-----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, F8y2RzkFpQxFxI/QpwvT/mcgWziHy/3I8oY9nhxiZriRPLW8eoXCz1W3RMHehV98 l8R75udqr/REemR/G5JqlA== 0000950134-97-002379.txt : 19970329 0000950134-97-002379.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950134-97-002379 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR RADIO BROADCASTING CO CENTRAL INDEX KEY: 0000925744 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752544623 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-80534 FILM NUMBER: 97567837 BUSINESS ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWY STREET 2: STE 405 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2142396220 MAIL ADDRESS: STREET 2: 12655 N CENTRAL EXPWY SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR BROADCASTING CO DATE OF NAME CHANGE: 19940621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR BROADCASTING LICENSEE CO CENTRAL INDEX KEY: 0000925752 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752544625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-80534-01 FILM NUMBER: 97567838 BUSINESS ADDRESS: STREET 1: 12655 N CENTRAL EXPWY STREET 2: SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2142396220 MAIL ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWAY STREET 2: SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR BROADCASTING CO /DE/ CENTRAL INDEX KEY: 0001002909 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752538487 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27726 FILM NUMBER: 97567839 BUSINESS ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWAY STREET 2: SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2142396220 MAIL ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWAY STE 405 CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR CORP/DE DATE OF NAME CHANGE: 19951031 10-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K Annual Report Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 Commission File No. 0-27726 Commission File No. 33-80534 Commission File No. 33-80534 CHANCELLOR BROADCASTING CHANCELLOR RADIO CHANCELLOR BROADCASTING COMPANY BROADCASTING COMPANY LICENSEE COMPANY (Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant as Specified in Its Charter) as Specified in Its Charter) as Specified in Its Charter) DELAWARE DELAWARE DELAWARE (State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) incorporation or organization) 75-2538487 75-2544623 75-2544625 (I.R.S. Employer Identification (I.R.S. Employer Identification (I.R.S. Employer Identification Number) Number) Number)
12655 N. CENTRAL EXPRESSWAY, SUITE 405, DALLAS, TEXAS 75243 (Address of Principal Executive Offices, Including Zip Code) AREA CODE (972) 239-6220 (Registrants' Telephone Number, Including Area Code) 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, PAR VALUE $.01 PER SHARE, OF CHANCELLOR BROADCASTING COMPANY Indicate by check mark whether Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Chancellor Broadcasting Licensee Company (1) have 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) have 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. [ ] The aggregate market value of voting stock held by non-affiliates of Chancellor Broadcasting Company at March 25, 1997 was $225,223,070. As of March 25, 1997, 10,437,212 shares of the Class A Common Stock, par value $.01 per share, 8,547,910 shares of the Class B Common Stock, par value $.01 per share, and zero shares of the Class C Common Stock, par value $.01 per share, of Chancellor Broadcasting Company were outstanding. There are no shares of voting stock of Chancellor Radio Broadcasting Company or non-affiliates thereof. As of March 25, 1997, 1,000 shares of common stock, par value $.01 per share of Chancellor Radio Broadcasting Company, and 1,000 shares of common stock, par value $.01 per share of Chancellor Broadcasting Licensee Company were outstanding. ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS..................................................... 2 ITEM 2. PROPERTIES................................................... 12 ITEM 3. LEGAL PROCEEDINGS............................................ 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 13 PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................... 13 ITEM 6. SELECTED FINANCIAL DATA...................................... 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION........................... 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.......... 20 ITEM 11. EXECUTIVE COMPENSATION....................................... 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................... 27 ITEM 13. CERTAIN TRANSACTIONS......................................... 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................................. 31
3 PART I CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA As used in this document, unless the context otherwise requires, (i) "Chancellor" refers to Chancellor Broadcasting Company (formerly named Chancellor Corporation); (ii) the "Company" refers to Chancellor and its subsidiaries, collectively (including the Company's predecessor, Chancellor Communications); (iii) "Chancellor Radio Broadcasting" refers to Chancellor Radio Broadcasting Company (formerly named Chancellor Broadcasting Company), a wholly owned subsidiary of Chancellor; (iv) "Broadcasting Licensee" refers to Chancellor Broadcasting Licensee Company, a wholly owned subsidiary of Chancellor Radio Broadcasting; (v) "Chancellor Communications" refers to Chancellor Communications Corporation and its subsidiaries, collectively, which were acquired by the Company in October 1994 and which merged with and into Chancellor Radio Broadcasting in December 1995; (vi) "Old Chancellor Communications" refers to KFBK-AM/ KGBY-FM, a division of Group W Radio, Inc. (Cal), which Chancellor Communications acquired in January 1994; (vii) the "American Media Station Group" refers to the group of 11 radio stations acquired from American Media, Inc. and certain of its affiliates in October 1994; (viii) "Shamrock Broadcasting" refers to Trefoil Communications, Inc. and its wholly owned subsidiary, Shamrock Broadcasting, Inc., and their respective subsidiaries, collectively; (ix) "Malrite" refers to the radio operations of Malrite Communications Group, Inc., which merged with and into Shamrock Broadcasting in July 1993; (x) "Colfax" refers to Colfax Communications, Inc. and its affiliates; (xi) "Omni" refers to OmniAmerica Group; (xii) "American Radio" refers to America Radio Systems Corporation; (xiii) "SFX" refers to SFX Broadcasting, Inc.; (xiv) "Secret" refers to Secret Communications. L.P.; (xv) "Clear Channel" refers to Clear Channel Radio, Inc.; (xvi) "Evergreen" refers to Evergreen Media Corporation; and (xvii) "Viacom" refers to Viacom International, Inc. The terms "broadcast cash flow" and "EBITDA" are referred to in various places in this document. "Broadcast cash flow" consists of operating income before depreciation and amortization, corporate expenses and non-cash stock option compensation expense. EBITDA consists of operating income before depreciation and amortization and non-cash stock option compensation expense. Although broadcast cash flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that broadcast cash flow is useful to a prospective investor because it is a measure widely used in the broadcast industry to evaluate a broadcast company's operating performance and that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. Neither broadcast cash flow nor EBITDA should be considered in isolation or as a substitute for net income, cash flows from operating activities and other income and cash flow statement data prepared in accordance with GAAP or as a measure of liquidity or profitability. The term "duopoly" as used in this report refers to the ownership, management or common control of two FM or two AM stations that provide overlapping service in a single market. The term "LMA" refers to a Local Marketing Agreement, see "Federal Regulation of Radio Broadcasting." Unless otherwise indicated herein, (i) metropolitan statistical area ("MSA") ranking by population, market ranking by radio advertising revenue, market radio advertising revenue and the number of viable radio stations per market have been obtained from Duncan's Radio Market Guide (1996 ed.) ("Duncan's"); (ii) total industry listener and revenue levels have been obtained from the Radio Advertising Bureau ("RAB"); (iii) all audience share data and audience rankings, except where specifically stated to the contrary, have been derived from surveys of persons, 25 to 54, listening Monday through Sunday, 6 a.m. to 12 midnight, and are based on the average of the four most recent survey periods, as reported by Arbitron, Radio Market Reports, Metro Audience Trends, The Arbitron Company (copyright 1996) ("Arbitron"); and (iv) revenue share data and revenue rankings in the Company's markets have been obtained from the Miller, Kaplan Market Revenue Report (published monthly), a publication of Miller, Kaplan, Arase & Co., Certified Public Accountants ("Miller Kaplan"), except with respect to the Nassau-Suffolk (Long Island), Pittsburgh and Detroit markets, for which revenue share data and revenue rankings were obtained from Hungerford Radio Revenue Report (published monthly), a publication of Hungerford, Aldrin, Nichols & Carter, Certified Public Accountants ("Hungerford"). Duncan's defines "viable stations" as stations which are active and viable competitors for advertising dollars in the market. The Company considers revenues per viable station to be an indicator of the relative level of competition in a given market for radio advertising revenue. Each of Duncan's, RAB, Arbitron, Miller Kaplan, and Hungerford compile their audience share, revenue share and other statistical data, as the case may be, under procedures and methodologies which are described, and which have the limitations provided, in their respective reports or guides. All such information is provided herein subject to those limitations. 1 4 ITEM 1. BUSINESS GENERAL The Company is one of the largest companies in the United States exclusively devoted to radio broadcasting. The Company focuses on owning and operating radio stations in the top 40 U.S. markets, which account for a disproportionately large percentage of radio advertising revenue. The Company believes that the large revenue base in these markets generally enables operators to achieve a greater degree of profitability than operators in smaller markets. The Company employs a variety of programming formats, including country, oldies, news/talk, adult contemporary, progressive album rock, contemporary hit radio, sports and classical, which the Company believes makes it is less susceptible to changes in listening preferences and reduces its dependence upon any local economy or advertiser category. For the year ended December 31, 1996, assuming that each of the acquisitions, dispositions and exchanges consummated by the Company during 1996 and the Colfax Transaction and Omni Transaction (each as hereinafter defined) consummated by the Company in January and February 1997, respectively, had occurred on January 1, 1996, no single market in which the Company would have operated would have provided more than 15.0% of the Company's net revenues. On a pro forma basis, after giving effect to the completed and pending transactions, excluding the Viacom Acquisition and Evergreen Merger discussed below, as if all such transactions had occurred on January 1, 1996, the Company would have had net revenues of $244.8 million and broadcast cash flow of $93.6 million for the year ended December 31, 1996. The following table summarizes certain information relating to the Company's stations as of December 31, 1996, assuming the Company had effected the Colfax Transaction and the Omni Transaction as of such date, and the markets they serve.
AUDIENCE RADIO SHARE IN TARGET METROPOLITAN REVENUE TARGET TARGET DEMO- STATION MARKET AND STATION STATISTICAL MARKET DEMOGRAPHIC DEMOGR- GRAPHIC REVENUE CALL LETTERS (1) AREA RANK RANK (2) GROUP APHIC (3) RANK (3) RANK FORMAT - -------------------- ------------- -------- ----------- --------- -------- ---- ------ New York 1 2 WHTZ-FM Adults 18-34 5.6% 6 16 Contemporary Hit Radio Nassau-Suffolk(4) 14 44 (Long Island) WALK-FM Adults 25-54 7.8% 1 1 Adult Contemporary WALK-AM Adults 35-64 -- -- 13 Adult Contemporary WBAB-FM(5)+* Men 25-49 6.1% 3 3 Album Rock WBLI-FM(5)+ Women 25-54 5.6% 3 4 Adult Contemporary WHFM-FM(5)+* 12 Album Rock WGBB-AM(5)+ Adults 25-54 -- -- 11 News/Talk Los Angeles 2 1 KLAC-AM Adults 35-64 2.5% 11(tie) 19 Adult Standards/Sports KZLA-FM Adults 25-54 2.1% 18 N/A Country San Francisco 4 5 KNEW-AM Adults 25-54 0.6% 36 14 Country/Sports KSAN-FM Adults 25-54 2.3% 13(tie) N/A Country KABL-AM Adults 35-64 1.6% 8 13 Adult Standards KBGG-FM Adults 25-54 3.0% 10 N/A 70's Oldies Washington 5 6 WBIG-FM Adults 25-54 5.7% 3 9 Oldies WGMS-FM Adults 35-64 5.2% 5 11 Classical WTEM-AM Men 18-49 2.1% 17 16 Sports/Talk Atlanta 9 10 WFOX-FM Adults 25-54 5.6% 9 10 Oldies Riverside-San Bernardino 10 64 KGGI-FM Adults 18-34 7.1% 3 2 Contemporary Hit Radio KMEN-AM Men 25-54 -- -- -- Oldies
2 5
AUDIENCE RADIO SHARE IN TARGET METROPOLITAN REVENUE TARGET TARGET DEMO- STATION MARKET AND STATION STATISTICAL MARKET DEMOGRAPHIC DEMOGR- GRAPHIC REVENUE CALL LETTERS (1) AREA RANK RANK (2) GROUP APHIC (3) RANK (3) RANK FORMAT - -------------------- ------------- -------- ----------- --------- -------- ---- ------ Minneapolis-St. Paul 12 15 KTCZ-FM* Men 25-49 6.2% 4 10 Progressive Album Rock KTCJ-AM* KDWB-FM Adults 18-34 11.6% 2 6 Contemporary Hit Radio KFAN-AM Men 18-49 3.8% 11 4 Sports KEEY-FM Adults 25-54 6.2% 6 N/A(6) Country KQQL-FM Adults 25-54 6.3% 5 8 Oldies WBOB-FM Adults 18-49 6.1% 6 9 Young Country Phoenix 17 17 KMLE-FM Adults 25-54 7.6% 1 3 Country KISO-AM Adults 25-54 0.7% 21 19 Urban Adult Contemporary KOOL-FM Adults 25-54 6.6% 3 5 Oldies KOY-AM Adults 35-64 3.5% 11 14 Adult Standards KYOT-FM Adults 25-54 5.6% 4 10 Contemporary Jazz KZON-FM Adults 18-34 5.7% 5 11 Alternative Rock Pittsburgh 19 24 WWSW-AM* Adults 25-54 8.9% 2 3 Oldies WWSW-FM* Denver 26 14 KRRF-AM Men 25-54 -- -- -- Talk KXKL-FM Adults 25-54 6.1% 5 5 Oldies KVOD-FM Adults 25-54 1.8% 15(tie) 14 Classical KIMN-FM Adults 25-54 4.7% 9 10 70's Oldies KALC-FM Adults 18-34 8.3% 4 9 Hot Adult Contemporary Cincinnati 30 20 WUBE-FM(7) Adults 25-54 9.8% 2 2 Country WUBE-AM Adults 35-64 -- -- -- Nostalgia WYGY-FM(7) Men 18-34 5.3% 6 N/A(6) Young Country WKYN-AM Men 18-49 -- -- -- Sports/Talk Sacramento 34 25 KGBY-FM Women 25-54 10.3% 1 3 Adult Contemporary KHYL-FM Adults 25-54 6.5% 4 4 Oldies KFBK-AM Adults 25-54 7.5% 1 1 News/Talk KSTE-AM(8) Adults 25-54 3.5% 11(tie) 7 Talk Orlando 40 26 WOCL-FM Adults 25-54 6.3% 5 3 Oldies WOMX-FM Adults 25-54 8.7% 1 2 Adult Contemporary WJHM-FM Adults 18-34 9.7% 2(tie) 7 Urban Contemporary WXXL-FM Adults 18-34 10.6% 1 5 Contemporary Hit Radio
- --------------- * AM and FM stations are simulcast + Pending transaction (1) City of license may be different from metropolitan market served. (2) Ranking by 1996 aggregate gross radio advertising revenue of the principal MSA served by the station. Source: Duncan's. (3) Audience share and ranking information pertains to the simulcasted stations as a combination. Revenue rank for the year ended December 31, 1996 as reported by Miller Kaplan and Hungerford (in the case of Nassau-Suffolk, Pittsburgh and Washington, D.C.) Average Quarter Hour Share Estimates, Monday through Sunday, 6 A.M. to Midnight for persons in the target demographic and in the applicable Metro Survey Area. Source: Arbitron Radio Market Report, based on the average of the four quarterly survey periods consisting of Winter, Spring, Summer and Fall 1996. (4) Nassau-Suffolk may also be considered part of the greater New York market, although it is reported separately as a matter of convention. (5) The Company currently manages certain limited functions of stations WBAB-FM, WBLI-FM, WHFM and WGBB-AM in Nassau-Suffolk (Long Island), New York, pursuant to an LMA. On July 1, 1996, the Company entered into an agreement with SFX under which the Company will exchange WAPE-FM and WFYV-FM, two Jacksonville, Florida stations acquired from Omni, and $11.0 million in cash for these stations. (6) Station revenue reported in combination. (7) WUBE-FM and WYGY-FM are sold in combination and rank second in revenue in their market. (8) The Company managed certain limited functions of station KSTE-AM in Sacramento, California pursuant to an LMA from July 31, 1996 through March 24, 1997, the date it exchanged the West Palm Beach, Florida stations acquired from Omni for American Radio's station KSTE-AM in Sacramento, California, plus $33.0 million in cash. 3 6 OPERATING STRATEGY The Company's senior management team, led by Steven Dinetz, its President and Chief Executive Officer, has extensive experience in acquiring radio stations and enhancing their broadcast cash flow. The Company's business strategy relies upon five key elements: o Revenue Maximization through Large Local Sales Forces and Effective Inventory Management. The Company seeks to maximize its share of local advertising revenue in each of its markets by developing large, well-trained sales forces that can be employed to efficiently target available advertising sources. Management believes that large sales forces enable it to compete effectively against other radio station operators and position it to obtain additional advertising dollars that otherwise would be spent on other local media, such as television and newspapers. In addition, the Company aggressively manages its stations' inventory position to ensure that revenue is maximized. o Emphasis on Margin Enhancement Through Strict Cost Controls. Management maintains tight control of operating expenses to ensure a focus on profitability throughout the Company. Management requires each station to prepare daily reports that track station-level revenues, collections and expenses. These reports enable management to monitor station performance on a real-time basis and promote greater accountability on the part of station management. o Targeted Programming and Marketing Efforts. Management focuses on increasing both audience share and audience time spent listening by researching each station's core audience and targeting its programming format to that audience's preferences. The Company reinforces its programming efforts through active marketing and promotional activities that target the same core audiences. o Decentralized Management Structure. The Company emphasizes the development of skilled local management and staff with support from the Company's regional managers. The Company seeks to decentralize decision-making so that local managers have the flexibility to develop policies that they consider to be the most effective in improving station performance in their respective markets. To further motivate senior management, the Company has established incentive plans that link compensation directly to station operating performance. o Optimize Station Portfolio. The Company seeks to acquire radio stations or radio station groups operating in top 40 markets that possess programming, demographic, technical and operating attributes that management believes it can exploit. The Company's goal is to be a leading radio station operator in each of its markets. However, in markets where management does not believe that it will be able to achieve this goal, the Company may explore the exchange of its stations for radio stations in other markets where the Company can increase its presence or will consider the sale of stations to raise funds for future acquisitions. HISTORY OF THE COMPANY The Company, whose predecessor Chancellor Communications was formed in January 1994 by an affiliate of Hicks Muse Tate & Furst Incorporated, a Dallas and New York based investment firm ("Hicks Muse"), has grown largely through acquisition and related exchange transactions. Since its inception in 1994, the Company has completed eight acquisitions, including the acquisition of radio stations KFBK-AM and KGBY-FM in January 1994, the American Media Station Group in October 1994, radio station KDWB-FM in July 1995, Shamrock Broadcasting in February 1996, radio stations KIMN-FM and KALC-FM in July 1996, radio station WKYN-AM in November 1996, the Colfax Acquisition (as defined) in January 1997, and the Omni Acquisition (as defined) in February 1997. The Company's acquisition in February 1996 of Shamrock Broadcasting (the "Shamrock Acquisition"), the owner and operator of 19 radio stations (11 FM and 8 AM) in 10 of the largest markets in the United States, was the Company's largest transaction to date and more than doubled the size of the Company's station portfolio, increasing it at that time from 14 to 33 stations. In July 1996, in order to enhance its position in Denver, which the Company considers to be an attractive market, the Company exchanged a Houston FM Station acquired in the Shamrock Acquisition for two FM stations in Denver (the "Denver Exchange"). In January 1997, the Company disposed of two stations in Detroit, which it had acquired in the Shamrock Acquisition. 4 7 Since the end of 1996, the Company has completed two additional significant transactions, including the acquisition from Omni (the "Omni Acquisition") of eight radio stations located in Orlando, Jacksonville, and West Palm Beach, Florida and the acquisition from Colfax (the "Colfax Acquisition") of twelve stations (8 FM and 4 AM) located in two of the Company's existing markets, Minneapolis-St. Paul and Phoenix, and two new markets, Milwaukee, Wisconsin and Washington, D. C. The Company exchanged the West Palm Beach stations acquired from Omni for 1 AM station in Sacramento, California on March 24, 1997 and has entered into an agreement to exchange the Jacksonville stations acquired from Omni for 3 FM and 1 AM stations in Nassau-Suffolk (Long Island), New York, (the original acquisition and the related exchange transactions collectively being the "Omni Transaction"). After consummation of the pending exchange, the Company will own and operate 4 FM stations in Orlando, Florida, 4 FM and 2 AM stations in Nassau-Suffolk and 2 FM and 2 AM stations in Sacramento, California. The Company has also entered into an agreement to sell the Colfax Milwaukee stations (the "Milwaukee Disposition") (the Colfax Acquisition and the related disposition collectively being the "Colfax Transaction"). As a result of the Colfax Acquisition, the Company has 5 FM and 2 AM stations in Minneapolis-St. Paul, Minnesota and 4 FM and 2 AM stations in Phoenix, Arizona, and has entered the Washington, D.C. market where it has 2 FM and 1 AM stations. Upon completion of the pending divestiture and exchange transactions, the Company will own and operate 51 stations (34 FM and 17 AM), located in 14 of the 40 largest MSAs in the country, including six of the top ten MSAs. The Omni Transaction and Colfax Transaction illustrate the Company's strategy of optimizing its station portfolio by focusing on markets where it believes it can achieve a leading position. After the consummation of the remaining pending transactions, the Company will have become one of the leading radio station groups in Minneapolis-St. Paul, Phoenix and Orlando and will have enhanced its leading positions in Nassau-Suffolk and Sacramento. In addition, the Company will have acquired stations in Washington, D.C., where the Company can seek to increase its presence through future acquisitions, or which can be used in a future station exchange or disposition. Moreover, as a result of these transactions, management expects to combine the acquired stations with the Company's existing in-market stations to realize synergies and consolidation savings. The Company currently is unable to predict when it will consummate the Jacksonville/Long Island swap as it is pending review by the Department of Justice ("DOJ") under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). In February 1997, Chancellor and Chancellor Radio Broadcasting agreed to acquire 5 radio properties from Viacom International, Inc. (the "Viacom Acquisition") and to merge with Evergreen Media Corporation ("Evergreen") in a stock-for-stock transaction (the "Evergreen Merger") with Evergreen surviving the merger under the name Chancellor Media Corporation. Pursuant to the terms of the Evergreen Merger, holders of the Class A Common Stock and Class B Common Stock shall receive 0.9091 shares of common stock of Evergreen for each share of Class A Common Stock and Class B Common Stock of Chancellor. The Viacom Acquisition and Evergreen Merger are each subject to customary closing conditions, including the expiration or earlier termination of the applicable waiting periods under the HSR Act and approval of the Federal Communications Commission ("FCC"). INDUSTRY OVERVIEW Radio stations generate the majority of their revenue from the sale of advertising time to local and national spot advertisers and national network advertisers. Radio serves primarily as a medium for local advertising. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 74% to 78%. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product ("GNP"). With the exception of 1991, when total radio advertising revenue fell by approximately 3.1% compared to the prior year, advertising revenue has risen in each of the past 15 years more rapidly than either inflation or the GNP. Total advertising revenue in 1996 of $12.4 billion, which represents a 8.2% increase over 1995, as reported by RAB, was its highest level in the industry's history. Radio is considered an efficient means of reaching specifically identified demographics. Stations are typically classified by the on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enable it to target certain demographics and psychographics. By capturing a specific listening audience share of a market's radio audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations 5 8 utilize data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations. Stations determine the number of advertisements broadcast hourly that they believe will maximize available revenue dollars without jeopardizing listening levels. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising obtained. According to the RAB's Radio Marketing Guide and Fact Book for Advertisers, 1997, each week, radio reaches approximately 95% of all Americans over the age of 12. More than one-half of all radio listening is done outside the home, in contrast to other advertising mediums, and three out of four adults are reached by car radio each week. The average listener spends approximately three hours and 20 minutes per day listening to radio. The highest portion of radio listenership occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 85% of people over 12 years of age and, as a result, radio advertising sold during this period achieves premium advertising rates. Radio listeners have gradually shifted over the years from AM (amplitude modulation) to FM (frequency modulation) stations. FM reception, as compared to AM, is generally clearer and provides greater tonal range and higher fidelity. FM's listener share is now in excess of 75%, despite the fact that the number of AM and FM commercial stations in the United States is approximately equal. COMPETITION; CHANGES IN THE BROADCASTING INDUSTRY The radio broadcasting industry is a highly competitive business. The success of each of the Company's stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. The Company's stations compete for listeners and advertising revenue directly with other radio stations as well as other media within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a target demographic. By building a strong listener base consisting of a specific demographic in each of its markets, the Company is able to attract advertisers seeking to reach those listeners. Factors that are material to a station's competitive position include management experience, the station's rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance, and the number and characteristics of other stations in the market area. The Company attempts to improve its competitive position with promotional campaigns aimed at the demographics targeted by its stations and by sales efforts designed to attract advertisers. Recent changes in the FCC's policies and rules permit increased ownership and operation of multiple local radio stations. Management believes that radio stations which elect to take advantage of these joint arrangements may in certain circumstances have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the Company operates two or more FM or AM stations in Cincinnati, Denver, Minneapolis-St. Paul, Orlando, Phoenix, Sacramento, San Francisco, and Washington, D.C., and assuming the consummation of the pending exchange, Nassau-Suffolk, the Company's competitors in certain markets include operators of multiple stations in those markets or operators who already have entered into local marketing agreements. Although the radio broadcasting industry is highly competitive, some barriers to entry exist (which can be mitigated to some extent by changing existing radio station formats and upgrading power among other things). The operation of a radio broadcast station requires a license from the FCC and the number of radio stations that can operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the FCC to communities in that market, as well as by the FCC's multiple ownership rules, which regulate the number of stations which may be owned and controlled by a single entity. The FCC's multiple ownership rules have changed significantly as a result of the Telecommunications Act of 1996 (the "Telecom Act"), enacted into law in February 1996. For a discussion of FCC regulation and the provisions of the Telecom Act, see "Business -- Federal Regulation of Radio Broadcasting." 6 9 The Company's stations also compete for advertising revenue with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor advertising. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by digital audio broadcasting ("DAB"). The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as broadcast television, cable television, audio tapes and compact disks. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. The FCC is currently considering whether to authorize the use of DAB to deliver audio programming. DAB may provide a medium for the delivery by satellite or terrestrial means of multiple new, high quality audio programming formats to local and national audiences. This technology also may be used in the future by radio broadcast stations either on existing or alternate broadcasting frequencies or on new frequency bands. In addition, the FCC has authorized an additional 100 kHz of band width for the AM band and has allocated frequencies in this new band to certain existing AM station licensees. Each such licensee, at the end of a five-year transition period for the licensee, which period may be extended through FCC waivers, is required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. In addition, the FCC is currently considering a review of its regulations governing the attribution of broadcast interests, including, but not limited to, time brokerage agreements and LMAs. If certain proposals for television LMAs are adopted, the radio LMA rules may be modified for purposes of applying radio contour overlap. The Company cannot predict what other matters might be considered in the future by the FCC, nor can it assess in advance what impact, if any, the implementation of any of these changes might have on its business. FEDERAL REGULATION OF RADIO BROADCASTING The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act of 1934, as amended (the "Communications Act"). Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; and adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations. The FCC has the power to impose penalties for violation of its rules or the Communications Act. The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of radio stations. FCC Licenses. Radio stations operate pursuant to broadcasting licenses that are presently granted by the FCC for maximum terms of seven years and are subject to renewal upon application to the FCC. The FCC licenses for the Company's stations are held by certain of the Company's subsidiaries. During certain periods when a renewal application is pending, petitions to deny license renewals can be filed by interested parties, including members of the public. Historically, the Company's management has not experienced any material difficulty in renewing any licenses for stations under its control. The FCC is required to hold hearings on a station's renewal application if a substantial and material question of fact exists as to whether (a) the station has served the public interest, convenience or necessity or (b) there have been serious violations of the Communications Act or the FCC rules thereunder or (c) there have been other violations of the Communications Act or the FCC rules thereunder which, taken together, constitute a pattern of abuse. The FCC classifies each AM and FM station. An AM station operates on either a clear channel, regional channel, or local channel. A clear channel is one on which AM stations are assigned to serve wide areas. Clear channel AM stations are classified as either: Class A stations, which operate unlimited time and are designated to render primary and secondary service over an extended area; Class B stations, which operate unlimited time and are designed to render service only over a primary service area; and Class D stations, which operate either daytime, limited time, or unlimited time with low nighttime power. A regional channel is one on which Class B and Class D 7 10 AM stations may operate and serve primarily a principal center of population and the rural area contiguous to it. A local channel is one on which AM stations operate unlimited time and serve primarily a community and the suburban and rural areas immediately contiguous thereto. Class C AM stations operate on a local channel and are designed to render service only over a primary service area that may be reduced as a consequence of interference. The minimum and maximum facilities requirements for an AM station are determined by its class. FM class designations depend upon the geographic zone in which the transmitter of the FM station is located. In general, commercial FM stations are classified as follows, in order of increasing power and antenna height: Class A, B1, B, C1, or C stations. The following table sets forth the market, FCC license classification, antenna height above average terrain (HAAT), power and frequency of each of the Company's stations, assuming the consummation of the dispositions and exchanges contemplated by the Colfax Transaction and Omni Transaction, and the date on which each station's FCC license expires. Each of the Company's AM stations is a regional channel station other than WUBE-AM and WGBB-AM, which are local channel stations, and KFBK-AM which is a clear channel station.
FCC HAAT POWER IN EXPIRATION DATE MARKET (1) STATION CLASS IN FEET KILOWATTS (2) FREQUENCY OF FCC LICENSE ---------- ------- ----- ------- ------------- --------- -------------- New York WHTZ-FM B 1362 6.0 100.3 Mhz June 1998 Nassau-Suffolk WALK-FM B 554 39.0 97.5 Mhz June 1998 WALK-AM B N/A 0.5/0.1 1370 kHz June 1998 WBAB-FM(3)+ A 269 3.0 102.3 Mhz June 1998 WBLI-FM(3)+ B 499 49.0 106.1 Mhz June 1998 WHFM-FM(3)+ A 354 5.0 95.3 Mhz June 1998 WGBB-AM(3)(4)+ C N/A 1.0/0.25 1240 kHz June 1998 Los Angeles KLAC-AM B N/A 5.0 570 kHz December 1997 KZLA-FM B 3137 18.7 93.9 Mhz December 1997 San Francisco KNEW-AM B N/A 5.0 910 kHz December 1997 KSAN-FM(5) B 1211 30.0 94.9 Mhz December 1997 KABL-AM B N/A 5.0 960 kHz December 1997 KBGG-FM B 961 100.0 98.1 Mhz December 1997 Washington D. C. WBIG-FM B 574 36.0 100.3 Mhz October 2003 WGMS-FM B 518 44.0 103.5 Mhz October 2003 WTEM-AM B N/A 5.0/1.0 570 kHz October 2003 Atlanta WFOX-FM C 1572 97.0 97.1 Mhz April 2003 Riverside- KGGI-FM B 1844 2.6 99.1 Mhz December 1997 San Bernardino KMEN-AM B N/A 5.0 1290 kHz December 1997 Minneapolis-St. Paul KTCZ-FM C 1034 100.0 97.1 Mhz April 1997 KTCJ-AM D N/A 0.5/0.004 690 kHz April 1997 KDWB-FM C 1034 100.0 101.3 Mhz April 1997 KFAN-AM(6) B N/A 50.0/25.0 1130 kHz April 1997 KEEY-FM C 1034 100.0 102.1 Mhz April 1997 KQQL-FM C 1089 100.0 107.9 Mhz April 1997 WBOB-FM C 972 98.0 100.3 Mhz April 1997 Phoenix KMLE-FM C 1736 96.0 107.9 Mhz October 1997 KISO-AM C N/A 1.0 1230 kHz October 1997 KOOL-FM C 1654 100.0 94.5 Mhz October 1997 KOY-AM B N/A 5.0/1.0 550 kHz October 1997 KYOT-FM C 1565 96.0 95.5 Mhz October 1997 KZON-FM C 1739 100.0 101.5 Mhz October 1997 Pittsburgh WWSW-AM B N/A 5.0 970 kHz August 1998 WWSW-FM B 810 50.0 94.5 Mhz August 1998 Denver KRRF-AM B N/A 5.0 1280 kHz April 1997 KXKL-FM C 1168 100.0 105.1 Mhz April 1997 KVOD-FM C1 1237 57.0 92.5 Mhz April 1997 KIMN-FM C 1152 97.0 100.3 Mhz April 1997 KALC-FM C 1470 99.0 105.9 Mhz April 1997 Cincinnati WUBE-FM B 915 14.5 105.1 Mhz October 2003 WUBE-AM C N/A 1.0 1230 kHz October 2003 WYGY-FM B 810 19.5 96.5 Mhz October 2003 WKYN-AM B N/A 5.0/0.99 1160 kHz October 2003
8 11
FCC HAAT POWER IN EXPIRATION DATE MARKET (1) STATION CLASS IN FEET KILOWATTS (2) FREQUENCY OF FCC LICENSE ---------- ------- ----- ------- ------------- --------- -------------- Sacramento KGBY-FM B 449 50.0 92.5 Mhz December 1997 KHYL-FM B 557 36.0 101.1 Mhz December 1997 KFBK-AM A N/A 50.0 1530 kHz December 1997 KSTE-AM B N/A 21.0/0.92 650 kHz December 1997 Orlando WOCL-FM C 1581 100.0 105.9 Mhz February 2003 WOMX-FM C 1598 100.0 105.1 Mhz February 2003 WJHM-FM C 1585 28.2 101.9 Mhz February 2003 WXXL-FM C1 824 100.0 106.7 Mhz February 2003
- ---------------- + Pending transaction (1) Actual city of license may be different from metropolitan market served. (2) Pursuant to FCC rules and regulations, many AM radio stations are required to operate at a reduced power during nighttime broadcasting hours, which results in reducing the radio station's coverage area during those hours of operation. Both power ratings are shown, where applicable. Ownership Matters. The Communications Act prohibits the assignment of a license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, the "character" of the licensee and those persons holding "attributable" interests therein, and compliance with the Communications Act's limitations on alien ownership, as well as compliance with other FCC policies, including its equal employment opportunity requirements. Historically, FCC licenses have generally been renewed. The Company has no reason to believe that its licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of the Company's licenses could have a material and adverse effect on the Company's results of operations, financial condition and cash flow. In response to the Telecommunications Act, the FCC amended its multiple ownership rules to eliminate the national limits on ownership of AM and FM stations, i.e., the former 20 stations per service ownership cap. Additionally, it established new local ownership rules that use a sliding scale of permissible ownership, depending on market size. In radio markets with 45 or more commercial radio stations, a licensee may own up to eight stations, no more than five of which can be in a single radio service (i.e., no more than 5 AM or 5 FM). In radio markets with 30 to 44 commercial radio stations, a licensee may own up to seven stations, no more than four of which are in a single radio service. In radio markets having 15 to 29 commercial radio stations, a licensee may own up to six radio stations, no more than four of which are in a single radio service. Finally, with respect to radio markets having 14 or fewer commercial radio stations, a licensee may own up to five radio stations, no more than three of which are in the same service; provided that the licensee may not own more than one half of the radio stations in the market. The Communications Act and FCC rules also prohibit the common ownership, operation or control of a radio broadcast station and a television broadcast station serving the same geographic market (subject to a waiver of such prohibition if certain conditions are satisfied) and of a radio broadcast station and a daily newspaper serving the same geographic market. Under these rules, absent waivers, the Company would not be permitted to acquire any newspaper or television broadcast station (other than low-power television) in any geographic market in which it now owns radio broadcast properties. In October 1996, the Commission issued a Notice of Inquiry to explore possible changes in the newspaper/broadcast cross-ownership waiver policy with respect to newspaper/radio combinations, including the possibility of adopting a waiver policy based on market size or on the number of independently owned media in a market. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interest of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's voting stock 9 12 (or 10% or more of such stock in the case of insurance companies, investment companies and bank trust departments) are generally attributable, as are positions as an officer or director of a corporate parent of a broadcast licensee. The FCC has issued a Notice of Proposed Rule Making ("NPRM") that contemplates tightening attribution standards where parties have multiple nonattributable interests in and relationships with stations that would be prohibited by the FCC's cross-interest rules, if the interests/relationships were attributable. The NPRM contemplates that this change in attribution will apply only to persons holding debt or equity interests that exceed certain benchmarks. The Communications Act prohibits the issuance of broadcast licenses to, or the holding of a broadcast license by, any corporation of which than 20% of the capital stock is owned of record or voted by non-U.S. citizens or their representatives or by a foreign government or a representative thereof, or by any corporation organized under the laws of a foreign country (collectively, "Aliens"). The Communications Act also authorizes the FCC, if the FCC determines that it would be in the public interest, to prohibit the issuance of a broadcast license to, or the holding of a broadcast license by, any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by non-U.S. citizens or their representatives or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country. The Company has been advised that the FCC staff has interpreted this provision to require a public interest finding in favor of such a grant or holding before a broadcast license may be granted to or held by any such corporation and have made such a finding only in limited circumstances. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including partnerships. As a result of these provisions, the licenses granted to the radio station subsidiaries of the Company by the FCC could be revoked if, among other restrictions imposed by the FCC, more than 25% of the Company's stock was owned or voted by Aliens. Accordingly, Chancellor's Second Restated Certificate of Incorporation restricts the ownership, voting and transfer of the Company's capital stock, in accordance with the Communications Act and the rules of the FCC, which prohibits ownership of more than 25% of Chancellor's outstanding capital stock (or more than 25% of the voting rights it represents) by or for the account of Aliens or corporations otherwise subject to domination or control by Aliens. In addition, the Second Restated Certificate of Incorporation of Chancellor authorizes its board of directors to adopt such provisions as it deems necessary to enforce these prohibitions. Local Marketing Agreements. Over the past three years, a number of radio stations have entered into what have commonly been referred to as "local marketing agreements," or "LMAs." While these agreements may take varying forms, under a typical LMA, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC's rules and policies. Under these arrangements, separately-owned stations could agree to function cooperatively in programming, advertising, sales, and similar matters, subject to the licensee of each station maintaining independent control over the programming and operations of its own station. One typical type of LMA is a programming agreement between two separately-owned radio stations serving a common service area, where the licensee of one station programs substantial portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during those program segments. Such arrangements are an extension of the concept of "time brokerage" agreements, under which a licensee of a station sells blocks of time on its station to an entity or entities that program the blocks of time and sell their own commercial advertising announcements during the time periods in question. In the past, the FCC has determined that issues of joint advertising sales should be left to enforcement by antitrust authorities and has specifically revised its so-called "cross-interest" policy to make that policy inapplicable to time brokerage arrangements (under this policy, the FCC in certain circumstances may prohibit one party from acquiring non-attributable economic interests in two broadcast stations in the same market). Furthermore, in recent years, the staff of the FCC's Mass Media Bureau has held that LMAs are not contrary to the Communications Act provided that the licensee of the station that is being substantially programmed by another entity maintains complete responsibility for, and control over, programming and operations of its broadcast station and assures compliance with applicable FCC rules and policies. The FCC's multiple ownership rules specifically permit radio station LMAs to continue to be entered into and implemented, but provide that a station brokering more than 15% of the weekly broadcast time on another station serving the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC's multiple ownership rules. As a result, the Company would not be permitted to enter into an 10 13 LMA with another local radio station that it could not own under the revised local ownership rules, unless the Company's programming could constitute 15% or less of the other local station's programming time on a weekly basis. The FCC rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA arrangement where the brokered and brokering stations which it owns or programs serve substantially the same area. Programming and Operation. The Communications Act requires broadcasters to serve the "public interest." The FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. A licensee continues to be required, however, to present programming that is responsive to issues of the station's community, and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station's programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although listener complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. In addition, licensees must develop and implement affirmative action programs designed to promote equal employment opportunities and must submit reports to the FCC with respect to these matters on an annual basis and in connection with a renewal application. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of "short term" (less than the full term) renewal or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed and Recent Changes. On December 15, 1994, the FCC solicited updated comment on whether it should liberalize its radio and television broadcast ownership "attribution" rules by (i) raising the basic benchmark for attributing ownership in a corporate licensee from 5% to 10% of the licensee's voting stock; (ii) increasing from 10% to 20% of the licensee's voting stock the attribution benchmark for "passive investors" in corporate licensees; and (iii) exempting certain widely-held limited partnership interests from attribution where each individual interest represents an insignificant percentage of total partnership equity. This same proceeding also solicited comment on proposals to limit broadcast ownership rules by considering minority stockholdings in corporations with a single majority shareholder or non-voting stock interests that have heretofore been unattributable. Moreover, Congress and the FCC have under consideration, and in the future may consider and adopt, new rules, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of the Company's radio stations, result in the loss of audience share and advertising revenues for the Company's radio stations, and affect the ability of the Company to acquire additional radio stations or finance those acquisitions. Such matters include: spectrum use or other fees on FCC licenses; revisions to the FCC's equal employment opportunity rules and other matters relating to political broadcasting; technical and frequency allocation matters; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes in the FCC's cross-interest, multiple ownership and cross-ownership policies; changes to broadcast technical requirements; proposals to allow telephone companies to deliver audio and video programming to the home through existing phone lines; new technologies such as DAB; proposals to limit the tax deductibility of advertising expenses by advertisers; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder, instead of granting FCC licenses and subsequent license renewals. The Company is also aware that on November 7, 1996, the FCC issued a Further Notice of Proposed Rulemaking, which among other things, reviews the FCC's regulations governing the attribution of broadcast interests, including time brokerage agreements and LMAs. At this time, no determination can be made as to what effect, if any, this proposed rulemaking will have on the Company. This same observation holds true with respect to the FCC's October 1996 Notice of Inquiry into possible changes in the radio/newspaper cross-ownership waiver policy. The Company cannot predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. 11 14 Federal Antitrust Laws. In addition to the risks associated with the acquisition of radio stations, the Company also is aware that the FTC and DOJ, which evaluate transactions requiring a pre-acquisition filing under the HSR Act, to determine whether those transactions should be challenged under the federal antitrust laws, have been increasingly active recently in their review of radio station acquisitions where an operator proposes to acquire new stations in its existing markets. In connection with the Omni Transaction, the DOJ issued a second request to the Company seeking the production of documents and other information relating to the Orlando area. The Company complied fully with the second request, and the DOJ ultimately cleared the transaction. The DOJ also issued second requests to the Company for documents and information with regard to the transactions in Long Island, New York; Jacksonville, Florida, and West Palm Beach, Florida (including documents and information about the Sacramento, California market). The waiting period under the HSR Act has not expired for the West Palm Beach/Sacramento or the Jacksonville/Long Island swaps. Although the Company believes that these transactions ultimately will be consummated as proposed, there can be no assurance that the DOJ will not require the restructuring of these swaps. If any of these swaps are not consummated, there can be no assurance that the Company will be able to enter into comparable transactions. As part of its increased scrutiny of radio station acquisitions, the DOJ has stated publicly that it believes that LMAs and other similar agreements customarily entered into in connection with radio station transfers prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. Since then, the DOJ has stated publicly that it will apply its new policy prohibiting LMAs in connection with purchase agreements until the expiration or termination of the HSR waiting period prospectively only. SEASONALITY Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by retailers. The Company's revenues and broadcast cash flows are typically lowest in the first quarter and highest in the second and fourth quarters. EMPLOYEES As of December 31, 1996, the Company employed 1,114 full-time and 410 part-time employees, 127 of whom are represented by American Federation of Television and Radio Announcers ("AFTRA") locals in San Francisco, Cincinnati, Los Angeles, Detroit and New York. The union contracts of the Company expire at various dates commencing in 1997. The Company considers its employee relations to be good. The Company employs several on-air personalities with large loyal audiences in their respective markets. The Company enters into employment agreements with these personalities to protect their interests in those relationships that it believes to be valuable. The loss of one of these personalities could result in a short-term loss of audience share, but the Company does not believe that any such loss would have a material adverse effect on the Company's financial condition or results of operations taken as a whole. ITEM 2. PROPERTIES The types of properties required to support each of the Company's radio stations include offices, studios, transmitter sites and antenna sites. A station's studios are generally housed within its offices in downtown or business districts. The transmitter and antenna sites generally are located so as to provide maximum market coverage. The Company owns transmitter and antenna sites in Atlanta, Denver, Los Angeles, Minneapolis-St. Paul, Phoenix, Pittsburgh, Sacramento, Nassau-Suffolk (Long Island), Riverside-San Bernardino and Washington, D.C.. The Company also leases transmitter and antenna sites in the Minneapolis-St. Paul and Riverside-San Bernardino markets and in the markets in which it does not own transmitter and antenna sites. The Company typically leases studio and office space, although it owns its facilities in Nassau-Suffolk, Phoenix and Milwaukee. Although the Company expects to relocate certain of its offices and studios to reduce costs or improve station operations, the Company generally considers its facilities to be suitable and of adequate sizes for its current and intended purposes. The Company does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. 12 15 The Company owns substantially all its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by the Company's stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. The principal executive offices of the Company are located at 12655 N. Central Expressway, Suite 405, Dallas, Texas 75243. The telephone number of the Company at that address is (972) 239-6220. ITEM 3. LEGAL PROCEEDINGS The Company is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the litigation in which the Company is currently involved, individually and in the aggregate, is not material to the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since the initial public offering of Chancellor's Class A Common Stock at $20.00 per share in February 1996, the Class A Common Stock has been traded on the Nasdaq National Market under the symbol "CBCA". The following table sets forth for the periods indicated the high and low bid prices per share of Class A Common Stock for each quarterly period or portion thereof since its initial public offering, as reported on the Nasdaq National Market.
