-----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, Edg0ZOBjZOg5/NKMJtF7cUUzwM8fv9nEBv377Y61G5m+lEXYa/+qm+BqS7hBt4Ni 9LHwkhbsuu2heB7PSNPWvw== 0001047469-98-012700.txt : 19980401 0001047469-98-012700.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-012700 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEFTEL BROADCASTING CORP CENTRAL INDEX KEY: 0000922503 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 990113417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24516 FILM NUMBER: 98580393 BUSINESS ADDRESS: STREET 1: 100 CRESCENT CT STREET 2: STE 1777 CITY: DALLAS STATE: TX ZIP: 75201- BUSINESS PHONE: 7023673322 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, 1997, 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.) 100 Crescent Court, Suite 1777 Dallas, Texas 75201 Telephone (214) 855-8882 (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 20, 1998, the aggregate market price of the Class A Common Stock held by non-affiliates of the Company was approximately $1,330.4 million. (For purposes hereof, directors, executive officers and 10% or greater shareholders have been deemed affiliates). On March 20, 1998, there were 35,160,497 outstanding shares of Class A Common Stock, $.001 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1998 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 19 PART II. Item 5. Market for Registrant's Class A Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . 20 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 22 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . 50 PART III. Item 10. Directors and Executive Officers of the Registrant . . . . . . . 51 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 51 Item 12. Security Ownership of Certain Beneficial Owners and Management . 51 Item 13. Certain Relationships and Related Transactions . . . . . . . . . 51 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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 36 radio stations in 11 markets. The Company's stations are located in ten 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 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 21.6 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 eight of the eleven 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, 1997: Ranking of No. of Market by Stations Hispanic -------------- Population (1) Market AM FM - --------------------------------------------------------------------- ------ ------ 1 Los Angeles 1 2 2 New York 2 0 3 Miami 2 2 4 San Francisco/San Jose 0 2 5 Chicago 2 1 6 Houston 2 4 7 San Antonio 2 2 8 McAllen/Brownsville/Harlingen 1 2 9 Dallas/Fort Worth 2 3 13 El Paso 2 1 30 Las Vegas 1 0 ---- ---- Total 17 19
(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 10.3% of the total United States population) at the end of 1995 to an estimated 31.4 million (approximately 11.4% 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 $1.4 billion in 1997. 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 100 Crescent Court, Suite 1777, Dallas, Texas 75201 and the telephone number is (214) 855-8882. RECENT DEVELOPMENTS KKPN-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 KKPN-FM, serving the Houston, Texas market, for $54.0 million in cash (the "KKPN-FM Acquisition"). Following the consummation of the KKPN-FM Acquisition, the Company plans to convert the format to a Spanish language format. The Company expects to incur operating losses associated with the launch of KKPN-FM in 1998, and anticipates financing the KKPN-FM Acquisition out of the proceeds of its recent equity offering. The KKPN-FM Acquisition is subject to the approval of the Federal Communications Commission (the "FCC") and the approval of certain federal antitrust regulatory authorities. In addition to obtaining all required governmental approvals, the KKPN-FM Acquisition is subject to numerous other conditions and there can be no assurance that the KKPN-FM Acquisition will be consummated in a timely manner or on the terms described herein, if at all. 4 WNWK-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 $115.0 million in cash for the assets of WNWK-FM, an FM station also serving the New York City market (the "WNWK-FM Acquisition"). WNWK-FM broadcasts on 105.9 MHz from a transmitter site located on the Empire State Building. Following the consummation of the WNWK-FM Acquisition, the Company plans to convert the station's programming to a Spanish language format. The Company expects the station to incur operating losses in 1998 associated with the launch of the station. The WNWK-FM Acquisition is subject to the approval of the Federal Communications Commission (the "FCC") and other closing conditions. Application was made to the FCC on December 2, 1997, seeking the approval of the WNWK-FM Acquisition. A Petition To Deny the WNWK-FM assignment application (the "Petition"), dated January 10, 1998, was filed with the FCC. The Petition raised, among other matters, programming objections, technical violations, and multiple-ownership rule concerns. Based upon the information which is currently available, the Company does not believe that the filing of the Petition will lead the FCC to disapprove the WNWK-FM Acquisition. The FCC staff has denied the Petition and has granted both the WNWK-FM and the WPAT-AM assignment applications. The petitioner, however, has filed for review with the FCC and the U.S. Court of Appeals for the District of Columbia Circuit and final FCC approval of the assignment applications has not been granted. There can be no assurance that the closing of the WNWK-FM Acquisition will not be delayed pending the outcome of such appeal or grant of final approval of the assignment applications by the FCC. The WNWK-FM Acquisition also is subject to the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, as amended (the "HSR Act"). On December 29, 1997, the Company filed the required information and materials with the Antitrust Division of the United States Department of Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC"). In early January, the Company was informed that early termination of the applicable waiting period under the HSR Act had been granted. In addition to obtaining all required governmental approvals, the WNWK-FM Acquisition is subject to numerous other conditions, including obtaining consents from various third parties, and there can be no assurance that the WNWK-FM Acquisition will be consummated in a timely manner or on the terms described above, if at all. THE TICHENOR MERGER. 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. Pursuant to the Tichenor Merger, the former Tichenor shareholders and warrant holders received an aggregate of 11,379,756 shares of Common Stock. Because of the FCC's multiple ownership rules and related policies (see "Regulation of Company's Business"), Clear Channel Communications, Inc. (together with its subsidiaries, "Clear Channel"), which prior to the Tichenor Merger owned approximately 63% of the outstanding Class A Common Stock, converted all of its shares of Class A Common Stock and common stock of Tichenor into 14,156,470 shares of Class B Common Stock, which then represented approximately 32% of all outstanding Class A and Class B Common Stock (collectively, the "Common Stock"). See "--Control by Certain Shareholders--Relationship Between the Company and Clear Channel" for a further description of the voting rights of the Class B Common Stock. At the time of the Tichenor Merger, Tichenor had 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. 5 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, Glendale, California (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company entered into the KSCA Time Brokerage Agreement, pursuant to which the Company began providing programming to KSCA on February 5, 1997 (the "KSCA Time Brokerage Agreement"). 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 is 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, after receiving notice of early termination of the waiting period under the HSR Act, the Company made an initial payment of $10.0 million in order to continue the KSCA Option, 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 cash to be paid at closing for the KSCA assets if the KSCA Option is exercised. The purchase price for the KSCA assets is the greater of (a) $112.5 million or (b) the sum of (i) $105.0 million, plus (ii) an amount equal to $13,698.63 per day during the term of the KSCA Time Brokerage Agreement, which daily amount is subject to reduction if the Company is unable to broadcast its programming on KSCA under the KSCA Time Brokerage Agreement. Consummation of the purchase will be subject to a number of conditions, including approval by the FCC of the transfer of the FCC licenses for the station to the Company. There can be no assurance that the Company will exercise its option or that all the conditions will be met. SALES OF CLASS A COMMON STOCK On February 10, 1997, the Company completed the issuance and sale of 4,830,000 (pre-split) shares of Class A Common Stock in an underwritten public offering for a total of $176.4 million in proceeds (the "February 1997 Offering"). 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 $205.3 million in proceeds (the "1998 Offering"). The proceeds from the February 1997 Offering were used to repay borrowings outstanding under the Company's credit facility. The proceeds from the 1998 Offering were used to repay borrowings under the Company's credit facility, and will be used to finance future acquisitions and for general corporate purposes. 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 a target demographic audience in each of the markets it serves. A well-researched mix of music and on-air programming at an individual station can attract a wide audience targeted by Spanish language advertisers. Programming is 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 sound commonly referred to as Mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who have lived in the country towns. Nortena means northern, and is representative of Northern Mexico. Featuring an accordion, Nortena has a Polka sound 6 with a distinct Mexican flavor. Banda is a regional format from the state of Sinaloa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers. Regional Mexican also includes Cumbia music, which originates in Colombia. 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. 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. 7 COMPANY'S STATIONS The following table sets forth information regarding the radio stations owned or programmed by the Company as of December 31, 1997:
RANKING OF MARKET BY PRIMARY HISPANIC DEMOGRAPHIC POPULATION MARKET(1) STATION STATION FORMAT(2) TARGET ----------- --------- ------- ----------------- ----------- 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 WADO-AM News/Talk A 25+ WPAT-AM(4)(5) Brokered n/a 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(6) KLTN-FM Regional Mexican A 18-49 KLTO-FM Regional Mexican A 18-49 KLTP-FM Regional Mexican A 18-49 KOVE-FM Contemporary A 25-54 KLAT-AM Full Service A 25-54 KRTX-AM Contemporary 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 McAllen/Brownsville/Harlingen KGBT-FM Regional Mexican A 25-54 KGBT-AM Regional Mexican A 25-54 KIWW-FM Tejano A 25-24 9 Dallas/Fort Worth KESS-AM Full Service A 18+ KHCK-FM Tejano A 18-49 KMRT-FM Contemporary A 18-49 KDXX-FM Tejano A 18-49 KDXX-AM Contemporary A 18-49 13 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
8 (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. (5) On December 1, 1997, the Company announced the WNWK-FM Acquisition, pursuant to which the Company will exchange WPAT-AM and pay $115.0 million in cash for the assets of WNWK-FM, an FM station serving the New York market. See "--Recent Developments" above for a discussion of the WNWK-FM Acquisition. (6) On March 25, 1998, the Company announced the KKPN-FM Acquisition, pursuant to which the Company will pay $54.0 million in cash for the assets of KKPN-FM, an FM station serving the Houston market. See "--Recent Developments" for a discussion of the KKPN-FM Acquisition, including conditions to closing. The following table sets forth selected information with regard to Company owned radio stations:
LICENSE DATE EXPIRATION BROADCAST STATION/LOCATION ACQUIRED DATE FREQUENCY ---------------- --------- ----------- ---------- KTNQ-AM, Los Angeles, CA 10/85 12/1/97(1) 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 WPAT-AM, New York, NY 3/96 6/1/98(1) 930 kHz 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 2/97 8/1/05 93.3 MHz KLTO-FM, Houston, TX 2/97 8/1/05 104.9 MHz KLTP-FM, Houston, TX 2/97 8/1/05 104.9 MHz KOVE-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 KIWW-FM, McAllen/Brownsville/ Harlingen, TX 2/97 8/1/05 96.1 MHz 9 LICENSE DATE EXPIRATION BROADCAST STATION/LOCATION ACQUIRED DATE FREQUENCY ---------------- --------- ----------- ---------- 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, Corsicana, TX 4/95 8/1/05 107.9 MHz KMRT-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
(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 1995-1997 radio metro ratings and national data base (the Company's station rankings were based upon the Arbitron Adults 25-54 category 1997 Fall Book); 1990 U.S. Census; Strategy Research Corporation--1996 and 1998 U.S. Hispanic Market Study; Duncan's Radio Market Guide (1997 Edition); Hispanic Business (December 1993-1997); 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 10 radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, 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. On a national basis, the rules generally precluded any individual or entity from having an attributable interest in more than 20 AM radio stations and 20 FM radio stations. 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 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 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 recently 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. 11 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. 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 Commission 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 Commission 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 12 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 "--Recent Developments--Tichenor Merger" and "--Control by Certain Shareholders--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 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 Commission'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. 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 13 person other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the Commission 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 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. The Communications Act previously prohibited granting of a broadcast station license (i) to any corporation with an alien officer or director, or (ii) to any corporation controlled by another corporation with any alien officers or more than one-fourth alien directors. The restrictions on non-U.S. citizens serving as officers or directors of licensees and their parent corporations have been eliminated, however, by the 1996 Act. 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 14 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. Recently, 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 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. 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 15 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 36.2% of the Company's broadcast cash flow for the year ended December 31, 1997. 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 January 15, 1998, the Tichenor Family had voting control over approximately 22.1% 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. RELATIONSHIP BETWEEN THE COMPANY AND CLEAR CHANNEL. As of January 15, 1998, 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 29.1% 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 16 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 March 12, 1998, Clear Channel owned or programmed 173 radio stations in 37 domestic markets, as well as radio stations in a number of foreign countries. Clear Channel also owned or programmed 18 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. 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. 17 INDUSTRY SEGMENTS The Company considers radio broadcasting to be its only business segment. EMPLOYEES As of February 25, 1998, the Company employed 609 persons on a full-time basis, including corporate employees and 16 employees (at WADO-AM, New York) who are subject to two collective bargaining agreements. The Company considers its employee relations to be good. ITEM 2. PROPERTIES The Company's corporate headquarters is in Dallas, Texas. The lease agreement for the approximately 7,000 square feet of office space in Dallas expires on August 14, 1998. The Company's corporate offices will be moved from their current location at 100 Crescent Court in Dallas, Texas, to 3102 Oak Lawn Avenue in Dallas, Texas, where the Company has leased approximately 11,000 square feet. 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 1997. 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, 1997, the Company owns or programs 36 radio stations in 11 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 On June 14, 1996, a purported class action lawsuit entitled LEVINE V. CECIL HEFTEL, H. CARL PARMER, MADISON GRAVES, RICHARD HEFTEL, JOHN MASON, HEFTEL BROADCASTING CORPORATION AND CLEAR CHANNEL COMMUNICATIONS, INC. (Case No. 15066) was filed in the Court of Chancery of the State of Delaware in the County of New Castle. The complaint sought to enjoin the Company and the other 18 defendants from completing the then-pending tender offer by Clear Channel for the Company's outstanding Class A Common Stock ("Tender Offer"), and also alleged that Cecil Heftel and H. Carl Parmer, each a former director and executive officer of the Company, had breached their fiduciary duties to the Company and its shareholders by negotiating certain amounts that would be paid to them pursuant to their respective employment agreements upon termination thereof at the consummation of the Tender Offer. The Company and the other defendants believed that the claims were meritless, and filed a motion to dismiss the lawsuit and requested the plaintiffs to dismiss the lawsuit voluntarily. The lawsuit was subsequently dismissed without prejudice pursuant to a Stipulation of Dismissal, which was approved by the Court of Chancery on March 5, 1998. In the ordinary course of business, the Company becomes involved in certain other 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. 19 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 ---- --- FISCAL YEAR ENDED SEPTEMBER 30, 1996 First Quarter $ 9.75 $ 7.38 Second Quarter 10.50 7.63 Third Quarter 14.94 9.75 Fourth Quarter 21.82 14.13 OCTOBER 1, 1996 TO DECEMBER 31, 1996 $ 23.88 $ 15.38 FISCAL 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
