss - - - (0.36) - (0.19) ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share $ 0.55 $ 0.45 $ 0.09 $ (2.26) $ 0.18 $ 0.03 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED EARNINGS PER SHARE: Continuing operations $ 0.54 0.45 $ 0.09 $ (1.41) $ 0.20 $ 0.22 Discontinued operations - - - (0.49) (0.03) (0.03) Extraordinary loss - - - (0.36) - (0.16) ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share $ 0.54 0.45 $ 0.09 $ (2.26) $ 0.17 $ 0.03 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NUMBER OF SHARES ON WHICH NET INCOME (LOSS) PER SHARE IS BASED: Weighted average common shares before dilutive effect of common stock equivalents 49,021 41,671 23,095 20,590 20,021 9,137 Common stock equivalents: Stock options 318 120 - - 1,590 1,632 Employee Stock Purchase Plan 9 - - - - - ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common shares 49,348 41,791 23,095 20,590 21,611 10,769 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EX-21 5 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT HBC Broadcasting Texas, Inc. HBC Chicago, Inc. HBC Florida, Inc. HBC Houston License Corporation HBC Houston, Inc. HBC Las Vegas, Inc. HBC License Corporation HBC Network, Inc. HBC New York, Inc. HBC Phoenix, Inc. HBC San Diego, Inc. HBC Texas, Inc. Heftel GP Texas, Inc. Heftel Broadcasting Texas, L.P. KCYT-FM License Corp. KECS-FM License Corp. KESS-AM License Corp. KESS-TV License Corp. KHCK-FM License Corp. KICI-AM License Corp. KICI-FM License Corp. KLSQ-AM License Corp. KLVE-FM License Corp. KMRT-AM License Corp. KTNQ/KLVE, Inc. KTNQ-AM License Corp. La Oferta, Inc. License Corp. No. 1 License Corp. No. 2 MiCasa Publications, Inc. Momentum Research, Inc. Spanish Coast to Coast, Ltd. T C Television, Inc. The Tower Company, Inc. Tichenor License Corp. Tichenor Media System, Inc. TMS Assets California, Inc. TMS License California, Inc. WADO Radio, Inc. WADO-AM License Corp. WGLI-AM License Corp. WLXX-AM License Corp. WPAT-AM License Corp. WQBA-AM License Corp. WQBA-FM License Corp. EX-23.1 6 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Heftel Broadcasting Corporation We consent to incorporation by reference in the Registration Statements on Form S-3 (No. 333-42171) and Form S-8 (Nos. 333-43483 and 333-43495) of Heftel Broadcasting Corporation of our report dated February 15, 1999, relating to the consolidated balance sheets of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended, and the related financial statement schedule, which report appears in the December 31, 1998 Annual Report on Form 10-K of Heftel Broadcasting Corporation. /s/ KPMG LLP Dallas, Texas March 30, 1999 EX-23.2 7 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-43483) pertaining to the Amended and Restated 1997 Employee Stock Purchase Plan of Heftel Broadcasting Corporation and the Registration Statement (Form S-8 No. 333-43495) pertaining to the Heftel Broadcasting Corporation Long-Term Incentive Plan, of our report dated July 2, 1997, with respect to the consolidated financial statements and schedule of Heftel Broadcasting Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP Los Angeles, California March 29, 1999 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 10,293 0 36,610 2,301 0 45,059 49,638 15,830 746,689 27,891 0 0 0 49 622,571 746,689 0 164,122 0 122,384 (4,932) 0 2,046 44,624 17,740 26,884 0 0 0 26,884 0.55 0.54
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