HIGH LOW ---- --- 1996 First Quarter (beginning February 9) .................... $ 24.500 $ 20.000 Second Quarter .......................................... 31.750 22.000 Third Quarter ........................................... 44.000 28.500 Fourth Quarter .......................................... 42.000 21.875 1997 First Quarter (Through March 25) ........................ 30.250 23.000
There is no established public trading market for the Class B Common Stock of Chancellor or for the common stock of Chancellor Radio Broadcasting or Broadcasting Licensee. As of March 25, 1997, there were approximately 85 holders of record of the Class A Common Stock, six holders of record of the Class B Common Stock and no holders of record of the Class C Common Stock of Chancellor. All of the common stock of Chancellor Radio Broadcasting is held by Chancellor, and all the common stock of Broadcasting Licensee is held by Chancellor Radio Broadcasting. Chancellor has never paid dividends on its shares of common equity and intends to retain future earnings for use in the Company's business and does not anticipate declaring or paying any cash or stock dividends on shares of its common equity in the foreseeable future. Further, any determination to declare and pay dividends whether in cash, if available, or in stock or other assets, will be made by the Board of Directors of Chancellor in light of the Company's earnings, financial position, capital requirements and credit agreements and such other factors as the Board of Directors deems relevant. Moreover, Chancellor's sole source for cash from which to make dividend payments will be dividends distributed or other payments made to it by Chancellor Radio Broadcasting. The right of Chancellor to participate in any distribution of earnings or assets of Chancellor Radio Broadcasting is subject to the prior claims of the creditors of Chancellor Radio Broadcasting and the holders of the Senior Exchangeable Preferred Stock, the Exchangeable Preferred Stock and other preferred stock, if any, of Chancellor Radio Broadcasting. The New Credit Agreement, the Indentures and the terms of the Senior Exchangeable Preferred Stock and the Exchangeable Preferred Stock contain covenants that restrict or prohibit Chancellor Radio Broadcasting's ability to pay dividends and make other distributions to Chancellor. 13 16 ITEM 6. SELECTED FINANCIAL DATA The selected financial data has been derived from audited financial statements and should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business," the Consolidated Financial Statements of Chancellor Broadcasting Company, the Financial Statements of Old Chancellor Communications and the Consolidated Financial Statements of Shamrock Broadcasting and, in each case, the related notes thereto, included elsewhere in this document. THE COMPANY AND OLD CHANCELLOR COMMUNICATIONS The selected financial data for the Company in the following table reflects (i) the results of Old Chancellor Communications for the years ended December 31, 1992 and 1993 and (ii) the results of operations of the Company from January 10, 1994. The results of the Company are the same for Chancellor and Chancellor Radio Broadcasting, except as otherwise noted. The Company acquired radio stations KFBK-AM and KGBY-FM on January 10, 1994, the American Media Station Group on October 12, 1994, KDWB-FM on July 31, 1995, Shamrock Broadcasting on February 14, 1996 and the Denver Stations on July 31, 1996 and, accordingly, the results of their operations are included in those of the Company since such dates, respectively. In addition, the Company programmed and sold advertising pursuant to LMAs for radio station KDWB-FM from February 1, 1995, for radio stations KIMN-FM and KALC-FM from April 1, 1996, for the SFX and Omni stations from July 1996, and for radio station KSTE-AM from August 1, 1996 until their respective dates of acquisition. Accordingly, the revenues earned and the fees paid under the LMAs are reflected in the Company's results of operations where applicable.
OLD CHANCELLOR COMMUNICATIONS THE COMPANY ------------------------ -------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1992 1993 1994 1995 1996 ----------- ----------- ----------- ----------- -------- OPERATING DATA: (DOLLARS IN THOUSANDS) Net revenues ............................... $ 12,121 $ 14,717 $ 26,317 $ 64,322 $ 178,402 Station operating expenses.................. 8,738 9,738 15,660 37,464 111,209 Depreciation and amortization............... 1,102 1,014 2,954 8,256 20,877 Corporate expenses ......................... 544 568 600 1,816 4,845 Stock option compensation expense (1) ...... -- -- -- 6,360 3,800 Operating income ........................... 1,737 3,397 7,103 10,426 37,670 Interest expense ........................... 724 700 5,247 18,115 35,704 Net income (loss) for Chancellor ........... 399 1,464 (106) (11,531) (18,449) Net income (loss) for Chancellor Radio Broadcasting ............................. 399 1,464 (106) (11,531) (6,892) OTHER DATA: Broadcast cash flow ........................ $ 3,383 $ 4,979 $ 10,657 $ 26,858 $ 67,192 Broadcast cash flow margin ................. 27.9% 33.8% 40.5% 41.8% 37.7% EBITDA ..................................... $ 2,839 $ 4,411 $ 10,057 $ 25,042 $ 62,347 Capital expenditures ....................... 86 8 239 1,710 3,209 Ratio of earnings to fixed charges (2) ..... 2.17x 4.51x 1.35x -- -- Deficiency of earnings to fixed charges (2) $ -- $ -- $ -- $ 7,731 $ 17,365 Loss per common share ...................... -- -- (0.02) (1.30) (2.10) Weighted average number of shares outstanding (3) ........................ -- -- 5,166,039 8,849,936 16,704,381 BALANCE SHEET DATA (END OF PERIOD): Working capital, excluding current portion of long-term debt ................ $ 2,304 $ 1,739 $ 6,178 $ 5,826 $ 29,319 Goodwill and intangible assets, net ........ 13,056 12,679 189,982 208,093 568,129 Total assets ............................... 20,542 19,275 219,576 241,123 690,743 Long-term debt (including current portion) . -- -- 151,664 172,170 355,313 Mandatorily redeemable preferred stock ..... -- -- -- -- 107,222 Total common stockholder's equity .......... 19,084 17,145 59,894 54,723 200,991
- --------------- (1) Consists of a non-cash charge resulting from the grant of employee stock options in 1994. (2) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges. "Fixed charges" consist of interest, amortization of deferred financing costs, the component of rental expense believed by management to be representative of the interest factor thereon and preferred stock dividends and accretion, where appropriate. (3) Reflects the effect of the recapitalization of the number of shares outstanding which occurred in February 1996 in conjunction with the Company's initial public offering of its Class A Common Stock. 14 17 SHAMROCK BROADCASTING The selected financial data in the following table reflects the results of Shamrock Broadcasting for the periods presented and reflects the results of Shamrock Broadcasting's Los Angeles, California (KZLA-FM and KLAC-AM), New York, New York (WHTZ-FM), San Francisco, California (KSAN-FM and KNEW-AM), Cleveland, Ohio (WHK-AM and WMMS-FM) and Minneapolis-St. Paul, Minnesota (KEEY-FM and KFAN-AM) radio stations from their acquisition in July 1993. In addition, the data reflects the results of Shamrock Broadcasting's Kansas City, Missouri (KUDL-AM and FM) and Seattle, Washington (KXRX-FM) radio stations through their respective dates of disposition in September 1993 and June 1994. Further, the data reflect the results of Shamrock Broadcasting's Cleveland, Ohio (WHK-AM and WMMS-FM) radio stations from July 1993 through their date of disposition in April 1994. Shamrock Broadcasting acquired Malrite on July 30, 1993, and, accordingly, its results of operations are included in those of Shamrock Broadcasting from such date.
YEAR ENDED DECEMBER 31, (1) PERIOD ENDED -------------------------------------------------- FEBRUARY 13, 1992 1993 1994 1995 1996 (1) ----------- ----------- ----------- ----------- --------- OPERATING DATA: (DOLLARS IN THOUSANDS) Net revenues ................................ $ 48,122 $ 71,740 $ 94,887 $ 94,605 $ 8,464 Station operating expenses................... 37,227 61,043 75,427 73,720 7,762 Depreciation and amortization................ 3,086 6,161 8,999 8,751 349 Corporate expenses .......................... 4,084 4,550 3,355 3,139 2,215 Operating income (loss) ..................... 3,725 (14) 7,106 8,995 (2,534) Interest expense ............................ 3,252 7,133 12,923 14,703 (1,651) Net loss .................................... (1,036) (11,835) (1,714) (4,343) (3,115) OTHER DATA: Broadcast cash flow ......................... $ 10,895 $ 10,697 $ 19,460 $ 20,885 $ 702 Broadcast cash flow margin .................. 22.6% 14.9% 20.5% 22.1% 8.3% EBITDA ...................................... $ 6,811 $ 6,147 $ 16,105 $ 17,746 $ (1,513) Capital expenditures ........................ 1,284 1,118 3,341 1,642 -- Ratio of earnings to fixed charges (2) ...... 1.18x -- -- -- -- Deficiency of earnings to fixed charges (2) . $ -- $ 7,810 $ 5,978 $ 11,749 $ 1,813 BALANCE SHEET DATA (END OF PERIOD): Working capital, excluding current portion of long-term debt ......................... $ 6,841 $ 17,052 $ 24,284 $ 20,127 Goodwill and intangible assets, net ......... 46,544 206,123 184,470 184,197 Total assets ................................ 80,650 266,729 245,948 237,490 Long-term debt (including current portion) .. 33,500 166,151 151,241 149,613 Mandatorily redeemable preferred stock ...... -- 70,000 70,000 70,000 Total stockholders' equity (deficit) ........ 19,622 (10,719) (18,052) (28,514)
- --------------- (1) Includes the results of operations of the Malrite stations acquired by Shamrock Broadcasting from their date of acquisition in July 1993. (2) For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges. "Fixed charges" consist of interest, amortization of deferred financing costs and the component of rental expense believed by management to be representative of the interest factor thereon. 15 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION GENERAL The following discussion and analysis of results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this document. Periodically, the Company may make statements about trends, future plans and the Company's prospects. Actual results may differ materially from those described in such forward looking statements based on the risks and uncertainties facing the Company, including but not limited to, the following: business conditions and growth in the radio broadcasting industry and general economy; competitive factors; changes in interest rates; the non-renewal of one or more of the Company's broadcasting licenses; and those risk factors listed from time to time in documents filed by the Company with the Securities and Exchange Commission (the "Commission"). The Company has grown largely through acquisitions, as well as through internally generated growth. Upon completion of the pending divestiture and exchange transactions, the Company will own and operate 51 radio stations serving the following top 40 markets: New York, New York; Nassau-Suffolk (Long Island), New York; Los Angeles, California; San Francisco, California; Washington, D.C.; Atlanta, Georgia; Riverside-San Bernardino, California; Minneapolis-St. Paul, Minnesota; Phoenix, Arizona; Pittsburgh, Pennsylvania; Denver, Colorado; Cincinnati, Ohio; Sacramento, California; and Orlando, Florida. The Company anticipates that it will be able to consummate all of its pending transactions; however, the closing of each of such transactions is subject to FCC approval, and other governmental approvals, which are beyond the Company's control, and there can be no assurance when those transactions will be competed or that they will be completed on the terms described herein, or at all. In the following analysis, management discusses the "broadcast cash flow" of its combined station group. Broadcast cash flow consists of operating income before depreciation and amortization, corporate expenses and non-cash stock option compensation expense. Although broadcast cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of liquidity or profitability. The discussion of broadcast cash flow appears as the last paragraph in the discussion of the results of operations. A radio broadcast company's revenues come primarily from the sale of time to local and national advertisers. Those revenues are affected by the advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels (and the resulting ratings). Advertising rates tend to be based upon a station's demand for its inventory and its ability to attract audiences in targeted demographic groups, as measured principally by Arbitron. Radio stations attempt to maximize revenues by adjusting advertising rates based upon local market conditions, controlling inventory and creating demand and audience ratings. Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being lowest in the first quarter and highest in the second and fourth quarters of each year. A radio station's operating results in any period also may be affected by the occurrence of advertising and promotional expenditures that do not produce commensurate revenues in the period in which the expenditures are made. Because Arbitron reports audience ratings on a quarterly basis, a radio station's ability to realize revenues as a result of increased advertising and promotional expenses and any resulting audience ratings improvements may be delayed for several months. Because the Company incurred substantial indebtedness for its acquisitions for which it has significant debt service requirements, and because the Company has significant charges for stock option compensation, dividends and accretion on preferred stock and depreciation and amortization expense related to the fixed assets and intangibles acquired in its acquisitions, the Company expects that it will report net losses attributable to common stock for the foreseeable future, which losses may be greater than those historically experienced by the Company. 16 19 RESULTS OF OPERATIONS The Company's acquisitions, including the acquisition of KFBK-AM and KGBY-FM in January 1994, the 11-station American Media Station Group in October 1994, the acquisition of KDWB-FM in July 1995, the Shamrock Acquisition in February 1996, the Denver Exchange in July 1996 and the acquisition of WKYN-AM in November 1996, have all been accounted for using the purchase method of accounting. As a result of this acquisition activity, the Company's results of operations are not directly comparable from period to period. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net revenues increased 177.4% to $178.4 million for the year ended December 31, 1996 from $64.3 million for the year ended December 31, 1995. Station operating expenses (operating expenses exclusive of depreciation, amortization, corporate and stock option compensation expenses) increased 196.8% to $111.2 million for the year ended December 31, 1996 from $37.5 million for the year ended December 31, 1995. The majority of these increases were due to the acquisition of Shamrock Broadcasting and KIMN-FM and KALC-FM, and the various operating agreements with Omni, Secret, SFX and American Radio. On a same station basis, net revenues increased 8.5% to $198.5 million while station operating expenses decreased 4.1% to $120.2 million for the year ended December 31, 1996 from $182.9 million and $125.4 million, respectively, for the prior year. Depreciation and amortization increased 152.9% to $20.9 million for the year ended December 31, 1996 from $8.3 million for the same prior year period. Interest expense increased 97.1% to $35.7 million for 1996 from $18.1 million for the 1995 period. These increases, and the extraordinary loss on early extinguishment of debt of $4.2 million in 1996, were primarily attributable to the acquisition of Shamrock Broadcasting and the change in capital structure of the Company related to the financing of such acquisition. Corporate expenses increased 166.9% to $4.8 million for the year ended December 31, 1996 from $1.8 million for the same period in 1995, as a result of additional personnel and overhead costs associated with the acquisition of Shamrock Broadcasting and KIMN-FM and KALC-FM, and the various operating agreements with Omni, Secret, SFX and American Radio. During the second quarter of 1995, the Company developed an estimate of the fair value of its outstanding stock options in the amount of $19.0 million. Based upon this estimate and the applicable vesting periods, the Company recognized $4.5 million of non-cash stock option compensation expense during that quarter, with the remaining amount being amortized over an approximate four year period. During 1996, the Company recognized non-cash stock option compensation expense of $3.8 million and non-cash charges for dividends and accretion on the preferred stock of its subsidiary of $11.6 million. The deferred tax valuation allowance was originally established due to the uncertainty surrounding the realizability of the Company's deferred tax assets using the "more likely than not" criteria. During the fourth quarter of 1996, the Company revised its estimate of the likelihood that it will realize the majority of its deferred tax assets and adjusted its valuation allowance accordingly. This revised estimate was the direct result of the acquisition of Trefoil. Reversal of the valuation allowance related to deferred tax assets which existed on the date of acquisition or which were acquired as a result of the Trefoil acquisition were credited against the original purchase accounting allocation to goodwill. The reversal of the valuation allowance related to deferred tax assets generated subsequent to the acquisition were credited as a reduction of income tax expense and extraordinary losses as appropriate. Income from operations increased 261.3% to $37.7 million for the year ended December 31, 1996 from $10.4 million for the same 1995 period primarily as a result of the effect of the completed acquisitions. Chancellor had a net loss of $18.4 million compared with a net loss of $11.5 million for the prior year. Broadcast cash flow increased 149.8% to $67.2 million for the year ended December 31, 1996 from $26.9 million for 1995. Broadcast cash flow as a percentage of net revenues decreased to 37.7% for 1996 from 41.8% for 1995. On a same station basis, broadcast cash flow increased 36.0% to $78.2 million for the year ended December 31, 1996 from $57.5 million for the same period in 1995. Same station broadcast cash flow as a percentage of net revenues increased to 39.4% for 1996 from 31.4% for 1995. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net revenues increased 144.4% to $64.3 million for the year ended December 31, 1995 from $26.3 million for the year ended December 31, 1994. Station operating expenses increased 139.2% to $37.5 million for the year ended December 31, 1995 from $15.7 million for the year ended December 31, 1994. The majority of these 17 20 increases were due to the acquisition of the American Media stations in October 1994 and the acquisition/LMA for KDWB-FM beginning February 1, 1995. In 1995, there was a $6.4 million non-cash stock option compensation expense related to compensatory stock options of Chancellor Broadcasting Company granted in 1994. Depreciation and amortization increased 179.5% to $8.3 million for the year ended December 31, 1995 from $3.0 million for the same period in the prior year. Interest expense increased 245.2% to $18.1 million for 1995 from $5.2 million for the 1994 period. These increases, and the extraordinary loss on early extinguishment of debt of $817,819 in 1994, were primarily attributable to the acquisition of the American Media stations and the resulting change in capital structure from its financing. Corporate expenses increased 202.8% to $1.8 million for the year ended December 31, 1995 from approximately $600,000 for the same period in 1994, as a result of additional personnel and overhead costs associated with the acquisition of the American Media stations and the LMA for KDWB-FM. As a result of the foregoing, income from operations increased 46.8% to $10.4 million for the year ended December 31, 1995 from $7.1 million for the same 1994 period. The Company had a net loss of $11.5 million compared with a net loss of $106,000 for the prior year. Broadcast cash flow increased 152.0% to $26.9 million for the year ended December 31, 1995 from $10.7 million for 1994. Broadcast cash flow as a percentage of net revenues increased to 41.8% for 1995 from 40.5% for 1994. Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 Net revenues increased 78.8% to $26.3 million for the year ended December 31, 1994 from $14.7 million for the year ended December 31, 1993. Station operating expenses increased 61.9% to $15.7 million for the year ended December 31, 1994 from $9.7 million for the year ended December 31, 1993. The majority of these increases were due to the acquisition of the American Media stations in October, 1994. Depreciation and amortization increased 191.3% to $3.0 million for the year ended December 31, 1994 from $1.0 million for the same period in the prior year. Interest expense increased 649.6% to $5.2 million for 1994 from $700,000 for the same 1993 period. These increases, and the extraordinary loss on early extinguishment of debt of $817,819 in 1994, were primarily attributable to the acquisition of the American Media stations and the resulting change in capital structure from its financing. Corporation expenses were relatively unchanged for the two periods. As a result of the foregoing, income from operations increased 109.1% to $7.1 million for the year ended December 31, 1994 from $3.4 million for the same prior year period. The Company had a net loss of $106,000 for the year ended December 31, 1994 as compared to net income of $1.5 million for the year ended December 31, 1993. Broadcast cash flow increased 114.0% to $10.7 million for the year ended December 31, 1994 from $5.0 million for 1993. Broadcast cash flow as a percentage of net revenues increased to 40.5% for 1994 from 33.8% for 1993. LIQUIDITY AND CAPITAL RESOURCES The pursuit by the Company of its acquisition strategy has required a significant portion of the Company's capital resources. The Company has agreed to merge with Evergreen Media Corporation subject to regulatory and shareholder approval. The Company has also agreed to acquire, for approximately $480.0 million, radio properties from Viacom prior to the expected consummation of this merger. The Evergreen Merger will not require cash financing as it will be a stock-for-stock transaction. The Company has financed its past acquisitions through bank financing and subordinated notes, the sale of preferred stock and common equity and with proceeds from asset sales. The Company expects that any required financing for future acquisitions and exchanges will be provided through the incurrence of debt, the sale of equity securities, internally generated funds or a combination of the foregoing. There can be no assurance, however that external financing will be available to the Company on terms considered favorable by management or that cash flow from operations will be sufficient to fund the company's acquisition strategy. As a result of the financing of its acquisitions, the Company has a substantial amount of long-term indebtedness, and for the foreseeable future, principal and interest payments under the Company's credit agreement and interest payments under the Company's outstanding subordinated notes will be the Company's principal uses of 18 21 cash. In addition to debt service requirements under the Company's credit agreement, the Company will require $26.3 million per annum to pay interest on the subordinated notes. The senior exchangeable preferred stock does not require the payment of cash dividends through May 14, 2001. Similarly, the exchangeable preferred stock does not require cash dividends through April 14, 2002, although the Company will issue additional shares of exchangeable preferred stock in lieu of cash dividends. The convertible preferred stock will require cash dividends of $7.0 million per year. Because Chancellor is a holding company with no assets other than the common stock of Chancellor Radio Broadcasting, Chancellor will rely on dividends from Chancellor Radio Broadcasting, to permit Chancellor to pay cash dividends in full on the convertible preferred stock. The Company's credit agreement, the indentures, the senior preferred certificate of designation and the terms of the exchangeable preferred stock generally will limit but will not prohibit Chancellor Radio Broadcasting, from paying such dividends. In addition to debt service and dividends on Chancellor's convertible preferred stock, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures, which are not expected to be material in amount. It is expected that when received, the Company will use the $62.0 million in net cash proceeds from the Milwaukee Disposition and the station swaps contemplated by the Omni Transaction to retire a portion of the indebtedness incurred under the Company's credit agreement to fund the Colfax Acquisition and the Omni Acquisition. The company is currently unable to predict when it will receive those additional funds. Management believes that cash from operating activities and revolving loans under the Company's credit agreement should be sufficient to permit the Company to meet its financial obligations and fund its operations. Changes in interest rates affect the Company to the extent that it has borrowings under its term and revolving credit facilities or it makes additional borrowings under new agreements. Net cash provided by operating activities was $24.0 million, $5.5 million and $0.7 million for the year ended December 31, 1996, 1995 and 1994, respectively. Changes in the Company's net cash provided by operation activities are primarily the result of the Company's acquisitions completed and station operating agreements entered into during the periods. Net cash used in investing activities was $442.7 million, $26.1 million and $204.7 million for the year ended December 31, 1996, 1995 and 1994, respectively. Net cash provided by financing activities was $421.2 million, $20.4 million and $205.6 million for the year ended December 31, 1996, 1995 and 1994, respectively. These cash flows primarily reflect the borrowings, capital contributions and expenditures for station acquisitions, dispositions and swaps. Subsequent to December 31, 1996, the Company refinanced its bank indebtedness and issued approximately $310.0 million of preferred stock in connection with the consummation of the Colfax Transaction and the Omni Transaction. As a result of this refinancing, the Company incurred an extraordinary charge to write-off deferred financing costs of approximately $4.5 million in January 1997. See Note 5 to the financial statements for the pro forma effects of the Colfax and financing transactions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item is included on Pages F-1 through F-53 and S-1 through S-12 of this Report on Form 10-K and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information called for by this Item is not applicable. 19 22 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS The directors and executive officers of Chancellor and Chancellor Radio Broadcasting are listed below. Each of the persons named below holds the positions set forth opposite his or her name with each of Chancellor and Chancellor Radio Broadcasting. Each of the directors will hold office until the next annual meeting of stockholders at which directors of his or her class are elected and until his or her successor is duly elected and qualified.