As of December 31, 1997, there were approximately 68 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. 20 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data for Heftel Broadcasting Corporation and its subsidiaries for the year ended December 31, 1997, the three months ended December 31, 1996, and the four years ended September 30, 1996 (in thousands, except per share data): Three Months Year Ended Ended Year Ended September 30, December 31, December 31, ---------------------------------------- 1997 1996 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net revenues $136,584 $ 18,309 $ 71,732 $ 64,160 $ 27,433 $ 21,331 Operating expenses 82,065 11,207 48,896 43,643 15,345 11,949 Depreciation and amortization 14,928 1,747 5,140 3,344 1,906 1,760 -------- -------- -------- -------- -------- -------- Operating income before corporate expenses 39,591 5,355 17,696 17,173 10,182 7,622 Corporate expenses 4,579 368 5,072 4,720 3,454 2,530 -------- -------- -------- -------- -------- -------- Operating income 35,012 4,987 12,624 12,453 6,728 5,092 -------- -------- -------- -------- -------- -------- OTHER EXPENSE (INCOME): Interest expense, net 3,541 2,841 11,034 6,389 2,997 2,312 Income (loss) in equity of joint venture(a) - - - - (616) (746) Restructuring charges(b) - - 29,011 - - - Other, net 82 (18) 1,671 428 1,407 533 -------- -------- -------- -------- -------- -------- 3,623 2,823 41,716 6,817 3,788 2,099 -------- -------- -------- -------- -------- -------- Income (loss) before minority interest and income tax 31,389 2,164 (29,092) 5,636 2,940 2,993 Minority interest(a) - - - 1,167 351 - Income tax 12,617 100 65 150 100 272 -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations 18,772 2,064 (29,157) 4,319 2,489 2,721 Loss on discontinued operations of CRC(b) - - 9,988 626 285 - -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item 18,772 2,064 (39,145) 3,693 2,204 2,721 Extraordinary item - loss on retirement of debt - - 7,461 - 1,738 - -------- -------- -------- -------- -------- -------- Net income (loss) $ 18,772 $ 2,064 $(46,606) $ 3,693 $ 466 $ 2,721 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) per common share(c): Basic: Continuing operations $ 0.45 $ 0.09 $ (1.41) $ 0.21 $ 0.25 $ 0.32 Discontinued operations - - (0.49) (0.03) (0.03) - Extraordinary loss - - (0.36) - (0.19) - -------- -------- -------- -------- -------- -------- Net income (loss) $ 0.45 $ 0.09 $ (2.26) $ 0.18 $ 0.03 $ 0.32 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Diluted: Continuing operations $ 0.45 $ 0.09 $ (1.41) $ 0.20 $ 0.22 $ 0.27 Discontinued operations - - (0.49) (0.03) (0.03) - Extraordinary loss - - (0.36) - (0.16) - -------- -------- -------- -------- -------- -------- Net income (loss) $ 0.45 $ 0.09 $ (2.26) $ 0.17 $ 0.03 $ 0.27 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 41,671 23,095 20,590 20,021 9,137 7,934 Diluted 41,792 23,095 20,590 21,611 10,769 9,276 OTHER OPERATING DATA: Broadcast cash flow $ 54,519 $ 7,102 $ 22,836 $ 20,517 $ 12,088 $ 9,382 EBITDA 49,940 6,734 17,764 15,797 8,634 6,852 BALANCE SHEET DATA (AT END OF PERIOD): Working capital $ 10,970 $ 8,429 $ 7,168 $ 14,967 $ 18,366 $ 715 Net intangible assets 423,530 120,592 121,742 109,253 70,528 8,727 Total assets 512,249 163,725 165,751 151,637 113,353 25,770 Long-term debt, less current portion 14,122 135,504 137,659 97,516 59,898 27,046 Stockholders' equity (deficiency) 389,960 14,166 12,101 43,581 44,436 (10,164)
(a) See Note 1 to consolidated financial statements. (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 21 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 year ended December 31, 1997, the three months ended December 31, 1996 and each of the two years in the period ended September 30, 1996 and consolidated financial condition as of December 31, 1997 and 1996 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. Broadcast cash flow is not calculated in accordance with generally accepted accounting principles. This measure should not be considered in isolation or as a substitute 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 does not take into account the Company's debt service requirements and other commitments and, accordingly, broadcast cash flow is 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, 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. 22 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. 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 for the year ended September 30, 1996 of $29.1 million 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 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. RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1995. During fiscal 1995, the Company completed several radio station acquisitions. Due to the financial effects of these transactions, the results of operations for fiscal 1996 reflect a full year of operations for these radio stations compared to a partial year in fiscal 1995. Consequently, the results of operations for the years ended September 30, 1996 and 1995 are not entirely comparable. Net revenues increased by $7.5 million, or 11.7%, to $71.7 million in the year ended September 30, 1996 from $64.2 million in the same period of 1995. Operating expenses increased by $5.3 million, or 12.2% to $48.9 million in the year ended September 30, 1996 from $43.6 million in the same period of 1995. These increases were due primarily to the results of operations of additional radio stations acquired during fiscal 1995 which contributed for a partial year in fiscal 1995 and a full year in fiscal 1996. 23 Interest expense, net of interest income, increased by $4.6 million, or 71.9%, to $11.0 million in the year ended September 30, 1996 from $6.4 million in the same period of 1995 primarily due to increased borrowings totaling approximately $42.0 million resulting from radio station asset acquisitions and certain transaction costs related to the Clear Channel Tender Offer Agreement ("Tender Offer"). Other expenses increased by $34.9 million to $41.7 million during the year ended September 30, 1996 as compared to $6.8 million for the same period in 1995. In fiscal 1996, the Company incurred a loss of $29.0 million relating to certain one-time restructuring charges related to the change in control as described further in the following paragraph. During fiscal 1996, the Company incurred $1.4 million in cost related to unconsummated acquisitions as compared to $142,000 for fiscal 1995. In fiscal 1995, the Company recorded $1.2 million in minority interest relating to Viva Media. In fiscal 1996, the Company owned 100% of Viva Media therefore no minority interest was recognized. In connection with the Tender Offer, the Company incurred certain one-time restructuring charges totaling approximately $29.0 million during the quarter ended September 30, 1996. The material components of the restructuring charges are $18.8 million in payments to former senior executives relating to employment contract settlements, $4.7 million in broker commissions and transaction costs, $2.6 million in costs relating to the planned closing of duplicate facilities, plus $1.8 million in severance relating to employee terminations resulting from the restructuring. Effective August 5, 1996, the Company's Board of Directors approved a plan to discontinue the operations of the radio network owned by CRC. The total loss relating to the discontinued operations of CRC for fiscal 1996 was $10.0 million. The charge to operations for the disposal of CRC for the year ended September 30, 1996 was $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 realized due to the Company's net operating loss carryforwards. The charge to operations for the loss from operations of CRC was $1.9 million. This amount reflects the operating losses from the measurement date, August 5, 1996, through the disposal date, December 31, 1996. CRC fulfilled its contractual program obligations and ceased operating on December 31, 1996. For the year ended September 30, 1996, the Company incurred a non-cash extraordinary loss of $7.5 million as a result of refinanced debt. No income tax benefit was realized due to the Company's net operating loss carryforwards. During fiscal 1996, the Company incurred a net loss of $46.6 million compared to net income of $3.7 million in the same period of fiscal 1995. The change from net income in fiscal 1995 to the net loss in fiscal 1996 of $50.3 million is due to the restructuring charges related to the change in control, the discontinued operations of CRC, the loss on retirement of debt, and the increase in interest expense, as described above. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the year ended December 31, 1997 was $43.8 million compared to net cash used in operating activities for the year ended September 30, 1996 of $20.1 million. Generally, capital expenditures are financed with cash provided by operations and long-term borrowings. For the year ended December 31, 1997, the Company's capital expenditures were $4.0 million compared to $3.7 million for the year ended September 30, 1996. The increase in capital expenditures was due primarily to the Tichenor Merger. During 1997, the Company spent $1.1 million ($3.2 million to acquire KLTO(FM) net of approximately $2.1 million of cash and cash equivalents acquired in the Tichenor Merger), to acquire radio stations. In 1996, the Company spent $20.2 million to acquire the assets of WPAT(AM) (New York City market). During 1997, the Company made two KSCA Option payments which aggregated $13 million. The option payments will be credited against the 24 cash to be paid at closing for the KSCA(FM) assets if the KSCA Option is exercised. See the "Recent Developments" section. STOCKHOLDERS' EQUITY 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. On January 22, 1998, the Company completed the 1998 Offering, selling 5,750,000 shares of Class A Common Stock for $39.75 per share, after underwriters' discounts and commissions. The net proceeds of the offering were approximately $205.3 million. 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 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 Offering to retire the outstanding debt and senior preferred stock of Tichenor assumed on the date of the Merger. The Company repaid $34.0 million under the Credit Facility from cash provided by operations. At December 31, 1997, the Company had outstanding borrowings of $12.0 million under the Credit Facility. 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. The interest rate on the borrowings outstanding under the Credit Facility at December 31, 1997 was 6.38%. 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, 1997. 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 available cash balances, additional borrowings under the Credit Facility, or from cash provided by operations. ACCOUNTING PRONOUNCEMENTS In 1998, the Company will adopt 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, which become effective in 1998. In 1999, the Company will adopt Statement of Financial Accounting Standards No. 132, EMPLOYER'S DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS which becomes effective in 1999. The adoption of these new accounting standards is not expected to have a material impact on the Company. 25 YEAR 2000 The Company has been replacing its software 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. The Company does not expect that the implementation of the new software will materially effect future financial results. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Number ------ Reports of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-29 Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . 30 Consolidated Statements of Operations for the Year Ended December 31, 1997, the Three Months Ended December 31, 1996, and the Years Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 1997, the Three Months Ended December 31, 1996, and the Years Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Consolidated Statements of Cash Flows for the Year Ended December 31, 1997, the Three Months Ended December 31, 1996, and the Years Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 34
27 INDEPENDENT AUDITORS' REPORT The Board of Directors Heftel Broadcasting Corporation: We have audited the accompanying consolidated balance sheet of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedule for the year ended December 31, 1997. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsiblity is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the year ended December 31, 1997, 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 Peat Marwick LLP Dallas, Texas March 9, 1998 28 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Heftel Broadcasting Corporation We have audited the accompanying consolidated balance sheet of Heftel Broadcasting Corporation as of December 31, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the three months ended December 31, 1996 and each of the two years in the period 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 financials statements referred to above present fairly, in all material respects, the consolidated financial position of Heftel Broadcasting Corporation at December 31, 1996, and the consolidated results of its operations and its cash flows for the three months ended December 31, 1996 and each of the two years in the period 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, present farily in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Los Angeles, California July 2, 1997 29 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
December 31, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents $ 6,553,271 $ 4,787,652 Accounts receivable, net of allowance of $2,612,847 in 1997 and $1,128,158 in 1996 29,324,324 16,995,571 Prepaid expenses and other current assets 817,456 631,791 ------------ ------------ Total current assets 36,695,051 22,415,014 ------------ ------------ Property and equipment, at cost: Land 11,046,486 6,662,690 Buildings and improvements 7,034,799 4,856,071 Broadcast and other equipment 20,663,573 12,740,683 Furniture and fixtures 5,705,226 2,996,850 ------------ ------------ 44,450,084 27,256,294 Less accumulated depreciation 11,150,167 7,590,009 ------------ ------------ 33,299,917 19,666,285 ------------ ------------ Intangible assets: Broadcast licenses 334,821,684 98,725,706 Cost in excess of fair value of net assets acquired 95,308,112 24,135,219 Other intangible assets 14,351,232 7,505,000 ------------ ------------ 444,481,028 130,365,925 Less accumulated amortization 20,951,102 9,773,591 ------------ ------------ 423,529,926 120,592,334 ------------ ------------ Deferred charges and other assets, net 18,723,785 1,051,462 ------------ ------------ Total assets $512,248,679 $163,725,095 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,103,419 $366,269 Accrued expenses 19,832,802 11,759,653 Income taxes payable 3,349,161 - Current portion of long-term obligations 440,097 1,860,237 ------------ ------------ Total current liabilities 25,725,479 13,986,159 ------------ ------------ Long-term obligations, less current portion 14,122,019 135,504,232 ------------ ------------ Deferred income taxes 82,441,601 69,000 ------------ ------------ 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 50,000,000 shares in 1997 and 30,000,000 shares in 1996; issued and outstanding 29,978,748 shares in 1997 and 23,095,462 shares in 1996 29,979 11,548 Class B Common Stock, $.001 par value; authorized 50,000,000 shares in 1997 and 7,000,000 shares in 1996; issued and outstanding 14,156,470 shares in 1997 and none in 1996 14,156 - Additional paid-in capital 459,567,282 102,578,149 Accumulated deficit (69,651,837) (88,423,993) ------------ ------------ Total stockholders' equity 389,959,580 14,165,704 ------------ ------------ Total liabilities and stockholders' equity $512,248,679 $163,725,095 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements 30 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Year Ended Ended Year Ended September 30, December 31, December 31, ----------------------------- 1997 1996 1996 1995 ------------- ------------ ------------ ----------- Revenues $154,869,079 $20,850,616 $ 81,242,695 $72,577,882 Agency commissions 18,285,224 2,541,648 9,510,663 8,418,340 ------------ ----------- ------------ ----------- Net revenues 136,583,855 18,308,968 71,732,032 64,159,542 Operating expenses 82,064,446 11,207,309 48,896,256 43,642,509 Depreciation and amortization 14,928,326 1,746,732 5,140,131 3,344,419 ------------ ----------- ------------ ----------- Operating income before corporate expenses 39,591,083 5,354,927 17,695,645 17,172,614 Corporate expenses 4,579,270 368,074 5,071,859 4,720,380 ------------ ----------- ------------ ----------- Operating income 35,011,813 4,986,853 12,623,786 12,452,234 ------------ ----------- ------------ ----------- Other expense (income): Interest income (406,241) (26,290) (206,605) (217,830) Interest expense 3,947,092 2,866,872 11,240,835 6,607,180 Costs relating to unconsummated acquisitions - - 1,383,187 141,988 Restructuring charges - - 29,011,237 - Other, net 81,973 (18,044) 287,140 285,568 ------------ ----------- ------------ ----------- 3,622,824 2,822,538 41,715,794 6,816,906 ------------ ----------- ------------ ----------- Income (loss) before minority interest and income tax 31,388,989 2,164,315 (29,092,008) 5,635,328 Minority interest - - - 1,166,780 Income tax 12,616,833 100,000 65,000 150,000 ------------ ----------- ------------ ----------- Income (loss) from continuing operations 18,772,156 2,064,315 (29,157,008) 4,318,548 ------------ ----------- ------------ ----------- Discontinued operations: Loss from operations of CRC - - 1,844,939 625,970 Loss on disposal of CRC - - 8,142,598 - ------------ ----------- ------------ ----------- Total loss on discontinued operations - - 9,987,537 625,970 ------------ ----------- ------------ ----------- Income (loss) before extraordinary item 18,772,156 2,064,315 (39,144,545) 3,692,578 Extraordinary item - loss on retirement of debt - - 7,461,267 - ------------ ----------- ------------ ----------- Net income (loss) $ 18,772,156 $ 2,064,315 $(46,605,812) $ 3,692,578 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Net income (loss) per common share: Basic: Continuing operations $ 0.45 $ 0.09 $ (1.41) $ 0.21 Discontinued operations - - (0.49) (0.03) Extraordinary loss - - (0.36) - ------------ ----------- ------------ ----------- Net income (loss) $ 0.45 $ 0.09 $ (2.26) $ 0.18 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Diluted: Continuing operations $ 0.45 $ 0.09 $ (1.41) $ 0.20 Discontinued operations - - (0.49) (0.03) Extraordinary loss - - (0.36) - ------------ ----------- ------------ ----------- Net income (loss) $ 0.45 $ 0.09 $ (2.26) $ 0.17 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Weighted average common shares outstanding: Basic 41,671,026 23,095,462 20,589,934 20,021,128 Diluted 41,792,191 23,095,462 20,589,934 21,610,692