NAME AGE POSITION ---- --- -------- Steven Dinetz + 50 President, Chief Executive Officer and Director George C. Toulas 45 Senior Executive Vice President and Regional Manager Rick Eytcheson 47 Executive Vice President and Regional Manager Samuel L. Weller 41 Executive Vice President and Regional Manager Jacques Kerrest 50 Senior Vice President and Chief Financial Officer Eric W. Neumann + 31 Senior Vice President-- Finance Thomas O. Hicks 51 Chairman of the Board and Director Jeffrey A. Marcus + 50 Director John H. Massey + 57 Director Eric C. Neuman 52 Director Lawrence D. Stuart, Jr. 52 Director
+ Each holds the same positions for Broadcasting Licensee. Steven Dinetz President, Chief Executive Officer and Director Mr. Dinetz has served as President, Chief Executive Officer and a Director of the Company since its formation and prior thereto was the President and Chief Executive Officer and a Director of Chancellor Communications. Prior to joining Chancellor Communications, Mr. Dinetz served as a radio broadcasting consultant and, from October 1988 to January 1993, as the President and Chief Executive Officer of D&D Broadcasting, which Mr. Dinetz formed to acquire KOSI-FM and KEZW-AM in Denver, Colorado from Group W. Broadcasting, Inc. in a leveraged acquisition. Mr. Dinetz has more than 20 years experience in the radio broadcasting industry and has previously managed 14 radio stations throughout the United States, including stations in top 40 radio markets such as New York City, Miami-Fort Lauderdale, Dallas-Fort Worth, and Denver. George C. Toulas Senior Executive Vice President and Regional Manager Mr. Toulas has served as Senior Executive Vice President and Regional Manager of the Company since November 1996. From October 1994 to October 1996 he served as Executive Vice president and Regional Manager of the Company and was responsible for the Company's Cincinnati, Minneapolis-St. Paul and Orlando markets and was General Manager of the Company's Cincinnati stations. From November 1996, Mr. Eytcheson and Mr. Weller began reporting to Mr. Toulas and Mr. Dinetz, and Mr. Toulas has had direct responsibility for the Company's stations in New York, Washington, D.C., Orlando, Atlanta, Minneapolis-St. Paul, Cincinnati and Milwaukee. Prior to his employment with the Company, Mr. Toulas was with American Media from 1983 to 1994. During his tenure with American Media, Mr. Toulas served as Regional Vice President for Cincinnati, Minneapolis-St. Paul and Orlando and as General Manager of WUBE-AM/FM and WYGY-FM in Cincinnati from 1989 to 1994 and as General Manager of WOCL-FM in Orlando from 1986 to 1989. Mr. Toulas has over 20 years experience in broadcasting management. 20 23 Rick Eytcheson Executive Vice President and Regional Manager Mr. Eytcheson has served as Executive Vice President of the Company, as Regional Manager of the Company's California markets since October 1994 and as General Manager of the Company's Sacramento stations from the time of their acquisition by Chancellor Communications in January 1994 to February 1996. Prior to joining Chancellor Communications, Mr. Eytcheson had been the General Manager of KFBK-AM and KGBY-FM under their two previous owners, having held that position since 1985. Prior to joining KFBK/KGBY, Mr. Eytcheson was the Vice President and General Manager of KOSO-FM in Modesto, California and KKNU-FM in Fresno, California, with additional responsibility for the operation of four radio stations located in Washington, Indiana and Wisconsin. Mr. Eytcheson joined KOSO-FM as General Sales Manager in 1980, became General Manager in 1982 and assumed his group management responsibilities in 1983. Mr. Eytcheson has over 16 years of experience in broadcasting management. Samuel "Skip" L. Weller Executive Vice President and Regional Manager Mr. Weller joined the Company in February 1996 and has served as Executive Vice President and Regional Manager of the Company's Denver and Phoenix radio stations and General Manager of the Denver Stations since February 1996. As of November 1996, Mr. Weller assumed responsibility for the Pittsburgh and Nassau-Suffolk stations as well as the Phoenix cluster. Prior to joining the Company, Mr. Weller was the Vice President and General Manager of KOSI-FM, KEZW-AM and the former KVOD-FM in Denver, Colorado, all of which were owned by the Tribune Company. Mr. Weller also served as Vice President of Sales and Marketing of KOSI-FM and KEZW-AM under their previous owner D&D Broadcasting, which was formed by Steven Dinetz. Mr. Weller has over 20 years experience in broadcasting management. Jacques Kerrest Senior Vice President and Chief Financial Officer Mr. Kerrest joined the Company in December 1995 and has served as Senior Vice President and the Chief Financial Officer of the Company since February 9, 1996. Previously he had been Chief Financial Officer of Positive Communications, Inc. ("Positive") since July 1993 and Secretary of Positive since September 1994. Prior to joining Positive, he served as the President of Plenum Associates, Inc., a financial consulting company from April 1990 until June 1993. He had previously been associated with Chemical Bank for 16 years, most recently as a Vice President, where he was involved in corporate finance and media transactions. Eric W. Neumann Senior Vice President -- Finance Mr. Neumann has served as a Senior Vice President of the Company since its formation. From that time until February 1996, Mr. Neumann was also Chief Financial Officer of the Company. Mr. Neumann has been associated with Mr. Dinetz since 1991, when he joined D&D Broadcasting as its controller. Mr. Neumann is a certified public accountant. Thomas O. Hicks Chairman of the Board and Director Mr. Hicks was elected Chairman of the Board and a director of the Company in April 1996. Mr. Hicks is Chairman of the Board and Chief Executive Officer of Hicks, Muse, Tate & Furst Incorporated, a private investment firm located in Dallas, St. Louis, New York and Mexico City specializing in strategic investments, leveraged acquisitions and recapitalizations. From 1984 to May 1989, Mr. Hicks was Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas, Incorporated, a Dallas based private investment firm. Mr. Hicks serves as a director of Sybron International Corporation, Inc., Berg Electronics Corp., Neodata Corporation, D.A.C. Vision Inc. and Olympus Real Estate Corporation. 21 24 Jeffrey A. Marcus Director Mr. Marcus currently serves as the Chairman and Chief Executive Officer of Marcus Cable Company, the ninth largest cable television multiple system operator (MSO) in the United States which serves over 1.2 million customers and which Mr. Marcus formed in 1990. Until November 1988, Mr. Marcus served as Chairman and Chief Executive Officer of WestMarc Communications, Inc., an MSO formed through the merger in 1987 of Marcus Communications, Inc. and Western TeleCommunications, Inc. Mr. Marcus has more than 29 years experience in the cable television business. Mr. Marcus is a co-owner of the Texas Rangers Baseball Club and serves as a director or trustee of several charitable and civic organizations. John H. Massey Director Until August 2, 1996, Mr. Massey served as the Chairman of the Board and Chief Executive Officer of Life Partners Group, Inc., an insurance holding company, having assumed those offices in October 1994. Prior to joining Life Partners, he served, since 1992, as the Chairman of the Board of, and currently serves as a director of, FSW Holdings, Inc., a regional investment banking firm. Since 1986, Mr. Massey has served as a director of Gulf-California Broadcast Company, a private holding company that was sold in May 1996. From 1986 to 1992, he also was President of Gulf-California Broadcast Company. From 1976 to 1986, Mr. Massey was President of Gulf Broadcast Company, which owned and operated 6 television stations and 11 radio stations in major markets in the United States. Mr. Massey currently serves as a director of Central Texas Bankshare Holdings, Inc., Hill Bank and Trust Co., Hill Bancshares Holdings, Inc., Bank of The Southwest of Dallas, Texas, Columbus State Bank, Columbine JDS Systems, Inc. and The Paragon Group, Inc. Eric C. Neuman Director Mr. Neuman became a director of the Company in April 1996. Since May 1993, Mr. Neuman has been an officer of Hicks, Muse, Tate & Furst Incorporated and is currently serving as Senior Vice President. From 1985 to 1993, Mr. Neuman was a Managing General Partner of Communications Partners, Ltd., a private investment firm specializing in media and communications businesses. Lawrence D. Stuart, Jr. Director Mr. Stuart became a director of Chancellor and the Company in January 1997. Since October 1995, Mr. Stuart has served as a Managing Director and Principal of Hicks, Muse, Tate & Furst Incorporated. Prior to joining Hicks Muse, from 1990 to 1995 he served as the managing partner of the Dallas office of the law firm Weil, Gotshal & Manges LLP. ELECTION OF DIRECTORS The Second Restated Certificate of Incorporation of Chancellor provides that the Board of Directors shall consist (in addition to such number of directors as may be elected from time to time by the holders of any class or series of Chancellor's preferred stock) of at least five but no more than nine directors, two of whom shall be elected by the holders of the Class A Common Stock (the "Class A Directors"), voting as a class, and the remainder of whom (the "Classified Directors") shall be elected by the holders of the Class A Common Stock and the Class B Common Stock, voting together as a single class. Currently, both Class A directorships are vacant. The Classified Directors are divided into three classes of directors, designated as Class I, Class II and Class III directors. The Class A Directors are elected for one-year terms at each annual meeting of Chancellor's stockholders. The Classified Directors are elected for three-year terms. The initial term of office of the Class I directors expires at the 1997 annual meeting of Chancellor's stockholders, the initial term of the Class II directors expires at the 1998 annual meeting of stockholders and the initial term of the Class III directors expires at the 1999 annual meeting of stockholders. Beginning with the 1997 annual meeting, and at each annual meeting of Chancellor's stockholders thereafter, Classified Directors in the class to be elected at such meeting will be elected to succeed those directors 22 25 whose terms expire at such meeting. The Board of Directors of Chancellor has established an Audit Committee, to which Messrs. Stuart, Marcus and Massey have been appointed, and a Compensation Committee, to which Messrs. Neuman, Marcus and Massey have been appointed. Directors of Chancellor Broadcasting Company are elected by Chancellor, its sole voting stockholder. Directors of Broadcasting Licensee are elected by Chancellor Radio Broadcasting, its sole stockholder. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and directors of Chancellor and persons who beneficially own more than ten percent of the Class A Common Stock to file with the Commission certain reports, and to furnish copies thereof to Chancellor, with respect to each person's beneficial ownership of Chancellor's equity securities. Based solely upon a review of the form copies of such persons, Chancellor's executive officers, directors and beneficial owners of more than ten percent of the Class A Common Stock have complied with the applicable reporting requirements, except that Messrs. Neuman and Hicks each filed a Form 3 late, Mr. Toulas filed one Form 4 late reporting one transaction, Mr. Marcus filed one Form 4 late reporting five transactions, and Mr. Weller filed two Form 4s late reporting a total of three transactions. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION The following table sets forth all compensation, including bonuses, stock option awards and other payments, paid or accrued by the Company for the fiscal years ended December 31, 1996, 1995 and 1994, to or for the Company's Chief Executive Officer and the Company's other four most highly compensated executive officers (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------ AWARDS NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER ($) OPTIONS (#)(1) --------------------------- ---- ---------- --------- --------- -------------- Steven Dinetz ....................................... 1996 470,283 500,000 4,235 75,000 President, Chief Executive Officer and Director 1995 250,000 90,000 3,785 -- 1994 218,117 90,000 -- 863,319(2) George C. Toulas .................................... 1996 360,070 187,500 5,718 50,000 Senior Executive Vice President and Regional 1995 250,000 55,000 5,518 -- Manager (3) 1994 54,167 15,109 -- -- Rick Eytcheson ...................................... 1996 337,736 162,500 5,207 30,000 Executive Vice President and Regional Manager 1995 243,000 95,616 3,547 -- 1994 195,000 64,739 -- -- Samuel L. Weller .................................... 1996 294,003 320,320 64,732 30,000 Executive Vice President and Regional Manager (4) Jacques Kerrest ..................................... 1996 225,000 175,000 8,598 35,000 Senior Vice President and Chief Financial Officer
- --------------- (1) Represents stock options to purchase shares of the Class A Common Stock of the Company. (2) Gives effect to the reclassification of Chancellor's Class A Common Stock on a 1-for-6 basis immediately prior to the consummation of the Initial Public Offering. (3) For 1994, represents compensation for the period beginning October 12, 1994, when Mr. Toulas joined the Company, to December 31, 1994. (4) Represents compensation for the period beginning February 1, 1996, when Mr. Weller joined the Company. 23 26 EMPLOYMENT AGREEMENTS Dinetz Employment Agreement Mr. Dinetz has entered into a new employment agreement with Chancellor and Chancellor Radio Broadcasting pursuant to which he serves as President and Chief Executive Officer of Chancellor and Chancellor Radio Broadcasting. The new employment agreement is currently scheduled to expire on December 31, 2000, unless earlier terminated, and provides for a base salary of $500,000 per year plus an annual bonus of up to $200,000 based on performance criteria established by Chancellor's Board of Directors at the beginning of each fiscal year. Each December 31 during the term of the employment agreement, Mr. Dinetz's base salary for the next succeeding year shall be adjusted based upon the Consumer Price Index, provided that his annual base salary shall never be less than $500,000. Unless either party gives written notice to the contrary prior to December 31 of each year the employment agreement is in effect the employment agreement will automatically be extended for an additional year so that, as of each December 31, the remaining term of the employment agreement will be five years. The employment agreement also provides for participation by Mr. Dinetz in all benefit programs maintained by Chancellor or its subsidiaries and provides for certain life, health and disability insurance coverage for Mr. Dinetz. The employment agreement may be terminated by Chancellor and Chancellor Radio Broadcasting at any time prior to the completion of the five year stated term. If Chancellor and Chancellor Broadcasting terminate Mr. Dinetz's employment agreement other than for cause (as defined), or if Mr. Dinetz voluntarily terminates the employment agreement for good reason (as defined), Chancellor and Chancellor Radio Broadcasting must pay Mr. Dinetz severance compensation equal to two years of Mr. Dinetz's base salary; provided, however, that if the decision to terminate the employment agreement results from the failure of Chancellor or Chancellor Radio Broadcasting to meet certain specified financial performance criteria, Mr. Dinetz will be entitled to receive severance compensation equal to one year of Mr. Dinetz's base salary. In 1994, pursuant to his former employment agreement Mr. Dinetz was granted options (the "Dinetz Options") to purchase 5,976,415 shares of Nonvoting Stock, including (i) options vesting equally over five years (from January 10, 1994) to purchase up to 3,307,722 shares at an exercise price of $1.00 per share and (ii) options vesting equally over five years (from October 12, 1994) to purchase up to 2,668,582 shares at an exercise price of $1.25 per share, in each case with such exercise price to increase at a compound rate of 9% per annum. Of the options granted, options for 1,062,004 shares contained a feature which conditioned their exercise upon the Company's attaining certain rates of return ("IRR Options"). In September 1995, the Company agreed with Mr. Dinetz to amend the IRR Options to remove the rate of return feature. The Company further agreed to amend the exercise price for the Dinetz Options to provide that all options previously exercisable at $1.00 per share will be exercisable at $1.25 per share and that all options previously exercisable at $1.25 per share will be exercisable at $1.40 per share. The Dinetz Options were also amended to remove the annual compounding of the exercise price. In accordance with their terms, the Dinetz Options were adjusted in connection with the recapitalization of Chancellor's common stock immediately prior to the consummation of the Initial Public Offering. Accordingly, Mr. Dinetz owns, on an adjusted basis, options exercisable for 487,555 shares having an option exercise price of $7.50 per share and options exercisable for 375,764 shares having an option exercise price of $8.40 per share. In addition, on February 9, 1996, Mr. Dinetz was granted options to purchase 75,000 shares of Class A Common Stock pursuant to the Stock Award Plan (as defined). Toulas Employment Agreement Mr. Toulas is a party to an employment agreement with Chancellor and Chancellor Radio Broadcasting pursuant to which he serves as Regional Manager of WUBE-AM, WUBE-FM, WYGY-FM and WKYN-AM in Cincinnati, KTCJ-FM, KTCZ-AM, KDWB-FM, KEEY-FM, KFAN-AM, WBOB-FM and KQQL-FM in Minneapolis-St. Paul, WOCL-FM, WXXL-FM, WOMX-FM and WJHM-FM in Orlando, WGMS-FM, WBIG-FM and WTEM-AM in Washington, D.C., WHTZ-FM in New York and WFOX-FM in Atlanta. Mr. Toulas is also a Senior Executive Vice President of Chancellor and Chancellor Radio Broadcasting. Mr. Toulas's employment agreement is for a term commencing on February 14, 1996 and ending upon December 31, 2000, unless otherwise terminated as allowed in the agreement. The agreement provides for an initial base salary of $375,000, with an annual increase of between three and five percent as determined by the board of directors. Mr. Toulas is also entitled to receive an annual bonus of up to 50% of his then base salary for each fiscal year, beginning in fiscal year ending December 31, 1996, based on 24 27 achievement of broadcast cash flow projections established by the board of directors. The broadcast cash flow projections will be adjusted based upon acquisitions or disposition of stations under the supervision of Mr. Toulas. Mr. Toulas is also entitled to the use and paid expenses of an automobile, allowance for a fitness or similar club, and participation in all employee benefit plans maintained by Chancellor or any of its subsidiaries. Mr. Toulas's employment agreement also contains a noncompetition provision pursuant to which Mr. Toulas has agreed that during the term of his employment contract and for six months thereafter he will not engage in the broadcasting business within any community or Arbitron MSA served by those stations managed or overseen by him. On February 14, 1996, concurrently with the consummation of the Initial Public Offering, the Company paid to Mr. Toulas $100,000 in satisfaction of a provision of his former employment agreement providing for a possible cash payment to Mr. Toulas based on the value of the Company's Cincinnati stations at a specified future date. Eytcheson Employment Agreement Mr. Eytcheson is a party to an employment agreement with Chancellor and Chancellor Radio Broadcasting pursuant to which he serves as Regional Manager of KZLA-FM and KLAC-AM in Los Angeles, KSAN-FM, KNEW-AM, KBGG-FM and KABL-AM in San Francisco, KGGI-FM and KMEN-AM in Riverside-San Bernardino, and KFBK-AM, KGBY-FM and KHYL-FM in Sacramento. Mr. Eytcheson is also an Executive Vice President of Chancellor and Chancellor Radio Broadcasting. Mr. Eytcheson's employment agreement is for a two year term commencing on February 14, 1996, and is subject to automatic successive one-year renewal terms that take effect unless notice of non-renewal is given by the Company to Mr. Eytcheson within 30 days prior to the expiration of the then-current term. Mr. Eytcheson's current base salary is $325,000 per year. Mr. Eytcheson is also entitled to receive an annual bonus of up to 50% of his then base salary for each fiscal year, beginning in fiscal year ending December 31, 1996, based on achievement of broadcast cash flow projections established by the board of directors. The broadcast cash flow projections will be adjusted based upon acquisitions or disposition of stations under the supervision of Mr. Eytcheson. Mr. Eytcheson is also entitled to the use and paid expenses of an automobile, allowance for a fitness or similar club, and participation in all employee benefit plans maintained by Chancellor or any of its subsidiaries. Mr. Eytcheson's employment agreement also contains a noncompetition provision pursuant to which Mr. Eytcheson has agreed that during the term of his employment contract and for one year thereafter he will not engage in the radio broadcasting business within a specified geographic location surrounding the Company's stations under Mr. Eytcheson's supervision pursuant to the employment agreement. On February 14, 1996, concurrently with the consummation of the Initial Public Offering, the Company lent $200,000 to Mr. Eytcheson to enable him to purchase shares of Chancellor's Class A Common Stock in the Initial Public Offering. The loan will be an unsecured, non-interest bearing loan, which will be forgiven during the next three years. The Company made this loan to Mr. Eytcheson in satisfaction of a provision of his former employment agreement providing for a possible cash payment to Mr. Eytcheson based on the value of the Company's Sacramento stations at a specified future date. Weller Employment Agreement Mr. Weller is a party to an employment agreement with Chancellor and Chancellor Radio Broadcasting pursuant to which he serves as Regional Manager of KMLE-FM, KOOL-FM, KYOT-FM, KZON-FM, KISO-AM and KOY-AM in Phoenix, KXKL-FM, KVOD-FM, KRRF-AM, KIMN-FM and KALC-FM in Denver, WWSW-AM and WWSW-FM in Pittsburgh, and WALK-FM, WALK-AM, WBAB-FM, WBLI-FM, WHFM-FM and WGBB-AM in Nassau-Suffolk (Long Island). Mr. Weller is also an Executive Vice President of Chancellor and Chancellor Radio Broadcasting. The initial term of the employment agreement commenced on February 1, 1996 and continues for twenty three months. The employment agreement provides for an annual base salary of $340,000 and $360,000 in the fiscal years ended December 31, 1997 and 1998, respectively. Mr. Weller is also entitled to receive a quarterly bonus based on the percentage of the annual budgeted broadcast cash flow achieved by the stations for which Mr. Weller has responsibility. The employment agreement also provides that the Company will supply Mr. Weller with other customary benefits, including the use of a car and insurance, disability and medical benefits. The employment agreement also contains a noncompetition provision pursuant to which Mr. Weller has agreed, subject to certain exceptions, that during the term of his employment contract and for six months thereafter he will not engage in the broadcasting business within any community or Arbitron MSA served by those stations managed or overseen by him. 25 28 Kerrest Employment Agreement Mr. Kerrest is a party to an employment agreement with Chancellor and Chancellor Radio Broadcasting pursuant to which he serves as Senior Vice President and Chief Financial Officer. Mr. Kerrest's employment agreement is for a two year term commencing on February 14, 1996, and is subject to automatic successive one-year renewal terms that take effect unless notice of non-renewal is given by the Company to Mr. Kerrest within 30 days prior to the expiration of the then-current term. The agreement provides for an initial base salary of $225,000, with an annual increase of not less than five percent as determined by the board of directors. Mr. Kerrest is also entitled to receive an annual bonus, beginning in fiscal year ending December 31, 1996, based on achievement of broadcast cash flow projections established by the board of directors. The employment agreement also provides that the Company will supply Mr. Kerrest with other customary benefits, including the use of a car and insurance, disability and medical benefits. STOCK OPTIONS The following table shows the value, as of December 31, 1996 of stock options of Chancellor held by its Chief Executive Officer and other Named Executive Officers. No stock options were exercised during the year ended December 31, 1996. 1996 FISCAL YEAR END OPTION VALUES(1)
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END AT FISCAL YEAR-END # ($) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ------------------------- ------------------------- Steven Dinetz .................................................. 345,326/592,992 5,476,274/8,495,707 George C. Toulas ............................................... 0/50,000 0/150,000 Rick Eytcheson ................................................. 0/30,000 0/93,750 Samuel L. Weller ............................................... 0/30,000 0/56,250 Jacques Kerrest ................................................ 0/35,000 0/93,750
- --------------- (1) Assuming a fair market value of $23.75 per share, which was the closing price per share of the Class A Common Stock on December 31, 1996. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, Messrs. Marcus and Massey served as members of the Compensation Committee of the Board of Directors, of which Mr. Marcus acted as chairman. Mr. Marcus is the President and Chief Executive Officer of Marcus Cable Company, a cable television multiple system operator. An affiliate of Hicks Muse has invested approximately $115.0 million in limited partnership interests in Marcus Cable Company and is one of its largest limited partners. COMPENSATION OF DIRECTORS Beginning in 1997, the non-employee directors of Chancellor (other than Messrs. Hicks, Stuart and Neuman) receive an annual retainer of $25,000 for serving as directors of Chancellor and its subsidiaries. Non-employee directors also receive attendance fees of $1,000 ($500 in the case of telephonic meetings) for each meeting which they attend. Directors who are officers or employees of Chancellor or the Company are not presently expected to receive compensation for their services as directors. Directors of Chancellor are entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors or committees thereof. Each of Messrs. Marcus and Massey has been granted fully vested options to purchase up to 13,333 shares of Chancellor's Class A Common Stock at an exercise price of $7.50 per share. These options will expire on October 12, 2004, unless exercised prior to that date. Upon her appointment to the Board of Directors in January 1996, Matrice Ellis-Kirk was granted a right, which she has exercised, to purchase up to 2,500 shares of Class A Common Stock at a price per share equal to the Initial Public Offering price per share. In addition, Ms. Ellis-Kirk has been granted fully vested options to purchase up to 6,666 shares of Class A Common Stock at an exercise price equal to $20.00 per share which expire on January 10, 2006. Ms. Ellis-Kirk resigned as a director of Chancellor and Chancellor Radio Broadcasting on February 21, 1997. 26 29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 10, 1997, (i) the number and percentage of outstanding shares of each class of the capital stock of Chancellor that are beneficially owned by (a) each person or group known by the Company to own beneficially more than 5% of any class of the capital stock of Chancellor, (b) each director of Chancellor; (c) each Named Executive Officer and (d) all directors and executive officers of Chancellor as a group and (ii) the combined percentage of all classes of the capital stock of Chancellor that is beneficially owned by each of such persons or group of persons. Except as noted below, each individual or entity named below is believed to have sole investment and voting power with respect to all the shares of capital stock reflected below.
PERCENT OF CLASS A CLASS B PERCENT OF ECONOMIC COMMON STOCK(1) COMMON STOCK(2) VOTING POWER INTEREST -------------------- --------------------- ------------ ---------- NUMBER PERCENT NUMBER PERCENT OF SHARES OF CLASS OF SHARES OF CLASS --------- -------- --------- -------- 5% STOCKHOLDERS Thomas O. Hicks (3) ................... 1,815,365 17.4% 8,484,410 99.3% 90.4% 54.3% c/o Hicks, Muse, Tate & Furst Incorporated, 200 Crescent Court Suite 1600 Dallas, Texas 75201 HM Parties (4) ........................ 1,277,625 12.2% 8,484,410 99.3% 89.8% 51.4% c/o Hicks, Muse, Tate & Furst Incorporated, 200 Crescent Court Suite 1600 Dallas, Texas 75201 Putnam Investments, Inc. (5) .......... 1,915,365 18.4% -- -- 2.0% 10.1% One Post Office Square Boston, Massachusetts 02109 AIM Management Group Inc. (6) ......... 818,000 7.8% -- -- * 4.3% 11 Greenway Plaza, Suite 1919 Houston, Texas 77046 OFFICERS AND DIRECTORS Thomas O. Hicks (3).................... 1,815,365 17.4% 8,484,410 99.3% 90.4% 54.3% Steven Dinetz (7) ..................... 470,738 4.3% 63,500 * 1.2% 2.7% George C. Toulas (8) .................. 28,333 * -- -- * * Rick Eytcheson (9) .................... 29,583 * -- -- * * Samuel L. Weller (10) ................. 11,250 * -- -- * * Jacques Kerrest (11) .................. 23,916 * -- -- * * Jeffrey A. Marcus (12) ................ 35,000 * -- -- * * John Massey (12) ...................... 23,333 * -- -- * * Eric C. Neuman ........................ 1,000 * -- -- * * Lawrence D. Stuart, Jr. ............... 5,451 * -- -- * * All directors and executive officers of Chancellor as a group (3) (13) ..... 2,489,652 22.7% 8,547,910 100% 91.2% 56.5%
- ------------------- * Less than one percent. (1) The holders of Class A Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of Chancellor. In addition, the holders of the Class A Common Stock are entitled as a class to elect two members of the Board of Directors of Chancellor. (2) The holders of the Class B Common Stock are entitled to vote with the holders of the Class A Common Stock on all mattes submitted to a vote of stockholders of Chancellor, except with respect to the election of the Class A directors, certain "going private" transactions and as otherwise required by law. Each share of Class B Common Stock is entitled to ten votes per share on all matters submitted to a vote of stockholders. (3) Includes 343,672 shares owned of record by Thomas O. Hicks, 190,712 shares owned of record by Mr. Hicks as the trustee for certain trusts of which his children are beneficiaries and 3,356 shares owned of record by Mr. Hicks as the co-trustee of a trust for 27 30 the benefit of unrelated parties. Also includes 1,346,801 shares of Class B Common Stock owned of record by the Chancellor Business Trust (as defined) and 1,277,625 shares of Class A Common Stock and 7,137,609 shares of Class B Common Stock owned by five limited partnerships of which the ultimate general partners are entities controlled by Mr. Hicks or Hicks Muse. Thomas O. Hicks is the controlling stockholder of Hicks Muse and serves as Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Secretary of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner of all or a portion of the stock owned of record by such limited partnerships. Mr. Hicks disclaims beneficial ownership of the shares of Class A Common Stock and Class B Common Stock not owned by him of record. (4) Includes 1,346,801 shares of Class B Common Stock owned of record by the Chancellor Business Trust, 1,277,625 shares of Class A Common Stock and 7,137,609 shares of Class B Common Stock owned by five limited partnerships of which the ultimate general partners are entities controlled by Mr. Hicks or Hicks Muse. Thomas O. Hicks is the controlling stockholder of Hicks Muse and serves as Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Secretary of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner of all or a portion of the stock owned of record by such limited partnerships. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D. Stuart, Jr., Michael J. Levitt and Alan B. Menkes are officers, directors and minority stockholders of Hicks Muse and as such may be deemed to share with Mr. Hicks the power to vote or dispose of shares of stock held by such partnerships. Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt and Menkes disclaim the existence of a group and each of them disclaim beneficial ownership of shares of stock not owned of record by him. See "Certain Relationships and Related Transactions -- Chancellor Business Trust and Related Registration Rights Agreement." (5) Includes shares of Class A Common Stock which may be deemed to be beneficially owned by Putnam Investment Management, Inc. and the Putnam Advisory Company, Inc. ("PAC"), each wholly-owned subsidiaries of such person and registered investment advisors to certain investment companies which hold shares of Class A Common Stock. Except for the power to vote, 100,596 of such shares that is shared by PAC with respect to those shares owned by its institutional clients, each mutual fund's trustees retain the power to vote the shares of Class A Common Stock held by such fund. (6) Includes shares held by two wholly-owned subsidiaries of such person that are registered investment advisors. (7) Includes (i) options presently exercisable and exercisable within 60 days of the date of this document to purchase up to 461,588 shares of Class A Common Stock, (ii) 600 shares held in an individual retirement account for the benefit of Mr. Dinetz and (ii) 550 shares held by Mr. Dinetz's daughter. Mr. Dinetz disclaims beneficial ownership of the shares of Class A Common Stock not owned by him of record. (8) Includes options presently exercisable and exercisable within 60 days of the date of this document to purchase up to 10,000 shares of Class A Common Stock. (9) Includes (i) options presently exercisable within 60 days of the date of this document to purchase up to 6,250 shares of Class A Common Stock and (ii) 6,667 shares held in an individual retirement account for the benefit of Mr. Eytcheson. (10) Includes options presently exercisable and exercisable within 60 days of the date of this document to purchase up to 3,750 shares of Class A Common Stock. (11) Includes options presently exercisable and exercisable within 60 days of the date of this document to purchase up to 6,250 shares of Class A Common Stock. (12) Includes options presently exercisable and exercisable within 60 days of the date of this document by each of Messrs. Marcus and Massey to purchase up to 13,333 shares ofClass A Common Stock, and (ii) in the case of Mr. Massey, 10,000 shares of Class A Common Stock held by his wife as her separate property. (13) Includes rights and options presently exercisable and exercisable within 60 days of the date of this document to purchase up to 552,154 shares of Class A Common Stock. ITEM 13. CERTAIN TRANSACTIONS Financial Monitoring and Oversight Agreement Chancellor and Chancellor Radio Broadcasting have entered into a financial monitoring and oversight agreement (as amended, the "Financial Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P. ("Hicks Muse Partners"), an affiliate of Hicks Muse. Pursuant thereto, Chancellor and Chancellor Radio Broadcasting pay to Hicks Muse Partners an annual fee adjustable upward or downward at the end of each fiscal year to a fee equal to 0.25% of the budgeted consolidated annual net sales of the Company, provided, that such fee shall at no time be less than $500,000 per year. In the event that Chancellor or any of its subsidiaries acquires another entity or business during the term of the Financial Monitoring and Oversight Agreement, the annual fee for the calendar year in which such acquisition occurs shall be adjusted prospectively as of the closing of such acquisition to an annual amount equal to 0.25% of the pro forma combined budgeted consolidated annual net sales of the Company (including the sales of the acquired entity or business for such entire fiscal year on a pro forma basis). Notwithstanding the foregoing, so long as certain provisions of the Indenture dated as of October 12, 1994 between Chancellor Radio Broadcasting and U.S. Trust Company of Texas, N.A., as amended, remain in effect, then in the event that the aggregate payments payable pursuant to the Financial Monitoring and Oversight Agreement exceed at any time the aggregate payments that would have been required by the Company under certain provisions of the Financial Monitoring and Oversight Agreement as in effect on October 12, 1994 by more than 28 31 $2.5 million, then the annual fee shall automatically be adjusted (the "Fee Adjustment") to an amount equal to at least $200,000, adjusted pursuant to a formula based upon changes in the consumer price index from the prior year, provided that the annual fee shall never be lower than $200,000. Promptly following the occurrence of a Fee Adjustment, the Company is obligated to retain a nationally recognized investment banking firm for the purpose of rendering a fairness opinion to the effect that the payments under the Financial Monitoring and Oversight Agreement, without giving effect to the Fee Adjustment, are fair to the Company from a financial point of view. In the event that the Company receives such a fairness opinion, Hicks Muse Partners shall be entitled to receive all payments due to it under the Financial Monitoring and Oversight Agreement with retroactive effect to the date the Fee Adjustment occurred. All past due amounts under the Financial Monitoring and Oversight Agreement bear interest at the prime commercial lending rate plus 5.0%. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Financial Monitoring and Oversight Agreement. In addition, Chancellor and Chancellor Radio Broadcasting have agreed to indemnify Hicks Muse Partners, its affiliates and shareholders, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, losses and costs, including fees and expenses, arising out of or in connection with the services rendered by Hicks Muse Partners in connection with the Financial Monitoring and Oversight Agreement. The Financial Monitoring and Oversight Agreement makes available on an ongoing basis the resources of Hicks Muse Partners concerning a variety of financial matters. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by Chancellor and Chancellor Radio Broadcasting without the addition of personnel or the engagement of outside professional advisors. The Financial Monitoring and Oversight Agreement expires on the earlier of (i) April 1, 2006 and (ii) the date on which HM Fund II and its affiliates cease to own beneficially, directly or indirectly, any securities of Chancellor. Financial Advisory Agreement Chancellor and Chancellor Radio Broadcasting are parties to an agreement (the "Financial Advisory Agreement") with HM2/Management Partners, L.P. ("HM2"). Pursuant to the Financial Advisory Agreement, HM2 received cash financial advisory fees of approximately $0.3 million, $6.2 million, $84,000 and $22,500, respectively, upon the closing of the acquisitions of radio station KDWB in July 1995, Shamrock Broadcasting in February 1996, the Denver Exchange in July 1996 and radio station WKYN-AM in November 1996, as compensation for its services as financial advisor for such acquisitions. In addition, HM2 received approximately $1.9 million in financial advisory fees in connection with the Omni Transaction and approximately $5.0 million in connection with the Colfax Transaction. HM2 also is entitled to receive a fee equal to 1.5% of the transaction value (as defined) for each add-on transaction (as defined) in which Chancellor, Chancellor Radio Broadcasting or any of their subsidiaries is involved. HM2 is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Financial Advisory Agreement. The term "transaction value" means the total value of any add-on transaction, including without limitation, the aggregate amount of the funds required to complete the add-on transaction (excluding any fees payable pursuant to the Financial Advisory Agreement, but including the amount of any indebtedness, preferred stock or similar items assumed or remaining outstanding). The term "add-on transaction" means any future proposal for a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring or other similar transaction directly or indirectly involving Chancellor, Chancellor Radio Broadcasting or any of their respective subsidiaries and any other person or entity. In addition, Chancellor and Chancellor Radio Broadcasting have agreed to indemnify HM2, its affiliates and shareholders, and their respective directors, officers, agents, employees and affiliates from and against all claims, actions, proceedings, demands, liabilities, damages, judgments, assessments, losses and costs, including fees and expenses, arising out of or in connection with the services rendered by HM2 in connection with the Financial Advisory Agreement. Pursuant to the Financial Advisory Agreement HM2 provides investment banking, financial advisory and other similar services with respect to the add-on transactions in which the Company is involved. Such transactions require additional attention beyond that required to monitor and advise the Company on an ongoing basis and accordingly the Company pays separate financial advisory fees with respect to such matters in addition to those paid in connection with Financial Monitoring and Oversight Agreement. The services that have been and will continue 29 32 to be provided by HM2 could not otherwise be obtained by Chancellor and Chancellor Radio Broadcasting without the addition of personnel or the engagement of outside professional advisors. The Financial Advisory Agreement will terminate concurrently with the termination of the Financial Monitoring and Oversight Agreement. Stockholders Agreement Certain stockholders of Chancellor have entered into a stockholders agreement (the "Stockholders Agreement") with Chancellor, which provides, among other things, that such stockholders, which include certain affiliates of Hicks Muse, may require Chancellor, subject to certain registration volume limitations, to effect up to three demand registrations under the Securities Act for the sale of such stockholders' shares of Common Stock. The Stockholders Agreement also provides that in the event Chancellor proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the stockholders that are parties to the Stockholders Agreement shall be entitled, with certain exceptions, to include their shares of Common Stock in such registration. Chancellor Business Trust and Related Registration Rights Agreement At the time of the acquisition of the American Media Station Group, affiliates of Hicks Muse and certain investment funds operated by Fidelity Investments formed a business trust (the "Chancellor Business Trust") to hold shares of the capital stock of Chancellor. The Chancellor Business Trust currently holds 15.8% of the Class B Common Stock. HM2/GP Partners, L.P., an affiliate of Hicks Muse (the "Hicks Muse Manager"), acts as manager for, and has a beneficial interest in, the Chancellor Business Trust. Prior to its dissolution, the Chancellor Business Trust is entitled to registration rights under the Stockholders Agreement for the shares of Common Stock held by it. Upon dissolution of the Chancellor Business Trust and the distribution to the beneficiaries thereof (other than the Hicks Muse Manager) of the Class B Common Stock held by the Chancellor Business Trust, such stock will automatically convert into Class A Common Stock. Such beneficiaries, including the Hicks Muse Manager, will be entitled to certain registration rights set forth in a Registration Rights Agreement between Chancellor and the trust unitholders. Under that agreement, the trust unitholders, subject to certain limitations, are entitled to require Chancellor to effect a "shelf" registration under the Securities Act and to keep effective the registration statement for such offering for a period of 36 months for the purpose of allowing such trust unitholders to dispose of the shares of Common Stock held by them. In addition, after the dissolution of he Chancellor business Trust and the distribution of the Common Stock held thereby, the trust unitholders are entitled to participate, subject to certain limitations, in any offering registered under the Securities Act effected by the Company for its own account. The Chancellor Business Trust may be dissolved at any time by the Hicks Muse Manager. The Chancellor Business Trust dissolves by its terms on February 9, 1998. Hicks Muse Equity Investment In August, 1996, an affiliate of Hicks Muse purchased 1,185,521 shares of the Class A Common Stock of Chancellor for approximately $23.0 million in accordance with an agreement entered into between Hicks Muse and Chancellor in February 1996. The proceeds of this equity investment were contributed by Chancellor to the capital of Chancellor Radio Broadcasting and were used to repay borrowings under the existing credit agreement. Purchase of Exchangeable Preferred Stock In connection with the funding of the Shamrock Acquisition, affiliates of Hicks Muse purchased $12.5 million initial liquidation preference of the Company's 14% Senior Exchangeable Preferred Stock for a purchase price of approximately $11.9 million (or 95% of the initial liquidation preference of such shares) and received in connection therewith an aggregate of 92,774 shares of Class A Common Stock. The net proceeds of the sale of the Senior Exchangeable Preferred Stock were used to retire the Company's 14% Senior Exchangeable Preferred Stock at a redemption price of 96.5% of the initial liquidation preference thereof, plus accumulated and unpaid dividends to the redemption date. The Hicks Muse purchasers, along with the other purchasers of the 14% Senior Exchangeable Preferred Stock, are entitled to registration rights for the sale of the shares of Class A Common Stock issued in connection with sale of such preferred stock. 30 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. and 2. Financial Statements and Financial Statement Schedules. The financial statements and schedules listed in the Index to Financial Statements that appears in Item 8 on Page 19 of this Report on Form 10-K are filed as part of this report. 3. Exhibits. EXHIBIT NO. DESCRIPTION OF DOCUMENT --- ----------------------- 2.1 Asset Purchase Agreement dated as of April 19, 1994, between American Media, Inc. and Chancellor Holdings Corp. (formerly, MBD Broadcasting, Inc.) (1) 2.2 Asset Purchase Agreement dated as of April 19, 1994, among SanRiver Radio, Inc., Mid-Florida Radio, Inc. and Chancellor Holdings Corp. (formally MBD Broadcasting, Inc.) (1) 2.3 Asset Purchase Agreement dated as of April 19, 1994, between National Radio Partners, L.P. and Chancellor Holdings Corp. (formerly, MBD Broadcasting, Inc.) (1) 2.4 Asset Purchase Agreement dated as of April 19, 1994, between National Radio Partners, L.P. and Chancellor Communications Corporation (1) 2.5 Local Programming and Marketing Agreement dated February 1, 1995, between Midcontinent Radio of Minnesota, Inc., as Licensee, Radio Station KDWB-FM, and Chancellor Broadcasting Company(2) 2.6 Asset Purchase Agreement dated February 1, 1995, between Midcontinent Radio of Minnesota, Inc., Chancellor Broadcasting Company and Chancellor Broadcasting Licensee Company (2) 2.7 Escrow Agreement dated February 7, 1995, between Midcontinent Radio of Minnesota, Inc., Chancellor Broadcasting Company and NationsBank of Texas, N.A. (2) 2.8 Stock Purchase Agreement dated as of August 3, 1995, among Chancellor Broadcasting Company, Trefoil Communications, Inc., and the Selling Securityholders named therein (3) 2.9 Asset Purchase Agreement dated as of May 14, 1996, among OmniAmerica Group, WAPE-FM License Partnership, WFYV-FM License Partnership, WEAT-FM License Partnership, WEAT-AM License Partnership, WXXL License Partnership, WOLL License Partnership, WJHM-FM License Partnership, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 2.10 Local Marketing Agreement dated as of June 28, 1996, among OmniAmerica Group, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 2.11 Exchange Agreement dated as of July 1, 1996, among WBLI, Inc., WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc., SFX Broadcasting, Inc. and Chancellor Radio Broadcasting Company (7) 2.12 Local Marketing Agreement dated as of July 1, 1996, among WBLI, Inc., WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc. and Chancellor Radio Broadcasting Company (7) 2.13 Exchange Agreement dated as of June 24, 1996, among America Radio Systems Corporation and Chancellor Radio Broadcasting Company (8) 2.14 Local Marketing Agreement dated as of June 24, 1996, among America Radio Systems Corporation and Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (8) 2.15 Asset Purchase Agreement dated as of August 24, 1996 by and among Classical Acquisition Limited Partnership, Radio 100 of Maryland Limited Partnership, Radio 100 Limited Partnership, Radio 570 Limited Partnership, Radio 94 of Phoenix Limited Partnership, and Radio 95 of Phoenix Limited Partnership and Chancellor Radio Broadcasting Company (8) 31 34 2.16 Agreement and Plan of Merger, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Evergreen Media Corporation (9) 2.17 Joint Purchase Agreement, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, Evergreen Media Corporation of Los Angeles and Evergreen Media Corporation (10) 2.18 Stock Purchase Agreement, dated as of February 16, 1997, between Viacom International Inc. and Evergreen Media Corporation of Los Angeles (10) 3.1 Second Restated Certificate of Incorporation of Chancellor Broadcasting Company, as amended (4) 3.2 Certificate of Incorporation of Chancellor Radio Broadcasting Company, as amended * 3.3 Certificate of Incorporation of Chancellor Broadcasting Licensee Company (1) 3.4 Second Restated Bylaws of Chancellor Broadcasting Company (4) 3.5 Bylaws of Chancellor Radio Broadcasting Company, as amended (1) 3.6 Bylaws of Chancellor Broadcasting Licensee Company (1) 3.7 Certificate of Designation for the 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (8) 3.8 Certificate of Designation for the 12% Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (11) 3.9 Certificate of Designation for the 7% Convertible Preferred Stock of Chancellor Broadcasting Company (12) 4.1 Indenture, dated October 1, 1994, governing the outstanding 12 1/2% Senior Subordinated Notes due 2004 (1) 4.2 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (4) 4.3 Second Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (4) 4.4 Indenture, dated as of February 14, 1996, governing the outstanding 9 3/8% Senior Subordinated Notes due 2004 (5) 4.5 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated February 14, 1996, governing the 9 3/8% Senior Subordinated Notes due 2004 (4) 4.6 Indenture, dated as of February 26, 1996, governing the 12 1/4% Subordinated Exchange Debentures due 2008 (4) 4.7 Indenture, dated as of January 23, 1997, governing the 12% Subordinated Exchange Debentures due 2009 (11) 10.1 Lease Agreement dated as of May 22, 1989, between Kruse Microwave and SanRiver Radio, Inc., as amended (1) 10.2 License Agreement dated as of March 1, 1974, between City of New Hope, Minnesota and National Radio Partners, L.P., as assignee of American Media, Inc. (1) 10.3 Tower Lease Agreement dated as of November 23, 1988, between United Television and Shoreview FM Group, a Minnesota general partnership (1) 10.4 Partnership Agreement dated as of November 23, 1988, of Shoreview FM Group, a Minnesota general partnership (1) 32 35 10.5 Tax Sharing Agreement between Chancellor Holdings Corp. and Chancellor Broadcasting Company(2) 10.6 Amended and Restated Monitoring and Oversight Agreement between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and HM2/Management Partners, L.P. (4) 10.7 Amended and Restated Stockholders Agreement dated February 14, 1996 among Chancellor Broadcasting Company and certain Holders named therein (4) 10.8 Registration Rights Agreement dated October 12, 1994 between Chancellor Broadcasting Company and the Holders named therein (6) 10.9 Letter Agreement dated February 9, 1996 regarding Hicks Muse Equity Investment among Chancellor Broadcasting Company and HM Fund II (4) 10.10 Sales Agreement, dated as of July 1, 1996, among OmniAmerica Group, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 10.11 Program Consulting Agreement, dated as of June 28, 1996, among OmniAmerica Group, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 10.12 Consulting Agreement, dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Anthony S. Ocepek (7) 10.13 Consulting Agreement, dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Carl E. Hirsch (7) 10.14 Consulting Agreement dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and H. Dean Thacker (7) 10.15 Non-Competition Agreement dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Carl E. Hirsch (7) 10.16 First Consent and Amendment dated as of May 13, 1996, among Chancellor Radio Broadcasting Company, the Banks party thereto and Bankers Trust Company, as managing agent (7) 10.17 Employment Agreement dated as of February 1, 1996, between Chancellor Radio Broadcasting Company and Samuel Weller (7) 10.18 Employment Agreement dated as of February 14, 1996, between Chancellor Radio Broadcasting Company and Rick Eytcheson (8) 10.19 Employment Agreement dated as of February 14, 1996, between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and George C. Toulas * 10.20 Employment Agreement dated as of February 14, 1996, between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Jacques Kerrest * 10.21 Employment Agreement dated as of February 14, 1996 among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Steven Dinetz (7) 10.22 Chancellor Broadcasting Company Stock Award Plan * 10.23 Registration Rights Agreement, dated as of January 23, 1997, among Chancellor Radio Broadcasting Company, BT Securities Corporation, Credit Suisse First Boston, Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and Smith Barney Inc. (11) 10.24 Amended and Restated Credit Agreement, dated as of February 14, 1996 and amended and restated as of January 23, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, various banks, Goldman Sachs Credit Partners L.P., as documentation agent, NationsBank of Texas, N.A., as syndication agent, and Bankers Trust, as managing agent and arranger * 11.1 Computation of Per Share Earnings for Chancellor Broadcasting Company * 33 36 12.1 Computation of Ratio of Earnings to Fixed Charges for Chancellor Radio Broadcasting Company * 12.2 Computation of Ratio of Earnings to Fixed Charges for Trefoil Communications, Inc. * 21.1 Subsidiaries of Chancellor Broadcasting Company (4) 27.1 Financial Data Schedule for Chancellor Broadcasting Company * 27.2 Financial Data Schedule for Chancellor Radio Broadcasting Company * 27.3 Financial Data Schedule for Chancellor Broadcasting Licensee Company * - ------------------- * Filed herewith. (1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-80534) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (2) Incorporated by reference to the Quarterly Report on Form 10-Q of Chancellor Broadcasting Company (File No. 33-80534) for the fiscal quarter ended March 31, 1995. (3) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-98334) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (4) Incorporated by reference to the Annual Report on Form 10-K of Chancellor, Chancellor Broadcasting and Broadcasting Licensee for the fiscal year ended December 31, 1995. (5) Incorporated by reference from the Form 8-K of Chancellor Broadcasting Company (File No. 0-27726) and Chancellor Radio Broadcasting Company (File No. 33-98334) as filed with the Securities and Exchange Commission on February 29, 1996. (6) Incorporated by reference from the Registration Statement on Form S-1 (File No. 33-98336) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (7) Incorporated by reference from the Registration Statement on Form S-1 (File No. 333-02782) of Chancellor Radio Broadcasting Company as filed with the Securities and Exchange Commission. (8) Incorporated by reference to the Quarterly Report on Form 10-Q of Chancellor Broadcasting Company (File No. 0-27726) for the fiscal quarter ended September 30, 1996. (9) Incorporated by reference to Exhibit 99(a) of the Schedule 13D filed by Chancellor Broadcasting Company, Thomas O. Hicks and Lawrence D. Stuart, Jr. on March 3, 1997 with respect to the Class A Common Stock of Evergreen Media Corporation. (10) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on March 11, 1997. (11) Incorporated by reference to the Form 8-K filed by Chancellor Radio Broadcasting Company (File No. 33-98334) on February 6, 1997. (12) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on February 6, 1997. (B) REPORTS ON FORM 8-K. None. 34 37 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. CHANCELLOR BROADCASTING COMPANY By /s/ STEVEN DINETZ -------------------------------------- Steven Dinetz, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ STEVEN DINETZ President, Chief Executive Officer and March 25, 1997 - -------------------------------------------- Steven Dinetz Director (Principal Executive Officer of Registrant) /s/ JACQUES KERREST Senior Vice President and Chief March 25, 1997 - -------------------------------------------- Jacques Kerrest Financial Officer (Principal Financial and Accounting Officer of Registrant) /s/ THOMAS O. HICKS Chairman of the Board and Director March 25, 1997 - -------------------------------------------- Thomas O. Hicks /s/ JEFFREY A. MARCUS Director March 25, 1997 - -------------------------------------------- Jeffrey A. Marcus /s/ JOHN H. MASSEY Director March 25, 1997 - -------------------------------------------- John H. Massey /s/ ERIC C. NEUMAN Director March 25, 1997 - -------------------------------------------- Eric C. Neuman Director March 25, 1997 - -------------------------------------------- Lawrence D. Stuart, Jr.