See accompanying notes to consolidated financial statements. 31 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, 1994 $ 2,296 $ 6,032 $ 4,680 $ 95,698,105 $ (44,670,835) $(4,019,735) $(2,584,052) Repurchase of preferred stock (1,960) - - (1,958,330) - - - Preferred stock dividends - - - - (2,861,278) - - Common stock issued in connection with exercise of warrants - 160 - 1,679,840 - - (1,680,000) Issuance of stock options - - - 273,654 - - - Net income - - - - 3,692,578 - - ------- ------- ------- ------------ ------------ ----------- ----------- 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 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) $ - $ - ------- ------- ------- ------------ ------------ ----------- ----------- ------- ------- ------- ------------ ------------ ----------- -----------
See accompanying notes to consolidated financial statements. 32 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Year Ended Ended Year Ended September 30, December 31, December 31, ------------------------------- 1997 1996 1996 1995 ------------- ----------- ------------- ------------ Cash flows from operating activities: Net income (loss) $ 18,772,156 $ 2,064,315 $ (46,605,812) $ 3,692,578 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on discontinued operations - - 9,987,537 625,970 Extraordinary loss on debt retirement - - 7,461,267 - Provision for bad debts 2,756,605 722,691 2,871,700 1,522,235 Depreciation and amortization 14,928,326 1,746,732 5,140,131 3,587,341 Amortization of debt facility fee included in interest expense 133,200 360,000 993,674 925,740 Deferred income taxes 8,106,930 - - - Non-cash restructuring charges - - 1,219,048 - Changes in operating assets and liabilities: Accounts receivable, net (4,996,984) (702,939) (4,711,197) (3,545,065) Prepaid expenses and other current assets 360,381 380,441 1,175,118 (327,714) Accounts payable (4,770,977) (341,698) (421,251) (1,331,888) Accrued expenses 2,788,673 (1,595,238) 4,087,219 2,433,390 Income taxes payable 5,506,696 - - - Other, net 206,987 (27,122) 297,960 (393,245) ------------- ----------- ------------- ------------ Net cash provided by (used in) activities of continuing operations 43,791,993 2,607,182 (18,504,606) 7,189,342 Net cash used in discontinued operations - - (1,594,006) (909,355) ------------- ----------- ------------- ------------ Net cash provided by (used in) operating activities 43,791,993 2,607,182 (20,098,612) 6,279,987 ------------- ----------- ------------- ------------ Cash flows from investing activities: Payments received on notes receivable - - - 222,586 Acquisitions of radio stations (1,096,424) - (20,150,000) (37,600,000) Property and equipment acquisitions (4,010,775) (400,396) (3,687,780) (4,011,331) Payment of noncompete agreements - - (7,000,000) - Additions to intangible assets (2,777,245) - - - Collection (funding) of loans to related parties - - 2,357,932 (623,838) Increase in other noncurrent assets (15,134,257) (397,684) - - ------------- ----------- ------------- ------------ Net cash used in investing activities (23,018,701) (798,080) (28,479,848) (42,012,583) ------------- ----------- ------------- ------------ Cash flows from financing activities: Borrowings on long-term obligations 56,000,000 - 163,459,267 36,475,000 Payments on long-term obligations (250,826,404) (2,153,410) (123,752,057) (653,026) Payment of deferred financing costs (1,232,061) - (5,799,878) (82,411) Proceeds from stock issuances 177,050,792 - 10,548,259 - Repurchase of preferred and common stock - - (335,634) (1,960,290) Dividends on preferred stock - - (42,961) (2,861,278) Note payments from stockholders - - 4,229,114 - ------------- ----------- ------------- ------------ Net cash provided by (used in) financing activities (19,007,673) (2,153,410) 48,306,110 30,917,995 ------------- ----------- ------------- ------------ Net increase (decrease) in cash and cash equivalents 1,765,619 (344,308) (272,350) (4,814,601) Cash and cash equivalents at beginning of period 4,787,652 5,131,960 5,404,310 10,218,911 ------------- ----------- ------------- ------------ Cash and cash equivalents at end of period $ 6,553,271 $ 4,787,652 $ 5,131,960 $ 5,404,310 ------------- ----------- ------------- ------------ ------------- ----------- ------------- ------------
See accompanying notes to consolidated financial statements. 33 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 36 Spanish language broadcast radio stations serving 11 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, 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. Until August 19, 1994, the Company's investment in its joint venture was accounted for using the equity method of accounting. In connection with certain agreements entered into between the Company and its joint venture partner, management considered it appropriate to consolidate the accounts of the joint venture and therefore such accounts and results of operations have been consolidated and are included in the accompanying consolidated financial statements effective August 20, 1994. On September 7, 1995, the Company, through a subsidiary, acquired the remaining 51% interest in this joint venture. 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. INVESTMENT 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, 1997 are comprised primarily of a 50% interest in a general partnership which owns a transmission tower that is 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. 34 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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. 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 Goodwill 40 years Other intangibles 2 - 40 years The Company evaluates periodically the propriety of the carrying amount of intangible assets 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 operating 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 operating income is 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 $4.0, $0.3, $2.4 and $1.3 million for the year ended December 31, 1997, the three months ended December 31, 1996, and the years ended September 30, 1996 and 1995. 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 35 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 income in the period that includes the enactment date. EARNINGS PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, 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 Class A and Class B common shares outstanding during each year. Diluted earnings per common share assumes conversion of dilutive convertible securities into common stock at the later of the beginning of the year or date of issuance and includes the add-back of related interest expense and/or dividends, as required. The adoption of this new accounting standard, which required the restatement of all presented periods' earnings (loss) per share data, did not have a material impact on previously reported earnings (loss) per share. 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, 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 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. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the current year presentation. 36 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. ACQUISITIONS AND DISPOSITIONS 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. 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. 1995 ACQUISITIONS In December 1994, the Company acquired station KMRT(AM), which serves the Dallas/Ft. Worth market, for approximately $1.5 million. From August 1994 through the date of acquisition, the Company programmed KMRT(AM) under a Local Marketing Agreement ("LMA"). The LMA provided that the Company retain all revenues associated with advertising time and pay certain operating expenses. In April 1995, the Company acquired station KICI(FM), which serves the Dallas/Ft. Worth market, in exchange for cancellation of a note for $0.9 million payable by the seller to a subsidiary of the Company. From August 1994 through the date of acquisition, the Company programmed KICI(FM) under an LMA. 37 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In June 1995, the Company acquired the assets of radio station KMRT(FM) (formerly KCYT(FM), serving the Dallas/Ft. Worth market) for approximately $2.0 million. The acquisition was financed through additional borrowings under the Company's credit agreement and the issuance of notes payable to the sellers. From February 1995 through the date of acquisition, the Company programmed KMRT(FM) under an LMA. In July 1995, the Company acquired the assets of radio station KHCK(FM) (formerly KDZR(FM)), which serves the Dallas/Ft. Worth market, for approximately $4.7 million. This acquisition was financed through additional borrowings under the Company's credit agreement. From February 1995 through the date of acquisition, the Company programmed KHCK(FM) under an LMA. In July 1995, the Company acquired the assets of radio station WLXX(AM) (formerly WOPA(AM)), which serves the Chicago market, for approximately $4.5 million plus 44,811 shares of Class A Common Stock with a fair value of approximately $0.7 million. This acquisition was financed through additional borrowings under the Company's credit agreement. In August 1995, the Company acquired the assets of radio station KLSQ(AM) (formerly KOWA(AM)), which serves the Las Vegas market, for approximately $0.9 million. The acquisition was financed through additional borrowings under the Company's credit agreement. On September 7, 1995, the Company acquired the remaining 51% interest in Viva America Media Group ("Viva Media"), a partnership that owns WAQI(AM) and WRTO(FM), which serve the Miami market, for $19.8 million in cash. The acquisition was financed through additional borrowings under the Company's credit agreement. Under the terms of an Amended and Restated Agreement and Plan of Reorganization, and in connection with this transaction, the following contractual arrangements were terminated for no additional consideration: (i) a warrant to purchase up to 237,600 shares of Class B Common Stock held by a former officer of the Company and the employment relationship between the Company and that officer and (ii) certain agreements regarding the management of the Miami stations. 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 is 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 if the KSCA Option is exercised. If the KSCA Option is not exercised or renewed, all amounts paid will be charged to expense. 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. Consummation of the purchase will be subject to a number of conditions, including approval by the FCC of the transfer of the FCC licenses. 38 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) On December 1, 1997, the Company entered into an asset exchange agreement to exchange WPAT(AM), serving the New York City market, and $115.0 million in cash for the assets of WNWK(FM), serving the New York City market (the "WNWK(FM) Acquisition"). Following the consummation of the WNWK(FM) Acquisition, the Company plans to convert the station's programming to a Spanish language format. The WNWK(FM) Acquisition has been approved by the FCC but is subject to other closing conditions. Unaudited consolidated condensed pro forma results of operations as if all completed acquisitions occurred as of the beginning of the periods presented are as follows: YEAR ENDED DECEMBER 31, ---------------------------- 1997 1996 ------------ ------------ Net revenues $141,036,000 $122,171,000 Operating income 33,865,000 10,636,000 Net income (loss) 15,796,000 (53,292,000) Net income (loss) per share - basic and diluted 0.37 (1.65)
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. 3. CHANGE IN CONTROL OF COMPANY On August 5, 1996, Clear Channel Communications, Inc. ("Clear Channel") completed the purchase of 9,345,092 shares of the Company's Class A and Class B common stock for $23 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 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 common stock 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 1997, approximately $0.4 million was charged against the accrual primarily for operating losses and severance payments. The majority of the remaining accrued balance of approximately $0.6 million at December 31, 1997 is for severance payments to be paid to a former employee through 2000. 39 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 1997, approximately $2.5 million was charged against the accrual primarily for severance payments. The majority of the remaining accrued balance of approximately $1.9 million at December 31, 1997 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 1998. 5. LONG-TERM OBLIGATIONS The following is a summary of long-term obligations outstanding as of December 31, 1997 and 1996: 1997 1996 ------------ ------------ 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 6.38% at December 31, 1997; interest rates ranged from 5.75% to 6.38% during 1997; 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 $ - Old Credit Agreement, variable interest rate (7.44% at December 31, 1996), interest payable monthly, principal repaid in February 1997 - 133,000,000 Non-interest bearing note payable to former Viva Media partners due February 1997 - 1,499,250 Various loans, interest ranging from 7.2% to 9.38%, payable in varying installments through 2015 1,055,820 1,359,565 Prize awards net of imputed interest (10% to 12%), payable in varying annual installments through 2044 1,506,296 1,505,654 ----------- ------------ 14,562,116 137,364,469 Less current portion (440,097) (1,860,237) ----------- ------------ $14,122,019 $135,504,232 ----------- ------------ ----------- ------------
40 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 common stock offering to retire the outstanding debt and senior preferred stock of Tichenor assumed on the date of the 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 is secured by the capital stock of the Company's subsidiaries. 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 ("Old Credit Agreement") 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. On February 4, 1997, the Company borrowed $10.0 million under its Old Credit Agreement with the proceeds used to purchase an option to acquire all of the assets of KSCA-FM in Los Angeles from Golden West Broadcasters. Maturities of long-term obligations for the five years subsequent to December 31, 1997 are as follows: YEAR AMOUNT ---- ------ 1998 $ 440,097 1999 306,129 2000 278,026 2001 112,639 2002 and thereafter 13,425,225
Interest paid for the year ended December 31, 1997, the three months ended December 31, 1996 and the years ended September 30, 1996 and 1995 amounted to $3.9, $2.9, $11.2 and $6.6 million, respectively. 41 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES The Company leases office space and other property under noncancellable operating leases. Terms of the leases vary from three 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, 1997 are summarized as follows: YEAR AMOUNT ---- ------ 1998 $3,119,758 1999 3,006,646 2000 2,412,291 2001 2,173,389 2002 1,894,133 Thereafter 5,497,886
Rent expense for the year ended December 31, 1997, the three months ended December 31, 1996, and the years ended September 30, 1996 and 1995 was $2.6, $0.3, $1.7 and $1.3 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 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 underwriters' discounts and commissions. The net proceeds of the offering were approximately $176.4 million. Immediately prior to the consummation of the Tichenor Merger, the Company filed a Second Amended and Restated Certificate of Incorporation ("Second Amended Certificate"). This increased the total number of authorized shares of the Company to 105,000,000 shares consisting of three classes of capital stock as follows; (i) 50,000,000 shares of Class A Common Stock, par value $.001 per share; (ii) 50,000,000 shares of Class B Common Stock, par value $.001 per share; and (iii) 5,000,000 shares of Preferred Stock, par value $.001 per share. 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. On February 14, 1997, all of the outstanding shares of Heftel Common Stock owned by Clear Channel (7,078,000 shares on a pre-split basis) were converted to Class B Common Stock. 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 dividend, $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. 42 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) On January 2, 1996 the Company issued 89,622 shares of common stock to one of the parties to the acquisition of WLXX(AM) in Chicago in accordance with the terms of the purchase agreement. 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. TREASURY STOCK In December 1993, the Company repurchased 1,621,174 shares of its Class B Common Stock from certain stockholders for $4.0 million. In September 1996, the 1,621,174 shares held as treasury stock were retired. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of $.001 par value Preferred Stock. Series A Preferred Stock dividends are payable quarterly and have a cumulative annual rate of $.04 per share. As of December 31, 1997, there were no issued or outstanding shares of Series A Preferred Stock. The Series A Preferred Stock is superior to common stock in liquidation in the amount of $.50 per share plus cumulative unpaid dividends and is redeemable at the option of the Company at $.50 per share plus cumulative unpaid dividends. In August 1996, the Company redeemed all of the outstanding Series A Preferred Stock and paid cumulative unpaid dividends through the redemption date of $2,685. In January 1995, the Company redeemed and retired 3,920,580 shares of its outstanding Series A Preferred stock owned by the Company's then current Chairman and Co-Chief Executive Officer and certain of his children. The redemption price was equal to $.50 per share plus cumulative unpaid dividends through the date of redemption of $2.9 million. In April 1995, the Company paid approximately $0.3 million in cumulative unpaid dividends on its outstanding Series A Preferred Stock held by the daughter of the Company's then current Chairman and Co-Chief Executive Officer. 43 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. INCOME TAXES The provision for income taxes on income (loss) from continuing operations consists of the following:
THREE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ------------------------ 1997 1996 1996 1995 ----------- ------------ ------- -------- Current: Federal $ 3,144,449 $ - $ - $100,000 State 1,365,454 100,000 65,000 50,000 ----------- -------- ------- -------- Total current tax 4,509,903 100,000 65,000 150,000 ----------- -------- ------- -------- Deferred: Federal 7,782,653 - - - State 324,277 - - - ----------- -------- ------- -------- Total deferred tax 8,106,930 - - - ----------- -------- ------- -------- Total income tax $12,616,833 $100,000 $65,000 $150,000 ----------- -------- ------- -------- ----------- -------- ------- --------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1997 and 1996 are as follows: 1997 1996 ----------- ------------ Deferred tax assets: Net operating losses $12,987,833 $ 16,797,000 Other intangible assets 1,668,659 - Long-term obligations - prize awards 587,455 602,000 Allowance for doubtful accounts receivable 1,019,010 545,000 Other 869,649 3,383,000 ----------- ------------ Total deferred tax assets 17,132,606 21,327,000 Valuation allowance - (13,693,000) ----------- ------------ Net deferred tax assets 17,132,606 7,634,000 ----------- ------------ Deferred tax liabilities: Broadcast licenses 91,668,629 - Property and equipment 1,139,937 - Restructuring charges 6,585,218 7,521,000 Other 180,423 182,000 ----------- ------------ Total deferred tax liabilities 99,574,207 7,703,000 ----------- ------------ Net deferred tax liabilities $82,441,601 $ 69,000 ----------- ------------ ----------- ------------