35 38 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. CHANCELLOR RADIO BROADCASTING COMPANY By /s/ STEVEN DINETZ -------------------------------------- Steven Dinetz, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ STEVEN DINETZ President, Chief Executive Officer and March 25, 1997 - -------------------------------------------- Steven Dinetz Director (Principal Executive Officer of Registrant) /s/ JACQUES KERREST Senior Vice President and Chief March 25, 1997 - -------------------------------------------- Jacques Kerrest Financial Officer (Principal Financial and Accounting Officer of Registrant) /s/ THOMAS O. HICKS Chairman of the Board and Director March 25, 1997 - -------------------------------------------- Thomas O. Hicks /s/ JEFFREY A. MARCUS Director March 25, 1997 - -------------------------------------------- Jeffrey A. Marcus /s/ JOHN H. MASSEY Director March 25, 1997 - -------------------------------------------- John H. Massey /s/ ERIC C. NEUMAN Director March 25, 1997 - -------------------------------------------- Eric C. Neuman Director March 25, 1997 - -------------------------------------------- Lawrence D. Stuart, Jr.
36 39 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. CHANCELLOR BROADCASTING LICENSEE COMPANY By /s/ STEVEN DINETZ -------------------------------------- Steven Dinetz, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ STEVEN DINETZ President, Chief Executive Officer and March 25, 1997 - -------------------------------------------- Steven Dinetz Director (Principal Executive Officer of Registrant) /s/ JACQUES KERREST Senior Vice President and Chief March 25, 1997 - -------------------------------------------- Jacques Kerrest Financial Officer (Principal Financial and Accounting Officer of Registrant) /s/ JEFFREY A. MARCUS Director March 25, 1997 - -------------------------------------------- Jeffrey A. Marcus /s/ JOHN H. MASSEY Director March 25, 1997 - -------------------------------------------- John H. Massey
37 40 INDEX TO FINANCIAL STATEMENTS (ITEM 14(A)1)
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES Report of Independent Accountants ...................................................................... F-1 Consolidated Balance Sheets as of December 31, 1995 and 1996 ........................................... F-2 Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 ............. F-3 Consolidated Statements of Changes in Common Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996 .................................................................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 ............. F-5 Notes to Consolidated Financial Statements ............................................................. F-6 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES Report of Independent Accountants ...................................................................... F-21 Consolidated Balance Sheets as of December 31, 1995 and 1996 ........................................... F-22 Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 ............. F-23 Consolidated Statements of Changes in Common Stockholder's Equity for the years ended December 31, 1994, 1995 and 1996 .................................................................... F-24 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 ............. F-25 Notes to Consolidated Financial Statements ............................................................. F-26 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES Report of Independent Accountants ...................................................................... F-41 Report of Independent Accountants ...................................................................... F-42 Consolidated Balance Sheets as of December 31, 1994 and 1995 ........................................... F-43 Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and the period ended February 13, 1996 ...................................................................... F-44 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995 and the period ended February 13, 1996............................................................... F-45 Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the period ended February 13, 1996....................................................................... F-46 Notes to Consolidated Financial Statements ............................................................. F-47
38 41 INDEX TO FINANCIAL STATEMENT SCHEDULES (ITEM 14(A)2)
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES Report of Independent Accountants ..................................................................... S-1 Parent Company Condensed Balance Sheets as of December 31, 1995 and 1996 .............................. S-2 Parent Company Condensed Statements of Operations for the years ended December 31, 1994, 1995 and 1996 .................................................................... S-3 Parent Company Condensed Statements of Changes in Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996 .................................................... S-4 Parent Company Condensed Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 .................................................................... S-5 Notes to Condensed Financial Statements ............................................................... S-6 Schedule II -- Valuation and Qualifying Accounts ...................................................... S-7 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES Report of Independent Accountants ..................................................................... S-8 Schedule II -- Valuation and Qualifying Accounts ...................................................... S-9 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES Report of Independent Accountants ..................................................................... S-10 Report of Independent Accountants ..................................................................... S-11 Schedule II -- Valuation and Qualifying Accounts ...................................................... S-12
39 42 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Chancellor Broadcasting Company: We have audited the accompanying consolidated balance sheets of Chancellor Broadcasting Company and Subsidiaries (collectively the "Company") as of December 31, 1995 and 1996 and the related consolidated statements of operations, changes in common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1995 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Dallas, Texas February 13, 1997, except for Note 15 as to which the date is February 19, 1997 F-1 43 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------ 1995 1996 ------------- -------------- ASSETS Current assets: Cash .......................................................................... $ 1,314,214 $ 3,788,546 Accounts receivable, net of allowance for doubtful accounts of $263,528 and $1,023,660, respectively ................................................ 13,243,292 46,584,705 Prepaid expenses and other .................................................... 546,405 2,753,731 ------------- -------------- Total current assets ..................................................... 15,103,911 53,126,982 Restricted cash ................................................................. -- 20,363,329 Property and equipment, net ..................................................... 17,925,845 49,122,932 Intangibles and other, net ...................................................... 203,808,395 551,406,094 Deferred financing costs, net ................................................... 4,284,413 16,723,346 ------------- -------------- Total assets ............................................................. $ 241,122,564 $ 690,742,683 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .............................................................. $ 1,873,888 $ 4,409,389 Accrued liabilities ........................................................... 4,692,948 12,529,831 Accrued interest .............................................................. 2,710,891 6,868,839 Current portion of long-term debt ............................................. 4,062,500 400,000 ------------- -------------- Total current liabilities ................................................ 13,340,227 24,208,059 Long-term debt .................................................................. 168,107,242 354,913,499 Deferred income taxes ........................................................... 4,952,361 2,606,314 Other ........................................................................... -- 801,572 ------------- -------------- Total liabilities ........................................................ 186,399,830 382,529,444 ------------- -------------- Commitments (Note 11) Redeemable senior cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; 1,000,000 shares authorized, none and 1,000,000 shares issued and outstanding, respectively; preference in liquidation of $109,110,301 .................................................................. -- 107,222,416 Common stockholders' equity: Class A common stock, par value $.01 per share; 40,000,000 shares authorized, 302,107 and 9,937,320 shares issued, respectively, and 302,107 and 9,881,656 shares outstanding, respectively ...................... 3,021 99,373 Class B common stock, par value $.01 per share; 10,000,000 shares authorized, 63,500 and 8,547,910 shares issued and outstanding, respectively ............ 635 85,479 Class C common stock, par value $.01 per share; 10,000,000 shares authorized, 8,484,410 and zero shares issued and outstanding, respectively .............. 84,844 -- Additional paid-in capital .................................................... 66,271,500 231,930,337 Accumulated deficit ........................................................... (11,637,266) (30,086,232) Treasury stock ................................................................ -- (1,038,134) ------------- -------------- Total common stockholders' equity ........................................ 54,722,734 200,990,823 ------------- -------------- Total liabilities and stockholders' equity ............................... $ 241,122,564 $ 690,742,683 ============= ==============
The accompanying notes are an integral part of the financial statements. F-2 44 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1994 1995 1996 ------------- ------------- -------------- Gross broadcasting revenues ..................................... $ 30,080,829 $ 73,278,860 $ 203,188,125 Less agency commissions ......................................... 3,763,734 8,956,717 24,786,594 ------------- ------------- -------------- Net revenues ............................................. 26,317,095 64,322,143 178,401,531 ------------- ------------- -------------- Operating expenses: Programming, technical and news ............................... 5,678,829 11,734,285 40,987,411 Sales and promotion ........................................... 7,137,039 17,556,256 47,026,490 General and administrative .................................... 2,844,284 8,174,189 23,195,565 Depreciation and amortization ................................. 2,954,159 8,256,268 20,877,374 Corporate expenses ............................................ 599,657 1,815,535 4,844,985 Stock option compensation ..................................... -- 6,360,000 3,800,000 ------------- ------------- -------------- 19,213,968 53,896,533 140,731,825 ------------- ------------- -------------- Income from operations ................................... 7,103,127 10,425,610 37,669,706 Other (income) expense: Interest expense .............................................. 5,246,827 18,114,549 35,703,862 Other, net .................................................... (19,265) 42,402 68,419 ------------- ------------- -------------- Income (loss) before provision for income taxes and extraordinary loss ..................................... 1,875,565 (7,731,341) 1,897,425 Provision for income taxes ...................................... 1,163,716 3,799,955 4,612,551 Dividends and accretion on preferred stock of subsidiary ........ -- -- 11,556,943 ------------- ------------- -------------- Net income (loss) before extraordinary loss .............. 711,849 (11,531,296) (14,272,069) Extraordinary loss on early extinguishment of debt, net of income tax benefit ........................................... 817,819 -- 4,176,897 ------------- ------------- -------------- Net loss ................................................. (105,970) (11,531,296) (18,448,966) Loss on repurchase of preferred stock ........................... -- -- 16,570,065 ------------- ------------- -------------- Net loss attributable to common stock .................... $ (105,970) $ (11,531,296) $ (35,019,031) ============= ============= ============== Loss applicable to common stock: Income (loss) before extraordinary loss ...................... $ 0.14 $ (1.30) $ (1.85) Extraordinary loss ........................................... (0.16) -- (0.25) ------------- ------------- -------------- Net loss ..................................................... $ (0.02) $ (1.30) $ (2.10) ============= ============= ============== Weighted average number of shares outstanding ................... 5,166,039 8,849,936 16,704,381 ============= ============= ==============
The accompanying notes are an integral part of the financial statements. F-3 45 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK COMMON STOCK ------------------------ --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- ----------- ---------- --------- ----------- --------- Balance, January 1, 1994 .......... -- -- 166 $ 2 -- -- Issuance of common stock on January 10, 1994................ 302,107 $ 3,021 63,334 633 3,884,211 $ 38,842 Issuance of common stock on October 12, 1994................ -- -- -- -- 4,600,033 46,000 Net loss .......................... -- -- -- -- -- -- ----------- ----------- ---------- --------- ----------- --------- Balance, December 31, 1994 ........ 302,107 3,021 63,500 635 8,484,244 84,842 Stock option compensation ......... -- -- -- -- -- -- Issuance of common stock on June 29, 1995.................... -- -- -- -- 166 2 Net loss .......................... -- -- -- -- -- -- ----------- ----------- ---------- --------- ----------- --------- Balance, December 31, 1995 ........ 302,107 3,021 63,500 635 8,484,410 84,844 Stock option compensation ......... -- -- -- -- -- -- Issuance of common stock on February 14, 1996 .............. 8,447,192 84,472 -- -- -- -- Loss on repurchase of preferred stock of subsidiary on February 21, 1996 -- -- -- -- -- -- Repurchase of common stock on February 21, 1996 ................. (55,664) -- -- -- -- -- Issuance of common stock on August 9, 1996 ................. 1,185,521 11,855 -- -- -- -- Issuance of common stock on August 20, 1996 ................ 2,500 25 -- -- -- -- Conversion of common stock on October 22, 1996 ............... -- -- 8,484,410 84,844 (8,484,410) (84,844) Net loss .......................... -- -- -- -- -- -- ----------- ----------- ---------- --------- ----------- --------- Balance, December 31, 1996 ........ 9,881,656 $ 99,373 8,547,910 $ 85,479 -- $ -- =========== =========== ========== ========= =========== ========= ADDITIONAL PAID-IN ACCUMULATED TREASURY CAPITAL DEFICIT STOCK TOTAL ------------- ------------- ------------ ------------- Balance, January 1, 1994 ............ $ 998 -- -- $ 1,000 Issuance of common stock on January 10, 1994 ................. 25,456,504 -- -- 25,499,000 Issuance of common stock on October 12, 1994 ................. 34,454,000 -- -- 34,500,000 Net loss ............................ -- $ (105,970) -- (105,970) ------------- ------------- ------------- ------------- Balance, December 31, 1994 .......... 59,911,502 (105,970) -- 59,894,030 Stock option compensation ........... 6,360,000 -- -- 6,360,000 Issuance of common stock on June 29, 1995 ..................... (2) -- -- -- Net loss ............................ -- (11,531,296) -- (11,531,296) ------------- ------------- ------------- ------------- Balance, December 31, 1995 .......... 66,271,500 (11,637,266) -- 54,722,734 Stock option compensation ........... 3,800,000 -- -- 3,800,000 Issuance of common stock on February 14, 1996 ................ 155,390,782 -- -- 155,475,254 Loss on repurchase of preferred stock of subsidiary on February 21, 1996 (16,570,065) -- -- (16,570,065) Repurchase of common stock on February 21, 1996 ................... -- -- $ (1,038,134) (1,038,134) Issuance of common stock on August 9, 1996 ................... 22,988,145 -- -- 23,000,000 Issuance of common stock on August 20, 1996 .................. 49,975 -- -- 50,000 Conversion of common stock on October 22, 1996 ................. -- -- -- -- Net loss ............................ -- (18,448,966) -- (18,448,966) ------------- ------------- ------------- ------------- Balance, December 31, 1996 .......... $ 231,930,337 $ (30,086,232) $ (1,038,134) $ 200,990,823 ============= ============= ============= =============
The accompanying notes are an integral part of the financial statements. F-4 46 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1994 1995 1996 ---------------- --------------- ---------------- Cash flows from operating activities: Net loss ................................................. $ (105,970) $ (11,531,296) $ (18,448,966) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .......................... 2,954,159 8,256,268 20,877,374 Amortization of deferred financing costs ............... 226,000 791,000 2,633,583 Stock option compensation .............................. -- 6,360,000 3,800,000 Deferred income taxes .................................. 1,490,716 3,788,877 4,548,481 Dividends and accretion on preferred stock of subsidiary ........................................ -- -- 11,556,943 Extraordinary loss ..................................... 490,819 -- 4,176,897 Changes in assets and liabilities, net of the effects of acquired businesses: Accounts receivable, net ............................. (9,675,567) (2,343,520) (13,408,364) Prepaids and other ................................... 216,036 (214,868) (982,637) Accounts payable ..................................... 1,509,064 (541,914) 1,429,070 Accrued liabilities .................................. 1,334,397 447,196 3,706,725 Accrued interest ..................................... 2,251,654 459,237 4,157,948 ---------------- --------------- ---------------- Net cash provided by operating activities .......... 691,308 5,470,980 24,047,054 ---------------- --------------- ---------------- Cash flows from investing activities: Purchases of broadcasting properties ..................... (204,509,849) (24,351,529) (439,533,609) Purchases of other property and equipment ................ (238,648) (1,709,897) (3,208,553) ---------------- --------------- ---------------- Net cash used in investing activities .............. (204,748,497) (26,061,426) (442,742,162) ---------------- --------------- ---------------- Cash flows from financing activities: Proceeds from issuance of long-term debt ................. 168,910,299 -- 277,627,630 Proceeds from borrowings under revolving debt facility ... 5,639,237 54,458,819 101,966,762 Repayment of long-term debt .............................. (25,000,000) (2,437,500) (109,816,233) Repayments of borrowings under revolving debt facility ... (3,975,539) (31,633,467) (105,540,183) Issuance of preferred stock of subsidiary ................ -- -- 175,412,322 Repurchase of preferred stock ............................ -- -- (95,462,423) Issuance of common stock ................................. 60,000,000 -- 178,525,254 Repurchase of common stock ............................... -- -- (1,038,134) Payment of preferred stock dividends ..................... -- -- (505,555) ---------------- --------------- ---------------- Net cash provided by financing activities .......... 205,573,997 20,387,852 421,169,440 ---------------- --------------- ---------------- Net increase (decrease) in cash .................... 1,516,808 (202,594) 2,474,332 Cash, at beginning of year ................................. -- 1,516,808 1,314,214 ---------------- --------------- ---------------- Cash, at end of year ....................................... $ 1,516,808 $ 1,314,214 $ 3,788,546 ================ =============== ================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (NOTE 5): Cash paid during the period for: Interest ............................................ $ 2,769,173 $ 16,864,312 $ 28,912,331 Income taxes ........................................ $ -- $ -- $ 62,407
The accompanying notes are an integral part of the financial statements. F-5 47 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Chancellor Broadcasting Company, formerly Chancellor Corporation ("Chancellor") and its subsidiaries (collectively, the "Company") operate in a single industry segment, which segment encompasses the ownership and management of radio broadcast stations located in markets throughout the United States. Chancellor conducts its business through Chancellor Radio Broadcasting Company ("Chancellor Broadcasting") and has no operations or cash flows of its own. Chancellor and Chancellor Broadcasting were formed in June 1994 to acquire and operate radio stations owned by American Media, Inc. and two corporations and one partnership affiliated with American Media, Inc. (collectively, the "American Media Station Group") and by Chancellor Communications Corporation ("Chancellor Communications"). That transaction was consummated on October 12, 1994. Chancellor Communications was formed in 1993 to acquire and operate radio stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and the consolidated financial statements include the activity of all the stations since their respective dates of acquisition. In June 1995, the 1,000 shares of common stock of Chancellor Communications held by an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") were exchanged for additional shares of common stock of Chancellor, which subsequently contributed these shares to Chancellor Broadcasting as an additional capital contribution. As a result, Chancellor Communications became a wholly owned subsidiary of Chancellor Broadcasting. Chancellor Communications was then merged with the Company. The transactions had no effect on the financial position or results of operations of the Company. Chancellor Broadcasting Licensee Company is a wholly-owned non-operating legal entity formed to hold title to the Company's broadcast licenses. Such entity has no significant other assets and no material liabilities, contingencies or commitments. Consistent with industry practice for financial reporting purposes, no material value has been specifically allocated to the licenses. Accordingly, no financial statement information has been provided herein due to its immateriality to investors. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Chancellor and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting Licensee Company for all periods presented, and its subsidiaries Trefoil Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of Texas, Inc. from their date of acquisition. All significant intercompany accounts and transactions have been eliminated. Cash The Company maintains cash in demand deposits with financial institutions. The Company had no cash equivalents during the periods presented. All highly liquid investments with an original maturity of less than three months are considered cash equivalents. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the various classes of assets, which range from three to twenty-five years. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Costs of repairs and maintenance are charged to operations as incurred. Intangibles Goodwill represents the excess of cost over the fair values of the identifiable tangible and other intangible net assets acquired and is being amortized over the straight-line method over forty years. Other intangible assets comprise amounts paid for pending acquisitions, agreements not to compete, a tower lease advantage and organization costs incurred in the incorporation of the Company. Other intangibles, excluding pending acquisition costs, are being amortized by the straight-line method over their estimated useful lives ranging from three to ten F-6 48 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) years. Pending acquisition costs are deferred and capitalized as part of completed acquisitions or expensed in the period in which the pending acquisition is terminated. The Company evaluates intangible assets for potential impairment by analyzing the operating results, future cash flows on an undiscounted basis, trends and prospects of the Company's stations, as well as by comparing them to their competitors. The Company also takes into consideration recent acquisition patterns within the broadcast industry, the impact of recently enacted or potential FCC rules and regulations and any other events or circumstances which might indicate potential impairment. Deferred Financing Costs Costs associated with obtaining debt financing are capitalized and amortized using the interest method over the term of the related debt. As a result of refinancing the Company's original credit facility, during the year ended December 31, 1994 unamortized deferred financing costs of approximately $818,000 were expensed as an extraordinary item in the consolidated statements of operations. As a result of refinancing the Company's second credit facility, the early redemption of $20.0 million of its existing notes (defined) and the prepayment of $18.7 million of it's a Term Loan Facility (defined) from its third credit facility, during the year ended December 31, 1996 unamortized deferred financing costs of $3.4 million, less $543,500 of tax benefit, were expensed as an extraordinary item in the consolidated statements of operations. Approximately $5.1 million, $118,000 and $18.6 million of new financing costs were incurred for the years ended December 31, 1994, 1995 and 1996, respectively. Accumulated amortization at December 31, 1995 and 1996, amounted to approximately $959,000 and $2.8 million, respectively. Revenue Recognition Broadcasting operations derive revenue primarily from the sale of program time and commercial announcements to local, regional and national advertisers. Revenue is recognized when the programs and commercial announcements are broadcast. Barter Transactions Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment, and services. Barter revenue is recorded at the fair value of the goods or services received and is recognized in income when the advertisements are broadcast. Goods or services are charged to expense when received or used. Advertising time owed and goods or services due the Company are included in accounts payable and accounts receivable, respectively. Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are expensed as incurred and totaled approximately $1.4 million, $4.2 million and $16.2 million for the years ended December 31, 1994, 1995 and 1996, respectively. Stock Option Compensation Stock option compensation expense is recognized in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Income Taxes Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. F-7 49 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting Licensee Company have elected to file consolidated federal income tax returns (the "Chancellor Group") and Trefoil Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of Texas, Inc. have elected to file consolidated federal income tax returns (the "Shamrock Group"). Each of these groups have entered into a tax sharing agreement governing the allocation of any consolidated federal income tax liability among its members. In general, each subsidiary allocates and pays income taxes computed as if each subsidiary filed a separate federal income tax return. Similar principles apply to any consolidated state and local income tax liabilities. Concentration of Credit Risk The Company's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Credit losses have been within management's expectations and adequate allowances for any uncollectible trade receivables are maintained. Income (Loss) Per Share Net income (loss) per share is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during each respective period. Proceeds from the exercise of the dilutive stock options are assumed to be used to repurchase outstanding shares of the Company's common stock at the average fair market value during the period. The calculation of income (loss) per common share is adjusted for the recapitalization as discussed in Note 8 and dividends and accretion on preferred stock. Reclassifications Certain prior year amounts have been reclassified to conform with the current year's presentation. 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, ------------------------------ 1995 1996 ------------- -------------- Land ....................................................................... $ 1,572,229 $ 3,036,663 Building and building improvements ......................................... 3,159,848 9,202,378 Towers and antenna systems ................................................. 3,689,972 14,476,104 Studio, technical and transmitting equipment ............................... 7,830,375 23,026,564 Office equipment, furniture and fixtures ................................... 2,484,261 5,521,010 Record library ............................................................. 1,800,510 2,193,236 Vehicles ................................................................... 362,787 1,117,908 Construction in progress ................................................... 503,504 78,877 ------------- -------------- 21,403,486 58,652,740 Less accumulated depreciation .............................................. (3,477,641) (9,529,808) ------------- -------------- $ 17,925,845 $ 49,122,932 ============= ==============
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was $0.9 million, $2.6 million and $6.5 million, respectively. F-8 50 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INTANGIBLE AND OTHER ASSETS Intangible and other assets consist of the following:
DECEMBER 31, ------------------------------ 1995 1996 ------------- -------------- Goodwill ................................................................... $ 205,971,820 $ 567,377,120 Noncompete agreements ...................................................... 1,950,000 2,025,000 Tower lease advantage ...................................................... 305,000 305,000 Pending acquisition costs .................................................. 3,246,265 2,620,474 Other ...................................................................... 45,718 626,220 ------------- -------------- 211,518,803 572,953,814 Less accumulated amortization .............................................. (7,710,408) (21,547,720) ------------- -------------- $ 203,808,395 $ 551,406,094 ============= ==============
Amortization expense for intangible assets for the years ended December 31, 1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million, respectively. 5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES On January 9, 1994, Chancellor Communications purchased substantially all the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for approximately $49.5 million, including acquisition costs. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment ................................................... $ 4,921 Goodwill and other intangibles ........................................... 44,401 Prepaid expenses and other assets ........................................ 413 Accrued liabilities ...................................................... (205) ---------- Total acquisition ................................................ $ 49,530 ==========
On October 12, 1994, Chancellor Radio Broadcasting purchased substantially all the assets and assumed certain liabilities consisting solely of accrued expenses and future payments under ongoing contracts of the American Media Station Group (other than KHYL-FM in Sacramento, California) for approximately $139.5 million in cash, including acquisition costs and payments in respect of agreements not to compete. On the same date, Chancellor Communications purchased all the assets and certain liabilities consisting solely of accrued expenses and future payments under ongoing contracts of KHYL-FM for approximately $15.5 million in cash, including acquisition costs and payments in respect of an agreement not to compete. These acquisitions have been accounted for as purchases and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment ................................................... $ 12,671 Goodwill and other intangibles ........................................... 142,618 Prepaid expenses and other assets ........................................ 353 Accrued liabilities ...................................................... (662) ----------- Total acquisition ................................................ $ 154,980 ==========
F-9 51 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Simultaneously with the closing of these transactions, Chancellor acquired all of Chancellor Communications' outstanding nonvoting stock in exchange for newly issued shares of Chancellor's nonvoting stock. Chancellor contributed all the acquired shares of Chancellor Communication's nonvoting stock to Chancellor Radio Broadcasting, as a result of which Chancellor Communications became a subsidiary of Chancellor Radio Broadcasting. Because these entities are under common management and control, this exchange has been accounted for at historical cost in a manner similar to a pooling of interests. On July 31, 1995, the Company purchased substantially all the assets and assumed certain liabilities of KDWB-FM for approximately $22.6 million, including acquisition costs. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment ................................................... $ 1,866 Goodwill and other intangibles ........................................... 21,032 Prepaid expenses and other assets ........................................ 82 Other liabilities ........................................................ (383) ----------- Total acquisition ................................................ $ 22,597 ==========
On February 14, 1996, the Company acquired all of the outstanding capital stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0 million, including acquisition costs. Trefoil is a holding company, the sole asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock Broadcasting"). The acquisition of Trefoil was financed through a new credit agreement, new senior subordinated notes, Chancellor's initial public stock offering, senior exchangeable preferred stock and the issuance of unregistered common stock of Chancellor. The acquisition of Trefoil was accounted for as a purchase for financial accounting purposes and a non-taxable business combination for tax purposes and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Cash ..................................................................... $ 38 Accounts receivable, net ................................................. 18,636 Prepaid expenses and other assets ........................................ 1,274 Property and equipment ................................................... 36,429 Goodwill and other intangibles ........................................... 361,425 Deferred tax asset ....................................................... 5,464 Accrued liabilities ...................................................... (14,564) Other noncurrent liabilities ............................................. (702) ---------- Total acquisition ................................................ $ 408,000 ==========
Simultaneously with the acquisition of Trefoil, the Company entered into a time brokerage agreement with Evergreen Media Corporation for the outsourcing of certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations acquired with Trefoil, and an option to purchase such stations for $30.0 million of cash. These stations were operated pursuant to this agreement until January 30, 1997, the date on which the disposition of these stations occurred. Subsequent to the acquisition of Trefoil, KTBZ-FM, a Houston station acquired with Trefoil, was operated by Secret Communications, L.P. ("Secret") under a Local Marketing Agreement ("LMA")/Exchange Agreement with the Company. In March 1996, the Company entered into an agreement to exchange KTBZ-FM and $5.6 million of cash to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing certain limited functions of these stations, pursuant to an LMA, effective April 1, 1996 and closed on the exchange F-10 52 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the stations effective July 31, 1996. The exchange has been accounted for using the fair values of the assets exchanged plus the $5.6 million of additional cash and $0.8 million of additional acquisition costs, and was allocated to the net assets acquired based upon their estimated fair market values. The excess of the purchase price over the estimated fair value of net assets acquired amounted to approximately $28.7 million, which has been accounted for as goodwill and is being amortized over 40 years using the straight line method. The exchange is summarized as follows (in thousands): Assets acquired and liabilities assumed: Prepaid expenses and other assets ........................................ $ 163 Property and equipment ................................................... 2,363 Goodwill and other intangibles ........................................... 28,657 Accrued liabilities ...................................................... (138) ---------- Total acquisition ................................................ $ 31,045 ==========
On May 15, 1996, the Company entered into an agreement to acquire substantially all the assets and certain liabilities of OmniAmerica Group ("Omni") for an aggregate price of $178.0 million, including $163.0 million of cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996, the Company entered into an agreement with American Radio Systems Corporation ("American Radio") whereby it will exchange the West Palm Beach, Florida stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of cash. KSTE-AM is located in Rancho Cordova, California and is part of the Sacramento market. On July 1, 1996, Chancellor entered into an agreement with SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville, Florida stations being acquired pursuant to the Omni acquisition agreement and $11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM, Nassau-Suffolk, New York. Pursuant to various agreements, the Company began managing certain limited functions of the remaining Omni stations and the SFX stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996. On November 22, 1996, the Company acquired substantially all the assets of WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including transaction costs. WKYN-AM serves the Cincinnati, Ohio market. On January 23, 1997, the Company acquired substantially all the assets and certain liabilities of Colfax Communications ("Colfax") for an aggregate price of $373.0 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition will be accounted for as a purchase. Pursuant to the acquisition agreement, at December 31, 1996 the Company had $20.4 million of cash in a restricted escrow account which was remitted to Colfax at closing. On January 29, 1997, the Company entered into an agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash. On February 13, 1997, the Company acquired substantially all the assets and certain liabilities of Omni for $163.0 million of cash and $15.0 million of Chancellor Class A Common Stock. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition will be accounted for as a purchase. The following summarizes the unaudited consolidated pro forma data as though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM and KALC-FM had occurred as of the beginning of 1995 (in thousands, except per share amounts):
1995 1996 ------------------------ ------------------------ HISTORICAL PRO FORMA HISTORICAL PRO FORMA ---------- --------- ---------- --------- (UNAUDITED) (UNAUDITED) Net revenue ................................... $ 64,322 $ 162,360 $ 178,402 $ 187,198 Net income (loss) before extraordinary loss ... (11,531) (21,477) (14,272) (15,113) Net loss ...................................... (11,531) (21,477) (18,449) (15,113) Net loss before extraordinary loss per share .. (1.30) (1.16) (1.85) (0.82) Net loss per share ............................ (1.30) (1.16) (2.10) (0.82)
F-11 53 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following summarizes the unaudited consolidated pro forma balance sheet as of December 31, 1996 as though the acquisition of Colfax, the issuance of the Exchangeable Preferred Stock, the issuance of the Convertible Preferred Stock (including the over-allotment), and the New Credit Agreement had occurred on that date (in thousands):
HISTORICAL PRO FORMA ---------- --------- (UNAUDITED) Total assets ............................................ $ 690,743 $ 1,053,833 ============= ============= Current liabilities ..................................... $ 24,208 $ 40,598 Long-term liabilities ................................... 358,322 410,359 Preferred stock ......................................... 107,222 404,585 Common stockholders' equity ............................. 200,991 198,291 ------------- ------------- Total liabilities and stockholders' equity .............. $ 690,743 $ 1,053,833 ============= =============
6. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, -------------------------------- 1995 1996 --------------- --------------- Salaries .................................................. $ 534,297 $ 3,697,072 Sales commissions ......................................... 889,010 2,149,167 Rep commissions ........................................... 561,189 1,549,048 Other ..................................................... 2,708,452 5,134,544 --------------- --------------- $ 4,692,948 $ 12,529,831 =============== ===============
7. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, -------------------------------- 1995 1996 --------------- --------------- Term loan ................................................. $ 67,562,500 $ 74,968,527 Revolving credit loan ..................................... 24,607,242 20,344,972 Subordinated notes due 2004 ............................... 80,000,000 260,000,000 --------------- --------------- 172,169,742 355,313,499 Less current portion ...................................... 4,062,500 400,000 --------------- --------------- $ 168,107,242 $ 354,913,499 =============== ===============
The Company's term and revolving credit facilities were refinanced on January 23, 1997, in conjunction with the acquisition of Colfax Communications under a new bank credit agreement (the "New Credit Agreement") with Bankers Trust Company, as administrative agent, and other institutions party thereto. The New Credit Agreement includes a $225.0 million term loan facility (the "Term Loan Facility") and a revolving loan facility (the "Revolving Loan Facility" and, together with the Term Loan, the "New Bank Financing"). The Revolving Loan Facility originally provides for borrowings up to $120.0 million, which is subsequently reduced as and when the Company receives the net cash proceeds of the pending station swaps and dispositions. In connection with the refinancing of the term and revolving loan facilities in January 1997, the Company incurred an extraordinary charge to write-off deferred finance costs of approximately $4.5 million. The New Bank Financing is collateralized by (i) a first priority perfected pledge of all capital stock and notes owned by the Company and (ii) a first priority perfected security interest in all other assets (including receivables, contracts, contract rights, securities, patents, trademarks, other intellectual property, inventory, equipment and real estate) owned by the Company, excluding FCC licenses, leasehold interests in studio or office space and leasehold and partnership interests in tower or transmitter sites in which necessary consents to the granting of a security interest cannot be obtained without payments to any other party or on a timely basis. The New Bank Financing also is guaranteed by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose guarantees are F-12 54 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) collateralized by a first priority perfected pledge of the capital stock Chancellor Radio Broadcasting. The Term Loan Facility is due in increasing quarterly installments beginning in 1997 and matures in January 2003. All outstanding borrowings under the Revolving Facility mature in January 2003. The facilities bear interest at a rate equal to, at the Company's option, the prime rate of Bankers Trust Company, as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an applicable margin rate. The Company pays quarterly commitment fees in arrears equal to either .375% or .250% per annum on the unused portion of the Revolving Facility, depending upon whether the Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1, respectively. The bank financing facilities which existed on December 31, 1996 accrued interest at the prime rate plus 1.25% (9.5%) on $3.0 million and the LIBOR rate plus 2.50% (8.125%) on $92.0 million of borrowings. In connection with the IPO (defined), the Company redeemed 25% of its Existing Notes (defined) for approximately $22.2 million. The redemption was completed in March 1996 and resulted in an extraordinary charge of $2.8 million. The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004 (the "Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum. On February 14, 1996, in conjunction with the acquisition of Trefoil Communications, Inc., the Company issued $200.0 million aggregate principal amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and, together with the Existing Notes, the "Notes"), which mature on October 1, 2004, and bear interest at 9.375% per annum. Interest on the Notes is paid semi-annually. The Existing and New Notes are redeemable, in whole or in part, at the option of the Company on or after October 1, 1999 and February 1, 2000, respectively, at redemption prices expressed as a percentage of the principal amount, ranging from 100.000% to 105.556%, plus accrued interest thereon to the date of acquisition. In addition, prior to January 31, 1999, the Company may redeem up to 25% of the original aggregate principal amount of the New Notes with the net proceeds of one or more public equity offerings. The Notes are unsecured obligations of the Company, ranking subordinate in right of payment to all senior debt of the Company. The New Notes rank pari passu in right of payment to the Existing Notes. The Notes are guaranteed on a senior subordinated basis by Chancellor Radio Broadcasting Company's subsidiaries. Scheduled debt maturities for the Company's outstanding long-term debt at December 31, 1996 for each of the next five years and thereafter are as follows: 1997 .................................................. $ 400,000 1998 .................................................. 400,000 1999 .................................................. 9,874,886 2000 .................................................. 11,296,119 2001 .................................................. 17,469,864 Thereafter ............................................ 315,872,630 --------------- $ 355,313,499 ===============