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 $0.7 million decrease in the valuation allowance for the three months ended December 31, 1996 is due to a decrease in other accrued liabilities and is partially offset by an increase in net operating loss carryforwards. For the year ended September 44 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 30, 1996, the valuation allowance increased $8.9 million due to an increase in net operating loss carryforwards and restructuring charges not deductible for tax purposes. The $1.1 million decrease in the valuation allowance for the year ended September 30, 1995 is due to a decrease in net operating loss carryforwards. 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 ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, --------------------------- 1997 1996 1996 1995 ----------- ------------- ----------- ----------- Federal income tax (benefit) at statutory rate $10,986,146 $ 735,867 $(9,891,283) $ 1,519,306 State income taxes, net of federal benefit 941,674 66,000 42,900 33,000 Nondeductible and non-taxable items, net 689,013 (46,629) 8,490,286 258,400 Net operating loss carryforward not benefited - - 1,423,097 - Use of net operating loss carryforwards - (655,238) - (1,660,706) ----------- --------- ----------- ----------- $12,616,833 $ 100,000 $ 65,000 $ 150,000 ----------- --------- ----------- ----------- ----------- --------- ----------- -----------
As of December 31, 1997, the Company had tax net operating loss carryforwards for federal and state tax purposes of approximately $32.9 and $5.7 million, respectively. The net operating losses expire in the year 2010 if not used. Income taxes paid for the year ended December 31, 1997, the three months ended December 31, 1996, and the years ended September 30, 1996 and 1995 amounted to $2.2 million, $0, $65,000 and $78,800, respectively. 45 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 ENDED YEAR ENDED SEPTEMBER 30 DECEMBER 31, DECEMBER 31, --------------------------- 1997 1996 1996 1995 ----------- ------------- ------------ ---------- Numerator: Income (loss) from continuing operations $18,772,156 $2,064,315 $(29,157,008) $4,318,548 Preferred stock dividends - - 22,823 26,850 ----------- ---------- ------------ ---------- Numerator for basic and diluted earnings per share $18,772,156 $2,064,315 $(29,179,831) $4,291,698 ----------- ---------- ------------ ---------- ----------- ---------- ------------ ---------- Denominator: Weighted average common shares 41,671,026 23,095,462 20,589,934 20,021,128 Effect of dilutive securities - stock options 120,466 - - 1,589,564 ----------- ---------- ------------ ---------- Denominator for diluted earnings per share 41,791,492 23,095,462 20,589,934 21,610,692 ----------- ---------- ------------ ---------- ----------- ---------- ------------ ----------
10. 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 6,084 options at $16.44 per share to a key employee. The options vest ratably over a three year period. In March 1997, the Company adopted a stock incentive plan ("Stock Incentive Plan"), to be administered by the Board of Directors or by a committee (two or more directors) or sub-committee of the Board of Directors. The maximum number of shares of Class A Common Stock that may be the subject of awards at any one time shall be five percent of the total number of shares of Class A Common Stock outstanding. Options granted under the Stock Incentive Plan vest ratably over the last three years of a five year period. In June 1997, the Company issued 753,000 stock options to various employees of the Company under its Stock Incentive Plan. The exercise prices ranged from $23.50 to $36.19 per share, the market prices at dates of issuance. 46 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Following is a summary of management incentive stock options granted, exercised and outstanding for the three years ended December 31, 1997: Number Weighted Average Of Shares Exercise Price ---------- --------------- Options outstanding at September 30, 1994 2,087,012 $0.964 Granted 474,200 $5.027 Exercised (320,000) $5.25 Cancelled (396,000) $2.255 ---------- ------ Options outstanding at September 30, 1995 1,845,212 $1.90 Granted 1,048,678 $7.645 Exercised (2,883,890) $3.39 Cancelled (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 Cancelled (36,000) $23.50 ---------- ------ Options outstanding at December 31, 1997 723,084 $23.84 ---------- ------ ---------- ------
At December 31, 1997, 2,028 options were exercisable at $16.44 per share. No compensation expense related to stock option grants was recorded in 1997 or 1996. In 1995, compensation expense of $273,654 was recorded representing stock options issued to two individuals at a price below market value at the date of the grant. Pro forma information regarding net income and earnings per share is required by Statement 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 fair values for these options were estimated at the dates of grant using a Black-Scholes option pricing model and were $13.17, $6.51, $2.77 and $3.10 during the year ended December 31, 1997, the three months ended December 31, 1996, and the years ended September 30, 1996 and 1995, respectively, with the following weighted average assumptions: 1997 1996 1995 ------- ------- -------- Risk-free interest rate 6.55% 5.73% 5.41% Dividend yield 0.00% 0.00% 0.00% Volatility factor 50.00% 51.00% 44 - 50% Weighted average expected life 6 years 3 years 3 years
47 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 YEAR ENDED ENDED SEPTEMBER 30 DECEMBER 31, DECEMBER 31, --------------------------- 1997 1996 1996 1995 ----------- ---------- ------------- ---------- Net earnings - as reported $18,772,157 $2,064,315 $(46,605,812) $3,692,578 Net earnings - pro forma 18,147,081 2,063,644 (48,509,974) 3,680,759 Basic earnings per share - as reported 0.45 0.09 (2.26) 0.18 Basic earnings per share - pro forma 0.44 0.09 (2.36) 0.18 Weighted average fair value of options granted during the 10.45 5.50 - 2.59 year
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. 11. OTHER FINANCIAL INFORMATION ACCRUED EXPENSES DECEMBER 31, ---------------------------- 1997 1996 ------------ ------------ Wages, salaries and benefits payable $ 3,145,530 $ 1,780,200 Commissions payable 5,969,278 2,813,223 Interest payable 871,461 742,222 Accrued restructuring and discontinued operation charges 2,467,200 4,968,420 Other accrued expenses 7,379,333 1,455,588 ------------ ------------ $ 19,832,802 $ 11,759,653 ------------ ------------ ------------ ------------
48 HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED EXCEPT FOR THE QUARTER ENDED DECEMBER 31, 1996, WHICH IS AUDITED) The following is a summary of the quarterly results of operations for the year ended December 31, 1997, the quarter ended December 31, 1996 (transition period) and the year ended September 30, 1996: 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 Income from continuing operations 565,983 5,373,047 5,948,853 6,884,273 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
Quarter ended December 31, 1996: 12/31/96 ------------- Net revenues $ 18,308,968 Income from continuing operations 2,064,315 Net income 2,064,315 Net income per common share - basic and diluted 0.09
Year ended September 30, 1996: 12/31/95 3/31/96 6/30/96 9/30/96 ------------- ------------- ------------- ------------- Net revenues $ 17,457,686 $ 15,695,750 $ 19,900,061 $ 18,678,535 Income (loss) from continuing operations 1,302,238 (307,859) (362,442) (29,788,945) Loss on discontinued operations 444,043 663,798 500,326 8,379,370 Extraordinary loss - - - 7,461,267 Net income (loss) 858,195 (971,657) (862,768) (45,629,582) Net income (loss) per common share - basic and diluted: Continuing operations $ 0.06 $ (0.02) $ (0.02) $ (1.46) Discontinued operations (0.02) (0.03) (0.02) (0.41) Extraordinary loss - - - (0.36) ------------- ------------- ------------- ------------- Net income (loss) $ 0.04 $ (0.05) $ (0.04) $ (2.23) ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE In 1997, the Company solicited proposals from qualified firms of certified public accountants to perform audit services beginning in calendar year 1997 for the Company and its subsidiaries. On February 19, 1997, Ernst & Young LLP, the Company's prior independent accountant, was notified that KPMG Peat Marwick LLP had been selected as the Company's new independent accountants as a result of this process. The decision to change accountants was approved by the Board of Directors of the Company on February 19, 1997. Ernst & Young LLP served as the independent accountants for the Company and its subsidiaries for the fiscal years ended September 30, 1995 and 1996 and the three months ended December 31, 1996. The independent auditors' reports of Ernst & Young LLP on the consolidated financial statements of the Company and its subsidiaries as of September 30, 1995 and 1996 and December 31, 1996 and for each of the two years in the period ended September 30, 1996 and the three months ended December 31, 1996, each expressed an unqualified opinion and were not modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended September 30, 1995 and 1996 and through March 27, 1998, there were no reportable events (as defined in Regulation S-K, Item 304(a)(1)(v)) or disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that were not resolved to the satisfaction of Ernst & Young LLP. There were no disagreements with accountants on accounting and financial disclosure. 50 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. 51 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATMENTS The following financial statements have been filed under Item 8 of this report: Reports of Independent Auditors Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the Year Ended December 31, 1997, the Three Months Ended December 31, 1996, and the Years Ended September 30, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 1997, the Three Months Ended December 31, 1996, and the Years Ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows for the Year Ended December 31, 1997, the Three Months Ended December 31, 1996, and the Years Ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES HEFTEL BROADCASTING CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1997, THE THREE MONTHS ENDED DECEMBER 31, 1996, AND THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995 (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, 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 FOR THE YEAR ENDED SEPTEMBER 30, 1995: Allowance for Doubtful Accounts 942 1,522 - 972 1,492
52 3. EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. with Exhibits (Schedules omitted) (incorporated by reference to Exhibit 99 (c) (16) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.2 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Sr. (incorporated by reference to Exhibit 99 (c) (17) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.3 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 99 (c) (18) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.4 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Warren Tichenor (incorporated by reference to Exhibit 99 (c) (19) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and William Tichenor (incorporated by reference to Exhibit 99 (c) (20) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.6 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Jean Russell (incorporated by reference to Exhibit 99 (c) (21) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.7 Amended and Restated Agreement and Plan of Merger, dated October 10, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 2.5.7 to Registrant's Form 10-K/A for the year ended September 30, 1996) 2.8 Assignment Agreement, dated October 10, 1996 by Registrant and Heftel Merger Sub, Inc. (incorporated by reference to Exhibit 2.5.8 to Registrant's Form 10-K/A for the year ended September 30, 1996) 2.9 Assignment and Assumption Agreement, dated as of January 2, 1997, among the Registrant, Clear Channel, and Tichenor Media System, Inc. (incorporated by reference to Exhibit 2.5.16 to the Registrant's Registration Statement on Form S-3, as amended (Reg. No. 333-14207)) 53 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 reference to 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) 54 10.11 Employment Agreement dated August 1, 1995 between the Registrant and John T. Kendrick (incorporated by reference to Exhibit 10.15 to Registrant's Form 10-K filed on December 20, 1996) 10.12 Promissory Note dated January 9, 1996, executed by Registrant and HBC Florida, Inc. to the order of Mambisa (incorporated by reference to Exhibit 2.1.5 to Registrant's Form 10-K, filed on December 20, 1996) 10.13 Agreement Not to Compete, dated June 1, 1996, between the Company and Carl Parmer (incorporated by reference to Exhibit 99 (c) (4) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.14 Agreement Not to Compete, dated June 1, 1996, between the Company and Cecil Heftel (incorporated by reference to Exhibit 99 (c) (3) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.15 Settlement Agreement, dated June 1, 1996, between the Company and Carl Parmer (incorporated by reference to Exhibit 99 (c) (6) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.16 Settlement Agreement, dated June 1, 1996, between the Company and Cecil Heftel (incorporated by reference to Exhibit 99 (c) (5) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.17 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)) 10.18 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)) 10.19 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) 10.20 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) 55 10.21 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 L. Lykes (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed March 3, 1997) 10.22 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) 10.23 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) 10.24 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) 10.25 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) 10.27 Asset Exchange Agreement, dated December 1, 1997, by and between Multicultural Radio Broadcasting, Inc. and Heftel Broadcasting Corporation. 10.28 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)). 11 Statement regarding Computations of Per Share Earnings 16 Letter from Ernst & Young LLP regarding change of certifying accountants (incorporated by reference to Exhibit 16.1 to the Registrant's Form 8-K filed February 26, 1997) 21 Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Ernst & Young LLP 24 Power of Attorney (included on Signature Page) 27.1 Financial Data Schedule 27.2 Financial Data Schedule 27.3 Financial Data Schedule 27.4 Financial Data Schedule 27.5 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). 56 (b) REPORTS ON FORM 8-K The Company filed a report on Form 8-K dated December 12, 1997 which included consolidated balance sheets of Tichenor Media System, Inc. ("Tichenor") and its subsidiaries, which were acquired by the Company on February 14, 1997, as of December 31, 1996 and 1995 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, with an Independent Auditors' Report dated October 17, 1997. Also included were unaudited pro forma condensed consolidated statements of operations of the Company and its subsidiaries for the year ended December 31, 1996 and the nine months ended September 30, 1997. The Tichenor acquisition is described under the caption "Recent Developments" in Item 1 of Part I of this Form 10-K. 57 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, 1998. 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 March 31, 1998 McHenry T. Tichenor, Jr. Officer and Chairman of the Board of Directors /s/ Jeffrey T. Hinson - ---------------------------- Senior Vice President, Chief March 31, 1998 Jeffrey T. Hinson Financial Officer and Treasurer (Principal Financial Officer) /s/ David P. Gerow - ---------------------------- Vice President and Controller March 31, 1998 David P. Gerow (Principal Accounting Officer) /s/ McHenry T. Tichenor - ---------------------------- Director March 31, 1998 McHenry T. Tichenor /s/ Robert W. Hughes - ---------------------------- Director March 31, 1998 Robert W. Hughes /s/ James M. Raines - ---------------------------- Director March 31, 1998 James M. Raines /s/ Ernesto Cruz - ---------------------------- Director March 31, 1998 Ernesto Cruz 58 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. with Exhibits (Schedules omitted) (incorporated by reference to Exhibit 99 (c) (16) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.2 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Sr. (incorporated by reference to Exhibit 99 (c) (17) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.3 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 99 (c) (18) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.4 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Warren Tichenor (incorporated by reference to Exhibit 99 (c) (19) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and William Tichenor (incorporated by reference to Exhibit 99 (c) (20) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.6 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Jean Russell (incorporated by reference to Exhibit 99 (c) (21) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.7 Amended and Restated Agreement and Plan of Merger, dated October 10, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 2.5.7 to Registrant's Form 10-K/A for the year ended September 30, 1996) 2.8 Assignment Agreement, dated October 10, 1996 by Registrant and Heftel Merger Sub, Inc. (incorporated by reference to Exhibit 2.5.8 to Registrant's Form 10-K/A for the year ended September 30, 1996) 2.9 Assignment and Assumption Agreement, dated as of January 2, 1997, among the Registrant, Clear Channel, and Tichenor Media System, Inc. (incorporated by reference to Exhibit 2.5.16 to the Registrant's Registration Statement on Form S-3, as amended (Reg. No. 333-14207)) 59 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 reference to 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) 10.11 Employment Agreement dated August 1, 1995 between the Registrant and John T. Kendrick (incorporated by reference to Exhibit 10.15 to Registrant's Form 10-K filed on December 20, 1996) 60 10.12 Promissory Note dated January 9, 1996, executed by Registrant and HBC Florida, Inc. to the order of Mambisa (incorporated by reference to Exhibit 2.1.5 to Registrant's Form 10-K, filed on December 20, 1996) 10.13 Agreement Not to Compete, dated June 1, 1996, between the Company and Carl Parmer (incorporated by reference to Exhibit 99 (c) (4) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.14 Agreement Not to Compete, dated June 1, 1996, between the Company and Cecil Heftel (incorporated by reference to Exhibit 99 (c) (3) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.15 Settlement Agreement, dated June 1, 1996, between the Company and Carl Parmer (incorporated by reference to Exhibit 99 (c) (6) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.16 Settlement Agreement, dated June 1, 1996, between the Company and Cecil Heftel (incorporated by reference to Exhibit 99 (c) (5) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.17 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)) 10.18 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)) 10.19 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) 10.20 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) 10.21 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 L. Lykes (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed March 3, 1997) 10.22 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) 61 10.23 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) 10.24 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) 10.25 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) 10.26 Asset Purchase Agreement, dated March 28, 1997, by and among Roy E. Henderson and Fort Bend Broadcasting Company, Inc. and Tichenor Media System, Inc. (incorporated by reference to Exhibit 10.3 to Registrant's Form 8-K filed on May 14, 1997) 10.27 Asset Exchange Agreement, dated December 1, 1997, by and between Multicultural Radio Broadcasting, Inc. and Heftel Broadcasting Corporation. 