See Note 5 for pro forma effects of the New Bank Financing subsequent to year end. Both the New Bank Financing and Notes indentures contain certain covenants, including, among others, limitations on the incurrence of additional debt, in the case of the New Bank Financing; requirements to maintain certain financial ratios; and restrictions on the payment of dividends to stockholders and from the subsidiaries to Chancellor. 8. CAPITAL STRUCTURE In February 1996, Chancellor sold 7.7 million shares of its Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), in an initial public offering, (the "IPO"), which generated net proceeds of $142.4 million, and in a private placement, issued $100.0 million of exchangeable redeemable preferred stock (the "Acquisition Preferred Stock") of Chancellor Radio Broadcasting and 742,192 shares of Class A common stock of Chancellor to an affiliated entity and other investors. Immediately prior to the IPO, Chancellor effected a recapitalization of its current capital stock. Pursuant to the recapitalization, each six shares of Chancellor's Nonvoting Stock were reclassified into one share of Class A Common Stock. Each six shares of Chancellor's Voting Stock were reclassified into one share of Class B Common F-13 55 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock and each six shares of Convertible Nonvoting Stock were reclassified into one share of Class C Common Stock. In connection with the recapitalization, 63,334 shares of Class A Common Stock were exchanged for an equal number of shares of Class B Common Stock, and an additional 8,484,410 shares of Class A Common Stock were exchanged for an equal number of shares of Class C Common Stock. The recapitalization has been given retroactive effect in the financial statements. In February 1996, subsequent to the IPO, the Company completed a private placement of $100.0 million of newly authorized Senior Cumulative Exchangeable Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and 55,664 shares of Class A Common Stock. The redemption resulted in a charge to net loss attributable to common stock of approximately $16.6 million and an additional reduction of stockholders' equity of approximately $1.0 million. In June 1996, the holders of Chancellor's Class C Common Stock filed an application with the FCC to convert the stock into Chancellor's Class B Common Stock. The holders of Class C Common Stock received approval of their applications and subsequently converted their stock on October 22, 1996. In August 1996 pursuant to an agreement entered into at the time of the IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private placement to an affiliated entity, which generated proceeds of $23.0 million which were contributed to Chancellor Radio Broadcasting. In September 1996, the Company completed an exchange offering whereby it exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable Preferred Stock") in a transaction registered under the Securities Act of 1933, as amended. The terms of the Senior Exchangeable Preferred Stock are substantially identical to those of the Old Preferred Stock. Dividends on the Senior Exchangeable Preferred Stock accrue from its date of issuance and are payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4% of the then effective liquidation preference per share. Dividends may be paid, at the Company's option, on any dividend payment date occurring on or prior to February 15, 2001 either in cash or by adding such dividends to the then effective liquidation preference of the Senior Exchangeable Preferred Stock. The Senior Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after February 15, 2001, at various redemption prices, plus, accumulated and unpaid dividends to the date of redemption. In addition, prior to February 15, 1999, the Company may, at its option, redeem the Senior Exchangeable Preferred Stock with the net cash proceeds from one or more Public Equity Offerings (as defined), at various redemption prices, plus, accumulated and unpaid dividends to the redemption date; provided, however, that after any such redemption there is outstanding at least 75% of the number of shares of Senior Exchangeable Preferred Stock originally issued. The Company is required, subject to certain conditions, to redeem all of the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a redemption price equal to 100% of the then effective liquidation preference thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon the occurrence of a change of control (as defined), the Company must offer to purchase all of the then outstanding shares of Senior Exchangeable Preferred Stock at a price equal to 101% of the then effective liquidation preference thereof, plus, accumulated and unpaid dividends to the date of purchase. Subject to certain conditions, the Senior Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, on any dividend payment date for the Company's 12 1/4% subordinated exchange debentures due 2008. On January 23, 1997, Chancellor completed a private placement of $100.0 million of newly authorized 7% Convertible Preferred Stock (the "Convertible Preferred Stock") and Chancellor Radio Broadcasting completed a private placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"). Dividends on the Convertible Preferred Stock accrue from its date of issuance and are payable quarterly commencing April 15, 1997, at a rate per annum of 7% of the liquidation preference per share. The liquidation preference of the Convertible Preferred Stock is $50.00 per share. The Convertible Preferred Stock is convertible at the option of the holder at any time after March 23, 1997, unless previously redeemed, into Class A Common Stock of Chancellor at a conversion price of $32.90 pre share of Class A Common Stock, subject to adjustment in certain F-14 56 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) events. In addition, after January 19, 2000, the Company may, at its option, redeem the Convertible Preferred Stock, in whole or in part, at specified redemption prices plus accrued and unpaid dividends through the redemption date. Upon the occurrence of a change of control (as defined), Chancellor must, subject to certain conditions, offer to purchase all of the then outstanding shares of Convertible Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of purchase. Dividends on the Exchangeable Preferred Stock will accrue from the date of its issuance and will be payable semi-annually commencing July 15, 1997, at a rate per annum of 12% of the liquidation preference per share. Dividends may be paid, at the Company's option, on any dividend payment date occurring on or prior to January 15, 2002 either in cash or in additional shares of Exchangeable Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock will be $100.00 per share. The Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after January 15, 2002, at the redemption prices set forth herein, plus accrued and unpaid dividends to the date of redemption. In addition, prior to January 15, 2000, the Company may, at its option, redeem the Exchangeable Preferred Stock with the net cash proceeds from one or more Public Equity Offerings (as defined), at various redemption prices plus accrued and unpaid dividends to the redemption date; provided, however, that after any such redemption there is outstanding at least $150.0 million aggregate liquidation preference of Exchangeable Preferred Stock. The Company is required, subject to certain conditions, to redeem all of the Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption price equal to 100% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of redemption. Upon the occurrence of a Change of Control (as defined), the Company will, subject to certain conditions, offer to purchase all of the then outstanding shares of Exchangeable Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the repurchase date. In addition, prior to January 15, 1999, upon the occurrence of a Change of Control, the Company will have the option to redeem the Exchangeable Preferred Stock in whole but not in part at a redemption price equal to 112% of the liquidaton preference thereof, plus accrued and unpaid dividends to the date of redemption. The Exchangeable Preferred Stock will, with respect to dividend rights and rights on liquidation, rank junior to the Senior Exchangeable Preferred Stock. Subject to certain conditions, the Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, on any dividend payment date for the Company's 12% subordinated exchange debentures due 2009, including any such securities paid in lieu of cash interest. In addition to the accrued dividends discussed above, the recorded value of the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and the Exchangeable Preferred Stock includes or will include an amount for the accretion of the difference between the stock's fair value at date of issuance and its mandatory redemption amount, calculated using the effective interest method. 9. INCOME TAXES All of the Company's revenues were generated in the United States. The provision for income taxes for continuing operations consists of the following:
YEAR ENDED DECEMBER 31 -------------------------------------------- 1994 1995 1996 ------------- ------------- ------------- Current: State ............................................. $ -- $ 11,098 $ 64,070 Deferred: Federal .......................................... 1,267,109 3,220,528 3,866,209 State ............................................. 223,607 568,329 682,272 -------------- ------------- ------------- Total provision ......................... $ 1,490,716 $ 3,799,955 $ 4,612,551 ============= ============= =============
F-15 57 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense differs from the amount computed by applying the federal statutory income tax rate of 34% to income before income taxes for the following reasons:
YEAR ENDED DECEMBER 31, -------------------------------------------- 1994 1995 1996 ------------- ------------- ------------- U.S. federal income tax at statutory rate ............ $ 637,692 $ (2,628,656) $ 645,125 State income taxes, net of federal benefit ........... 112,533 (463,880) 113,846 Valuation allowance provided for loss carryforward generated during the current period ............... 720,490 6,589,750 307,000 Reconciliation of return to estimate ................. -- 71,510 -- Permanent difference ................................. 20,001 231,231 3,546,580 ------------- ------------- ------------- $ 1,490,716 $ 3,799,955 $ 4,612,551 ============= ============= ============= DECEMBER 31, ---------------------------- 1995 1996 ------------- ------------- The deferred tax assets (liabilities) consist of the following: Loss carryforwards expiring 2009 and 2010 ........................... $ 4,766,240 $ 11,806,985 Deferred stock option compensation deduction ........................ 2,544,000 4,064,000 Tax credits ......................................................... -- 2,951,555 Other ............................................................... 105,411 680,819 ------------- ------------- Gross deferred tax assets ........................................ 7,415,651 19,503,359 ------------- ------------- Depreciation and amortization ....................................... (5,057,772) (21,488,463) ------------- ------------- Deferred tax assets valuation allowance ............................. (7,310,240) (621,210) ------------- ------------- Net deferred tax liabilities ..................................... $ (4,952,361) $ (2,606,314) ============= =============
The deferred tax valuation allowance was originally established due to the uncertainty surrounding the realizability of the Company's deferred tax assets using the "more likely than not" criteria. During the fourth quarter of 1996, the Company revised its estimate of the likelihood that it will realize the majority of its deferred tax assets and adjusted its valuation allowance accordingly. This revised estimate was the direct result of the acquisition of Trefoil. Reversal of the valuation allowance related to deferred tax assets which existed on the date of acquisition or which were acquired as a result of the Trefoil acquisition were credited against the original purchase accounting allocation to goodwill. The reversal of the valuation allowance related to deferred tax assets generated subsequent to the acquisition were credited as a reduction of income tax expense and extraordinary losses as appropriate. The Company's tax credits and net operating loss carryforwards at December 31, 1996 begin expiring in 1997 and 2001, respectively. The Company has provided a valuation allowance for those tax credits which do not meet a "more likely than not" realizability test. 10. EMPLOYEE BENEFIT PLAN The Company has a 401(k) Savings Plan, whereby eligible employees can contribute up to either 15% of their salary, per year, subject to certain maximum contribution amounts. Prior to 1996, the Company had not made any contributions to the plan, nor is it required to in future periods. However, the Company did elect to make a discretionary match for 1996 of approximately $250,000. Employees become eligible to participate in the plan after the completion of one year of service and the attainment of age twenty-one. 11. COMMITMENTS The Company leases real property, office space, broadcasting equipment and office equipment under various noncancellable operating leases. Certain of the Company's leases contain escalation clauses, renewal options and/or purchase options. In addition, the Company assumed lease obligations in connection with the acquisition of Trefoil on February 14, 1996. The Company also has employment and rating survey agreements in excess of one year, and has entered into a twelve-year financial monitoring and oversight agreement with Hicks Muse & Co. Partners, L.P., which is an affiliate of Hicks, Muse, Tate & Furst Incorporated. F-16 58 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum payments under the noncancellable operating lease agreements at December 31, 1996 are approximately as follows: 1997 .................................................... $ 6,023,586 1998 .................................................... 4,865,095 1999 .................................................... 4,277,779 2000 .................................................... 3,564,247 2001 .................................................... 2,805,282 Thereafter .............................................. 13,080,261 ------------- $ 34,616,250 =============
Rent expense was approximately $227,000, $1.3 million and $4.8 million for the years ended December 31, 1994, 1995 and 1996, respectively. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: For cash, short-term debt, and other current amounts receivable and payable, and the variable-rate term debt, the carrying amount approximates fair value. For the fixed-rate long-term debt, the fair value is estimated based on quoted market prices. The carrying values at December 31, 1995 and 1996 was $80.0 million and $260.0 million, respectively, and the estimated fair values at each date were $85.4 million and $267.8 million, respectively. For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock, the fair value of $113.75 per share at December 31, 1996 is estimated based on quoted market prices. 13. STOCK-BASED COMPENSATION During 1994, Chancellor's Board of Directors granted options to purchase 996,068 shares of its common stock to the senior management of the Company at exercise prices of $6.00 and $7.50. The option agreements vest over a five year period and originally contained certain performance criteria and indexed exercise prices. On September 30, 1995, Chancellor entered into an agreement with its senior management to substantially revise and amend these option agreements to eliminate certain of the performance criteria provisions and to adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management developed an estimate of the fair value of the stock options in the amount of $19.0 million. Based upon this estimate and the applicable vesting periods, the Company recognized stock option compensation expense and a corresponding credit to equity of $6.4 million in 1995, with the remaining amount to be amortized over an approximate four year period. During 1994, Chancellor's Board of Directors adopted a stock option plan for its non-employee directors providing for the grant of options and stock awards for up to 480,000 shares of its common stock. Upon election to the Board of Directors, each person shall be granted a stock option to purchase a number of shares of common stock equal to the number of shares of common stock acquired by purchase by such person upon their initial election to the Board of Directors. Each option shall be immediately vested, will have a maximum term of ten years and an exercise price, as determined by the plan committee, equal to or greater than the fair market value of the common stock on the respective dates of grant. In February 1996, Chancellor's Board of Directors adopted a stock award plan for the Company's management, employees and non-employee directors, elected after the date of adoption of the plan, providing for the grant of options and stock awards for up to 916,456 shares of Chancellor's Class A Common Stock. The Company's compensation committee has the sole authority to grant stock options and to establish option exercise prices and vesting schedules. However, per-share exercise prices shall not be less than the fair market value of the stock on the respective date of grant and if the compensation committee does not determine a vesting schedule, such option shall vest 20% on the first anniversary of the respective date of grant and the remaining 80% shall vest pro rata on a F-17 59 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) monthly basis over the four-year period following the first anniversary of the date of grant. Non-employee directors elected after the effective date of this plan automatically are granted a fully-vested option to purchase 5,000 shares of Chancellor's Class A Common Stock on the date he or she first becomes a member of the Board of Directors. Terms of all options are limited to ten years. A summary of the Company's option activity follows. The Company has elected to continue expense recognition under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and accordingly, has included certain required pro forma information. Estimates of weighted-average grant-date fair values of options granted and pro forma option compensation amounts were determined using the Black-Scholes Single Option approach assuming an expected option term of 6 years, interest rates ranging from 5.5% to 7.2%, a dividend yield of zero and a volatility factor of .4 (zero for options issued prior to the Company's initial public offering in February 1996).
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 1994 1995 1996 ---------------------------- ----------------------------- ----------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ----------- --------- ----------- --------- ----------- ---------------- Beginning of year -- $ -- 996,068 $ 7.27 1,022,734 $ 7.89 Granted: Exercise price: equals FMV 996,068 7.27 26,666 7.50 713,916 26.03 less than FMV -- -- 996,068 7.90 -- -- Exercised -- -- -- -- -- -- Canceled -- -- (996,068) 7.27 (9,000) 24.51 ----------- --------- ----------- --------- ----------- -------- End of year 996,068 $ 7.27 1,022,734 $ 7.89 1,727,650 $ 15.30 =========== ========= =========== ========= =========== ======== Exercisable as of end of year -- $ -- 225,879 $ 7.85 431,758 $ 8.06 =========== ========= =========== ========= =========== ======== Weighted-average grant-date fair value of options granted: Exercise price: equals FMV -- 3.59 12.69 less than FMV -- 21.56 --
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ------------------------ WEIGHTED AVERAGE ---------------------------- WEIGHTED AVE- RANGE OF REMAINING EXERCISE RAGE EXERCISE EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE --------------- ---------- ------------------ ------ ------- -------------- $7.50 - $7.50 577,971 7.06 $ 7.50 247,188 $ 7.50 8.40 - 8.40 444,763 7.83 8.40 177,904 8.40 20.00 - 25.25 431,916 9.14 20.51 6,666 20.00 31.00 - 36.75 273,000 9.75 34.81 -- -- ---------- ------- ------- -------- ------ $7.50 - $36.75 1,727,650 8.20 $ 15.30 431,758 $ 8.06 ========== ======= ======= ======== ======
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1996 ----------------- ----------------- Historical net loss ................................... $ (11,531,296) $ (18,448,966) Pro forma adjustment for stock option compensation .... (781,465) (1,524,302) Pro forma tax benefit ................................. 312,586 609,721 ------------- ------------- Pro forma net loss .................................... $ (12,000,175) $ (19,363,547) ============= ============= Pro forma loss per share .............................. $ (1.36) $ (1.16)
F-18 60 14. RELATED PARTY TRANSACTIONS The Company has entered into a twelve-year agreement (the "Financial Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P. ("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of which is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse Partners an annual fee of $82,000, $200,000 and $408,000 for financial oversight and monitoring services for the years ended December 31, 1994, 1995 and 1996, respectively. The annual fee is adjustable each December 31, according to a formula based on changes in the consumer price index. HM2 received fees of approximately $0.3 million, $2.4 million and $6.2 million upon consummation of the acquisitions of KDWB-FM, the American Media Station Group and Trefoil Communications, Inc., respectively, and is entitled to receive a fee equal to 1.5% of the transaction value (as defined) upon the consummation of each add-on transaction (as defined) involving Chancellor or any of its subsidiaries. Effective April 1, 1996, the Company entered into a revised financial monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse, Tate & Furst Incorporated. The annual fee for financial oversight and monitoring services to the Company has been adjusted to $500,000. The annual fee is adjustable each January 1, to an amount equal to the budgeted consolidated annual net sales of the Company for the then-current fiscal year, multiplied by 0.25%, provided, however, that in no event shall the annual fee be less than $500,000. The Financial Monitoring and Oversight Agreement makes available the resources of HM2 and Hicks Muse Partners concerning a variety of financial matters. The services that have been and will continue to be provided by HM2 and Hicks Muse Partners could not otherwise be obtained by Chancellor and the Company without the addition of personnel or the engagement of outside professional advisors. In February of 1996, the Company lent $200,000 to an affiliate of the Company. The loan is unsecured, does not bear interest and will be forgiven during the next three years. 15. SUBSEQUENT EVENTS On February 14, 1997, Chancellor Radio Broadcasting completed a private placement of an additional $10.0 million of Convertible Preferred Stock pursuant to its over-allotment option. The net proceeds of this offering were used to repay borrowings under the Revolving Credit Facility. On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a stock-for-stock transaction (the "Merger"), with Evergreen remaining as the surviving corporation (the "Surviving Company"). Pursuant to the agreement, shareholders of the Company's common stock will receive 0.9091 shares of Evergreen's common stock. Consummation of the merger is subject to shareholder approval and certain other closing conditions including regulatory approval. On February 19, 1997, the Company and Evergreen entered into a joint purchase agreement whereby in the event that consummation of the stock purchase agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs prior to the consummation of the Merger, the Company will be required to purchase the Viacom subsidiaries which own four of the ten Viacom stations for $480 million and Evergreen will be required to purchase the Viacom subsidiaries which own six of the ten Viacom stations for $595 million. In the event that consummation of the stock purchase agreement between Evergreen and Viacom occurs after the consummation of the Merger, the Surviving Company will acquire the stock of certain Viacom subsidiaries which own and operate ten radio stations in five major markets. Consummation of the transaction is dependent upon certain closing conditions including regulatory approval. 16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC"), to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The new legislation will enable the Company to retain all of its radio stations and to acquire more properties; at the same time, this legislation will also allow other broadcast entities to increase their ownership in markets where the Company currently operates stations. The Company's management is unable to determine the ultimate effect of this legislation on its competitive environment. The pending acquisition, exchange and merger agreements are subject to various governmental approvals, including the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Federal Communications Commission. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and F-19 61 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) disclosure of contingent assets and liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. 17. RECENT ACCOUNTING PRONOUNCEMENT The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" in March 1997, which establishes standards for computing and presenting earnings per share. The disclosure requirements of SFAS No. 128 will be effective for the Company's financial statements beginning in 1997. Management has not yet determined the impact that the adoption of SFAS No. 128 will have on the financial statements of the Company. 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
1996 FISCAL QUARTERS ---------------------------------------------------------- FIRST SECOND THIRD FOURTH ----- ------ ----- ------ Net revenues ..................... $ 25,642,239 $ 44,425,668 $ 52,770,414 $ 55,563,210 Income from operations ........... 2,831,163 11,028,609 12,107,887 11,702,047 Income before extraordinary loss ........................... (7,585,314) (2,355,054) (1,061,804) (3,269,897) Net loss ......................... (12,231,235) (2,355,054) (2,025,071) (1,837,606) Net loss attributable to common stock ................... (28,801,300) (2,355,054) (2,025,071) (1,837,606) Net loss per share before extraordinary loss ............. (1.83) (0.14) (0.06) (0.18) Net loss per share ............... (2.18) (0.14) (0.11) (0.10)
The above results reflect the acquisition of Shamrock Broadcasting on February 13, 1996, the exchange of KTBZ-FM for KIMN-FM and KALC-FM on July 31, 1996, and the various operating agreements with Omni, Secret, SFX and American Radio which began during the third quarter. First and third quarter results include extraordinary losses related to the early extinguishment of debt. Fourth quarter results reflect an extraordinary tax benefit related to the previously recognized extraordinary losses on early extinguishment of debt resulting from management's change in estimate as to the likelihood of it utilizing its deferred tax assets. F-20 62 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Chancellor Radio Broadcasting Company: We have audited the accompanying consolidated balance sheets of Chancellor Radio Broadcasting Company and Subsidiaries (collectively the "Company") as of December 31, 1995 and 1996 and the related consolidated statements of operations, changes in common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1995 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Dallas, Texas February 13, 1997, except for Note 15 as to which the date is February 19, 1997 F-21 63 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------- 1995 1996 ------------- -------------- ASSETS Current assets: Cash .......................................................................... $ 1,314,214 $ 3,788,546 Accounts receivable, net of allowance for doubtful accounts of $263,528 and $1,023,660, respectively ................................................ 13,243,292 46,584,705 Prepaid expenses and other .................................................... 546,405 2,753,731 ------------- -------------- Total current assets ..................................................... 15,103,911 53,126,982 Restricted cash ................................................................. -- 20,363,329 Property and equipment, net ..................................................... 17,925,845 49,122,932 Intangibles and other, net ...................................................... 203,808,395 551,406,094 Deferred financing costs, net ................................................... 4,284,413 16,723,346 ------------- -------------- Total assets ............................................................. $ 241,122,564 $ 690,742,683 ============= ============== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable .............................................................. $ 1,873,888 $ 4,409,389 Accrued liabilities ........................................................... 4,692,948 12,529,831 Accrued interest .............................................................. 2,710,891 6,868,839 Current portion of long-term debt ............................................. 4,062,500 400,000 ------------- -------------- Total current liabilities ................................................ 13,340,227 24,208,059 Long-term debt .................................................................. 168,107,242 354,913,499 Deferred income taxes ........................................................... 4,952,361 2,606,314 Other ........................................................................... -- 801,572 ------------- -------------- Total liabilities ........................................................ 186,399,830 382,529,444 ------------- -------------- Commitments (Note 11) Redeemable senior cumulative exchangeable preferred stock, par value $.01 per share; 1,000,000 shares authorized, none and 1,000,000 shares issued and outstanding, respectively; preference in liquidation of $109,110,301 ...... -- 107,222,416 Common stockholder's equity: Common stock, par value $.01 per share; 2,000 shares authorized, 1,000 shares issued and outstanding, respectively ........................................ 10 10 Additional paid-in capital .................................................... 66,359,990 219,520,102 Accumulated deficit ........................................................... (11,637,266) (18,529,289) ------------- -------------- Total common stockholder's equity ........................................ 54,722,734 200,990,823 ------------- -------------- Total liabilities and stockholder's equity ............................... $ 241,122,564 $ 690,742,683 ============= ==============
The accompanying notes are an integral part of the financial statements. F-22 64 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1994 1995 1996 ------------ ------------- -------------- Gross broadcasting revenues ..................................... $ 30,080,829 $ 73,278,860 $ 203,188,125 Less agency commissions ......................................... 3,763,734 8,956,717 24,786,594 ------------- ------------- -------------- Net revenues ............................................. 26,317,095 64,322,143 178,401,531 ------------- ------------- -------------- Operating expenses: Programming, technical and news ............................... 5,678,829 11,734,285 40,987,411 Sales and promotion ........................................... 7,137,039 17,556,256 47,026,490 General and administrative .................................... 2,844,284 8,174,189 23,195,565 Depreciation and amortization ................................. 2,954,159 8,256,268 20,877,374 Corporate expenses ............................................ 599,657 1,815,535 4,844,985 Stock option compensation ..................................... -- 6,360,000 3,800,000 ------------- ------------- -------------- 19,213,968 53,896,533 140,731,825 ------------- ------------- -------------- Income from operations ................................... 7,103,127 10,425,610 37,669,706 Other (income) expense: Interest expense .............................................. 5,246,827 18,114,549 35,703,862 Other, net .................................................... (19,265) 42,402 68,419 ------------- ------------- -------------- Income (loss) before provision for income taxes and extraordinary loss ..................................... 1,875,565 (7,731,341) 1,897,425 Provision for income taxes ...................................... 1,163,716 3,799,955 4,612,551 ------------- ------------- -------------- Net income (loss) before extraordinary loss .............. 711,849 (11,531,296) (2,715,126) Extraordinary loss on early extinguishment of debt, net of income tax benefit ........................................... 817,819 -- 4,176,897 ------------- ------------- -------------- Net loss ................................................. (105,970) (11,531,296) (6,892,023) Dividends and accretion on preferred stock ...................... -- -- 11,556,943 Loss on repurchase of preferred stock ........................... -- -- 16,570,065 ------------- ------------- -------------- Net loss attributable to common stock .................... $ (105,970) $ (11,531,296) $ (35,019,031) ============= ============= ==============
The accompanying notes are an integral part of the financial statements. F-23 65 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY
COMMON STOCK ADDITIONAL ---------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ----------- ------------- ------------- ------------- Balance, December 31, 1993 ............. -- -- -- -- -- Issuance of common stock on January 10, 1994 ................. 1,000 $ 10 $ 25,499,990 -- $ 25,500,000 Issuance of common stock on October 12, 1994 ................. 1,000 10 34,499,990 -- 34,500,000 Net loss ............................... -- -- -- $ (105,970) (105,970) --------- ----------- ------------- ------------- ------------- Balance, December 31, 1994 ............. 2,000 20 59,999,980 (105,970) 59,894,030 Stock option compensation .............. -- -- 6,360,000 -- 6,360,000 Contribution of stock held by affiliate of Hicks, Muse, Tate & Furst ........ (1,000) (10) 10 -- -- Net loss ............................... -- -- -- (11,531,296) (11,531,296) --------- ----------- ------------- ------------- ------------- Balance, December 31, 1995 ............. 1,000 10 66,359,990 (11,637,266) 54,722,734 Loss on repurchase of preferred stock .. -- -- (16,570,065) -- (16,570,065) Dividends and accretion on preferred stock ............................... -- -- (11,556,943) -- (11,556,943) Capital contributions .................. -- -- 181,287,120 -- 181,287,120 Net loss ............................... -- -- -- (6,892,023) (6,892,023) --------- ----------- ------------- ------------- ------------- Balance, December 31, 1996 ............. 1,000 $ 10 $ 219,520,102 $ (18,529,289) $ 200,990,823 ========= =========== ============= ============= ==============
The accompanying notes are an integral part of the financial statements. F-24 66 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1994 1995 1996 ---------------- --------------- ---------------- Cash flows from operating activities: Net loss ................................................. $ (105,970) $ (11,531,296) $ (6,892,023) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .......................... 2,954,159 8,256,268 20,877,374 Amortization of deferred financing costs ............... 226,000 791,000 2,633,583 Stock option compensation .............................. -- 6,360,000 3,800,000 Deferred income taxes .................................. 1,490,716 3,788,877 4,548,481 Extraordinary loss ..................................... 490,819 -- 4,176,897 Changes in assets and liabilities, net of the effects of acquired businesses: Accounts receivable, net ............................. (9,675,567) (2,343,520) (13,408,364) Prepaids and other ................................... 216,036 (214,868) (982,637) Accounts payable ..................................... 1,509,064 (541,914) 1,429,070 Accrued liabilities .................................. 1,334,397 447,196 3,706,725 Accrued interest ..................................... 2,251,654 459,237 4,157,948 ---------------- --------------- ---------------- Net cash provided by operating activities .......... 691,308 5,470,980 24,047,054 ---------------- --------------- ---------------- Cash flows from investing activities: Purchases of broadcasting properties ..................... (204,509,849) (24,351,529) (439,533,609) Purchases of other property and equipment ................ (238,648) (1,709,897) (3,208,553) ---------------- --------------- ---------------- Net cash used in investing activities .............. (204,748,497) (26,061,426) (442,742,162) ---------------- --------------- ---------------- Cash flows from financing activities: Proceeds from issuance of long-term debt ................. 168,910,299 -- 277,627,630 Proceeds from borrowings under revolving debt facility ... 5,639,237 54,458,819 101,966,762 Repayment of long-term debt .............................. (25,000,000) (2,437,500) (109,816,233) Repayments of borrowings under revolving debt facility ... (3,975,539) (31,633,467) (105,540,183) Issuance of preferred stock .............................. -- -- 175,412,322 Repurchase of preferred stock ............................ -- -- (95,462,423) Additional capital contributions ......................... 60,000,000 -- 178,525,254 Distribution of additional paid in capital ............... -- -- (1,038,134) Payment of preferred stock dividends ..................... -- -- (505,555) ---------------- --------------- ---------------- Net cash provided by financing activities .......... 205,573,997 20,387,852 421,169,440 ---------------- --------------- ---------------- Net increase (decrease) in cash .................... 1,516,808 (202,594) 2,474,332 Cash, at beginning of year ................................. -- 1,516,808 1,314,214 ---------------- --------------- ---------------- Cash, at end of year ....................................... $ 1,516,808 $ 1,314,214 $ 3,788,546 ================ =============== ================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (NOTE 5): Cash paid during the period for: Interest ............................................ $ 2,769,173 $ 16,864,312 $ 28,912,331 Income taxes ........................................ $ -- $ -- $ 62,407 Non-cash financing: Dividends and accretion on preferred stock .......... $ -- $ -- $ 11,556,943
The accompanying notes are an integral part of the financial statements. F-25 67 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting Company ("Chancellor Radio Broadcasting") and its wholly owned subsidiaries (collectively, the "Company") operate in a single industry segment, which segment encompasses the ownership and management of radio broadcast stations located in markets throughout the United States. Chancellor Radio Broadcasting, a wholly owned subsidiary of Chancellor Broadcasting Company, formerly Chancellor Corporation ("Chancellor"), was formed in June 1994 to acquire and operate radio stations owned by American Media, Inc. and two corporations and one partnership affiliated with American Media, Inc. (collectively, the "American Media Station Group") and by Chancellor Communications Corporation ("Chancellor Communications"). That transaction was consummated on October 12, 1994. Chancellor Communications was formed in 1993 to acquire and operate radio stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and the consolidated financial statements include the activity of all the stations since their respective dates of acquisition. In June 1995, the 1,000 shares of common stock of Chancellor Communications held by an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") were exchanged for additional shares of common stock of Chancellor, which subsequently contributed these shares to Chancellor Radio Broadcasting as an additional capital contribution. As a result, Chancellor Communications became a wholly owned subsidiary of Chancellor Radio Broadcasting. Chancellor Communications was then merged with the Company. The transactions had no effect on the financial position or results of operations of the Company. Chancellor Broadcasting Licensee Company is a wholly-owned non-operating legal entity formed to hold title to the Company's broadcast licenses. Such entity has no significant other assets and no material liabilities, contingencies or commitments. Consistent with industry practice for financial reporting purposes, no material value has been specifically allocated to the licenses. Accordingly, no financial statement information has been provided herein due to its immateriality to investors. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Chancellor and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting Licensee Company for all periods presented, and its subsidiaries Trefoil Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of Texas, Inc. from their date of acquisition. All significant intercompany accounts and transactions have been eliminated. Cash The Company maintains cash in demand deposits with financial institutions. The Company had no cash equivalents during the periods presented. All highly liquid investments with an original maturity of less than three months are considered cash equivalents. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the various classes of assets, which range from three to twenty-five years. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Costs of repairs and maintenance are charged to operations as incurred. Intangibles Goodwill represents the excess of cost over the fair values of the identifiable tangible and other intangible net assets acquired and is being amortized over the straight-line method over forty years. Other intangible assets comprise amounts paid for pending acquisitions, agreements not to compete, a tower lease advantage and organization costs incurred in the incorporation of the Company. Other intangibles, excluding pending acquisition costs, are being amortized by the straight-line method over their estimated useful lives ranging from three to ten F-26 68 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) years. Pending acquisition costs are deferred and capitalized as part of completed acquisitions or expensed in the period in which the pending acquisition is terminated. The Company evaluates intangible assets for potential impairment by analyzing the operating results, future cash flows on an undiscounted basis, trends and prospects of the Company's stations, as well as by comparing them to their competitors. The Company also takes into consideration recent acquisition patterns within the broadcast industry, the impact of recently enacted or potential FCC rules and regulations and any other events or circumstances which might indicate potential impairment. Deferred Financing Costs Costs associated with obtaining debt financing are capitalized and amortized using the interest method over the term of the related debt. As a result of refinancing the Company's original credit facility, during the year ended December 31, 1994 unamortized deferred financing costs of approximately $818,000 were expensed as an extraordinary item in the consolidated statements of operations. As a result of refinancing the Company's second credit facility, the early redemption of $20.0 million of its existing notes (defined) and the prepayment of $18.7 million of it's a Term Loan Facility (defined) from its third credit facility, during the year ended December 31, 1996 unamortized deferred financing costs of $3.4 million, less $543,500 of tax benefit, were expensed as an extraordinary item in the consolidated statements of operations. Approximately $5.1 million, $118,000 and $18.6 million of new financing costs were incurred for the years ended December 31, 1994, 1995 and 1996, respectively. Accumulated amortization at December 31, 1995 and 1996, amounted to approximately $959,000 and $2.8 million, respectively. Revenue Recognition Broadcasting operations derive revenue primarily from the sale of program time and commercial announcements to local, regional and national advertisers. Revenue is recognized when the programs and commercial announcements are broadcast. Barter Transactions Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment, and services. Barter revenue is recorded at the fair value of the goods or services received and is recognized in income when the advertisements are broadcast. Goods or services are charged to expense when received or used. Advertising time owed and goods or services due the Company are included in accounts payable and accounts receivable, respectively. Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are expensed as incurred and totaled approximately $1.4 million, $4.2 million and $16.2 million for the years ended December 31, 1994, 1995 and 1996, respectively. Stock Option Compensation Stock option compensation expense is recognized in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Income Taxes Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting Licensee Company have elected to file consolidated federal income tax returns (the "Chancellor Group") and Trefoil Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of Texas, Inc. have elected to file consolidated federal income tax returns (the "Shamrock Group"). Each of these groups have entered into a tax sharing agreement governing the allocation of any consolidated federal income tax liability among its members. In general, each subsidiary allocates and pays income taxes computed as if each subsidiary filed a separate federal income tax return. Similar principles apply to any consolidated state and local income tax liabilities. F-27 69 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk The Company's revenue and accounts receivable primarily relate to advertising of products and services within the radio stations' broadcast areas. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Credit losses have been within management's expectations and adequate allowances for any uncollectible trade receivables are maintained. Reclassifications Certain prior year amounts have been reclassified to conform with the current year's presentation. 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, ------------------------------ 1995 1996 ------------- -------------- Land ....................................................................... $ 1,572,229 $ 3,036,663 Building and building improvements ......................................... 3,159,848 9,202,378 Towers and antenna systems ................................................. 3,689,972 14,476,104 Studio, technical and transmitting equipment ............................... 7,830,375 23,026,564 Office equipment, furniture and fixtures ................................... 2,484,261 5,521,010 Record library ............................................................. 1,800,510 2,193,236 Vehicles ................................................................... 362,787 1,117,908 Construction in progress ................................................... 503,504 78,877 ------------- -------------- 21,403,486 58,652,740 Less accumulated depreciation .............................................. (3,477,641) (9,529,808) ------------- -------------- $ 17,925,845 $ 49,122,932 ============= ==============
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was $0.9 million, $2.6 million and $6.5 million, respectively. F-28 70 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INTANGIBLE AND OTHER ASSETS Intangible and other assets consist of the following:
DECEMBER 31, ------------------------------ 1995 1996 ------------- -------------- Goodwill ................................................................... $ 205,971,820 $ 567,377,120 Noncompete agreements ...................................................... 1,950,000 2,025,000 Tower lease advantage ...................................................... 305,000 305,000 Pending acquisition costs .................................................. 3,246,265 2,620,474 Other ...................................................................... 45,718 626,220 ------------- -------------- 211,518,803 572,953,814 Less accumulated amortization .............................................. (7,710,408) (21,547,720) ------------- -------------- $ 203,808,395 $ 551,406,094 ============= ==============
Amortization expense for intangible assets for the years ended December 31, 1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million, respectively. 5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES On January 9, 1994, Chancellor Communications purchased substantially all the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for approximately $49.5 million, including acquisition costs. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment ................................................... $ 4,921 Goodwill and other intangibles ........................................... 44,401 Prepaid expenses and other assets ........................................ 413 Accrued liabilities ...................................................... (205) ---------- Total acquisition ................................................ $ 49,530 ==========
On October 12, 1994, Chancellor Radio Broadcasting purchased substantially all the assets and assumed certain liabilities consisting solely of accrued expenses and future payments under ongoing contracts of the American Media Station Group (other than KHYL-FM in Sacramento, California) for approximately $139.5 million in cash, including acquisition costs and payments in respect of agreements not to compete. On the same date, Chancellor Communications purchased all the assets and certain liabilities consisting solely of accrued expenses and future payments under ongoing contracts of KHYL-FM for approximately $15.5 million in cash, including acquisition costs and payments in respect of an agreement not to compete. These acquisitions have been accounted for as purchases and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment ................................................... $ 12,671 Goodwill and other intangibles ........................................... 142,618 Prepaid expenses and other assets ........................................ 353 Accrued liabilities ...................................................... (662) ---------- Total acquisition ................................................ $ 154,980 ==========
F-29 71 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Simultaneously with the closing of these transactions, Chancellor acquired all of Chancellor Communications' outstanding nonvoting stock in exchange for newly issued shares of Chancellor's nonvoting stock. Chancellor contributed all the acquired shares of Chancellor Communication's nonvoting stock to Chancellor Radio Broadcasting, as a result of which Chancellor Communications became a subsidiary of Chancellor Radio Broadcasting. Because these entities are under common management and control, this exchange has been accounted for at historical cost in a manner similar to a pooling of interests. On July 31, 1995, the Company purchased substantially all the assets and assumed certain liabilities of KDWB-FM for approximately $22.6 million, including acquisition costs. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition has been accounted for as a purchase and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment ................................................... $ 1,866 Goodwill and other intangibles ........................................... 21,032 Prepaid expenses and other assets ........................................ 82 Other liabilities ........................................................ (383) ----------- Total acquisition ................................................ $ 22,597 ==========
On February 14, 1996, the Company acquired all of the outstanding capital stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0 million, including acquisition costs. Trefoil is a holding company, the sole asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock Broadcasting"). The acquisition of Trefoil was financed through a new credit agreement, new senior subordinated notes, Chancellor's initial public stock offering, senior exchangeable preferred stock and the issuance of unregistered common stock of Chancellor. The acquisition of Trefoil was accounted for as a purchase for financial accounting purposes and a non-taxable business combination for tax purposes and, accordingly, the results of operations associated with the acquired assets have been included in the accompanying statements from the date of acquisition. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Cash ..................................................................... $ 38 Accounts receivable, net ................................................. 18,636 Prepaid expenses and other assets ........................................ 1,274 Property and equipment ................................................... 36,429 Goodwill and other intangibles ........................................... 361,425 Deferred tax asset ....................................................... 5,464 Accrued liabilities ...................................................... (14,564) Other noncurrent liabilities ............................................. (702) ---------- Total acquisition ................................................ $ 408,000 ==========
Simultaneously with the acquisition of Trefoil, the Company entered into a time brokerage agreement with Evergreen Media Corporation for the outsourcing of certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations acquired with Trefoil, and an option to purchase such stations for $30.0 million of cash. These stations were operated pursuant to this agreement until January 30, 1997, the date on which the disposition of these stations occurred. Subsequent to the acquisition of Trefoil, KTBZ-FM, a Houston station acquired with Trefoil, was operated by Secret Communications, L.P. ("Secret") under a Local Marketing Agreement ("LMA")/Exchange Agreement with the Company. In March 1996, the Company entered into an agreement to exchange KTBZ-FM and $5.6 million of cash to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing certain limited functions of these stations, pursuant to an LMA, effective April 1, 1996 and closed on the exchange F-30 72 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the stations effective July 31, 1996. The exchange has been accounted for using the fair values of the assets exchanged plus the $5.6 million of additional cash and $0.8 million of additional acquisition costs, and was allocated to the net assets acquired based upon their estimated fair market values. The excess of the purchase price over the estimated fair value of net assets acquired amounted to approximately $28.7 million, which has been accounted for as goodwill and is being amortized over 40 years using the straight line method. The exchange is summarized as follows (in thousands): Assets acquired and liabilities assumed: Prepaid expenses and other assets ........................................ $ 163 Property and equipment ................................................... 2,363 Goodwill and other intangibles ........................................... 28,657 Accrued liabilities ...................................................... (138) ---------- Total acquisition ................................................ $ 31,045 ==========
On May 15, 1996, the Company entered into an agreement to acquire substantially all the assets and certain liabilities of OmniAmerica Group ("Omni") for an aggregate price of $178.0 million, including $163.0 million of cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996, the Company entered into an agreement with American Radio Systems Corporation ("American Radio") whereby it will exchange the West Palm Beach, Florida stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of cash. KSTE-AM is located in Rancho Cordova, California and is part of the Sacramento market. On July 1, 1996, Chancellor entered into an agreement with SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville, Florida stations being acquired pursuant to the Omni acquisition agreement and $11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM, Nassau-Suffolk, New York. Pursuant to various agreements, the Company began managing certain limited functions of the remaining Omni stations and the SFX stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996. On November 22, 1996, the Company acquired substantially all the assets of WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including transaction costs. WKYN-AM serves the Cincinnati, Ohio market. On January 23, 1997, the Company acquired substantially all the assets and certain liabilities of Colfax Communications ("Colfax") for an aggregate price of $373.0 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition will be accounted for as a purchase. Pursuant to the acquisition agreement, at December 31, 1996 the Company had $20.4 million of cash in a restricted escrow account which was remitted to Colfax at closing. On January 29, 1997, the Company entered into an agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash. On February 13, 1997, the Company acquired substantially all the assets and certain liabilities of Omni. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition will be accounted for as a purchase. The following summarizes the unaudited consolidated pro forma data as though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM and KALC-FM had occurred as of the beginning of 1995 (in thousands):
1995 1996 ------------------------ ------------------------ HISTORICAL PRO FORMA HISTORICAL PRO FORMA ---------- --------- ---------- --------- (UNAUDITED) (UNAUDITED) Net revenue ................................... $ 64,322 $ 162,360 $ 178,402 $ 187,198 Net income (loss) before extraordinary loss ... (11,531) (8,319) (2,715) (310) Net loss ...................................... (11,531) (8,319) (6,892) (310)
F-31 73 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following summarizes the unaudited consolidated pro forma balance sheet as of December 31, 1996 as though the acquisition of Colfax, the issuance of the Exchangeable Preferred Stock, the issuance of Chancellor's Convertible Preferred Stock (including the over-allotment), and the New Credit Agreement had occurred on that date (in thousands):
HISTORICAL PRO FORMA ---------- --------- (UNAUDITED) Total assets ............................................ $ 690,743 $ 1,053,833 ============= ============= Current liabilities ..................................... $ 24,208 $ 40,598 Long-term liabilities ................................... 358,322 410,359 Preferred stock ......................................... 107,222 404,585 Common stockholders' equity ............................. 200,991 198,291 ------------- ------------- Total liabilities and stockholder's equity .............. $ 690,743 $ 1,053,833 ============= ============= 6. ACCRUED LIABILITIES Accrued liabilities consist of the following: DECEMBER 31, -------------------------------- 1995 1996 --------------- --------------- Salaries .................................................. $ 534,297 $ 3,697,072 Sales commissions ......................................... 889,010 2,149,167 Rep commissions ........................................... 561,189 1,549,048 Other ..................................................... 2,708,452 5,134,544 --------------- --------------- $ 4,692,948 $ 12,529,831 =============== ===============
7. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, -------------------------------- 1995 1996 --------------- --------------- Term loan ................................................. $ 67,562,500 $ 74,968,527 Revolving credit loan ..................................... 24,607,242 20,344,972 Subordinated notes due 2004 ............................... 80,000,000 260,000,000 --------------- --------------- 172,169,742 355,313,499 Less current portion ...................................... 4,062,500 400,000 --------------- --------------- $ 168,107,242 $ 354,913,499 =============== ===============
The Company's term and revolving credit facilities were refinanced on January 23, 1997, in conjunction with the acquisition of Colfax Communications under a new bank credit agreement (the "New Credit Agreement") with Bankers Trust Company, as administrative agent, and other institutions party thereto. The New Credit Agreement includes a $225.0 million term loan facility (the "Term Loan Facility") and a revolving loan facility (the "Revolving Loan Facility" and, together with the Term Loan, the "New Bank Financing"). The Revolving Loan Facility originally provides for borrowings up to $120.0 million, which is subsequently reduced as and when the Company receives the net cash proceeds of the pending station swaps and dispositions. In connection with the refinancing of the term and revolving loan facilities, the Company incurred an extraordinary charge to write-off deferred finance costs of approximately $4.5 million. The New Bank Financing is collateralized by (i) a first priority perfected pledge of all capital stock and notes owned by the Company and (ii) a first priority perfected security interest in all other assets (including receivables, contracts, contract rights, securities, patents, trademarks, other intellectual property, inventory, equipment and real estate) owned by the Company, excluding FCC licenses, leasehold interests in studio or office space and leasehold and partnership interests in tower or transmitter sites in which necessary consents to the granting of a security interest cannot be obtained without payments to any other party or on a timely basis. The New Bank Financing also is guaranteed by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose guarantees are collateralized by a first priority perfected pledge of the capital stock Chancellor Radio Broadcasting. The Term F-32 74 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Loan Facility is due in increasing quarterly installments beginning in 1997 and matures in January 2003. All outstanding borrowings under the Revolving Facility mature in January 2003. The facilities bear interest at a rate equal to, at the Company's option, the prime rate of Bankers Trust Company, as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an applicable margin rate. The Company pays quarterly commitment fees in arrears equal to either .375% or .250% per annum on the unused portion of the Revolving Facility, depending upon whether the Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1, respectively. The bank financing facilities which existed on December 31, 1996 accrued interest at the prime rate plus 1.25% (9.5%) on $3.3 million and the LIBOR rate plus 2.50% (8.125%) on $92.0 million of borrowings. In connection with the IPO (defined), the Company redeemed 25% of its Existing Notes (defined) for approximately $22.2 million. The redemption was completed in March 1996 and resulted in an extraordinary charge of $2.8 million. The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004 (the "Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum. On February 14, 1996, in conjunction with the acquisition of Trefoil Communications, Inc., the Company issued $200.0 million aggregate principal amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and, together with the Existing Notes, the "Notes"), which mature on October 1, 2004, and bear interest at 9.375% per annum. Interest on the Notes is paid semi-annually. The Existing and New Notes are redeemable, in whole or in part, at the option of the Company on or after October 1, 1999 and February 1, 2000, respectively, at redemption prices expressed as a percentage of the principal amount, ranging from 100.000% to 105.556%, plus accrued interest thereon to the date of acquisition. In addition, prior to January 31, 1999, the Company may redeem up to 25% of the original aggregate principal amount of the New Notes with the net proceeds of one or more public equity offerings. The Notes are unsecured obligations of the Company, ranking subordinate in right of payment to all senior debt of the Company. The New Notes rank pari passu in right of payment to the Existing Notes. The Notes are guaranteed on a senior subordinated basis by Chancellor Radio Broadcasting Company's subsidiaries. Scheduled debt maturities for the Company's outstanding long-term debt at December 31, 1996 for each of the next five years and thereafter are as follows: 1997 ............................................ $ 400,000 1998 ............................................ 400,000 1999 ............................................ 9,874,886 2000 ............................................ 11,296,119 2001 ............................................ 17,469,864 Thereafter ...................................... 315,872,630 --------------- $ 355,313,499 ===============
See Note 5 for pro forma effects of the New Bank Financing subsequent to year end. Both the New Bank Financing and Notes indentures contain certain covenants, including, among others, limitations on the incurrence of additional debt, in the case of the New Bank Financing; requirements to maintain certain financial ratios; and restrictions on the payment of dividends to stockholders and from the subsidiaries to Chancellor. 8. CAPITAL STRUCTURE In February 1996, Chancellor sold 7.7 million shares of its Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), in an initial public offering, (the "IPO"), which generated net proceeds of $142.4 million, and in a private placement, issued $100.0 million of exchangeable redeemable preferred stock (the "Acquisition Preferred Stock") of Chancellor Radio Broadcasting and 742,192 shares of Class A common stock of Chancellor to an affiliated entity and other investors. Immediately prior to the IPO, Chancellor effected a recapitalization of its current capital stock. Pursuant to the recapitalization, each six shares of Chancellor's Nonvoting Stock were reclassified into one share of Class A Common Stock. Each six shares of Chancellor's Voting Stock were reclassified into one share of Class B Common Stock and each six shares of Convertible Nonvoting Stock were reclassified into one share of Class C Common F-33 75 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock. In connection with the recapitalization, 63,334 shares of Class A Common Stock were exchanged for an equal number of shares of Class B Common Stock, and an additional 8,484,410 shares of Class A Common Stock were exchanged for an equal number of shares of Class C Common Stock. The recapitalization has been given retroactive effect in the financial statements. In February 1996, subsequent to the IPO, the Company completed a private placement of $100.0 million of newly authorized Senior Cumulative Exchangeable Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and 55,664 shares of Class A Common Stock. The redemption resulted in a charge to net loss attributable to common stock of approximately $16.6 million and an additional reduction of paid-in capital of approximately $1.0 million. In June 1996, the holders of Chancellor's Class C Common Stock filed an application with the FCC to convert the stock into Chancellor's Class B Common Stock. The holders of Class C Common Stock received approval of their applications and subsequently converted their stock on October 22, 1996. In August 1996 pursuant to an agreement entered into at the time of the IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private placement to an affiliated entity, which generated proceeds of $23.0 million which were contributed to Chancellor Radio Broadcasting. In September 1996, the Company completed an exchange offering whereby it exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable Preferred Stock") in a transaction registered under the Securities Act of 1933, as amended. The terms of the Senior Exchangeable Preferred Stock are substantially identical to those of the Old Preferred Stock. Dividends on the Senior Exchangeable Preferred Stock accrue from its date of issuance and are payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4% of the then effective liquidation preference per share. Dividends may be paid, at the Company's option, on any dividend payment date occurring on or prior to February 15, 2001 either in cash or by adding such dividends to the then effective liquidation preference of the Senior Exchangeable Preferred Stock. The Senior Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after February 15, 2001, at various redemption prices, plus, accumulated and unpaid dividends to the date of redemption. In addition, prior to February 15, 1999, the Company may, at its option, redeem the Senior Exchangeable Preferred Stock with the net cash proceeds from one or more Public Equity Offerings (as defined), at various redemption prices, plus, accumulated and unpaid dividends to the redemption date; provided, however, that after any such redemption there is outstanding at least 75% of the number of shares of Senior Exchangeable Preferred Stock originally issued. The Company is required, subject to certain conditions, to redeem all of the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a redemption price equal to 100% of the then effective liquidation preference thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon the occurrence of a change of control (as defined), the Company must offer to purchase all of the then outstanding shares of Senior Exchangeable Preferred Stock at a price equal to 101% of the then effective liquidation preference thereof, plus, accumulated and unpaid dividends to the date of purchase. Subject to certain conditions, the Senior Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, on any dividend payment date for the Company's 12 1/4% subordinated exchange debentures due 2008. On January 23, 1997, Chancellor completed a private placement of $100.0 million of newly authorized 7% Convertible Preferred Stock (the "Convertible Preferred Stock") and Chancellor Radio Broadcasting completed a private placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"). Dividends on the Convertible Preferred Stock accrue from its date of issuance and are payable quarterly commencing April 15, 1997, at a rate per annum of 7% of the liquidation preference per share. The liquidation preference of the Convertible Preferred Stock is $50.00 per share. The Convertible Preferred Stock is convertible at the option of the holder at any time after March 23, 1997, unless previously redeemed, into Class A Common Stock of Chancellor at a conversion price of $32.90 pre share of Class A Common Stock, subject to adjustment in certain events. In addition, after January 19, 2000, the Company may, at its option, redeem the Convertible Preferred F-34 76 Stock, in whole or in part, at specified redemption prices plus accrued and unpaid dividends through the redemption date. Upon the occurrence of a change of control (as defined), Chancellor must, subject to certain conditions, offer to purchase all of the then outstanding shares of Convertible Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of purchase. Dividends on the Exchangeable Preferred Stock will accrue from the date of its issuance and will be payable semi-annually commencing July 15, 1997, at a rate per annum of 12% of the liquidation preference per share. Dividends may be paid, at the Company's option, on any dividend payment date occurring on or prior to January 15, 2002 either in cash or in additional shares of Exchangeable Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock will be $100.00 per share. The Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after January 15, 2002, at the redemption prices set forth herein, plus accrued and unpaid dividends to the date of redemption. In addition, prior to January 15, 2000, the Company may, at its option, redeem the Exchangeable Preferred Stock with the net cash proceeds from one or more Public Equity Offerings (as defined), at various redemption prices plus accrued and unpaid dividends to the redemption date; provided, however, that after any such redemption there is outstanding at least $150.0 million aggregate liquidation preference of Exchangeable Preferred Stock. The Company is required, subject to certain conditions, to redeem all of the Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption price equal to 100% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of redemption. Upon the occurrence of a Change of Control (as defined), the Company will, subject to certain conditions, offer to purchase all of the then outstanding shares of Exchangeable Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the repurchase date. In addition, prior to January 15, 1999, upon the occurrence of a Change of Control, the Company will have the option to redeem the Exchangeable Preferred Stock in whole but not in part at a redemption price equal to 112% of the liquidaton preference thereof, plus accrued and unpaid dividends to the date of redemption. The Exchangeable Preferred Stock will, with respect to dividend rights and rights on liquidation, rank junior to the Senior Exchangeable Preferred Stock. Subject to certain conditions, the Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, on any dividend payment date for the Company's 12% subordinated exchange debentures due 2009, including any such securities paid in lieu of cash interest. In addition to the accrued dividends discussed above, the recorded value of the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and the Exchangeable Preferred Stock includes or will include an amount for the accretion of the difference between the stock's fair value at date of issuance and its mandatory redemption amount, calculated using the effective interest method. 9. INCOME TAXES All of the Company's revenues were generated in the United States. The provision for income taxes for continuing operations consists of the following:
YEAR ENDED DECEMBER 31 -------------------------------------------- 1994 1995 1996 ------------- ------------- ------------- Current: State ............................................. $ -- $ 11,098 $ 64,070 Deferred: Federal .......................................... 1,267,109 3,220,528 3,866,209 State ............................................. 223,607 568,329 682,272 -------------- ------------- ------------- Total provision ......................... $ 1,490,716 $ 3,799,955 $ 4,612,551 ============= ============= =============
F-35 77 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense differs from the amount computed by applying the federal statutory income tax rate of 34% to income before income taxes for the following reasons:
YEAR ENDED DECEMBER 31, -------------------------------------------- 1994 1995 1996 ------------- ------------- ------------- U.S. federal income tax at statutory rate ............ $ 637,692 $ (2,628,656) $ 645,125 State income taxes, net of federal benefit ........... 112,533 (463,880) 113,846 Valuation allowance provided for loss carryforward generated during the current period ............... 720,490 6,589,750 307,000 Reconciliation of return to estimate ................. -- 71,510 -- Permanent difference ................................. 20,001 231,231 3,546,580 ------------- ------------- ------------- $ 1,490,716 $ 3,799,955 $ 4,612,551 ============= ============= ============= DECEMBER 31, ---------------------------- 1995 1996 ------------- ------------- The deferred tax assets (liabilities) consist of the following: Loss carryforwards expiring 2009 and 2010 ........................... $ 4,766,240 $ 11,806,985 Deferred stock option compensation deduction ........................ 2,544,000 4,064,000 Tax credits ......................................................... -- 2,951,555 Other ............................................................... 105,411 680,819 ------------- ------------- Gross deferred tax assets ........................................ 7,415,651 19,503,359 ------------- ------------- Depreciation and amortization ....................................... (5,057,772) (21,488,463) ------------- ------------- Deferred tax assets valuation allowance ............................. (7,310,240) (621,210) ------------- ------------- Net deferred tax liabilities ..................................... $ (4,952,361) $ (2,606,314) ============= =============
The deferred tax valuation allowance was originally established due to the uncertainty surrounding the realizability of the Company's deferred tax assets using the "more likely than not" criteria. During the fourth quarter of 1996, the Company revised its estimate of the likelihood that it will realize the majority of its deferred tax assets and adjusted its valuation allowance accordingly. This revised estimate was the direct result of the acquisition of Trefoil. Reversal of the valuation allowance related to deferred tax assets which existed on the date of acquisition or which were acquired as a result of the Trefoil acquisition were credited against the original purchase accounting allocation to goodwill. The reversal of the valuation allowance related to deferred tax assets generated subsequent to the acquisition were credited as a reduction of income tax expense and extraordinary losses as appropriate. The Company's tax credits and net operating loss carryforwards at December 31, 1996 begin expiring in 1997 and 2001, respectively. The Company has provided a valuation allowance for those tax credits which do not meet a "more likely than not" realizability test. 10. EMPLOYEE BENEFIT PLAN The Company has a 401(k) Savings Plan, whereby eligible employees can contribute up to either 15% of their salary, per year, subject to certain maximum contribution amounts. Prior to 1996, the Company had not made any contributions to the plan, nor is it required to in future periods. However, the Company did elect to make a discretionary match for 1996 of approximately $250,000. Employees become eligible to participate in the plan after the completion of one year of service and the attainment of age twenty-one. 11. COMMITMENTS The Company leases real property, office space, broadcasting equipment and office equipment under various noncancellable operating leases. Certain of the Company's leases contain escalation clauses, renewal options and/or purchase options. In addition, the Company assumed lease obligations in connection with the acquisition of Trefoil on February 14, 1996. The Company also has employment and rating survey agreements in excess of one year, and has entered into a twelve-year financial monitoring and oversight agreement with Hicks Muse & Co. Partners, L.P., which is an affiliate of Hicks, Muse, Tate & Furst Incorporated. F-36 78 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum payments under the noncancellable operating lease agreements at December 31, 1996 are approximately as follows: 1997 ...................................................... $ 6,023,586 1998 ...................................................... 4,865,095 1999 ...................................................... 4,277,779 2000 ...................................................... 3,564,247 2001 ...................................................... 2,805,282 Thereafter ................................................ 13,080,261 ------------- $ 34,616,250 =============
Rent expense was approximately $227,000, $1.3 million and $4.8 million for the years ended December 31, 1994, 1995 and 1996, respectively. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: For cash, short-term debt, and other current amounts receivable and payable, and the variable-rate term debt, the carrying amount approximates fair value. For the fixed-rate long-term debt, the fair value is estimated based on quoted market prices. The carrying values at December 31, 1995 and 1996 was $80.0 million and $260.0 million, respectively, and the estimated fair values at each date were $85.4 million and $267.8 million, respectively. For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock, the fair value of $113.75 per share at December 31, 1996 is estimated based on quoted market prices. 13. STOCK-BASED COMPENSATION During 1994, Chancellor's Board of Directors granted options to purchase 996,068 shares of its common stock to the senior management of the Company at exercise prices of $6.00 and $7.50. The option agreements vest over a five year period and originally contained certain performance criteria and indexed exercise prices. On September 30, 1995, Chancellor entered into an agreement with its senior management to substantially revise and amend these option agreements to eliminate certain of the performance criteria provisions and to adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management developed an estimate of the fair value of the stock options in the amount of $19.0 million. Based upon this estimate and the applicable vesting periods, the Company recognized stock option compensation expense and a corresponding credit to equity of $6.4 million in 1995, with the remaining amount to be amortized over an approximate four year period. During 1994, Chancellor's Board of Directors adopted a stock option plan for its non-employee directors providing for the grant of options and stock awards for up to 480,000 shares of its common stock. Upon election to the Board of Directors, each person shall be granted a stock option to purchase a number of shares of common stock equal to the number of shares of common stock acquired by purchase by such person upon their initial election to the Board of Directors. Each option shall be immediately vested, will have a maximum term of ten years and an exercise price, as determined by the plan committee, equal to or greater than the fair market value of the common stock on the respective dates of grant. In February 1996, Chancellor's Board of Directors adopted a stock award plan for the Company's management, employees and non-employee directors, elected after the date of adoption of the plan, providing for the grant of options and stock awards for up to 916,456 shares of Chancellor's Class A Common Stock. The Company's compensation committee has the sole authority to grant stock options and to establish option exercise prices and vesting schedules. However, per-share exercise prices shall not be less than the fair market value of the stock on the respective date of grant and if the compensation committee does not determine a vesting schedule, such option shall vest 20% on the first anniversary of the respective date of grant and the remaining 80% shall vest pro rata on a F-37 79 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) monthly basis over the four-year period following the first anniversary of the date of grant. Non-employee directors elected after the effective date of this plan automatically are granted a fully-vested option to purchase 5,000 shares of Chancellor's Class A Common Stock on the date he or she first becomes a member of the Board of Directors. Terms of all options are limited to ten years. A summary of the Company's option activity follows. The Company has elected to continue expense recognition under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and accordingly, has included certain required pro forma information. Estimates of weighted-average grant-date fair values of options granted and pro forma option compensation amounts were determined using the Black-Scholes Single Option approach assuming an expected option term of 6 years, interest rates ranging from 5.5% to 7.2%, a dividend yield of zero and a volatility factor of .4 (zero for options issued prior to the Company's initial public offering in February 1996).
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 1994 1995 1996 ---------------------------- ----------------------------- ----------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ----------- ---------------- ----------- ---------------- ----------- ---------------- Beginning of year -- $ -- 996,068 $ 7.27 1,022,734 $ 7.89 Granted: Exercise price: equals FMV 996,068 7.27 26,666 7.50 713,916 26.03 less than FMV -- -- 996,068 7.90 -- -- Exercised -- -- -- -- -- -- Canceled -- -- (996,068) 7.27 (9,000) 24.51 ----------- --------- ----------- --------- ----------- -------- End of year 996,068 $ 7.27 1,022,734 $ 7.89 1,727,650 $ 15.30 =========== ========= =========== ========= =========== ======== Exercisable as of end of year -- $ -- 225,879 $ 7.85 431,758 $ 8.06 =========== ========= =========== ========= =========== ======== Weighted-average grant-date fair value of options granted: Exercise price: equals FMV -- 3.59 12.69 less than FMV -- 21.56 --
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------- ------------------------ WEIGHTED AVERAGE WEIGHTED ---------------------------- AVERAGE RANGE OF REMAINING EXERCISE EXERCISE EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE --------------- ---------- ------------------ --------- ---------- --------- $7.50 - $7.50 577,971 7.06 $ 7.50 247,188 $ 7.50 8.40 - 8.40 444,763 7.83 8.40 177,904 8.40 20.00 - 25.25 431,916 9.14 20.51 6,666 20.00 31.00 - 36.75 273,000 9.75 34.81 -- -- ---------- ------- ------- ----------- ------ $7.50 - $36.75 1,727,650 8.20 $ 15.30 431,758 $ 8.06 ========== ======= ======= =========== ======
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1996 ----------------- ----------------- Historical net loss ................................... $ (11,531,296) $ (6,892,023) Pro forma adjustment for stock option compensation .... (781,465) (1,524,302) Pro forma tax benefit ................................. 312,586 609,721 ------------- ------------- Pro forma net loss .................................... $ (12,000,175) $ (7,806,604) ============= =============
F-38 80 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. RELATED PARTY TRANSACTIONS The Company has entered into a twelve-year agreement (the "Financial Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P. ("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of which is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse Partners an annual fee of $82,000, $200,000 and $408,000 for financial oversight and monitoring services for the years ended December 31, 1994, 1995 and 1996, respectively. The annual fee is adjustable each December 31, according to a formula based on changes in the consumer price index. HM2 received fees of approximately $0.3 million, $2.4 million and $6.2 million upon consummation of the acquisitions of KDWB-FM, the American Media Station Group and Trefoil Communications, Inc., respectively, and is entitled to receive a fee equal to 1.5% of the transaction value (as defined) upon the consummation of each add-on transaction (as defined) involving Chancellor or any of its subsidiaries. Effective April 1, 1996, the Company entered into a revised financial monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse, Tate & Furst Incorporated. The annual fee for financial oversight and monitoring services to the Company has been adjusted to $500,000. The annual fee is adjustable each January 1, to an amount equal to the budgeted consolidated annual net sales of the Company for the then-current fiscal year, multiplied by 0.25%, provided, however, that in no event shall the annual fee be less than $500,000. The Financial Monitoring and Oversight Agreement makes available the resources of HM2 and Hicks Muse Partners concerning a variety of financial matters. The services that have been and will continue to be provided by HM2 and Hicks Muse Partners could not otherwise be obtained by Chancellor and the Company without the addition of personnel or the engagement of outside professional advisors. In February of 1996, the Company lent $200,000 to an affiliate of the Company. The loan is unsecured, does not bear interest and will be forgiven during the next three years. 15. SUBSEQUENT EVENTS On February 14, 1997, Chancellor Radio Broadcasting completed a private placement of an additional $10.0 million of Convertible Preferred Stock pursuant to its over-allotment option. The net proceeds of this offering were used to repay borrowings under the Revolving Credit Facility. On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a stock-for-stock transaction (the "Merger"), with Evergreen remaining as the surviving corporation (the "Surviving Company"). Pursuant to the agreement, shareholders of the Company's common stock will receive 0.9091 shares of Evergreen's common stock. Consummation of the Merger is subject to shareholder approval and certain other closing conditions including regulatory approval. On February 19, 1997, the Company and Evergreen entered into a joint purchase agreement whereby in the event that consummation of the stock purchase agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs prior to the consummation of the Merger, the Company will be required to purchase the Viacom subsidiaries which own four of the ten Viacom stations for $480 million and Evergreen will be required to purchase the Viacom subsidiaries which own six of the ten Viacom stations for $595 million. In the event that consummation of the stock purchase agreement between Evergreen and Viacom occurs after the consummation of the Merger, the Surviving will acquire the stock of certain Viacom subsidiaries which own and operate ten radio stations in five major markets. Consummation of the transaction is dependent upon certain closing conditions including regulatory approval. 16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS On February 8, 1996, the President signed into law the Telecommunications Act of 1996. Among other things, this legislation requires the Federal Communications Commission (the "FCC"), to relax its numerical restrictions on local ownership and affords renewal applicants significant new protections from competing applications for their broadcast licenses. The new legislation will enable the Company to retain all of its radio stations and to acquire more properties; at the same time, this legislation will also allow other broadcast entities to increase their ownership in markets where the Company currently operates stations. The Company's management is unable to determine the ultimate effect of this legislation on its competitive environment. The pending acquisition, exchange and merger agreements are subject to various governmental approvals, including the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Federal Communications Commission. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. F-39 81 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. RECENT ACCOUNTING PRONOUNCEMENT The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" in March 1997, which establishes standards for computing and presenting earnings per share. The disclosure requirements of SFAS No. 128 will be effective for the Company's financial statements beginning in 1997. Management has not yet determined the impact that the adoption of SFAS No. 128 will have on the financial statements of the Company. F-40 82 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Trefoil Communications, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows, present fairly, in all material respects, the financial position of Trefoil Communications, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 16 to the financial statements, the Company was sold to Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting Company, on February 14, 1996. PRICE WATERHOUSE LLP Los Angeles, California February 14, 1996 F-41 83 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Chancellor Broadcasting Company: We have audited the accompanying consolidated statements of operations, changes in common stockholders' equity, and cash flows of Trefoil Communications, Inc. and Subsidiaries for the period January 1, 1996 through February 13, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our 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 the consolidated results of their operations and their cash flows for the period January 1, 1996 through February 13, 1996, in conformity with generally accepted accounting principles. As discussed in Note 16 to the financial statements, the Company was sold to Chancellor Radio Broadcasting Company on February 14, 1996. COOPERS & LYBRAND L.L.P. Dallas, Texas March 24, 1997 F-42 84 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, ------------------------- 1994 1995 ---------- --------- ASSETS Current assets: Cash ........................................................................... $ 9,639 $ 4,857 Receivables, net of allowance for doubtful accounts of $1,535 and $1,630, respectively ................................................................. 22,468 22,397 Prepaid expenses and other current assets ...................................... 1,312 917 ---------- --------- Total current assets .............................................................. 33,419 28,171 Property and equipment, at cost, net of accumulated depreciation and amortization (Note 4) .......................................................... 18,308 17,204 Intangible assets, net of accumulated amortization of $16,705 and $22,071, respectively ................................................................... 184,470 184,197 Other assets ...................................................................... 9,751 7,918 ---------- --------- $ 245,948 $ 237,490 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .............................................. $ 7,000 $ 6,500 Accounts payable ............................................................... 2,771 2,233 Accrued expenses (Note 4) ...................................................... 6,066 5,715 Income taxes payable ........................................................... 298 96 ---------- --------- Total current liabilities ......................................................... 16,135 14,544 Long-term debt (Note 6) ........................................................... 98,000 92,500 Convertible senior notes (Note 8) ................................................. 30,000 30,000 Payable to affiliates (Note 14) ................................................... 16,241 20,613 Deferred income taxes (Note 10) ................................................... 18,877 19,218 Other long-term liabilities (Note 4) .............................................. 14,747 19,129 ---------- --------- 194,000 196,004 Mandatorily redeemable preferred stock (Note 9): 7.5% Series A cumulative convertible preferred stock $.10 par value; authorized, issued and outstanding 70,000 shares ......................................... 70,000 70,000 Stockholders' equity: Preferred stock $.10 par value; authorized 30,000 shares; none issued and outstanding Common stock $.10 par value; authorized 50,000 shares; issued and outstanding 10,364 shares ................................................................ 1 1 Additional paid-in capital ..................................................... 41,656 41,656 Accumulated deficit ............................................................ (59,709) (70,171) ---------- --------- (18,052) (28,514) Commitments and contingencies (Notes 12 and 15) ---------- --------- $ 245,948 $ 237,490 ========== =========
The accompanying notes are an integral part of the financial statements. F-43 85 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------- FEBRUARY 13, 1994 1995 1996 ----------- ----------- ------------ Gross broadcasting revenues ......................................... $ 109,219 $ 108,849 $ 9,698 Less agency commissions ............................................. 14,332 14,244 1,234 ----------- ----------- ----------- Net revenues ................................................. 94,887 94,605 8,464 ----------- ----------- ----------- Costs and expenses: Station operating expenses ....................................... 75,427 73,720 7,762 Corporate expenses ............................................... 3,355 3,139 2,215 Depreciation and amortization .................................... 3,038 2,992 349 Amortization of intangibles ...................................... 5,961 5,759 672 ----------- ----------- ----------- 87,781 85,610 10,998 ----------- ----------- ----------- Operating income (loss) .......................................... 7,106 8,995 (2,534) ----------- ----------- ----------- Other income (expenses): Interest expense ................................................. (12,923) (14,703) (1,651) Gain (loss) on sale of broadcast assets (Note 11) ................ 5,462 -- -- Miscellaneous, net ............................................... (4) 78 (49) ----------- ----------- ----------- (7,465) (14,625) (1,700) ----------- ----------- ----------- Loss before income taxes and extraordinary loss ..................... (359) (5,630) (4,234) Income tax benefit (expense) (Note 10) .............................. (1,355) 1,287 1,694 ----------- ----------- ----------- Loss before extraordinary loss ................................... (1,714) (4,343) (2,540) Extraordinary loss on early extinguishment of debt .................. -- -- (4,451) ----------- ----------- ----------- Net loss ............................................................ (1,714) (4,343) (6,991) Dividends on mandatorily redeemable preferred stock ................. (5,619) (6,119) (809) ----------- ----------- ----------- Loss applicable to common stock ..................................... $ (7,333) $ (10,462) $ (7,800) =========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-44 86 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK $0.10 PAR VALUE ADDITIONAL ------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ------- ----------- ----------- ----------- Balance, December 31, 1993 ............... 10,364 $ 1 $ 41,656 $ (52,376) $ (10,719) Net loss .............................. (1,714) (1,714) Mandatorily redeemable preferred dividend ............................ (5,619) (5,619) --------- ------- ----------- ----------- ----------- Balance, December 31, 1994 ............... 10,364 1 41,656 (59,709) (18,052) Net loss .............................. (4,343) (4,343) Mandatorily redeemable preferred dividend ............................ (6,119) (6,119) --------- ------- ----------- ----------- ----------- Balance, December 31, 1995 ............... 10,364 1 41,656 (70,171) (28,514) Additional capital contributions ...... 156,326 156,326 Net loss .............................. (6,991) (6,991) Mandatorily redeemable preferred dividend ............................ (809) (809) --------- ------- ----------- ----------- ----------- Balance, February 13, 1996 ............... 10,364 $ 1 $ 197,982 $ (77,971) $ 120,012 ========= ======= =========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-45 87 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, PERIOD ENDED -------------------------- FEBRUARY 13, 1994 1995 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .......................................................... $ (1,714) $ (4,343) $ (6,991) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation of property and equipment ......................... 3,038 2,992 349 Amortization of intangible and other assets .................... 6,736 6,569 672 (Gain) loss on disposal of assets .............................. (5,462) -- -- Deferred income taxes .......................................... (279) (168) 1,694 Non-cash interest expense ...................................... 3,180 4,479 81 Non-cash extraordinary loss .................................... -- -- 4,451 Changes in assets and liabilities which increase (decrease) cash: Receivables .................................................. 263 71 3,379 Prepaid expenses and other current assets .................... (8) 395 (342) Accounts payable, accrued expenses and income taxes payable ....................................... (2,356) (1,078) 1,568 Other net .................................................... 358 (529) -- ----------- ----------- ----------- Cash from operating activities .............................. 3,756 8,388 4,861 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Station acquisitions ............................................. -- (5,528) -- Purchase of property and equipment ............................... (3,341) (1,642) -- Proceeds from disposal of broadcast assets ....................... 22,802 -- -- ----------- ----------- ----------- Cash from (used in) investing activities .................... 19,461 (7,170) -- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from affiliate borrowings ............................... 6,000 -- -- Additional capital contributions ................................. -- -- 156,326 Principal payments of long-term debt ............................. (24,000) (6,000) (151,252) Dividends paid ................................................... -- -- (14,753) ---------- ----------- ----------- Cash used in financing activities ........................... (18,000) (6,000) (9,679) ---------- ----------- ----------- Net increase (decrease) in cash ..................................... 5,217 (4,782) (4,818) Cash beginning of period ............................................ 4,422 9,639 4,857 ----------- ----------- ----------- Cash end of period .................................................. $ 9,639 $ 4,857 $ 39 =========== =========== ===========