10.28 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)). 11 Statement regarding Computations of Per Share Earnings 16 Letter from Ernst & Young LLP regarding change of certifying accountants (incorporated by reference to Exhibit 16.1 to the Registrant's Form 8-K filed February 26, 1997) 21 Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Ernst & Young LLP 24 Power of Attorney (included on Signature Page) 27.1 Financial Data Schedule 27.2 Financial Data Schedule 27.3 Financial Data Schedule 27.4 Financial Data Schedule 27.5 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). 62 EX-10.27 2 EXHIBIT 10.27 ASSET EXCHANGE AGREEMENT THIS ASSET EXCHANGE AGREEMENT is made as of the 1st day of December, 1997, by and between Multicultural Radio Broadcasting, Inc. ("MULTICULTURAL") and Heftel Broadcasting Corporation ("HEFTEL"). W I T N E S S E T H: WHEREAS, Multicultural owns and operates commercial radio broadcasting station WNWK-FM licensed to Newark, New Jersey (the "MULTICULTURAL STATION"), and other authorizations issued by the Federal Communications Commission ("FCC") for the operation of the Multicultural Station; and WHEREAS, Heftel owns and operates commercial radio broadcasting station WPAT-AM licensed to Paterson, New Jersey (the "HEFTEL STATION") and holds licenses and other authorizations issued by the FCC for the operation of the Heftel Station (the Multicultural Station and the Heftel Station being collectively referred to herein as the "STATIONS"); and WHEREAS, Multicultural and Heftel desire to exchange ownership of the Stations and their related assets, in a non-taxable, like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), 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. EXCHANGE OF ASSETS. 1.1 EXCHANGE OF STATION ASSETS. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined herein), Multicultural shall assign, transfer, convey and deliver to Heftel with respect to the Multicultural Station, and Heftel shall assign, transfer, convey and deliver to Multicultural with respect to the Heftel Station, all right, title and interest in and to the following assets (the "TRANSFERRED ASSETS"), free and clear of all liens, security interests, charges, encumbrances and rights of others (other than "PERMITTED LIENS" as defined herein), except those assets specifically listed on SCHEDULE 1.1(a) and SCHEDULE 1.1(b) hereto (the "EXCLUDED ASSETS"): (a) All licenses, permits and auxiliary authorizations issued by the FCC or any other governmental authority for the operation of the Stations, together with any and all renewals, extensions and modifications thereof, any temporary or special authorization, issued to or held by Heftel or Multicultural in connection with the business and operations of the Stations, and any pending applications therefor ("GOVERNMENTAL LICENSES"); 1 (b) The real and personal property set forth on SCHEDULE 1.1(c) and SCHEDULE 1.1(d) hereto, together with replacements thereof and additions thereto made between the date hereof and the Closing; (c) Unless as may be otherwise required by law, the books and records related to the Transferred Assets, such as property tax records, logs, all materials maintained in the FCC public file relating to the Stations, technical data and records and all correspondence with and documents pertaining to governmental authorities and other third parties (the "BUSINESS RECORDS"); and (d) In addition to the Heftel Transferred Assets, Heftel shall pay to Multicultural the sum of $115 million in immediately available funds (the "Cash Consideration") as additional consideration for the transfer of the Multicultural Transferred Assets. The Transferred Assets to be transferred from Multicultural to Heftel are referred to herein as the "MULTICULTURAL TRANSFERRED ASSETS." The Transferred Assets and Cash Consideration to be transferred from Heftel to Multicultural are referred to herein as the "HEFTEL TRANSFERRED ASSETS." The consideration for the assets transferred by each party shall be the assets transferred to such party by the other party hereunder and the assumption of certain liabilities as set forth in SECTION 1.2. 1.2 ASSUMED LIABILITIES. (a) At the Closing, Heftel shall assume (i) those specified contractual obligations of the Multicultural Station listed on SCHEDULE 1.2(a) hereto, as the same may be amended through the Closing Date with the mutual consent of Multicultural and Heftel, and (ii) those obligations and liabilities incurred by Heftel after the Closing Date which arise out of the ownership and operation of the Multicultural Station by Heftel after the Closing Date (collectively, the "Heftel Assumed Liabilities"), and Heftel agrees to pay and perform the Heftel Assumed Liabilities after the Closing Date. (b) At the Closing, Multicultural shall assume (i) those specified contractual obligations of the Heftel Station listed on SCHEDULE 1.2(b) hereto, as the same may be amended through the Closing Date with the mutual consent of Multicultural and Heftel, and (ii) those obligations and liabilities incurred by Multicultural after the Closing Date which arise out of the ownership and operation of the Heftel Station by Multicultural after the Closing Date (collectively, the "Multicultural Assumed Liabilities"), and Multicultural agrees to pay and perform the Multicultural Assumed Liabilities after the Closing Date. (c) Except as specifically set forth in this SECTION 1.2, Heftel does not assume and shall in no event be liable for any debt, obligation, responsibility or liability of the Multicultural Station, Multicultural, any subsidiary or any affiliate or successor of Multicultural, or any claim against any of the foregoing, whether known or unknown, contingent or absolute, or otherwise. Except as specifically set forth in this SECTION 1.2, Multicultural does not 2 assume and shall in no event be liable for any debt, obligation, responsibility or liability of the Heftel Station, Heftel, any subsidiary or any affiliate or successor of Heftel, or any claim against any of the foregoing, whether known or unknown, contingent or absolute, or otherwise. Without limiting the foregoing, neither party shall be liable for any contractual obligation of the other unless specifically included on SCHEDULE 1.2(a) or SCHEDULE 1.2(b), or for any obligations to the other's employees. 1.3 TAX TREATMENT OF EXCHANGE. Multicultural and Heftel shall structure the exchange of the Stations as a like-kind exchange of property in accordance with Section 1031 of the Code and the Treasury Regulations thereunder (the "Regulations"). Heftel and Multicultural shall use the values, exchange groups, residual group and liabilities, as mutually determined by, and acceptable to, Multicultural and Heftel, to determine their respective taxable gain or loss, if any, resulting from the exchange of the Stations. Upon the request of Multicultural, Heftel agrees to cooperate with Multicultural in structuring the exchange of the Stations as a part of a deferred like-kind exchange pursuant to Section 1031 of the Code. Heftel agrees to take such steps and execute such documents as may be reasonably required by Multicultural in order to accomplish such like-kind exchange, including executing such documents as may be necessary or appropriate to substitute a qualified intermediary (within the meaning of Treasury Regulation section 1.1031(k)-1(g)(4)) to act in place of Multicultural; provided, however, that such steps shall not result in any incremental tax, cost or expense to Heftel. All federal and state tax returns and other reporting made to any governmental agency, including specifically Form 8594 which shall be filed with the Internal Revenue Service. 2. CLOSING. 2.1 TIME OF CLOSING. (a) A closing (the "Closing") for the exchange of the Transferred Assets shall be held at such place as may be selected by the parties on the date which is the later of (i) the tenth business day after the FCC Order (as defined herein below) or (ii) the satisfaction or waiver of all of the conditions precedent to the obligations of Heftel and Multicultural hereunder, or on such other date as may be agreed upon by the parties in writing (the "Closing Date"); provided, however, that in no event shall the Closing Date be prior to January 15, 1998. The Closing shall be deemed to be effective as of 12:01 a.m. on the Closing Date. (b) Multicultural shall prepare an application to be filed with the FCC requesting its consent to the assignment of all Governmental Licenses relating to the operation of the Multicultural Station to Heftel (the "Multicultural Governmental Licenses"). Heftel shall prepare an application to be filed with the FCC requesting its consent to the assignment of all Governmental Licenses relating to the operation of the Heftel Station to Multicultural (the "Heftel Governmental Licenses"). Multicultural and Heftel shall assist the other in the filing of the applications (collectively the "Assignment Applications"), shall promptly furnish to the other any information necessary for the Assignment Applications and shall jointly file the Assignment Applications with the FCC, requesting that consent to each 3 assignment be granted. Multicultural and Heftel shall use their respective commercially reasonable efforts to file the Assignment Applications within 10 days following the execution of this Agreement. The parties agree that the Assignment Applications will be prosecuted in good faith and with due diligence. The parties agree to use their commercially reasonable 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 Assignment Applications (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 initial consent, without any condition materially adverse to Heftel or Multicultural, to the Assignment Applications. (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 commercially reasonable efforts to make any necessary filings under the HSR Act. Each party will be solely responsible for the expenses incurred by it in the preparation, filing and prosecution of the filings due under the HSR Act. 2.2 CLOSING PROCEDURE. At the Closing, (i) Multicultural shall deliver to Heftel the bills of sale, instruments of assignment, transfer and conveyance as Heftel shall reasonably request with respect to the Multicultural Station; (ii) Heftel shall deliver to Multicultural such deeds, bills of sale, instruments of assignment, transfer and conveyance as Multicultural shall reasonably request with respect to the Heftel Station; and (iii) Heftel shall deliver to Multicultural the Cash Consideration. 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 the other 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 MULTICULTURAL. Multicultural hereby represents and warrants to Heftel, as follows: 3.1 ORGANIZATION; GOOD STANDING. Multicultural is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of New Jersey and has all requisite corporate power and authority to own and lease its properties and assets and to carry on its business as currently conducted. Multicultural is qualified as a foreign corporation in each jurisdiction where it is required to be so qualified. 3.2 DUE AUTHORIZATION; EXECUTION AND DELIVERY. Subject to the issuance of the FCC Order and obtaining any other consents required to be obtained hereunder, Multicultural has full power and authority to enter into and perform 4 this Agreement and to carry out the transactions contemplated hereby. Multicultural has taken all requisite 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 Multicultural, 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. Neither the execution and delivery by Multicultural 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 Multicultural; (ii) subject to the issuance of the FCC Order and obtaining any other consents required to be obtained hereunder, 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 Multicultural or Heftel's ownership of the Multicultural Transferred Assets; or (iii) except as set forth on SCHEDULE 3.2, 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 Multicultural Transferred Assets pursuant to, any material agreement, indenture, mortgage or other material instrument to which Multicultural is a party or by which it or its assets may be bound or affected. 3.3 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 Multicultural of this Agreement or the consummation of the transactions contemplated hereby, other than those of the FCC and under the HSR Act. 3.4 TITLE TO ASSETS. Except as otherwise set forth on SCHEDULE 3.4 and for Multicultural Permitted Liens (as defined herein), Multicultural is the sole and exclusive legal owner of all right, title and interest in, and has good and marketable title to, all of the Multicultural Transferred Assets, free and clear of liens, claims and encumbrances. As used herein, "MULTICULTURAL PERMITTED LIENS" shall mean, in each case with respect to the Multicultural Transferred Assets, (i) liens for current taxes and other governmental charges not yet due and payable, (ii) mechanics' liens and other similar liens arising in the ordinary course that will be discharged prior to Closing and (iii) statutory landlord's liens arising in the ordinary course. 3.5 REAL ESTATE. (a) Multicultural has a valid, binding and enforceable leasehold interest, free and clear of liens (other than Multicultural Permitted Liens), claims, encumbrances, subleases or other restrictions, in and to the real estate on which the operations of the Multicultural Station are conducted and the buildings, structures and improvements situated thereon that are necessary for the operation of the Multicultural Station (the "MULTICULTURAL REAL ESTATE"). A true, complete and correct copy of the leases evidencing such interests has been furnished to Heftel. 5 (b) Multicultural has not received any notice of, and has no actual 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 leasehold interest in the Multicultural Real Estate. To the knowledge of Multicultural, no fact or condition exists which would result in the termination or impairment of access of the Multicultural Station to the Multicultural Real Estate or discontinuation of necessary sewer, water, electrical, gas, telephone or other utilities or services. (c) Multicultural has not received any notice that Hazardous Material (as defined below) exists in any structure located on, or exists on or under the surface of, any of the Multicultural Real Estate which is in violation of Environmental Law. For purposes of this Agreement, "HAZARDOUS 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 Agreement, "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 Materials. 3.6 CONDITION OF ASSETS. All of the Multicultural Transferred Assets viewed as a whole and not on an asset by asset basis are in good condition and working order, ordinary wear and tear excepted, and are suitable for the uses for which intended, free from any known defects except such minor defects that do not interfere with the continued use thereof. 3.7 GOVERNMENTAL LICENSES. SCHEDULE 3.7 lists and accurately describes all of the Multicultural Governmental Licenses necessary for the lawful ownership and operation of the Multicultural Station and the conduct of its business, except where the failure to hold such Governmental License would not have a material adverse effect on the Multicultural Station. Multicultural has furnished to Heftel true and accurate copies of all of the Multicultural Governmental Licenses. Each such Governmental License is in full force and effect and is valid under applicable federal, state and local laws; the Multicultural Station is being operated in compliance in all material respects with the Communications Act of 1934, as amended (the "Act"), and all rules, regulations and policies of the FCC; and to the knowledge of Multicultural, 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 Multicultural Station as now conducted, except for proceedings of a legislative or rule-making nature intended to affect the broadcasting industry generally. The Multicultural Station, its physical facilities, electrical and mechanical systems and transmitting and studio equipment are being operated in all material respects in accordance with the specifications of the Multicultural Governmental Licenses. The Multicultural Governmental Licenses are unimpaired by any act or omission of Multicultural or any of Multicultural's officers, directors or employees and Multicultural has fulfilled and performed all of its obligations with respect to the Multicultural Governmental Licenses and has full power and authority thereunder. 6 No application, action or proceeding is pending for the renewal or modification of any of the Multicultural Governmental Licenses. No event has occurred which, individually or in the aggreate, and with or without the giving of notice or the lapse of time or both, would constitute ground for revocation thereof and would have a materially adverse effect on the business or financial conditions of the Multicultural Station. 3.8 TAXES. Other than taxes imposed upon the income of Multicultural (as to which no representation is made), all tax reports and returns required to be filed by Multicultural relating to the Multicultural Transferred Assets or operations (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). There are no examinations or audits pending or unresolved examinations or audit issues with respect to Multicultural's state or local tax returns relating primarily to the Multicultural Transferred Assets. All additional taxes, if any, assessed as a result of such examinations or audits have been paid. There are no pending claims or proceedings relating to, or asserted for, taxes, penalties, interest, deficiencies or assessments against the Multicultural Transferred Assets. 