SEE NOTE 5 FOR NON-CASH DISCLOSURE. The accompanying notes are an integral part of the financial statements. F-46 88 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- THE COMPANY The accompanying consolidated financial statements of Trefoil Communications, Inc. (the "Company", formerly Shamrock Holdings, Inc.) include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. As of December 31, 1995, the Company's broadcasting subsidiary ("Broadcasting") owned and operated ten radio properties in major markets across the United States. In August 1995, the Company's shareholders entered into an agreement to sell their interest in the Company, see Note 16. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue recognition Broadcasting revenues are derived primarily from the sale of program time and commercial announcements to local, regional and national advertisers. Revenue is recognized when programs and commercial announcements are broadcast. Barter transactions The Company trades certain advertising time for various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. The related revenue is recognized when commercials are broadcast; goods or services received are recorded as assets or expenses when received or used, respectively. Use of estimates in preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and equipment Expenditures for additions, renewals and betterments are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets. Intangible assets Intangible assets represent the purchase price of broadcasting properties in excess of the fair value of net tangible assets acquired and include value allocated to FCC broadcasting licenses and goodwill. Intangible assets are amortized on the straight-line basis over forty years. The Company evaluates intangible assets for potential impairment by analyzing the operating results, trends and prospects of the Company's stations, as well as by comparing them to their competitors. The Company also takes into consideration recent acquisition patterns within the broadcast industry, the impact of recently enacted or potential FCC rules and regulations and any other events or circumstances which might indicate potential impairment. Income taxes The Company files a consolidated federal income tax return and combined California franchise tax return with its subsidiaries. Effective January 1, 1993, the Company prospectively adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. F-47 89 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- ACQUISITION In February 1995, the Company acquired for $5.5 million cash (including acquisition costs) the broadcast license and assets of a second FM radio station in Denver, Colorado. The acquisition has been accounted for as a purchase and resulted in an excess of acquisition costs over fair value of the net assets acquired of $5 million which has been allocated to intangible assets, primarily FCC broadcasting licenses and goodwill. Pro forma results for the acquisition of the Denver station are not presented as they are not materially different from historical results. NOTE 4 -- COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
DECEMBER 31, USEFUL LIFE ----------------------------- IN YEARS 1994 1995 ----------- ------------- -------------- PROPERTY AND EQUIPMENT Land and land improvements .......................................... $ 2,874,000 $ 2,828,000 Buildings and leasehold improvements ................................ 10-- 40 6,183,000 6,274,000 Transmittal and technical equipment ................................. 4-- 20 17,872,000 18,703,000 Furniture and fixtures .............................................. 5-- 10 4,167,000 4,811,000 Automotive .......................................................... 2-- 5 622,000 645,000 Construction in progress ............................................ 175,000 138,000 ------------- -------------- 31,893,000 33,399,000 Less: Accumulated depreciation and amortization ........................ (13,585,000) (16,195,000) ------------- -------------- $ 18,308,000 $ 17,204,000 ============= ============== ACCRUED EXPENSES Salaries and other employee compensation ...................................... $ 3,300,000 $ 2,794,000 Interest ...................................................................... 461,000 383,000 Payable to affiliate .......................................................... 802,000 1,346,000 Other ......................................................................... 1,503,000 1,192,000 ------------- -------------- $ 6,066,000 $ 5,715,000 ============= ============== OTHER LONG-TERM LIABILITIES Deferred compensation ......................................................... $ 3,689,000 $ 3,547,000 Dividends payable on mandatorily redeemable preferred stock ................... 7,825,000 13,944,000 Interest ...................................................................... 1,034,000 1,140,000 Other ......................................................................... 2,199,000 498,000 ------------- -------------- $ 14,747,000 $ 19,129,000 ============= ==============
NOTE 5 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
DECEMBER 31, PERIOD ENDED ---------------------------- FEBRUARY 13, 1994 1995 1996 ------------- ------------- ------------- Cash paid (received) during the period for: Interest ......................................................... $ 9,763,000 $ 9,562,000 $ 2,034,000 Income taxes ..................................................... 1,397,000 217,000 -- Station acquisitions: Property and equipment ........................................ -- 434,000 -- FCC licenses and goodwill ..................................... -- 5,094,000 -- Other assets .................................................. -- -- -- Net working capital ........................................... -- -- -- Common stock issued ........................................... -- -- --
F-48 90 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 -- LONG-TERM DEBT Long-term debt comprises the following:
DECEMBER 31, ----------------------------- 1994 1995 ------------- -------------- Revolving bank credit at varying interest rates; payable quarterly. Principal payments in varying amounts quarterly; final installment due 2003 ..................................................... -- $ 99,000,000 Bank term loans at varying interest rates; payable quarterly. Principal payments in varying amounts quarterly; final installment due 2000 ..................................................... $ 95,500,000 -- Revolving bank credit at varying interest rates; payable quarterly. Principal payments in varying amounts quarterly; final installment due 2001 ..................................................... 9,500,000 -- ------------- -------------- 105,000,000 99,000,000 Less: Current portion (7,000,000) (6,500,000) ------------- -------------- $ 98,000,000 $ 92,500,000 ============= ==============
In August 1995, the Company restructured and amended its existing bank credit agreement by entering into an eight year, $105 million revolving credit agreement which extended the final maturity to 2003 and modified quarterly principal repayments. Costs of $954,000 related to the amended credit agreement and of $4.8 million incurred when the credit agreement was entered into were capitalized and are being amortized over 8 years. These costs are included in other assets in the balance sheet. Borrowings under the credit agreement are secured by substantially all of the Company's assets. Interest is charged at varying rates according to alternatives selected by the Company at the time funds are borrowed. Currently, interest accrues at floating rates (8.31% and 9.13% at December 31, 1995 and 1994, respectively). As borrowings under the credit agreement are at market interest rates, the carrying value of the Company's long-term debt reflects its fair value. The credit agreement imposes restrictive covenants on the Company with respect to, among other things, the maintenance of certain financial ratios and limits on capital expenditures, new indebtedness, investments, disposition of assets and declaration of cash dividends. At December 31, 1995, aggregate scheduled mandatory principal reductions of the Company's bank debt and borrowings from affiliates (Note 14) are as follows:
YEAR AMOUNTS ---- ------------- 1996 ........................................... $ 6,500,000 1997 ........................................... 10,000,000 1998 ........................................... 10,000,000 1999 ........................................... 15,000,000 2000 ........................................... 15,000,000 After 2000 ..................................... 63,113,000 ------------- $ 119,613,000 =============
NOTE 7 -- STOCKHOLDERS' EQUITY During 1993, the number of authorized shares of common stock was increased to 50,000 shares, 10,364 of which were outstanding at December 31, 1995. The Company has reserved 3,658 and 8,535 shares of common stock for issuance upon the conversion of the convertible senior notes ("Senior Notes", Note 8) and Series A cumulative convertible preferred stock ("Series A Preferred Stock", Note 9), respectively. NOTE 8 -- CONVERTIBLE SENIOR NOTES On July 30, 1993, the Company issued $30 million in ten-year Senior Notes to Trefoil Capital Investors, L.P. ("Trefoil"). The notes are convertible into shares of the Company's common stock at a conversion rate of $8,201 F-49 91 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) per share, subject to certain anti-dilution adjustments, and are redeemable by the Company at any time on or after July 30, 1996, initially at a specified premium to par, declining to par for redemptions on or after July 30, 2001. Mandatory redemptions of $7.5 million and $11.25 million are due July 30, 2001 and 2002, respectively, and any remaining unpaid principal is due in 2003. Interest accrues at the rate of 7.5% per annum and is payable semi-annually on January 31 and July 31. Interest is payable in cash, however, through January 31, 1998, the Company may elect to pay interest by issuing additional paid-in-kind notes ("PIK Notes"). PIK Notes are not convertible and must be redeemed on a pro rata basis in accordance with the redemption schedule of the Senior Notes. Interest on the PIK Notes accrues at 10% per annum, which payment terms are identical to the Senior Notes, including the option to issue additional PIK Notes for interest obligations. PIK Notes of $4.9 million were outstanding as of December 31, 1995. Accrued interest on the Senior Notes as of December 31, 1995 and 1994 has been included in payable to affiliates and classified as a long-term liability. Based on the transaction described in Note 16, management considers the fair market value of the Senior Notes to approximate their carrying value. NOTE 9 -- MANDATORILY REDEEMABLE PREFERRED STOCK Concurrent with the sale of the Senior Notes, the Company issued 70,000 shares of Series A Preferred Stock to Trefoil for $70 million. With respect to dividend rights and rights on liquidation, dissolution and winding up, Series A Preferred Stock ranks senior to the common stock and senior to any other series or class of preferred stock which may be issued by the Company (collectively, "Junior Securities"). In the event of any liquidation, dissolution or winding up of the Company, holders of Series A Preferred Stock will be entitled to receive in preference to holders of Junior Securities an amount equal to $1,000 per share plus all accrued but unpaid dividends. As long as shares of Series A Preferred Stock remain outstanding, the holders of such shares are entitled to receive, when, as and if declared by the Board of Directors, out of assets of the Company legally available therefore, cumulative cash dividends at an annual rate of 7.5% (if in arrears, compounded quarterly at a rate of 8.625% per annum with respect to dividends in arrears, through the date of payment of such arrearages), payable quarterly in arrears on the last business day of each calendar quarter. Each share of Series A Preferred Stock is convertible at the option of the holder into one share of common stock at $8,201 per common share, subject to certain antidilution adjustments (the "Conversion Price"). The Series A Preferred Stock may be redeemed by the Company any time after the third anniversary of the issuance date (in integral multiples having an aggregate stated value of at least $7 million) if (i) all quarterly dividends on the Series A Preferred Stock have been paid in full, (ii) the Company has consummated an initial public offering for its common stock and (iii) the market price of the common stock is equal to at least 165% of the Conversion Price for at least twenty out of thirty consecutive trading days preceding the notice of redemption. In any such event, the redemption price per share will be equal to $1,000, plus accrued and unpaid dividends to the redemption date. The Company is required to redeem 14,000 shares of the original issue on July 30, 2003, 28,000 shares on July 30, 2004 and any remaining outstanding shares in 2005. The number of shares to be redeemed by the Company on any mandatory redemption date shall be reduced by the number of shares optionally redeemed by the Company prior to such date, to the extent such shares have not previously been credited against the Company's mandatory redemption obligations. If the Company shall fail to redeem shares of Series A Preferred Stock when required, the annual dividend rate on the outstanding shares of Series A Preferred Stock will be increased to 9.375% (compounded quarterly with respect to dividends in arrears at a rate of 10.780% per annum) of the stated value of such shares plus accrued and unpaid dividends from the date of failure to redeem through the date of redemption. If F-50 92 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be redeemed shall be selected pro rata. Although not declared by the Company's Board of Directors, dividends on the Series A Preferred Stock have been accrued in the accompanying financial statements. Based on management intentions, including restrictions on the payment of dividends imposed by the Company's bank credit agreement, accrued dividends have been classified as a long-term liability. Based on the transaction described in Note 16, management considers the fair market value of the Series A Preferred Stock to approximate their carrying value. NOTE 10 -- INCOME TAXES All of the Company's revenues were generated in the United States. The income tax benefit (expense) on income from continuing operations is comprised of the following:
DECEMBER 31, PERIOD ENDED ---------------------------- FEBRUARY 13, 1994 1995 1996 ------------- ------------- -------------- Current: Federal ....................................................... $ (578,000) $ 1,025,000 $ 321,000 State ......................................................... (1,056,000) 94,000 29,000 ------------- ------------- -------------- (1,634,000) 1,119,000 350,000 Deferred: Federal ....................................................... (501,000) 168,000 52,000 State ......................................................... 780,000 -- -- ------------- ------------- -------------- 279,000 168,000 52,000 ------------- ------------- -------------- $ (1,355,000) $ 1,287,000 $ 402,000 ============= ============= ==============
Deferred tax liabilities (assets) are comprised of the following:
DECEMBER 31, ----------------------------- 1994 1995 ------------- -------------- Deferred gain .............................................................. $ 15,549,000 $ 15,358,000 Amortization of FCC licenses and other intangibles ......................... 5,519,000 5,687,000 Depreciation ............................................................... 3,194,000 2,741,000 Other ...................................................................... 519,000 560,000 ------------- -------------- Gross deferred tax liabilities ........................................... 24,781,000 24,346,000 ------------- -------------- Net operating loss carryforward ............................................ (878,000) (584,000) AMT and other credit carryforward .......................................... (3,316,000) (2,943,000) Deferred compensation and other deductions ................................. (2,586,000) (2,627,000) ------------- -------------- Gross deferred tax assets ................................................ (6,780,000) (6,154,000) Valuation allowance ...................................................... 876,000 1,026,000 ------------- -------------- Net deferred tax assets .................................................. (5,904,000) (5,128,000) ------------- -------------- $ 18,877,000 $ 19,218,000 ============= ==============
The Company has a federal net operating loss (NOL) carryover of $1.7 million, subject to various limitations on its utilization. The Company also has AMT Credit and Investment Tax Credit carryforwards for tax purposes of $2.2 million and $734,000, respectively. The above carryovers expire in the years 2000 through 2003, except the AMT credit which has no expiration. Under SFAS 109, the Company has recorded valuation allowances against the realization of the federal tax benefits from net operating losses and investment tax credits in the amounts of $292,000 and $734,000, respectively. The valuation allowances are based on management's estimates and analysis, which include the impact of tax laws which may limit the Company's ability to utilize such loss carryforwards and tax credits. F-51 93 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The principal items causing an effective rate which differs from the Federal statutory rate are summarized as follows:
YEAR ENDED DECEMBER 31, PERIOD ENDED ---------------------------- FEBRUARY 13, 1994 1995 1996 ------------- ------------- -------------- Federal statutory rate ..................................... $ 125,000 $ 1,971,000 $ 351,000 Amortization of intangibles ................................ (1,703,000) (1,627,000) (190,000) State taxes, net of federal benefit ........................ (180,000) 61,000 11,000 Reduction of tax reserve ................................... -- 1,109,000 -- SFAS 109 rate adjustment ................................... -- -- -- Recognition of net operating loss carryover ................ 504,000 -- -- Other, net ................................................. (101,000) (227,000) 230,000 ------------- ------------- -------------- $ (1,355,000) $ 1,287,000 $ 402,000 ============= ============= ==============
NOTE 11 -- RADIO BROADCASTING DISPOSITIONS In April 1994, the Company sold the broadcast license and assets of its radio stations in Cleveland, Ohio for $12.1 million (excluding disposal costs). This sale resulted in a gain of $670,000, before related income taxes. A portion of the sale proceeds was utilized to reduce bank debt by $11 million. In June 1994, the Company sold the broadcast license and assets of its radio station in Seattle, Washington for $12.0 million (excluding disposal costs). This sale resulted in a gain of $4.8 million, before related income taxes. A portion of the sale proceeds was utilized to reduce bank debt by $11 million. NOTE 12 -- COMMITMENTS The following are the future minimum rental payments under operating leases (net of minimum rentals under noncancelable subleases) that have initial or remaining lease terms in excess of one year:
YEAR AMOUNTS - ---- ------------- 1996 .................................................... $ 3,290,000 1997 .................................................... 3,029,000 1998 .................................................... 2,422,000 1999 .................................................... 1,701,000 2000 .................................................... 1,314,000 After 2000 .............................................. 5,604,000 ------------- $ 17,360,000 =============
Certain leases contain renewal options with the same lease terms, except that rentals may be adjusted to current market rates at the time of renewal. Rental expense under operating leases for the period ended February 13, 1996 and the years ended December 31, 1995 and 1994 aggregated $0.3 million, $2.9 million and $3.3 million, respectively. NOTE 13 -- EMPLOYEE BENEFIT PLANS The Company maintains an elective Employees' Savings Plan for all employees not covered by a collective bargaining agreement and who have one or more years of continuous employment. The Company contributes 50% of the annual contributions made by employees up to a maximum of 3% of each participating employee's compensation. Participants are at all times fully vested in their contributions, and the Company's contribution becomes fully vested to the participant after seven years of continuous employment. The Company's contributions for the period ended February 13, 1996 and the years ended December 31, 1995 and 1994 aggregated $0, $453,000 and $568,000, respectively. The Company also maintains a non-qualified, unfunded incentive compensation plan for certain key employees providing for payments upon separation of employment, death or disability. As of December 31, 1995 the liability recorded for the value of amounts awarded to participants under the plan was approximately $3.5 million. F-52 94 TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 -- AFFILIATE TRANSACTIONS Both Shamrock Holdings of California ("SHOC") and Trefoil are related parties of the Company through commonality of certain officers and directors. In addition to the financing transactions described at Notes 8 and 9, the Company made payments to SHOC for interest on cash advances, office space rent and an executive management fee in the aggregate of $20,000, $175,000 and $174,000 for the period ended February 13, 1996 and the years ended December 31, 1995 and 1994, respectively. In July 1993, the Company entered into an executive management agreement with Trefoil in consideration for a fee based on the Company's broadcasting revenues. For the period ended February 13, 1996 and the years ended December 31, 1995 and 1994, the statement of operations includes in corporate expenses a charge of $63,000, $544,000 and $544,000, respectively, for fees payable to Trefoil. In connection with the issuance of the Senior Notes and the Series A Preferred Stock, the Company paid Trefoil $3 million for financial advisory services. These costs were capitalized and are being amortized over the term of the Senior Notes and Series A Preferred Stock. These costs are included in other assets in the balance sheet. Payable to affiliates comprises the following:
DECEMBER 31, ----------------------------- 1994 1995 ------------- -------------- Note payable to affiliate at varying interest rates; payable quarterly. No stated maturity ....................................................... $ 7,898,000 $ 9,007,000 Note payable to affiliate at varying interest rates; payable quarterly. No stated maturity ....................................................... 6,030,000 6,750,000 PIK notes (Note 8) ......................................................... 2,313,000 4,856,000 ------------- -------------- $ 16,241,000 $ 20,613,000 ============= ==============
On December 16, 1994, the Company issued a $6 million promissory note to Trefoil, $5.75 million of which was used in 1995 for the acquisition of a radio station in Denver. The note bears interest at LIBOR plus 7% (12.938% at December 31, 1995) and has no stated maturity. Accrued interest is added to the principal of the note at the end of each calendar quarter and, accordingly, the outstanding balances at December 31, 1995 and December 31, 1994 include $720,000 and $30,000 of interest expensed in 1995 and 1994, respectively. On September 29, 1993, the Company issued a $7 million promissory note to SHOC and used the proceeds to reduce Broadcasting's bank debt. The note bears interest at LIBOR plus 7% (12.938% at December 31, 1995) and has no stated maturity. Accrued interest is added to the principal of the note at the end of each calendar quarter and, accordingly is included in the outstanding balance at December 31, 1995 and 1994. Interest expense includes for the period ended February 13, 1996 and the years ended December 31, 1995 and 1994 $129,000, $1,109,000 and $747,000, respectively. Based on the transaction described in Note 16, management considers the fair market value of these notes to approximate their carrying value. NOTE 15 -- LITIGATION The Company is a plaintiff or defendant in several legal actions, the probable outcome of which are not considered material, either individually or in the aggregate. NOTE 16 -- SUBSEQUENT EVENT -- SALE OF THE COMPANY On February 14, 1996, the Company's shareholders completed the sale of all issued and outstanding shares of the Company to Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting Company, ("Chancellor") for $395 million in cash. A portion of the proceeds was utilized to pay-off bank debt, convertible senior notes, payable to affiliates and redeem outstanding preferred stock and pay dividends payable thereon. As of the closing date, the Company, along with Broadcasting, became wholly-owned subsidiaries of Chancellor. No accounts in the accompanying financials have been adjusted for the effects of this transaction; however, the statement of operations for the period ended February 13, 1996 includes an extraordinary loss on the early extinguishment of debt of $2.5 million, net of tax of $1.7 million, resulting from the early extinguishment of bank debt and convertible senior notes discussed above. F-53 95 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Chancellor Broadcasting Company: Our report on the consolidated financial statements of Chancellor Broadcasting Company and Subsidiaries is included in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules of Chancellor Broadcasting Company and Subsidiaries herein. In our opinion, these financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Dallas, Texas February 13, 1997, except for Note 15 to the financial statements as to which the date is February 19, 1997 S-1 96 CHANCELLOR BROADCASTING COMPANY PARENT COMPANY CONDENSED BALANCE SHEETS
DECEMBER 31, ------------------------------ 1995 1996 ------------- -------------- ASSETS Investment in subsidiaries, at equity ........................................... $ 54,722,734 $ 200,990,823 ============= ============== STOCKHOLDERS' EQUITY Stockholders' equity: Class A common stock, par value $.01 per share; 40,000,000 shares authorized, 302,107 and 9,937,320 shares issued, respectively, and 302,107 and 9,881,656 shares outstanding, respectively ...................... 3,021 99,373 Class B common stock, par value $.01 per share; 10,000,000 shares authorized, 63,500 and 8,547,910 shares issued and outstanding, respectively ............ 635 85,479 Class C common stock, par value $.01 per share; 10,000,000 shares authorized, 8,484,410 and zero shares issued and outstanding, respectively .............. 84,844 -- Additional paid-in capital .................................................... 66,271,500 231,930,337 Accumulated deficit ........................................................... (11,637,266) (30,086,232) Treasury stock ................................................................ -- (1,038,134) ------------- -------------- Total common stockholders' equity ........................................ $ 54,722,734 $ 200,990,823 ============= ==============
The accompanying notes are an integral part of the financial statements. S-2 97 CHANCELLOR BROADCASTING COMPANY PARENT COMPANY CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1994 1995 1996 ------------ ------------- -------------- Net loss - equity in losses of unconsolidated subsidiaries ...... $ (105,970) $ (11,531,296) $ (35,019,031) ============= ============= ============== Net loss per share .............................................. $ (0.02) $ (1.30) $ (2.10) ============= ============= ============== Weighted average number of shares outstanding ................... 5,166,039 8,849,936 16,704,381 ============= ============= ==============
The accompanying notes are an integral part of the financial statements. S-3 98 CHANCELLOR BROADCASTING COMPANY PARENT COMPANY CONDENSED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK COMMON STOCK ------------------------------ ----------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------------- ------------- ------------- ------------- ------------- ------------- Balance, January 1, 1994 ...... -- -- 166 $ 2 -- -- Issuance of common stock on January 10, 1994 ............ 302,107 $ 3,021 63,334 633 3,884,211 $ 38,842 Issuance of common stock on October 12, 1994 ............ -- -- -- -- 4,600,033 46,000 Net loss ...................... -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- Balance, December 31, 1994 .... 302,107 3,021 63,500 635 8,484,244 84,842 Stock option compensation ..... -- -- -- -- -- -- Issuance of common stock on June 29, 1995 ............... -- -- -- -- 166 2 Net loss ...................... -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- Balance, December 31, 1995 .... 302,107 3,021 63,500 635 8,484,410 84,844 Stock option compensation ..... -- -- -- -- -- -- Issuance of common stock on February 14, 1996 .......... 8,447,192 84,472 -- -- -- -- Loss on repurchase of preferred stock of subsidiary on February 21, 1996 .......... -- -- -- -- -- -- Repurchase of common stock on February 21, 1996 ........... (55,664) -- -- -- -- -- Issuance of common stock on August 9, 1996 ............. 1,185,521 11,855 -- -- -- -- Issuance of common stock on August 20, 1996 ............ 2,500 25 -- -- -- -- Conversion of common stock on October 22, 1996 ........... -- -- 8,484,410 84,844 (8,484,410) (84,844) Net loss ...................... -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- Balance, December 31, 1996 .... 9,881,656 $ 99,373 8,547,910 $ 85,479 -- $ -- ============= ============= ============= ============= ============= ============= ADDITIONAL PAID-IN ACCUMULATED TREASURY CAPITAL DEFICIT STOCK TOTAL ------------- -------------- ------------- ------------- Balance, January 1, 1994 ...... $ 998 -- -- $ 1,000 Issuance of common stock on January 10, 1994 ............ 25,456,504 -- -- 25,499,000 Issuance of common stock on October 12, 1994 ............ 34,454,000 -- -- 34,500,000 Net loss ...................... -- $ (105,970) -- (105,970) ------------- ------------- ------------- ------------- Balance, December 31, 1994 .... 59,911,502 (105,970) -- 59,894,030 Stock option compensation ..... 6,360,000 -- -- 6,360,000 Issuance of common stock on June 29, 1995 ............... (2) -- -- -- Net loss ...................... -- (11,531,296) -- (11,531,296) ------------- ------------- ------------- ------------- Balance, December 31, 1995 .... 66,271,500 (11,637,266) -- 54,722,734 Stock option compensation ..... 3,800,000 -- -- 3,800,000 Issuance of common stock on February 14, 1996 .......... 155,390,782 -- -- 155,475,254 Loss on repurchase of preferred stock of subsidiary on February 21, 1996 .......... (16,570,065) -- -- (16,570,065) Repurchase of common stock on February 21, 1996 .......... -- -- $ (1,038,134) (1,038,134) Issuance of common stock on August 9, 1996 ............. 22,988,145 -- -- 23,000,000 Issuance of common stock on August 20, 1996 ............ 49,975 -- -- 50,000 Conversion of common stock on October 22, 1996 ........... -- -- -- -- Net loss ...................... -- (18,448,966) -- (18,448,966) ------------- ------------- ------------- ------------- Balance, December 31, 1996 .... $ 231,930,337 $ (30,086,232) $ (1,038,134) $ 200,990,823 ============= ============= ============= =============
The accompanying notes are an integral part of the financial statements. S-4 99 CHANCELLOR BROADCASTING COMPANY PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1994 1995 1996 ---------------- --------------- ---------------- Cash flows from operating activities: Net loss ................................................. $ (105,970) $ (11,531,296) $ (35,019,031) Equity in undistributed losses of unconsolidated subsidiaries ........................................... 105,970 11,531,296 35,019,031 ---------------- --------------- ---------------- Net cash provided by operating activities .......... -- -- -- ---------------- --------------- ---------------- Cash flows from investing activities: Investment in subsidiary ................................. (60,000,000) -- (177,487,120) Cash flows from financing activities: Issuance of common stock ................................. 60,000,000 -- 178,525,254 Repurchase of common stock ............................... -- -- (1,038,134) ---------------- --------------- ---------------- Net cash provided by financing activities .......... 60,000,000 -- 177,487,120 ---------------- --------------- ---------------- Net increase (decrease) in cash .................... -- -- -- Cash, at beginning of year ................................. -- -- -- ---------------- --------------- ---------------- Cash, at end of year ....................................... $ -- $ -- $ -- ================ =============== ================
The accompanying notes are an integral part of the financial statements. S-5 100 CHANCELLOR BROADCASTING COMPANY NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS 1. GENERAL The accompanying condensed financial statements of Chancellor Broadcasting Company (the "Company") should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries included in the Company's Annual Report on Form 10-K. 2. OBLIGATIONS, GUARANTEES AND COMMITMENTS The Company has guaranteed the obligations under a senior credit facility and senior note agreements of its subsidiary Chancellor Radio Broadcasting Company. Such obligations prohibit the subsidiary from making loans or transfers or paying dividends to the Company without the consent of the lenders subject to certain provisions in the Senior Credit Facility. See note 6 to consolidated financial statements regarding these obligations. 3. OTHER See notes 8 and 13 to consolidated financial statements for a description of the preferred stock, common stock and other equity securities of the Company. S-6 101 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ------------- ----------------------------- ------------- ----------- BALANCE AT CHARGED TO AMOUNTS BALANCE BEGINNING COSTS AND AMOUNTS WRITTEN AT END OF PERIOD EXPENSES ACQUIRED OFF OF PERIOD ------------- ------------ ------------- ------------- ----------- Allowance for doubtful accounts: Year ended December 31, 1996....... $ 263,528 $ 810,000 $ 1,041,336 $ 1,091,204 $ 1,023,660 Year ended December 31, 1995....... 118,844 222,996 -- 78,312 263,528 Year ended December 31, 1994....... -- 213,249 -- 94,405 118,844
S-7 102 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Chancellor Radio Broadcasting Company: Our report on the consolidated financial statements of Chancellor Radio Broadcasting Company and Subsidiaries is included in this Form 10-K. In connection with our audits of such financial statements, we have also audited the financial statement schedule of Chancellor Radio Broadcasting Company and Subsidiaries herein. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Dallas, Texas February 13, 1997, except for Note 15 to the financial statements as to which the date is February 19, 1997 S-8 103 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ------------- ----------------------------- ------------- ----------- BALANCE AT CHARGED TO AMOUNTS BALANCE BEGINNING COSTS AND AMOUNTS WRITTEN AT END OF PERIOD EXPENSES ACQUIRED OFF OF PERIOD ------------- -------------- ------------- ------------- ----------- Allowance for doubtful accounts: Year ended December 31, 1996....... $ 263,528 $ 810,000 $ 1,041,336 $ 1,091,204 $ 1,023,660 Year ended December 31, 1995....... 118,844 222,996 -- 78,312 263,528 Year ended December 31, 1994....... -- 213,249 -- 94,405 118,844
S-9 104 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Stockholders and Board of Directors of Trefoil Communications, Inc. Our audits of the consolidated financial statements of Trefoil Communications, Inc. referred to in our report dated February 14, 1996 appearing on page F-41 of the 1996 Annual Report on Form 10-K of Chancellor Broadcasting Company, also included an audit of the Financial Statement Schedule for the years ended December 31, 1995 and 1994 appearing on page S-12 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements of Trefoil Communications, Inc. for the periods indicated above. PRICE WATERHOUSE LLP Los Angeles, California February 14, 1996 S-10 105 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Chancellor Radio Broadcasting Company: Our report on the consolidated financial statements of Trefoil Communications Inc. for the period January 1, 1996 through February 13, 1996 is included in this Form 10-K. In connection with our audit of such financial statements, we have also audited the financial statement schedule of Trefoil Communications, Inc. and Subsidiaries herein for the period January 1, 1996 through February 13, 1996. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein for the period January 1, 1996 through February 13, 1996. COOPERS & LYBRAND L.L.P. Dallas, Texas March 24, 1997 S-11 106 TREFOIL COMMUNICATIONS, INC. VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ------------- --------------------------- --------------- ----------- BALANCE AT CHARGED TO AMOUNTS BALANCE BEGINNING COSTS AND AMOUNTS WRITTEN AT END OF PERIOD EXPENSES ACQUIRED OFF OF PERIOD ------------- ------------ ---------- --------------- ----------- Allowance for doubtful accounts: Period ended February 13, 1996 .... $ 1,630,000 $ 76,000 $ -- $ -- $ 1,706,000 Year ended December 31, 1995 ...... 1,535,000 650,000 -- 555,000 1,630,000 Year ended December 31, 1994 ...... 1,553,000 673,000 -- 691,000 1,535,000
S-12 107 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT --- ----------------------- 2.1 Asset Purchase Agreement dated as of April 19, 1994, between American Media, Inc. and Chancellor Holdings Corp. (formerly, MBD Broadcasting, Inc.) (1) 2.2 Asset Purchase Agreement dated as of April 19, 1994, among SanRiver Radio, Inc., Mid-Florida Radio, Inc. and Chancellor Holdings Corp. (formally MBD Broadcasting, Inc.) (1) 2.3 Asset Purchase Agreement dated as of April 19, 1994, between National Radio Partners, L.P. and Chancellor Holdings Corp. (formerly, MBD Broadcasting, Inc.) (1) 2.4 Asset Purchase Agreement dated as of April 19, 1994, between National Radio Partners, L.P. and Chancellor Communications Corporation (1) 2.5 Local Programming and Marketing Agreement dated February 1, 1995, between Midcontinent Radio of Minnesota, Inc., as Licensee, Radio Station KDWB-FM, and Chancellor Broadcasting Company(2) 2.6 Asset Purchase Agreement dated February 1, 1995, between Midcontinent Radio of Minnesota, Inc., Chancellor Broadcasting Company and Chancellor Broadcasting Licensee Company (2) 2.7 Escrow Agreement dated February 7, 1995, between Midcontinent Radio of Minnesota, Inc., Chancellor Broadcasting Company and NationsBank of Texas, N.A. (2) 2.8 Stock Purchase Agreement dated as of August 3, 1995, among Chancellor Broadcasting Company, Trefoil Communications, Inc., and the Selling Securityholders named therein (3) 2.9 Asset Purchase Agreement dated as of May 14, 1996, among OmniAmerica Group, WAPE-FM License Partnership, WFYV-FM License Partnership, WEAT-FM License Partnership, WEAT-AM License Partnership, WXXL License Partnership, WOLL License Partnership, WJHM-FM License Partnership, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 2.10 Local Marketing Agreement dated as of June 28, 1996, among OmniAmerica Group, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 2.11 Exchange Agreement dated as of July 1, 1996, among WBLI, Inc., WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc., SFX Broadcasting, Inc. and Chancellor Radio Broadcasting Company (7) 2.12 Local Marketing Agreement dated as of July 1, 1996, among WBLI, Inc., WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc. and Chancellor Radio Broadcasting Company (7) 2.13 Exchange Agreement dated as of June 24, 1996, among America Radio Systems Corporation and Chancellor Radio Broadcasting Company (8) 2.14 Local Marketing Agreement dated as of June 24, 1996, among America Radio Systems Corporation and Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (8) 2.15 Asset Purchase Agreement dated as of August 24, 1996 by and among Classical Acquisition Limited Partnership, Radio 100 of Maryland Limited Partnership, Radio 100 Limited Partnership, Radio 570 Limited Partnership, Radio 94 of Phoenix Limited Partnership, and Radio 95 of Phoenix Limited Partnership and Chancellor Radio Broadcasting Company (8)
31 108 2.16 Agreement and Plan of Merger, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Evergreen Media Corporation (9) 2.17 Joint Purchase Agreement, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, Evergreen Media Corporation of Los Angeles and Evergreen Media Corporation (10) 2.18 Stock Purchase Agreement, dated as of February 16, 1997, between Viacom International Inc. and Evergreen Media Corporation of Los Angeles (10) 3.1 Second Restated Certificate of Incorporation of Chancellor Broadcasting Company, as amended (4) 3.2 Certificate of Incorporation of Chancellor Radio Broadcasting Company, as amended * 3.3 Certificate of Incorporation of Chancellor Broadcasting Licensee Company (1) 3.4 Second Restated Bylaws of Chancellor Broadcasting Company (4) 3.5 Bylaws of Chancellor Radio Broadcasting Company, as amended (1) 3.6 Bylaws of Chancellor Broadcasting Licensee Company (1) 3.7 Certificate of Designation for the 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (8) 3.8 Certificate of Designation for the 12% Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (11) 3.9 Certificate of Designation for the 7% Convertible Preferred Stock of Chancellor Broadcasting Company (12) 4.1 Indenture, dated October 1, 1994, governing the outstanding 12 1/2% Senior Subordinated Notes due 2004 (1) 4.2 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (4) 4.3 Second Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (4) 4.4 Indenture, dated as of February 14, 1996, governing the outstanding 9 3/8% Senior Subordinated Notes due 2004 (5) 4.5 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated February 14, 1996, governing the 9 3/8% Senior Subordinated Notes due 2004 (4) 4.6 Indenture, dated as of February 26, 1996, governing the 12 1/4% Subordinated Exchange Debentures due 2008 (4) 4.7 Indenture, dated as of January 23, 1997, governing the 12% Subordinated Exchange Debentures due 2009 (11) 10.1 Lease Agreement dated as of May 22, 1989, between Kruse Microwave and SanRiver Radio, Inc., as amended (1) 10.2 License Agreement dated as of March 1, 1974, between City of New Hope, Minnesota and National Radio Partners, L.P., as assignee of American Media, Inc. (1) 10.3 Tower Lease Agreement dated as of November 23, 1988, between United Television and Shoreview FM Group, a Minnesota general partnership (1) 10.4 Partnership Agreement dated as of November 23, 1988, of Shoreview FM Group, a Minnesota general partnership (1)
32 109 10.5 Tax Sharing Agreement between Chancellor Holdings Corp. and Chancellor Broadcasting Company(2) 10.6 Amended and Restated Monitoring and Oversight Agreement between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and HM2/Management Partners, L.P. (4) 10.7 Amended and Restated Stockholders Agreement dated February 14, 1996 among Chancellor Broadcasting Company and certain Holders named therein (4) 10.8 Registration Rights Agreement dated October 12, 1994 between Chancellor Broadcasting Company and the Holders named therein (6) 10.9 Letter Agreement dated February 9, 1996 regarding Hicks Muse Equity Investment among Chancellor Broadcasting Company and HM Fund II (4) 10.10 Sales Agreement, dated as of July 1, 1996, among OmniAmerica Group, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 10.11 Program Consulting Agreement, dated as of June 28, 1996, among OmniAmerica Group, Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company (7) 10.12 Consulting Agreement, dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Anthony S. Ocepek (7) 10.13 Consulting Agreement, dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Carl E. Hirsch (7) 10.14 Consulting Agreement dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and H. Dean Thacker (7) 10.15 Non-Competition Agreement dated as of May 14, 1996, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Carl E. Hirsch (7) 10.16 First Consent and Amendment dated as of May 13, 1996, among Chancellor Radio Broadcasting Company, the Banks party thereto and Bankers Trust Company, as managing agent (7) 10.17 Employment Agreement dated as of February 1, 1996, between Chancellor Radio Broadcasting Company and Samuel Weller (7) 10.18 Employment Agreement dated as of February 14, 1996, between Chancellor Radio Broadcasting Company and Rick Eytcheson (8) 10.19 Employment Agreement dated as of February 14, 1996, between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and George C. Toulas * 10.20 Employment Agreement dated as of February 14, 1996, between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Jacques Kerrest * 10.21 Employment Agreement dated as of February 14, 1996 among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Steven Dinetz (7) 10.22 Chancellor Broadcasting Company Stock Award Plan * 10.23 Registration Rights Agreement, dated as of January 23, 1997, among Chancellor Radio Broadcasting Company, BT Securities Corporation, Credit Suisse First Boston, Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and Smith Barney Inc. (11) 10.24 Amended and Restated Credit Agreement, dated as of February 14, 1996 and amended and restated as of January 23, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, various banks, Goldman Sachs Credit Partners L.P., as documentation agent, NationsBank of Texas, N.A., as syndication agent, and Bankers Trust, as managing agent and arranger * 11.1 Computation of Per Share Earnings for Chancellor Broadcasting Company *
33 110 12.1 Computation of Ratio of Earnings to Fixed Charges for Chancellor Radio Broadcasting Company * 12.2 Computation of Ratio of Earnings to Fixed Charges for Trefoil Communications, Inc. * 21.1 Subsidiaries of Chancellor Broadcasting Company (4) 27.1 Financial Data Schedule for Chancellor Broadcasting Company * 27.2 Financial Data Schedule for Chancellor Radio Broadcasting Company * 27.3 Financial Data Schedule for Chancellor Broadcasting Licensee Company *