3.9 LITIGATION. Except as set forth on SCHEDULE 3.9, there is no order of any court, governmental agency or authority and no complaint, notice of violation, action, suit, proceeding or investigation, judicial, administrative or otherwise, of which Multicultural has knowledge that is pending or threatened against or affecting the Multicultural Station which, if adversely determined, might materially and adversely affect the business, operations, properties, assets or conditions (financial or otherwise) of the Multicultural Station or which challenges the validity or propriety of any of the transactions contemplated by this Agreement. 3.10 REPORTS. Multicultural has duly filed all 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 Multicultural Station. All reports required to be filed by Multicultural with the FCC with respect to the Multicultural Station have been filed, except where the failure to so file would not materially and adversely affect the business, operations, properties, assets or conditions (financial or otherwise) of the Multicultural Station or which challenges the validity or propriety of any of the transactions contemplated by this Agreement. Such reports and disclosures are complete and accurate in all material respects. 7 3.11 CONTRACTS AND AGREEMENTS. The Multicultural Station is not in default with respect to any of the contracts contained on SCHEDULE 1.2(a) hereto, and, as of the Closing Date, the Multicultural Station will have paid all sums and performed all obligations under such contracts which are required to be paid or performed prior to the Closing Date. True and complete copies of such contracts have been delivered to Heftel on or prior to the date hereof. All brokerage contracts for the sale of broadcast time on the Multicultural Station will be terminated as of the Closing Date. 3.12 INTANGIBLE PROPERTY. Multicultural has, and after the Closing, Heftel will have, the right to use the intangible property included in the Multicultural Transferred Assets, free and clear of any royalty or other payment obligations. Multicultural's use of such intangible property does not conflict with, violate or infringe upon any rights of any other person or entity with respect to such intangible property and Multicultural has not received any notice of any such claimed conflict, violation or infringement. 3.13 THIRD PARTY CONSENTS. By the Closing Date, Multicultural will have obtained all consents from any person or entity (other than the FCC Order) which are required in connection with the execution and delivery by Multicultural of this Agreement and the consummation of the transactions contemplated hereby, which such consents are described on SCHEDULE 3.13, except where the failure to obtain such consent has been waived by Heftel on or prior to the Closing Date. 3.14 QUALIFICATION OF MULTICULTURAL. Multicultural does not have any knowledge of any facts or proceedings which are reasonably likely to disqualify it under the Act, the rules and regulations promulgated thereunder, and the policies of the FCC in respect thereof, from acquiring or operating the Heftel Station or would otherwise cause the FCC not to approve the assignment of the Heftel Governmental Licenses to Multicultural. 3.15 FINDERS AND BROKERS. Except as to Rumbaut & Co. (whose fees and expenses shall be paid by Heftel), there are no agreements or understandings that give rise to 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 HEFTEL. Heftel hereby represents and warrants to Multicultural, as follows: 4.1 ORGANIZATION; GOOD STANDING. Heftel is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and lease its properties and assets and to carry on its business as currently conducted. Heftel is qualified as a foreign corporation in each jurisdiction where it is required to be so qualified. 4.2 DUE AUTHORIZATION; EXECUTION AND DELIVERY. Subject to the issuance of the FCC Order and obtaining any other consents required to be obtained 8 hereunder, Heftel has full power and authority to enter into and perform this Agreement and to carry out the transactions contemplated hereby. Heftel has taken all requisite 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 Heftel, 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. Neither the execution and delivery by Heftel 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 Heftel; (ii) subject to the issuance of the FCC Order and obtaining any other consents required to be obtained hereunder, 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 Heftel or Multicultural's ownership of the Heftel Transferred 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 Heftel Transferred Assets pursuant to, any material agreement, indenture, mortgage or other material instrument to which Heftel is a party or by which it or its assets may be bound or affected. 4.3 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 Heftel of this Agreement or the consummation of the transactions contemplated hereby, other than those of the FCC or under the HSR Act. 4.4 TITLE TO ASSETS. Except as otherwise set forth on SCHEDULE 4.4 and for Heftel Permitted Liens (as defined herein), Heftel or a subsidiary thereof is the sole and exclusive legal owner of all right, title and interest in, and has good and marketable title to, all of the Heftel Transferred Assets, free and clear of liens, claims and encumbrances. As used herein, "HEFTEL PERMITTED LIENS" shall mean, in each case with respect to the Heftel Transferred Assets, (i) liens for current taxes and other governmental charges not yet due and payable, (ii) mechanics' liens and other similar liens arising in the ordinary course that will be discharged prior to Closing and (iii) statutory landlord's liens arising in the ordinary course. 4.5 REAL ESTATE. (a) Heftel has good, indefeasible and record title to the real property located at 1432 and 1396 Broad Street, Clifton, New Jersey, together with all buildings, improvements, fixtures and structures thereon and all rights and appurtenances pertaining thereto (the "HEFTEL REAL PROPERTY"), in fee simple absolute (as more particularly described on SCHEDULE 1.1(a)), and there are no outstanding liens or encumbrances with respect to the Heftel Real Property or any part thereof, except as set forth on SCHEDULE 4.4. Heftel has paid or will pay at Closing all taxes, charges and assessments (special or otherwise) required to be paid to any taxing authority which could in any way now or hereafter constitute a lien against the Heftel Real Property or 9 any part thereof (except for taxes and assessments for the current year). Heftel has not received any notice from any taxing authority or governmental agency asserting that it has failed to file or have improperly filed any tax return or report in respect of any taxes now owing by it (except current taxes and assessments not yet delinquent) which could in any way now or hereafter constitute a lien against the Heftel Real Property or any part thereof; and no action or proceeding is now pending by a governmental agency or authority for the assessment or collection of such taxes, charges or assessments against Heftel. There are now in full force and effect duly issued certificates of occupancy permitting the Heftel Real Property and improvements located thereon to be legally used and occupied as the same are now constituted. The Heftel Real Property has permanent rights of access to dedicated public highways. Except as set forth on SCHEDULE 4.4, there is not (i) any claim of adverse possession or prescriptive rights which may materially and adversely affect the Heftel Real Property, (ii) any structure located on the Heftel Real Property that materially encroaches on or over the boundaries of neighboring or adjacent properties; or (iii) any structure of any other party which materially encroaches on or over the boundaries of the Heftel Real Property. To the knowledge of Heftel, the Heftel Real Property is not located in a flood plain, flood hazard area, wetland or lakeshore erosion area within the meaning of any law. No public improvements have been commenced relating to the Heftel Real Property, and to the knowledge of Heftel, none are planned which in either case may result in special assessments against or otherwise materially and adversely affect the Heftel Real Property. To the knowledge of Heftel, no portion of the Heftel Real Property has been used as a landfill or for storage or landfill of Hazardous Materials. To the knowledge of Heftel, except as disclosed on SCHEDULE 4.5, there are not any underground storage tanks that are currently located on or that have been removed from the Heftel Real Property. With respect to the other real estate on which the operations of the Heftel Station are conducted and the buildings, structures and improvements situated thereon (such real estate, together with the Heftel Real Property, being collectively referred to herein as the "HEFTEL REAL ESTATE"). Heftel has a valid, binding and enforceable leasehold interest, free and clear of liens (other than Heftel Permitted Liens), claims, encumbrances, subleases or other restrictions. A true, complete and correct copy of the leases evidencing such interests has been furnished to Heftel. (b) Heftel has not received any notice of, and has no actual knowledge of, any material violation of any zoning, building, health, fire, water use or similar statute, ordinance, law, regulation or code in connection with its interest in the Heftel Real Estate. To the knowledge of Heftel, no fact or condition exists which would result in the termination or impairment of access of the Heftel Station to the Heftel Real Estate or discontinuation of necessary sewer, water, electrical, gas, telephone or other utilities or services. (c) Except as disclosed on SCHEDULE 4.5, no Hazardous Material exists in any structure located on, or exists on or under the surface of, the Heftel Real Property which is in violation of Environmental Law. Heftel has not received any notice that Hazardous Material exists in any structure located on, or exists on or under the surface of, the other Heftel Real Estate which is in violation of Environmental Law. 10 4.6 CONDITION OF ASSETS. All of the Heftel Transferred Assets viewed as a whole and not on an asset by asset basis are in good condition and working order, ordinary wear and tear excepted, and are suitable for the uses for which intended, free from any known defects except such minor defects that do not interfere with the continued use thereof. 4.7 GOVERNMENTAL LICENSES. SCHEDULE 4.7 lists and accurately describes all of the Heftel Governmental Licenses necessary for the lawful ownership and operation of the Heftel Station and the conduct of their business, except where the failure to hold such Governmental Licenses would not have a material adverse effect on the Heftel Station. Heftel has furnished to Multicultural true and accurate copies of all of the Heftel Governmental Licenses. Each such Governmental License is in full force and effect and is valid under applicable federal, state and local laws; the Heftel Station is being operated in compliance in all material respects with the Act and all rules, regulations and policies of the FCC; and, to the knowledge of Heftel, 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 Heftel Station as now conducted, except for proceedings of a legislative or rule-making nature intended to affect the broadcasting industry generally. The Heftel Station, their physical facilities, electrical and mechanical systems and transmitting and studio equipment are being operated in all material respects in accordance with the specifications of the Heftel Governmental Licenses. The Heftel Governmental Licenses are unimpaired by any act or omission of Heftel or any of Heftel's officers, directors or employees and Heftel has fulfilled and performed all of its obligations with respect hereto and has full power and authority thereunder. No application, action or proceeding is pending for the renewal or modification of any of the Heftel Governmental Licenses. No event has occurred which, individually or in the aggregate, and with or without the giving of notice or the lapse of time or both, would constitute grounds for revocation thereof and would have a materially adverse effect on the buiness or financial conditions of the Heftel Station. 4.8 TAXES. Other than taxes imposed upon the income of Heftel (as to which no representation is made), all tax reports and returns required to be filed by Heftel relating to the Heftel Transferred Assets or operations (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). There are no examinations or audits pending or unresolved examinations or audit issues with respect to Heftel's state or local tax returns relating to the Heftel Transferred Assets. All additional taxes, if any, assessed as a result of such examinations or audits have been paid. There are no pending claims or proceedings relating to, or asserted for, taxes, penalties, interest, deficiencies or assessments against the Heftel Transferred Assets. 4.9 LITIGATION. There is no order of any court, governmental agency or authority and no complaint, notice of violation, action, suit, proceeding or 11 investigation, judicial, administrative or otherwise, that is pending or, to Heftel's knowledge, threatened against or affecting the Heftel Station which, if adversely determined, might materially and adversely affect the business, operations, properties, assets or conditions (financial or otherwise) of the Heftel Station or which challenges the validity or propriety of any of the transactions contemplated by this Agreement. 4.10 REPORTS. Heftel has duly filed all 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 Heftel Station. All reports required to be filed by Heftel with the FCC with respect to the Heftel Station have been filed, except where the failure to so file would not materially and adversely affect the business, operations, properties, assets or conditions (financial or otherwise) of the Heftel Station or which challenges the validity or propriety of any of the transactions contemplated by this Agreement. Such reports and disclosures are complete and accurate in all material respects. 4.11 CONTRACTS AND AGREEMENTS. The Heftel Station is not in default with respect to any of the contracts contained on SCHEDULE 1.2(b) hereto, and, as of the Closing Date, the Heftel Station will have paid all sums and performed all obligations under such contracts which are required to be paid or performed prior to the Closing Date. True and complete copies of such contracts have been delivered to Multicultural on or prior to the date hereof. 4.12 INTANGIBLE PROPERTY. Heftel has, and after the Closing, Multicultural will have, the right to use the intangible property included in the Heftel Transferred Assets, free and clear of any royalty or other payment obligations. Heftel's use of such intangible property does not conflict with, violate or infringe upon any rights of any other person or entity with respect to such intangible property and Heftel has not received any notice of any such claimed conflict, violation or infringement. 4.13 THIRD PARTY CONSENTS. By the Closing Date, Heftel will have obtained all consents from any person or entity (other than the FCC Order) which are required in connection with the execution and delivery by Heftel of this Agreement and the consummation of the transactions contemplated hereby, which such consents are described on SCHEDULE 4.13, except where the failure to obtain such consent has been waived by Multicultural on or prior to the Closing Date. 4.14 QUALIFICATION OF HEFTEL. Heftel does not have any knowledge of any facts or proceedings which are reasonably likely to disqualify it under the Act, the rules and regulations promulgated thereunder, and the policies of the FCC in respect thereof, from acquiring or operating the Multicultural Station or would otherwise cause the FCC not to approve the assignment of the Multicultural Governmental Licenses to Heftel. 12 4.15 FINDERS AND BROKERS. Except as to Rumbaut & Co. (whose fees and expenses shall be paid by Heftel), there are no agreements or understandings that give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee or other like payment. 5. CERTAIN COVENANTS AND AGREEMENTS. 5.1 ACCESS. Each of Heftel and Multicultural will take all action reasonably necessary to enable the other, its counsel, accountants and other representatives to discuss the affairs, properties, business, operations and records of the Transferred Assets at such times and as often as Heftel or Multicultural (as the case may be) may reasonably request with executives, independent accountants, engineers and counsel of the other party. In the event that the Closing does not occur and this Agreement is terminated, each party shall keep in confidence, and shall cause its counsel, accountants and other representatives to keep in confidence, and shall not use or disclose to others, all information provided hereunder to it, except such information as is in the public domain or as required by law. 5.2 COMMERCIALLY REASONABLE EFFORTS. Each of Multicultural and Heftel 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; provided, however, nothing herein shall require the expenditure or payment of monies or the giving of any other consideration by either party in order to obtain any such consent (other than governmental filing fees and the payment of reasonable fees and expenses of a party's own advisors and representatives). Each of Heftel and Multicultural acknowledges and agrees that it shall pay all costs, fees (other than as expressly provided herein) and expenses incurred by it in obtaining such necessary consents and approvals to transfer the Heftel Transferred Assets and Multicultural Transferred Assets, respectively. 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. 5.3 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 Multicultural and Heftel; provided, however, each of Heftel and Multicultural shall be entitled to make such disclosure in its sole discretion as may be required by any applicable governmental regulations. 5.4 MAINTENANCE OF BUSINESS. Between the date of this Agreement and the Closing, each party shall conduct the business of the Stations and use the Transferred Assets only in the ordinary course of business, consistent with past practices, which shall include compliance in all material respects with all laws, regulations and administrative orders of any federal, state or local governmental authority that are applicable to each party with respect 13 to the Transferred Assets or the operation of the Stations, with the intent of preserving the ongoing operations of the Stations and the Transferred Assets. Without limiting the generality of the foregoing: (a) Each party shall: (i) maintain the Transferred Assets in their present condition (reasonable wear and tear in normal use excepted); (ii) remove, cure and correct prior to the Closing any violations under applicable statutes, rules or regulations that render (or if unremedied would render) inaccurate such party's representations and warranties contained in this Agreement or in any certificate delivered by such party pursuant to this Agreement; (iii) maintain its existing insurance coverage on the Stations and the Transferred Assets; and (iv) maintain its books and records in the usual and ordinary manner, on a basis consistent with prior periods. (b) Neither party shall, without the other party's prior written consent (which shall not unreasonably be withheld or delayed) create, assume or permit to exist any lien upon the Transferred Assets, except for Permitted Liens or liens in existence on the date of this Agreement which will be removed on or prior to Closing Date. (c) Neither party shall sell or agree to sell or otherwise dispose of any of the Transferred Assets, unless such sale or disposal occurs in the ordinary course of business, consistent with past practices and such Transferred Assets are replaced with similar assets of equal or greater value and utility. (d) Each party shall operate the Stations in all respects in accordance with the Governmental Licenses, and all applicable rules and regulations of the FCC and all other applicable laws, regulations, rules and orders. Each party shall use its commercially reasonable efforts not to cause or permit any of the Governmental Licenses to expire, be surrendered, adversely modified or otherwise terminated. 5.5 HEFTEL REAL PROPERTY. (a) No later than 20 days after the execution of this Agreement, Heftel shall obtain for Multicultural a Commitment for Title Insurance ("Commitment"), dated not earlier than the date of this Agreement, issued by Chicago Title Insurance Company (the "Title Company") and, to the extent required by deficiencies in the Commitment, a current "as built" survey prepared by a duly licensed and registered land surveyor or engineer, for the Heftel Real Property, showing Heftel's title to the Heftel Real Property to be good and indefeasible, together with legible copies of the deed which conveyed the Heftel Real Property to Seller and all items and documents referred to in the Commitment. The Commitment will commit the Title Company to issue a standard New Jersey form of Owner's Title Policy with respect to the Heftel Real Property (the "Owner's Title Policy") to Multicultural at the Closing. The cost of the Owner's Title Policy shall be split equally between Multicultural and Heftel. (b) In the event that any material exceptions unacceptable to Multicultural appear in the Commitment and/or on any survey that are not set forth on Schedule 4.4, then Multicultural shall, within 15 days after receipt of the Commitment notify Heftel in writing of such fact. 14 Heftel shall then use its best efforts to eliminate or modify such exceptions to the satisfaction of Multicultural prior to the Closing Date. 5.6 DISTRIBUTION OF CASH CONSIDERATION. If the Closing occurs prior to the "Renewal Date" (as defined herein), then until the Renewal Date, Multicultural will not distribute any of the Cash Consideration or other material assets to its shareholders, other than payment of salaries in the ordinary course of business; provided, however, that nothing herein shall preclude Multicultural from re-investing the Cash Consideration in broadcasting assets. For purposes of this provision, "Renewal Date" shall mean the renewal by the FCC of the main station license for the Multicultural Station, proceedings for which are anticipated to commence in February 1998. 6. CONDITIONS TO HEFTEL'S CLOSING. All obligations of Heftel under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions, it being understood that Heftel may, in its sole discretion, waive any or all of such conditions (except for the requirement of FCC consent) in whole or in part: 6.1 REPRESENTATIONS, ETC. Multicultural 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 Multicultural 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 (including the FCC Order) and from other third parties required to consummate the transactions contemplated by this Agreement shall have been obtained without material cost or other materially adverse consequence to Heftel and shall be in full force and effect. For purposes of this provision, it is understood and acknowledged that the Empire State Building lease and antenna site lease at 122 East 42nd Street in New York City (Channin Building) shall be assigned with no adverse modification of its existing terms; provided, however, that if the assignment of the Channin Building lease cannot be obtained or if such assignment is made with any material adverse modification of the existing terms, Multicultural shall sublease the same to Heftel. Notwithstanding the preceding sentence, no assignment of, or subletting under, the Channin Building lease shall be required if, at the time of Closing, the testing activities by the television broadcasters at the Empire State Building (which testing activities would have resulted in a cut back in power of the Multicultural Station) have been completed. 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 15 the value of the Multicultural Transferred Assets, other than any of the foregoing which affects the radio broadcasting industry generally or (iii) making Heftel liable for the payment of damages to any person as a result of the transactions contemplated hereby. 6.4 NONCOMPETITION AGREEMENT. Multicultural and Arthur Liu shall have executed and delivered to Heftel the Noncompetition Agreement in the form of Exhibit A hereto. 6.5 LEASE AGREEMENT. Multicultural shall have executed and delivered to Heftel the Lease Agreement in the form of Exhibit B hereto, providing for the lease of the WPAT-AM studio building and parking lot to Heftel. 6.6 LICENSE APPLICATION. The FCC shall have granted Multicultural's pending license application (BLH-970327KA) relating to the operation of the Multicultural Station at the Empire State Building location without material cost or other materially adverse consequence to Heftel. 6.7 CLOSING DELIVERIES. Heftel shall have received each of the documents or items required to be delivered to it pursuant to SECTION 8.1 hereof. 7. CONDITIONS TO MULTICULTURAL'S CLOSING. All obligations of Multicultural under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions, it being understood that Multicultural may, in its sole discretion, waive any or all of such conditions (except for the requirement of FCC consent) in whole or in part: 7.1 REPRESENTATIONS, ETC. Heftel 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 Heftel 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 CONSENTS. All consents and approvals from the FCC and governmental agencies (including the FCC Order) and from other third parties required to consummate the transactions contemplated by this Agreement shall have been obtained without material cost or other materially adverse consequence to Multicultural and shall be in full force and effect. 7.3 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 Heftel Transferred Assets, other than any of the foregoing which affects the radio broadcasting industry generally or (iii) making Multicultural liable for the payment of damages to any person as a result of the transactions contemplated hereby. 16 7.4 CLOSING DELIVERIES. Multicultural shall have received (i) the Cash Consideration from Heftel and (ii) each of the documents or items required to be delivered to it pursuant to SECTION 8.2 hereof. 8. DOCUMENTS TO BE DELIVERED AT CLOSING. 8.1 CLOSING DOCUMENTS TO BE DELIVERED BY MULTICULTURAL. At the Closing, Multicultural shall deliver to Heftel (in form and substance reasonably satisfactory to Heftel): (a) One or more assignments assigning to Heftel the Multicultural Governmental Licenses, as Heftel may request; (b) A bill of sale conveying to Heftel all of the Multicultural Transferred Assets constituting tangible personal property. (c) One or more assignment and assumption agreements by which Multicultural assigns the Multicultural Material Contracts to Heftel, and Heftel assumes the Assumed Liabilities and agrees to perform, from and after the Closing Date, all of the Assumed Liabilities, together with each consent obtained by Multicultural necessary for the assignments of such contracts; (d) Certified copies of resolutions of Multicultural's Board of Directors and shareholders authorizing the execution, delivery and performance of this Agreement; (e) One or more assignments conveying to Heftel the call letters for the Multicultural Station. (f) A certificate executed by Multicultural attesting to Multicultural's compliance with the matters set forth in SECTION 6.1 and SECTION 6.3; (g) The Business Records; (h) Opinions of corporate and special FCC counsel to Multicultural, dated as of the Closing, in form reasonably satisfactory to Heftel; and (i) Such other instruments and further assurances of conveyance and such other certificates or other documentation as Heftel may reasonably request. 8.2 CLOSING DOCUMENTS TO BE DELIVERED BY HEFTEL. At the Closing, Heftel shall deliver to Multicultural (in form and substance reasonably satisfactory to Multicultural): 17 (a) One or more assignments assigning to Multicultural the Heftel Governmental Licenses, as Multicultural may request; (b) A warranty deed conveying to Multicultural the Heftel Real Property and a bill of sale conveying to Multicultural all of the Heftel Transferred Assets constituting tangible personal property, accompanied by the Owner's Title Policy (giving effect to the removal of all material exceptions set forth in the commitment to which Multicultural has objected pursuant to Section 5.5(b) above); (c) One or more assignment and assumption agreements by which Heftel assigns the Heftel Material Contracts to Multicultural, and Multicultural assumes the Assumed Liabilities and agrees to perform, from and after the Closing Date, all of the Assumed Liabilities, together with each consent obtained by Heftel necessary for the assignments of such contracts; (d) Certified copies of resolutions of Heftel's Board of Directors authorizing the execution, delivery and performance of this Agreement; (e) One or more assignments conveying to Multicultural the call letters for the Heftel Station; (f) A certificate executed by Heftel attesting to Heftel's compliance with the matters set forth in SECTION 7.1 and SECTION 7.3; (g) The Business Records; (h) Opinions of corporate and special FCC counsel to Heftel, dated as of the Closing, in form reasonably satisfactory to Multicultural; and (i) Such other instruments and further assurances of conveyance and such other certificates or other documentation as Multicultural may reasonably request. 18 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; provided, however, that notice of any claim, 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 (three years with respect to representations of warranties dealing with environmental liabilities) or, in the case of representations or warranties dealing with tax matters, within 60 days after the expiration of the applicable tax statute of limitations; and provided, further, that representations as to the title of the Transferred Assets shall survive indefinitely. 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. All statements contained herein or in any certificate, exhibit, list or other document delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties. 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 HEFTEL. Subject to the limitations set forth in SECTIONS 9 and 12, Multicultural shall indemnify and hold Heftel 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 Heftel because of the breach of any written representation, warranty, agreement or covenant of Multicultural 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 Multicultural Station or the Multicultural Real Estate at all times prior to the Closing Date (other than the Heftel Assumed Liabilities), including but not limited to (i) claims from employees of Multicultural or with respect to employee benefit plans of Multicultural and (ii) claims arising from the presence or use of any Hazardous Material or any requirement pursuant to an Environmental Law); 19 (c) any and all liabilities, obligations, claims and demands arising out of the ownership and operation of the Heftel Station with respect to periods on and after the Closing Date; (d) any and all liabilities, obligations, claims and demands of third parties claiming a brokerage commission, finder's fee or other like payment in connection with the transactions contemplated hereby as a result of the actions or omissions of Multicultural; and (e) all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees, interest and penalties) incurred by Heftel 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 MULTICULTURAL. Subject to the limitations set forth in SECTIONS 9 and 12, Heftel shall indemnify and hold Multicultural 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 Multicultural because of the breach of any written representation, warranty, agreement or covenant of Heftel 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 Heftel Station or the Heftel Real Estate at all times prior to the Closing Date (other than the Multicultural Assumed Liabilities), including but not limited to (i) claims from employees of Heftel or with respect to employee benefit plans of Heftel and (ii) claims arising from the presence or use of any Hazardous Material or any requirement pursuant to an Environmental Law, without regard to whether a matter relating to Hazardous Materials or Environmental Laws has been disclosed to Multicultural in this Agreement, in any Phase I environmental report obtained to date or obtained hereinafter by Multicultural or otherwise; 20 (c) any and all liabilities, obligations, claims and demands arising out of the ownership and operation of the Multicultural Station with respect to periods on and after the Closing Date; (d) any and all liabilities, obligations, claims and demands of third parties claiming a brokerage commission, finder's fee or other like payment in connection with the transactions contemplated hereby as a result of the actions or omissions of Heftel; and (e) all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees, interest and penalties) incurred by Multicultural 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) Subject to SECTION 12(f) below, 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 acknowledgement 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 21 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 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) No claim or indemnification shall be made unless and until the indemnified party has first incurred, in the aggregate, damages, losses and expenses for which it would be entitled to be indemnified hereunder of at least $10,000. Further, no party shall be liable hereunder for claims which in the aggregate exceed $10 million; provided, however, that such maximum limit shall not be applicable in the case of a breach of the representations and warranties of Section 3.7 or 4.7 that results in either (i) the non-renewal of the station license for the Multicultural Station or Heftel Station, respectively, or (ii) the imposition by the FCC of a fine or other monetary penalty in connection therewith. Notwithstanding any provision that may be construed to the contrary, with respect to a breach of the representations and warranties of Section 3.7 or 4.7, neither party shall be liable for special, indirect, incidental or consequential damages (including lost profits or savings) that may result from the delay of the renewal or the non-renewal of the station license for the Multicultural Station or the Heftel Station. (g) Except as herein expressly provided, the remedies provided in SECTIONS 10 through 12 hereof shall be the exclusive remedy of the parties hereto for damages, losses and expenses arising after the Closing Date, other 22 than for any such damages, losses and expenses due to the fraudulent or willful misconduct of the indemnifying party. With respect to claims of fraudulent or willful misconduct, the indemnified party shall not be precluded from asserting any other rights or remedies against any other party hereto. 13. FAILURE TO CLOSE BECAUSE OF DEFAULT. In the event that the Closing is not consummated by virtue of a material default made by a party in the observance or in the due and timely performance of any of its covenants or agreements herein contained ("Default"), the parties shall have and retain all of the rights afforded them at law or in equity by reason of that Default. In addition, Multicultural and Heftel acknowledge that the Transferred Assets and the transactions contemplated hereby are unique, that a failure by Multicultural or Heftel to complete such transactions will cause irreparable injury to the other, and that actual damages for any such failure may be difficult to ascertain and may be inadequate. Consequently, Multicultural and Heftel agree that each shall be entitled, in the event of a Default by the other, to specific performance of any of the provisions of this Agreement in addition to any other legal or equitable remedies to which the non-defaulting party may otherwise be entitled. In the event any action is brought, the prevailing party shall be entitled to recover court costs, arbitration expenses and reasonable attorneys' fees. 14. TERMINATION AND RESCISSION RIGHTS; RISK OF LOSS. 14.1 TERMINATION PRIOR TO CLOSING. This Agreement may be terminated by either Heftel or Multicultural (as set forth below), if either such party is not then in Default, upon written notice to the other upon the occurrence of any of the following: (a) By either Heftel or Multicultural, if the Closing has not occurred on or before December 1, 1998, or such later date as Heftel and Multicultural shall mutually agree; (b) By the non-Defaulting party, if the other party Defaults and such Default has not been cured within 30 days of written notice of such Default by the other party; or (c) By mutual consent of Multicultural and Heftel. 14.2 RESCISSION OF PURCHASE AND SALE. In the event the parties elect to close prior to the time the FCC Order has become a Final Order, Heftel and Multicultural shall enter into rescission agreement to be mutually agreed upon which provides for unwinding the transaction in the event a Final Order is not obtained. For purposes of this Section, the term "FINAL ORDER" shall mean that the FCC Order shall have been final, that such FCC Order is not reversed, stayed, enjoined or set aside, and with respect to such FCC Order, no timely request for stay, reconsideration, review, rehearing or notice of appeal is pending, and as to which FCC Order the time for filing any such request, petition or notice of appeal or for review by the FCC on its own motion has expired. 23 14.3 RISK OF LOSS. (a) Heftel shall bear the risk of all damage to, loss of or destruction of any of the Heftel Transferred Assets between the date of this Agreement and the Closing Date. If any material portion of the Heftel Transferred Assets shall suffer any material damage or destruction prior to the Closing Date, Heftel shall promptly notify Multicultural 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 Multicultural 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. Multicultural 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, whether or not extended as provided herein, Multicultural may, at its option either (i) terminate this Agreement upon written notice to Heftel; or (ii) receive all insurance proceeds paid or payable to Heftel in excess of amounts actually applied towards such restoration, repair or replacement, close this Agreement and thereafter complete such restoration, repair or replacement at its sole expense; provided, however, Heftel shall have no further liabilities with respect to such damage or destruction after payment to Multicultural of such insurance proceeds. (b) Multicultural shall bear the risk of all damage to, loss of or destruction of any of the Multicultural Transferred Assets between the date of this Agreement and the Closing Date. If any material portion of the Multicultural Transferred Assets shall suffer any material damage or destruction prior to the Closing Date, Multicultural shall promptly notify Heftel 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 Heftel 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. Heftel 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, whether or not extended as provided herein, Heftel may, at its option either (i) terminate this Agreement upon written notice to Multicultural; or (ii) receive all insurance proceeds paid or payable to Multicultural in excess of amounts actually applied towards such restoration, repair or replacement, close this Agreement and thereafter complete such restoration, repair or replacement at its sole expense; provided, however, Multicultural shall have no further liabilities with respect to such damage or destruction after payment to Heftel of such insurance proceeds. 15. BOOKS AND RECORDS; TAX MATTERS. (a) BOOKS AND RECORDS. Each party agrees that it will cooperate with and make available (or cause to be made available) to the other party, during normal business hours, all books and records, information and employees (without substantial disruption of employment) retained and remaining in existence after the Closing which are necessary or useful in connection with any tax inquiry, audit, or dispute, any litigation or investigation or any other matter requiring any such books and records, information or employees for any reasonable business purpose (a "PERMITTED USE"). The party 24 requesting any such books and records, information or employees shall bear all of the out-of-pocket costs and expenses reasonably incurred in connection with providing such books and records, information or employees. All information received pursuant to this SECTION 15 (including duplicate copies of the Business Records retained by the other party pursuant to SECTION 15(b) hereof) shall be kept confidential by the party receiving it, except to the extent that disclosure is reasonably necessary in connection with any Permitted Use. (b) COOPERATION AND RECORDS RETENTION. Each party shall (i) provide the other with such assistance as may reasonably be requested by either of them in connection with the preparation of any return, audit or other examination by any taxing authority or judicial or administrative proceedings relating to liability for any taxes, (ii) retain and provide the other with any records or other information that may be relevant to such return, audit or examination, proceeding or determination, and (iii) provide the other with any final determination of any such audit or examination, proceeding, or determination that affects any amount required to be shown on any tax return of the other for any period. Without limiting the generality of the foregoing, each party shall retain (or cause to be retained), until the applicable statutes of limitations (including any extensions) have expired, copies of all tax returns, supporting work schedules, and other records or information that may be relevant to such returns for all tax periods or portions thereof ending on or before the Closing. 16. MISCELLANEOUS PROVISIONS. 16.1 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. 16.2 PRORATIONS. (a) All items of income and expense arising from the operation of the Multicultural Station and the Heftel Assumed Liabilities before the Closing Date shall be for the account of Multicultural and thereafter shall be for the account of Heftel. Proration of the items described below between Multicultural and Heftel shall be effective as of 12:01 a.m., local time, on the Closing Date and shall occur as set forth in subsections (c) through (e) below with respect to those rights, liabilities and obligations of Multicultural transferred to and assumed by Heftel hereunder. (b) All items of income and expense arising from the operation of the Heftel Station and the Multicultural Assumed Liabilities before the Closing Date shall be for the account of Heftel and thereafter shall be for the account of Multicultural. Proration of the items described below between Multicultural and Heftel shall be effective as of 12:01 a.m., local time, on the Closing Date and shall occur as set forth in subsections (c) through (e) below with respect to those rights, liabilities and obligations of Heftel transferred to and assumed by Multicultural hereunder. 25 (c) Liability for state and local taxes assessed on the Transferred Assets payable with respect to the tax year in which the effective time of proration falls shall be prorated as between Multicultural and Heftel on the basis of the number of days of the tax year elapsed to but excluding such effective time, appropriately adjusted with respect to improvements to the Transferred Assets effected by either party after such effective time. (d) Prepaid items and accruals such as water, electricity, telephone, other utility and service charges, lease expenses, license fees (if any), payments under any contracts to be assumed by Heftel or Multicultural (as the case may be) and accrued vacation time for the employees of the Stations shall be prorated between Multicultural and Heftel on the basis of the period of time to which such liabilities, prepaid items and accruals apply. (e) All prorations shall be made and paid in cash insofar as feasible on or before the Closing Date. Any prorations not made on the Closing Date shall be made no later than 90 days thereafter. Multicultural and Heftel agree to assume, pay and perform all costs, liabilities and expenses allocated to each of them pursuant to this SECTION 16.2. 16.3 AMENDMENT. This Agreement may be amended at any time but only by an instrument in writing signed by the parties hereto. 16.4 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally 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 (having a notification receipt) to the number set forth below (or such other number for a party as shall be specified by proper notice hereunder): If to Heftel: 100 Crescent Court, Suite 1777 Dallas, Texas 75201 Attn: McHenry T. Tichenor, Jr., President Fax: 214-855-8881 with a copy to: Crouch & Hallett, LLP 717 N. Harwood, 14th Flr. Dallas, Texas 75201 Attn: Bruce H. Hallett Fax: 214-953-0576 26 If to Multicultural: 449 Broadway New York, New York 10013 Attn: Arthur Liu, President Fax: 212-966-1012 with a copy to: Mark Lipp, Esq. Rhonda VanLowe, Esq. Ginsburg, Feldman & Bress 1250 Connecticut Avenue Washington, D.C. 20036 Fax: 202-637-9195 16.5 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the others; provided, however, that (i) either party may assign its rights under this Agreement to any of its subsidiaries or an affiliated corporation and Multicultural may assign this Agreement to a qualified intermediary as described in SECTION 1.3 above and (ii) in the event of such assignment, the assigning party shall remain liable for all of the obligations of such assignee. 16.6 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. 16.7 HEADINGS. The headings of the Sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 16.8 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. 16.9 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. 16.10 NO THIRD PARTY BENEFICIARIES. This Agreement is made for the benefit of the parties hereto, and no third party shall be deemed to be a third party beneficiary thereof. 16.11 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey (irrespective of its choice of law provisions). 27 16.12 CONTROL OF THE STATIONS. (a) Prior to the Closing, Heftel shall not, directly or indirectly, control, or attempt to control, the operations of the Multicultural Station; such operations, including complete control and supervision of all programs, employees and policies of the Multicultural Station, shall be the sole responsibility of Multicultural. (b) Prior to the Closing, Multicultural shall not, directly or indirectly, control, or attempt to control, the operations of the Heftel Station; such operations, including complete control and supervision of all programs, employees and policies of the Heftel Station, shall be the sole responsibility of Heftel. 16.13 BULK SALES. The parties hereto waive compliance with the provisions of any bulk sales law applicable to the transactions contemplated hereby. 16.14 ARBITRATION. Any controversy or dispute among the parties arising in connection with this Agreement shall be submitted to a panel of three arbitrators and finally settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. Each of the disputing parties shall appoint one arbitrator, and these two arbitrators shall independently select a third arbitrator. Arbitration shall take place in Newark, New Jersey, or such other location as the arbitrators may select. The prevailing party in such arbitration shall be entitled to the award of all costs and attorneys' fees in connection with such action but, in such action or otherwise in respect to any claim or liabilities, shall in no event be entitled to the receipt of any consequential or punitive damages. Any award for monetary damages resulting from nonpayment of sums due hereunder shall bear interest from the date on which such sums were originally due and payable. Judgment upon the award rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of the award and an order of enforcement, as the case may be. [signature page to follow] 28 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. HEFTEL BROADCASTING CORPORATION By: ------------------------------------------ McHenry T. Tichenor, Jr. President MULTICULTURAL RADIO BROADCASTING, INC. By: ------------------------------------------ Arthur Liu President 29 INDEX TO SCHEDULES Schedule 1.1(a) Heftel Excluded Assets Schedule 1.1(b) Multicultural Excluded Assets Schedule 1.1(c) Heftel Real and Personal Property Schedule 1.1(d) Multicultural Real and Personal Property Schedule 1.2(a) Heftel Assumed Liabilities Schedule 1.2(b) Multicultural Assumed Liabilities Schedule 3.2 Multicultural Third Party Consents Schedule 3.4 Multicultural Permitted Liens Schedule 3.7 Multicultural Governmental Licenses Schedule 3.9 Multicultural Pending Litigation Schedule 3.13 Multicultural Third Party Consents Schedule 4.4 Heftel Permitted Liens Schedule 4.5 Heftel Environmental Matters Schedule 4.7 Heftel Governmental Licenses Schedule 4.13 Heftel Third Party Consents Schedule 1.1(a) Heftel Excluded Assets 1. Cash, accounts receivable and other current assets of the Heftel Station 2. The studio equipment, office equipment, furniture and vehicles used to operate the studios located in Clifton/Patterson, New Jersey. 3. The Heftel Station's New York City sales office assets. 4. All tradenames, trademarks, patents, service marks, copyrights, logos, goodwill and similar intangibles owned by Heftel and used in the operation of the Heftel Station (other than the station call letters) and all programming materials, programs, jingles and all promotional materials used in the operation of the Heftel Station, whether recorded on tape or any other substance or intended for live performance, and whether completed or in production. 5. Customer lists, sales contracts and similar data. 6. All contracts or agreements (unless specifically set forth on SCHEDULE 1.2(b)), whether oral or written, relating to the Heftel Station, including any barter agreements and contracts for the sale or sponsorship of broadcast time on the Heftel Station. Schedule 1.1(b) Multicultural Excluded Assets 1. Cash, accounts receivable and other current assets of the Multicultural Station 2. The studio equipment, office equipment, furniture and vehicles used to operate the WNWK-FM studios. 3. All tradenames, trademarks, patents, service marks, copyrights, logos, goodwill and similar intangibles owned by Multicultural and used in the operation of the Multicultural Station (other than the station call letters) and all programming materials, programs, jingles and all promotional materials used in the operation of the Multicultural Station, whether recorded on tape or any other substance or intended for live performance, and whether completed or in production. 4. Customer lists, sales contracts and similar data. 5. All contracts or agreements (unless specifically set forth on SCHEDULE 1.2(a)), whether oral or written, relating to the Multicultural Station, including any barter agreements and contracts for the sale or sponsorship of broadcast time on the Multicultural Station. EX-11 3 EXHIBIT 11 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 Ended September 30, December 31, December 31 ------------------------------------------------- 1997 1996 1996 1995 1994 1993 ------------ ----------- ---------- ---------- ---------- ---------- BASIC EARNINGS PER SHARE: Income (loss) from continuing operations $ 18,772 $ 2,064 $ (29,157) $ 4,319 $ 2,489 $ 2,721 Preferred stock dividends - - 23 27 184 184 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stockholders $ 18,772 $ 2,064 $ (29,180) $ 4,292 $ 2,305 $ 2,537 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NUMBER OF SHARES ON WHICH NET INCOME (LOSS) PER SHARE IS BASED: BASIC EARNINGS PER SHARE: Continuing operations $ 0.45 $ 0.09 $ (1.41) $ 0.21 $ 0.25 $ 0.32 Discontinued operations - - (0.49) (0.03) (0.03) - Extraordinary loss - - (0.36) - (0.19) - ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 0.45 $ 0.09 $ (2.26) $ 0.18 $ 0.03 $ 0.32 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED EARNINGS PER SHARE: Income (loss) from continuing operations $ 18,772 $ 2,064 $ (29,157) $ 4,319 $ 2,489 $ 2,721 Preferred stock dividends - - 23 27 184 184 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stockholders $ 18,772 $ 2,064 $ (29,180) $ 4,292 $ 2,305 $ 2,537 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NUMBER OF SHARES ON WHICH NET INCOME (LOSS) PER SHARE IS BASED: Weighted average common shares before dilutive effect of common stock equivalents 41,671 23,095 20,590 20,021 9,137 7,934 Common stock equivalents - stock options 120 - - 1,590 1,632 1,342 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common shares 41,791 23,095 20,590 21,611 10,769 9,276 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED EARNINGS PER SHARE: Continuing operations $ 0.45 $ 0.09 $ (1.41) $ 0.20 $ 0.22 $ 0.27 Discontinued operations - - (0.49) (0.03) (0.03) - Extraordinary loss - - (0.36) - (0.16) - ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 0.45 $ 0.09 $ (2.26) $ 0.17 $ 0.03 $ 0.27 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
63 EX-21 4 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF HEFTEL BROADCASTING CORPORATION HBC Broadcasting Texas, Inc. HBC Chicago, Inc. HBC Florida, Inc. HBC-Las Vegas, Inc. HBC New York, Inc. HBC Texas, Inc. Heftel Broadcasting Texas, L.P. Heftel GP Texas, Inc. 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-AM License Corp. KTNQ/KLVE, Inc. La Oferta, Inc. License Corp. No. 1 License Corp. No. 2 MiCasa Publications, Inc. Spanish Coast to Coast, Ltd. T C Television, Inc. The Tower Company, Inc. Tichenor License Corporation 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. 64 EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Heftel Broadcasting Corporation: We consent to incorporation by reference in the Registration Statement on Form S-3 (No. 333-42171) and in the Registration Statements on Form S-8 (No. 333-43483 and No. 333-43495) of Heftel Broadcasting Corporation of our report dated March 9, 1998, relating to the consolidated balance sheet of Heftel Broadcasting Corporation and subsidiaries as of December 31, 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended, and the related financial statement schedule, which report appears in the December 31, 1997 Annual Report on Form 10-K of Heftel Broadcasting Corporation. /s/ KPMG Peat Marwick LLP Dallas, Texas March 27, 1998 EX-23.2 6 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-42171) of Heftel Broadcasting Corporation and in the related Prospectus, 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, 1997. /s/ Ernst & Young LLP March 27, 1998 Los Angeles, California EX-27.1 7 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 6,553 0 31,937 2,613 0 36,695 44,450 11,150 512,249 25,725 0 0 0 44 389,915 512,249 0 136,584 0 101,572 (324) 0 3,947 31,389 12,617 18,772 0 0 0 18,772 0.45 0.45
EX-27.2 8 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE QUARTERS ENDED MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 15,476 11,866 7,017 0 0 0 23,352 28,985 31,923 3,037 2,499 2,788 0 0 0 41,518 42,526 38,994 28,797 29,233 39,656 8,093 9,031 9,587 493,812 478,907 475,138 20,287 21,864 25,852 0 0 0 0 0 0 0 0 0 22 22 22 371,740 377,222 383,172 493,812 478,907 475,138 0 0 0 23,029 61,010 98,207 0 0 0 20,357 48,585 74,976 1,729 2,526 319 0 0 0 1,730 2,618 3,099 943 9,898 19,813 377 3,959 7,925 566 5,939 11,888 0 0 0 0 0 0 0 0 0 566 5,939 11,888 0.02 0.15 0.29 0.02 0.15 0.29
EX-27.3 9 EXHIBIT 27.3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 OCT-01-1996 DEC-31-1996 4,788 0 16,996 0 0 22,415 27,256 7,590 163,725 14,055 0 0 0 12 14,154 163,725 18,309 18,309 0 13,322 0 0 2,841 2,164 100 2,064 0 0 0 2,064 0.09 0.09
EX-27.4 10 EXHIBIT 27.4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE QUARTERS ENDED DECEMBER 31, 1995, MARCH 31, 1996 AND JUNE 30, 1996 AND AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS 3-MOS YEAR SEP-30-1996 SEP-30-1996 SEP-30-1996 SEP-30-1996 OCT-01-1995 OCT-01-1995 OCT-01-1995 OCT-01-1995 DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996 3,416 4,292 3,900 5,132 0 0 0 0 17,593 16,867 19,090 17,015 0 0 0 0 0 0 0 0 25,232 25,687 26,833 23,160 18,507 25,917 26,381 26,856 5,684 6,064 6,522 7,020 153,593 180,766 180,483 165,751 14,483 14,767 9,846 15,991 0 0 0 0 0 0 0 0 0 0 0 0 11 11 11 12 44,428 44,122 43,765 12,090 153,593 180,766 180,483 165,751 0 0 0 0 17,458 33,153 53,053 71,732 0 0 0 0 13,616 27,153 43,096 59,108 125 205 1,274 41,716 0 0 0 1,658 2,350 4,735 7,986 11,241 1,367 1,060 697 (29,092) 65 65 65 65 1,302 995 632 (29,157) (444) (1,108) (1,608) (9,988) 0 0 0 (7,461) 0 0 0 0 858 (113) (976) (46,606) 0.04 (0.01) (0.05) (2.26) 0.04 (0.01) (0.05) (2.26)
EX-27.5 11 EXHIBIT 27.5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 5,404 0 19,352 1,492 0 25,507 17,580 5,335 151,637 10,540 0 0 0 11 43,570 151,637 0 64,160 0 51,707 211 0 6,607 5,635 150 4,319 626 0 0 3,693 0.18 0.17
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