- ------------------- * Filed herewith. (1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-80534) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (2) Incorporated by reference to the Quarterly Report on Form 10-Q of Chancellor Broadcasting Company (File No. 33-80534) for the fiscal quarter ended March 31, 1995. (3) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-98334) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (4) Incorporated by reference to the Annual Report on Form 10-K of Chancellor, Chancellor Broadcasting and Broadcasting Licensee for the fiscal year ended December 31, 1995. (5) Incorporated by reference from the Form 8-K of Chancellor Broadcasting Company (File No. 0-27726) and Chancellor Radio Broadcasting Company (File No. 33-98334) as filed with the Securities and Exchange Commission on February 29, 1996. (6) Incorporated by reference from the Registration Statement on Form S-1 (File No. 33-98336) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (7) Incorporated by reference from the Registration Statement on Form S-1 (File No. 333-02782) of Chancellor Radio Broadcasting Company as filed with the Securities and Exchange Commission. (8) Incorporated by reference to the Quarterly Report on Form 10-Q of Chancellor Broadcasting Company (File No. 0-27726) for the fiscal quarter ended September 30, 1996. (9) Incorporated by reference to Exhibit 99(a) of the Schedule 13D filed by Chancellor Broadcasting Company, Thomas O. Hicks and Lawrence D. Stuart, Jr. on March 3, 1997 with respect to the Class A Common Stock of Evergreen Media Corporation. (10) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on March 11, 1997. (11) Incorporated by reference to the Form 8-K filed by Chancellor Radio Broadcasting Company (File No. 33-98334) on February 6, 1997. (12) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on February 6, 1997. 34 EX-3.2 2 CERTIFICATE OF INCORPORATION 1 CERTIFICATE OF INCORPORATION OF CHANCELLOR BROADCASTING COMPANY I, the undersigned natural person acting as an incorporator of a corporation (hereinafter called the "Corporation") under the General Corporation Law of the State of Delaware, do hereby adopt the following Certificates of Incorporation for the Corporation: FIRST: The name of the corporation is Chancellor Broadcasting Company. SECOND: The registered office of the Corporation in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose for which the Corporation is organized is to engage in any and all lawful acts and activity for which corporations may be organized under the General Corporation Law of Delaware. The Corporation will have perpetual existence. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 1,000 shares, par value $.01 per share, designated Common Stock. FIFTH: The name of the incorporator of the Corporation is R. Jay Tabor, and the mailing address of such incorporator is 100 Crescent Court, Suite 1300, Dallas, Texas 75201. SIXTH: The number of directors constituting the initial board of directors is one, and the name of mailing address of the person who is to serve as a director until the first annual meeting of stockholders or until his successor is elected and qualified is as follows: Steven Dinetz 9030 Woodhurst Drive Dallas, Texas 75243 2 SEVENTH: Director of the Corporation need not be elected by written ballot unless the by-laws of the Corporation otherwise provide. EIGHTH: The directors of the Corporation shall have the power to adopt, amend, and repeal the by-laws of the Corporation. NINTH: No contract or transaction between the Corporation and one or more of its directors, officers, or stockholders or between the Corporation and nay person (as used herein "person" means other corporation, partnership, association, firm, trust, joint venture, political subdivision, or instrumentality) or other organization in which one or more of its directors, officers, or stockholders are directors, officers, or stockholders, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because his, her, or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the board of directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. TENTH: The Corporation shall indemnify any person who was, is, or is threatened to be made a party to a proceeding (as hereinafter defined) by reason of the fact that he or 2 3 she (i) is or was a director or officer of the Corporation or (ii) while director or officer of the Corporation, is or was serving at the request of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sold proprietorship, trust, employee benefit plan, or other enterprise, to the fullest extent permitted under the Delaware General Corporation Law, as the same exists or may hereafter be amended. Such right shall be a contract right and as such shall run to the benefit of any director or officer who is elected and accepts the position of director or officer of the Corporation or elects to continue to serve as a director or officer of the Corporation or elects to continue to serve as a director or officer of the Corporation or elects to continue to serve as a director or officer of the Corporation while this Article is in effect. Any repeal or amendment of this Article Tenth shall be prospective only and shall not limit the rights of any such director or officer or the obligations of the Corporation with respect to any claim arising from or related to the services of such director or officer in any of the foregoing capacities prior to any such repeal or amendment to this Article Tenth. Such right shall include the right to be paid by the Corporation expenses incurred in defending any such processing in advance of its final disposition to the maximum extent permitted under the Delaware General Corporation Law, as the same exists or may hereafter be amended. If a claim for indemnification or advancement of expenses hereunder is not paid in full by the corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. It shall be a defense to any such action that such indemnification or advancement of costs of defense are not permitted under the Delaware General Corporation Law, but the burden of proving such defense to any such action that such indemnification or advancement of costs of defense oar not permitted under the Delaware General Corporation Law, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its board of directors or any committee thereof, independent legal counsel, or stockholders) to have made its determination prior to the commencement of such action that indemnification of, or advancement of costs of defense to, the claimant is permissible in the circumstances nor an actual determination by the Corporation (including its board of directors or any committee thereof, independent legal counsel, or stockholders) that such indemnification or advance is not permissible shall be a defense to the action or create a presumption that such indemnification or advancement is not 3 4 permissible. In the event of the death of any person having a right of indemnification under the foregoing provisions, such right shall inure to the benefit of his or her heirs, executors, administrator, and personal representatives. The rights conferred above shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, by-law, resolution of stockholders or directors, agreement, or otherwise. The corporation may additionally indemnify any employee or agent of the Corporation to the fullest extent permitted by law. As used herein, the term "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal administrative, arbitrative, or investigative, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding. ELEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or amendment of this Article Eleventh by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation arising from an act or omission occurring prior to the time of such repeal or amendment. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the foregoing provisions of this Article Eleventh, a director shall not be liable to the Corporation or its stockholders to such further extent as permitted by any law hereafter enacted, including without limitation any subsequent amendment to the Delaware General Corporation Law. TWELFTH: The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law of Delaware. 4 5 I, the undersigned, for the purpose of forming the Corporation under the laws of the State of Delaware, do make, file, and record this Certificate of Incorporation and do certify that this is my act and deed an that the facts stated herein are true and, accordingly, I do hereunto set my hand on this 13th day of June, 1994. /s/ R. JAY TABOR ------------------------------- R. Jay Tabor 5 6 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 04:15 PM 02/13/1996 960042409 - 2409236 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF CHANCELLOR BROADCASTING COMPANY Chancellor Broadcasting Company (the "Corporation"), a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY THAT: FIRST: The name of the Corporation is Chancellor Broadcasting Company. SECOND: The Certificate of Incorporation was filed with the Secretary of State of Delaware on June 13, 1994. THIRD: Article FOURTH of the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") be, and it hereby is, amended and restated to read in its entirety as set forth on Exhibit A attached hereto and incorporated herein by reference. FOURTH: The aforementioned amendment to the Certificate of Incorporation was duly adopted in accordance with Section 242 of the DGCL. Written consent of the Corporation's stockholders has been given in accordance with the provisions of Section 228 of the DGCL. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] 7 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed pursuant to Section 103(a)(2) of the DGCL by the undersigned duly authorized officer of the Corporation as of this 13th day of February, 1996. CHANCELLOR BROADCASTING COMPANY By: /s/ ERIC W. NEUMANN ---------------------------------- Eric W. Neumann Vice President 8 EXHIBIT A FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 1,001,000 shares of capital stock, classified as (i) 1,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), and (ii) 1,000 shares of common stock, par value $.01 per share ("Common Stock"). The designations and the powers, preferences, rights, qualifications, limitations, and restrictions of the Preferred Stock and Common Stock are as follows: 1. Provisions Relating to the Preferred Stock. (a) The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations, and restrictions thereof, as are stated and expressed herein and in the resolution or resolutions providing for the issue of such class or series adopted by the board of directors of the Corporation as hereafter prescribed. (b) Authority is hereby expressly granted to and vested in the board of directors of the Corporation to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, and with respect to each class or series of the Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted providing for the issuance thereof the following: (i) whether or not the class or series is to have voting rights, full, special, or limited, or is to be without voting rights, and whether or not such class or series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock; (ii) the number of shares to constitute the class or series and the designations thereof; (iii) the preferences, and relative, participating, optional, or other special rights, if any, and the qualifications, limitations, or restrictions thereof, if any, with respect to any class or series; A-1 9 (iv) whether or not the shares of any class or series shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the form of cash, notes, securities, or other property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption; (v) whether or not the shares of a class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be established, the annual amount thereof, and the terms and provisions relative to the operation thereof; (vi) the dividend rate, whether dividends are payable in cash, stock of the Corporation, or other property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether or not such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate; (vii) the preferences, if any, and the amounts thereof which the holders of any class or series thereof shall be entitled to receive upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation; (viii) whether or not the shares of any class or series, at the option of the Corporation or the holder thereof or upon the happening of any specified event, shall be convertible into or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities, or other property of the Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and (ix) such other special rights and protective provisions with respect to any class or series as may to the board of directors of the Corporation seem advisable. A-2 10 (c) The shares of each class or series of the Preferred Stock may vary from the shares of any other class or series thereof in any or all of the foregoing respects. The board of directors of the Corporation may increase the number of shares of the Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued shares of the Preferred Stock not designated for any other class or series. The board of directors of the Corporation may decrease the number of shares of the Preferred Stock designated for any existing class or series by a resolution subtracting from such class or series authorized and unissued shares of the Preferred Stock designated for such existing class or series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock. 2. Provisions Relating to the Common Stock. (a) Each share of Common Stock of the Corporation shall have identical rights and privileges in every respect. The holders of shares of Common Stock shall be entitled to vote upon all matters submitted to a vote of the stockholders of the Corporation and shall be entitled to one vote for each share of Common Stock held. (b) Subject to the prior rights and preferences, if any, applicable to shares of the Preferred Stock or any series thereof, the holders of shares of the Common Stock shall be entitled to receive such dividends (payable in cash, stock, or otherwise) as may be declared thereon by the board of directors at any time and from time to time out of any funds of the Corporation legally available therefor. (c) In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock or any series thereof, the holders of shares of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them. A liquidation, dissolution, or winding-up of the Corporation, as such terms are used in this Paragraph (c), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange, or conveyance of all or a part of the assets of the Corporation. 3. General. (a) Subject to the foregoing provisions of this Certificate of Incorporation, the Corporation may issue shares of its Preferred Stock and Common Stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the board A-3 11 of directors of the Corporation, which is expressly authorized to fix the same in its absolute and uncontrolled discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. (b) The Corporation shall have authority to create and issue rights and options entitling their holders to purchase shares of the Corporation's capital stock of any class or series or other securities of the Corporation, and such rights and options shall be evidenced by instrument(s) approved by the board of directors of the Corporation. The board of directors of the Corporation shall be empowered to set the exercise price, duration, times for exercise, and other terms of such options or rights; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof. A-4 12 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 03:00 PM 02/14/1996 960043508 - 2409236 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CHANCELLOR BROADCASTING COMPANY (Pursuant to Section 242 of the General Corporation Law of the State of Delaware) Chancellor Broadcasting Company, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: FIRST: The name of the Corporation is Chancellor Broadcasting Company. SECOND: The First Article of the Corporation's Certificate of Incorporation is amended in its entirety to read as follows: "The name of the Corporation is Chancellor Radio Broadcasting Company." THIRD: A majority of the stockholders of the Corporation entitled to vote on this amendment executed a written consent in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. FOURTH: Said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of the 14th day of February, 1996. CHANCELLOR BROADCASTING COMPANY By: /s/ ERIC W. NEUMANN ----------------------------------- Eric W. Neumann Vice President 13 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 11:00 AM 02/23/1996 960052277 - 2409236 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF CHANCELLOR RADIO BROADCASTING COMPANY Chancellor Radio Broadcasting Company (the "Corporation"), a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY THAT: FIRST: The name of the Corporation is Chancellor Radio Broadcasting Company. SECOND: Article FOURTH of the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") be, and it hereby is, amended and restated to read in its entirety as set forth on Annex A attached hereto and incorporated herein by reference. THIRD: The aforementioned amendment to the Certificate of Incorporation was duly adopted in accordance with Section 242 of the DGCL. Written consent of the Corporation's stockholders has been given in accordance with the provisions of Section 228 of the DGCL. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed pursuant to Section 103(a)(2) of the DGCL by the undersigned duly authorized officer of the Corporation as of this 22nd day of February, 1996. CHANCELLOR RADIO BROADCASTING COMPANY By: /s/ ERIC W. NEUMANN ----------------------------------- Eric W. Neumann Vice President 14 ANNEX A FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 2,001,000 shares of capital stock, classified as (i) 2,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), and (ii) 1,000 shares of common stock, par value $.01 per share ("Common Stock"). The designations and the powers, preferences, rights, qualifications, limitations, and restrictions of the Preferred Stock and Common Stock are as follows: 1. Provisions Relating to the Preferred Stock. (a) The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations, and restrictions thereof, as are stated and expressed herein and in the resolution or resolutions providing for the issue of such class or series adopted by the board of directors of the Corporation as hereafter prescribed. (b) Authority is hereby expressly granted to and vested in the board of directors of the Corporation to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, and with respect to each class or series of the Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted providing for the issuance thereof the following: (i) whether or not the class or series is to have voting rights, full, special, or limited, or is to be without voting rights, and whether or not such class or series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock; (ii) the number of shares to constitute the class or series and the designations thereof; (iii) the preferences, and relative, participating, optional, or other special rights, if any, and the qualifications, limitations, or restrictions thereof, if any, with respect to any class or series; (iv) whether or not the shares of any class or series shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the form of cash, notes, securities, or other property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption; (v) whether or not the shares of a class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be A-1 15 established, the annual amount thereof, and the terms and provisions relative to the operation thereof; (vi) the dividend rate, whether dividends are payable in cash, stock of the Corporation, or other property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether or not such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate; (vii) the preferences, if any, and the amounts thereof which the holders of any class or series thereof shall be entitled to receive upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation; (viii) whether or not the shares of any class or series, at the option of the Corporation or the holder thereof or upon the happening of any specified event, shall be convertible into or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities, or other property of the Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and (ix) such other special rights and protective provisions with respect to any class or series as may to the board of directors of the Corporation seem advisable. (c) The shares of each class or series of the Preferred Stock may vary from the shares of any other class or series thereof in any or all of the foregoing respects. The board of directors of the Corporation may increase the number of shares of the Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued shares of the Preferred Stock not designated for any other class or series. The board of directors of the Corporation may decrease the number of shares of the Preferred Stock designated for any existing class or series by a resolution subtracting from such class or series authorized and unissued shares of the Preferred Stock designated for such existing class or series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock. 2. Provisions Relating to the Common Stock. (a) Each share of Common Stock of the Corporation shall have identical rights and privileges in every respect. The holders of shares of Common Stock shall be A-2 16 entitled to vote upon all matters submitted to a vote of the stockholders of the Corporation and shall be entitled to one vote for each share of Common Stock held. (b) Subject to the prior rights and preferences, if any, applicable to shares of the Preferred Stock or any series thereof, the holders of shares of the Common Stock shall be entitled to receive such dividends (payable in cash, stock, or otherwise) as may be declared thereon by the board of directors at any time and from time to time out of any funds of the Corporation legally available therefor. (c) In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock or any series thereof, the holders of shares of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them. A liquidation, dissolution, or winding-up of the Corporation, as such terms are used in this Paragraph (c), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange, or conveyance of all or a part of the assets of the Corporation. 3. General. (a) Subject to the foregoing provisions of this Certificate of Incorporation, the Corporation may issue shares of its Preferred Stock and Common Stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the board of directors of the Corporation, which is expressly authorized to fix the same in its absolute and uncontrolled discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. (b) The Corporation shall have authority to create and issue rights and options entitling their holders to purchase shares of the Corporation's capital stock of any class or series or other securities of the Corporation, and such rights and options shall be evidenced by instrument(s) approved by the board of directors of the Corporation. The board of directors of the Corporation shall be empowered to set the exercise price, duration, times for exercise, and other terms of such options or rights; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof. A-3 17 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF CHANCELLOR RADIO BROADCASTING COMPANY Chancellor Radio Broadcasting Company (the "Corporation"), a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY THAT: FIRST: The name of the Corporation is Chancellor Radio Broadcasting Company. SECOND: The Certificate of Incorporation was filed with the Secretary of State of Delaware on June 13, 1994. THIRD: Article FOURTH of the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") be, and it hereby is, amended and restated to read in its entirety as follows: "The total number of shares of stock which the Corporation shall have authority to issue is 10,001,000 shares of capital stock, classified as (I) 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), and (II) 1,000 shares of common stock, par value $.01 per share ("Common Stock"). FOURTH: The aforementioned amendment to the Certificate of Incorporation was duly adopted in accordance with Section 242 of the DGCL. Written consent of the Corporation's stockholders has been given in accordance with the provisions of Section 228 of the DGCL. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] 18 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed pursuant to Section 103(a)(2) of the DGCL by the undersigned duly authorized officer of the Corporation as of this 21st day of January, 1997. CHANCELLOR RADIO BROADCASTING COMPANY By: /s/ ERIC W. NEUMANN ---------------------------------- Eric W. Neumann Vice President 2 EX-10.19 3 EMPLOYMENT AGREEMENT - GEORGE TOULAS 1 EXHIBIT 10.19 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into effective as of February 14, 1996, between Chancellor Holdings Corp., a Delaware Corporation ("Holdings"), Chancellor Broadcasting Company, a Delaware corporation ("Company/Employer"), Chancellor Radio Broadcasting Company, a Delaware corporation (the "Broadcasting Subsidiary"), and George C. Toulas (the "Employee"). W I T N E S S E T H: WHEREAS, Holdings, Company/Employer and the Broadcasting Subsidiary (collectively, the "Company") are engaged in the ownership and/or operation of radio broadcast stations WUBE-AM, WUBE-FM, WKYN-AM and WYGY-FM in the Cincinnati, Ohio market; KTCJ-AM, KTCZ-FM, KDWB-FM, KEEY-FM and KFAN-AM in the Minneapolis-St. Paul, Minnesota market; WOCL-FM, WXXL-FM, WOMX-FM, WJHM-FM in the Orlando, Florida market; WWSW-FM and WWSW-AM in the Pittsburgh, Pennsylvania market; WALK-AM/FM, WBLI-FM, WBAB-FM, WHFM-FM, and WGBB-AM in the Nassau-Suffolk Counties, New York Market and WFOX-FM in the Atlanta, Georgia market (collectively, the "Stations"); WHEREAS, the Company desires to employ the Employee in an executive capacity to assume supervisory responsibilities of the Stations; WHEREAS, the Employee desires to be employed by the Company in said capacity; WHEREAS, the Employee is currently employed by the Company pursuant to an employment agreement which the parties hereto desire to supersede by the execution and delivery of this Agreement; and WHEREAS, the parties hereto desire to set forth in writing the terms and conditions of their understandings and agreements. NOW THEREFORE, in consideration of the foregoing, of the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. EMPLOYMENT PERIOD. Unless earlier terminated in accordance with the terms of this Agreement, the period of the Employee's employment under this Agreement (the "Employment Period") shall commence on February 14, 1996 (the "Employment Date") and shall end upon the earlier of (a) the termination of this Agreement in accordance with Section 6 below, and (b) December 31, 2000. 2. DUTIES. (a) The Employee shall serve as a Senior Vice President of the Company and as Regional Manager of the Stations. The Employee shall diligently devote his working time, attention, knowledge and skills solely to the business and interest of the Company and shall discharge the duties and assume the responsibilities assigned to him from time to time by the Chief Executive Officer and Board of Directors of Company (it being specifically understood 1 2 that such duties and responsibilities may from time to time relate to the operations of broadcast stations other than the stations that are owned by the Company or its Affiliates (as hereinafter defined)). Notwithstanding any additional duties assigned to the Employee relating to the operations of other broadcast stations owned by the Company or its Affiliates, the Company hereby agrees that in connection with such additional duties, the Employee will not be required without his consent to move to a location other than the Cincinnati, Ohio area. (b) The Company shall be entitled to all of the benefits, profits or other issues arising from or incident to all work, services and advice of the Employee. The Employee shall not during the term hereof be interested, directly or indirectly without the written consent of the Company, which consent shall not be unreasonably withheld, in any manner, as a partner, officer, director, stockholder, advisor, investor, creditor or employee, or in any other capacity, in any broadcast station, cable television operator, or daily newspaper; provided, however, that nothing contained herein shall be deemed or prevent the Employee from investing his personal funds in the capital stock or other securities of a corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, provided he does not own more than two percent (2%) thereof. (c) During the term of this Agreement, Employee shall notify Company within 24 hours of any written solicitation of Employee for employment. Further, during the term of this Agreement, Employee will not enter into nor engage in negotiations for agreements, whether oral or written, relating to employment, consulting or affiliation and/or any other arrangements with or for any radio, television or cable broadcast station or broadcast company located in the markets in which the Company owns or operates a radio station. 3. COMPENSATION. As compensation for the Employee's services as set forth in Section 2 hereof, the Company hereby agrees to pay the Employee, and the Employee agrees to accept: (a) a base salary (the "Base Salary"), payable in accordance with the Company's payroll policies, at an annual rate of Three hundred Seventy-Five Thousand Dollars ($375,000), prorated for the period from February 14, 1996 through December 31, 1996. On December 31, 1996, and on each December 31 thereafter during the term of this Agreement (each an "adjustment Date"), the Base Salary for the next succeeding year shall be increased not less than three percent but not more than five percent over the amount of the Base Salary in effect for the year ended on such Adjustment Date, as determined by the Chief Executive Officer and Board of Directors of the Company; (b) an annual bonus of 50% of the Employee's Base Salary (the "Broadcast Cash Flow Bonus") for each fiscal year of the Company subsequent to 1995, based on the Stations achieving the broadcast cash flow projections published in the Financial Projections Book dated December 11, 1996 and outlined in Exhibit A attached hereto and incorporated by reference herein or otherwise established by the Board of Directors of the Company (the "BCF Projections"), it being understood that the Employee shall be entitled to receive within 20 days after the end of each fiscal quarter in which the Stations achieve the BCF Projections therefor, as payment against the Broadcast Cash Flow Bonus for the fiscal year in which such fiscal quarter occurred, an amount equaling one-eight of the maximum possible Broadcast Cash Flow Bonus for such fiscal year, with the remaining amount of the Broadcast Cash Flow Bonus, if any, to be paid within 60 days 2 3 after the end of such fiscal year. EMPLOYEE shall receive an annual bonus of 40% of the EMPLOYEE's Base Salary for each fiscal year of the Company subsequent to 1995, based on the Stations achieving 97.5% of the BCF Projections. The BCF Projections will be adjusted to reflect acquisitions or dispositions of stations under the supervision of the Employee, and the stations under the supervision of the Employee after any such acquisition or disposition shall be deemed thereafter to be the Stations for all purposes of this Agreement. In the event the Stations do not achieve in any fiscal year at least 97.5% of the BCF Projections therefor but the consolidated broadcast cash flow projection for the Company set forth in Exhibit A or otherwise established for such year by the Board of Directors of the Company (the "Consolidated BCF Projection") is achieved, the Chief Executive Officer, subject to the authority of the Board of Directors of the Company, may elect to pay the Broadcast Cash Flow Bonus to the Employee. (c) an annual bonus for each fiscal year equaling 10% of the amount by which the aggregate broadcast cash flow for the Stations exceeds the aggregate BCF Projections for the Stations for such fiscal year, provided, however that at the discretion of the Chief Executive Officer and the Board of Directors of the Company, the Company may decline to pay such a bonus for any fiscal year if the Company fails to achieve the Consolidated BCF Projection for such fiscal year. 4. BENEFITS. (a) The Company shall provide the benefits to the Employee set forth below, which benefits may be modified from time to time, at the sole discretion of the Company, e.g., the Company may select a different health care provider with competitive rates, provided that comparable benefits are offered to the Employee in place of the benefits which are modified. (b) The Company shall provide the Employee, and keep in full force and effect, a term life insurance policy with a face amount of Two Hundred Fifty Thousand Dollars ($250,000.00) without cost to Employee except, Employee shall be solely responsible for the payment of any federal and/or state taxes that be levied as a result of the Company furnishing said policy, and the Employee, his estate and heirs shall indemnify and hold harmless the Company from any and all taxes related thereto. The Employee shall have the privilege of designating the beneficiary thereof and may change the beneficiary thereof by written notice to the Company and shall further have any other rights or ownership provided by said policy subject to the rules and regulations of the issuing insurance company. Upon termination of this Agreement, the Company shall assign said policy to the Employee without cost to the Employee, provided that the Employee shall pay all premiums and other costs relating to such policy from the date of such assignment. (c) The Company shall provide the Employee and his immediate family major medical coverage and, if the Employee qualifies, disability insurance in an annual amount of One Hundred Twenty-Five Thousand Dollars ($125,000.00). If the Company is notified that the Employee does not qualify for such disability insurance, the Company will give the Employee written notice within five (5) working days after the Company is so notified. (d) The Employee shall be reimbursed for all reasonable and necessary business expenses for travel (which shall be deemed to include first class air travel) and entertainment in connection with the Company's business; provided, however, that no reimbursement shall be made for any expenses unless they are evidenced by valid receipts and documents and are properly 3 4 deductible, to the extent such expenses are deductible for federal income tax purposes, and are consistent with the Company's policies as established from time to time. In the event that the Company shall determine in its sole discretion that certain categories of expenses which have been previously reimbursable will no longer be reimbursable then, in that event, the Company shall provide the Employee with thirty (30) days written notice of same; provided, however, that any such unreimbursable expenses incurred by the Employee prior to the effective date of the notice will nevertheless be reimbursed by the Company. (e) In addition, the Company will provide the Employee with use of an automobile with a value of up to Sixty Thousand Dollars ($60,000.00) and shall reimburse the Employee for taxes associated with said automobile. (f) The Employee shall be given four (4) weeks paid vacation each calendar year, as well as personal leave, holiday leave and sick leave in accordance with the general practice of the Company. Said vacation shall not be taken for four (4) continuous weeks, but must be taken in accordance with the Company's policies, as in effect from time to time. (g) The Company shall provide the Employee with a membership at a tennis, fitness or business lunch club, or similar facility, the use of which shall be for business purposes and the annual dues of which shall not exceed Seventy Five Hundred Dollars ($7,500.00). The Company shall have the right to approve such membership in advance and shall thereafter pay the cost and expenses of such membership. The Employee's membership in said club shall automatically terminate upon the termination of his employment for any reason. (h) The Employee shall be entitled to participate in the Company's Stock Option Plan in accordance with the terms thereof and, at the discretion of the Board of Directors of the Company, shall be granted awards thereunder from time to time. 5. DEATH OR DISABILITY. This Agreement shall terminate immediately upon the Employee's death. In the event the Employee shall become Disabled (as hereinafter defined), the Company shall have the right to terminate this Agreement as of a date not less than ten (10) days from the date of written notice to the Employee or his personal representative, and the Employee or his personal representative shall be entitled to receive the Employee's earned salary and earned bonus, if any, at the rates provided in Section 3 of this Agreement, through the end of the month in which such termination occurs. The Employee shall be deemed to have become 'Disabled' if because of ill health, physical or mental Disability (as hereinafter defined) or for other causes beyond his control he shall have been unable to perform his duties hereunder for a period of twelve (12) consecutive weeks or for a cumulative total of four (4) months in a calendar year. 'Disability' shall mean physical or mental impairment of the Employee which results in the inability of the Employee to engage in his regular duties in the same fashion and to the same extent as others occupying the same position in the radio industry. Disability shall be established by a written certification by a medical doctor agreed to by the Company and the Employee. In the absence of such an agreement, the Company and the Employee shall each nominate a qualified medical doctor and these two doctors shall select a third qualified medical doctor, which third doctor shall make the determination as to the Disability of the Employee. 4 5 6. TERMINATION OF EMPLOYMENT. (a) The Employment Period may be terminated at any time by the Company by written notice to the Employee. Notwithstanding anything to the contrary contained herein, if such termination is with Cause (as hereinafter defined), all of the Employee's rights to compensation and other rights under Sections 3, 4 and 5 above shall terminate upon such termination, except the right to payment for amounts accrued in respect of periods prior to such termination, which amounts, if any, shall be paid in a lump sum. If such termination is without Cause, the Company shall pay to the Employee, in a lump sum, an amount equal to (i) any amounts accrued in respect of period prior to such termination including but not limited to salary and all bonuses plus (ii) his aggregate Base Salary for two years from the date of termination. Termination "For Cause" is defined as follows: * Employee materially breaches the Agreement, after receipt of written notice by Employer, and Employee's failure to commence to cure within 30 days and to complete cure within 60 days, or such longer time as Employer may specify. * Employee is convicted of a felony under federal, state or local laws. * If Employer reasonably determines, upon written notice and following a hearing by a court of competent jurisdiction or by arbitration, that Employee has violated rules or policies of the Federal Communications Commission (FCC) or any applicable law which may jeopardize the Station's FCC license and authorizations. * Employee is intoxicated or uses, possesses, sells, trades in, delivers, or is under the influence of any illegal drug while performing duties for Employer or on premises of Employer. * Employee commits any act involving moral turpitude under federal, state or local laws, or which might reflect unfavorably upon the Employer, the Station, the sponsors, if any, of their advertising agencies, if any, or otherwise injure the success of the programs. (b) The Employment Period may be terminated at any time by the Employee for Good Reason (as hereinafter defined) by written notice to the Company, "Good Reason" shall mean (i) any change in the Employee's functions, duties or responsibilities from his position on the Employment Date without the Employee's consent if such change would (x) reduce the Employee's functions, duties or responsibilities from those in effect on the Employment Date of the date of amendment, whichever is applicable, to a level that is not commensurate with those of an executive in the Employee's position prior to such change (it being understood that the reassignment of any of the Employee's functions, duties, or responsibilities to one or more other persons who report directly or indirectly to the Employee shall not be considered a reduction of the Employee's functions, duties or responsibilities, or (y) cause the Employee's position with the Company to become one of lesser importance or scope or (ii) any material breach of this Agreement by the Company which is not cured within 30 days after written notice from the Employee to the Company. If the Employment Period is terminated by the Employee for Good Reason, the Company shall pay to the Employee, in monthly installments equal to the Employee's monthly Base Salary at the time of termination, the same amount the Employee would have been 5 6 paid had the Company terminated his employment without cause. If the Employee voluntarily terminates his employment without Good Reason, all his rights to compensation and other rights under Sections 3, 4 and 5 shall terminate immediately, except the right to payment for amounts accrued in respect of periods prior to such termination. (c) Any amounts payable to the Employee in installments pursuant to this Section 6 may, at the option of Company, be paid in a lump sum rather than in installments as provided above. In any event, all such amounts (whether paid in installments or in a lump sum) shall be considered severance payments and be in full and complete satisfaction of the obligations of the Company to the Employee in connection with the termination of the Employee. For purposes of this Agreement, the Employee's right to bonus payment shall accrue in accordance with paragraph 3 herein. During the period any payments are being made to the Employee pursuant to this Section 6, the Employee shall be entitled to continue to participate in all employee benefit plans available to employees of the Company generally and to continuation of any perquisites provided to the Employee by the Company at the time of termination (except that the Employee will be required to return the automobile provided by the Company hereto within 30 days of the Employee's termination). 7. COVENANT NOT TO COMPLETE. (a) The Employee does hereby agree, subject to the provision set forth in Section 2(b) of this Agreement, that he shall not during the term of this Agreement or any extension hereof and for a period of six (6) months after expiration or termination of his employment with the Company be directly or indirectly employed or retained by, own, manage, invest, lend money to, guarantee the obligation of, participate in, associate with, advise, or be connected in any manner as an officer, stockholder, employee, partner, director, consultant, advisor, investor or creditor of, any broadcast station in competition with the Company or licensed to or whole transmitter is located within any community or Metro Survey Area (as defined by Arbitron) of any of the Stations or any other radio stations owned by the Company or its affiliates where the Employee is working day-to-day at said stations or supervising said stations at the time of such termination of employment. (b) In the event any provision herein shall be deemed invalid or unenforceable in any respect by any court or other tribunal of competent jurisdiction as to any one or more periods of time, geographical areas, business or activities, the remaining provisions shall not thereby by effected but shall remain in full force and effect, and this Agreement shall be deemed to be amended without further action by the parties hereto to the extent necessary to render it valid and enforceable, all as determined by such court or tribunal. (c) The Employee further acknowledges and agrees that in the event of a breach or threatened breach of the covenants in this Section 7, the Company shall be entitled to request from a court of competent jurisdiction the entry of a temporary restraining order upon notice to the Employee, as well as the entry of a preliminary and permanent injunction. Said right to an injunction shall be in addition to and not in limitation of any other right or remedies the Company may have for damages or otherwise. (d) In addition, during the term of this Agreement and for a period of one (1) year after expiration or termination, regardless of whether terminated with or without cause, either by Employer or Employee, Employee agrees he shall not directly or indirectly solicit, 6 7 attempt to solicit, induce or attempt to induce any officer, full-time or part-time Employee or consultant of Employer to terminate their employment with Employer or (directly or indirectly employ, hire, retain or) assist in the employing, hiring or retaining or be associated in any manner in any business with a person who within one (1) year prior to such employment, hiring or retainer was employed or connected with in any manner, the Employer or any of its stations. 8. CONFIDENTIAL INFORMATION AND TRADE SECRETS. (a) The Employee acknowledges that during the course of his regular duties, he will have access to confidential information and trade secrets of the Company and its subsidiaries, including, but not limited to financial information, data relating to formats, promotions, hiring plans, market studies, concepts, strategies, methods of doing business and other "know how" ("Confidential Information"), which the Employee acknowledges to be a valuable trade asset of the Company; provided, it is understood that common general practices in the radio industry and knowledge in the public domain shall not be considered Confidential Information. The Employee shall not at any time during the term of this Agreement or at any time after termination of employment for any reason, directly or indirectly, use for himself or others, or divulge to others any Confidential Information or other data of the Company obtained as a result of his employment. (h) In the event the covenant set forth in this Section 8 is violated, the Company shall be entitled to injunctive relief to prevent the continued violation of this provision. 9. TRADE NAME, TRADEMARKS AND COPYRIGHTS. The Employees shall at no time during or after the termination of his employment have or claim to have any right, title or interest in any trade name, trademark, service mark, copyright, mailing or circulation lists, manuscripts, artwork, or character name belonging to or used or to be used by the Company or any of its other employees, it being the intention of this Agreement that the Employee shall, and hereby does, recognize that the Company now has and retains, and hereafter may have and retain, the sole and exclusive right in any and all such trade names, trademarks, service marks, copyrights, character names, and other material and matter referred to in this Section 9. 10. PUBLIC STATEMENT. The Employee agrees not to directly or indirectly publish, circulate, utter or disseminate, or cause to be publicized, circulated, uttered or disseminated, in any manner of by any means whatsoever, to any person or person whomsoever, any statements, comments or material whatsoever, which could or would, in any manner whatsoever, either reflect unfavorable on the reputation of the Company or harm, damage or impair the business or operation of the Company unless required by law of by a valid order of a court of competent jurisdiction. Sections 8 through 10 of this Agreement shall apply whether this Agreement is terminated by the Company, the Employee, or upon its expiration. 11. FREEDOM TO CONTRACT. The Employee represents and warrants that he has the right to negotiate and enter into this Agreement and that this Agreement does not breach, interfere with or conflict with any other contractual agreement, covenant not to compete, option, right of first refusal or other existing business relationship. 12. INDEMNITY. The Company shall indemnify the Employee in his capacity as an officer of the Company in accordance with Article Ninth of the Second Restated Certificate of Incorporation of Holdings as in effect on the Employment Date. 7 8 13. ASSIGNMENT. The obligations and rights of the Employee under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, and the Company may, at its option, assign this Agreement to the purchaser of all or substantially all of the assets of the Company or the Stations, subject to the Agreement Regarding Change in Control to become a part of this Agreement. 14. SEVERABILITY. The invalidity or unenforceability of any term or provision of this Agreement shall not affect the validity or enforceability of any other term or provision of this Agreement, and this Agreement shall be construed in all other respects as if the invalid or unenforceable term or provision were omitted. 15. WAIVER. A waiver by either party of any term or condition of this Agreement in any instance shall not be construed as a waiver of any other term or condition. All remedies, rights and obligations contained in this Agreement shall be cumulative, and none of them shall be in limitation of any other remedy, right or obligation of either party. 16. APPLICABLE LAW. This Agreement shall be construed in accordance with the laws of the State of Texas and is subject to the terms of licenses now and hereafter held by the Company and all applicable federal, state and municipal laws, ordinances and regulations now and hereafter in force. 17. HEADINGS. The headings used in this Agreement are used for reference purposes only and are not deemed controlling with respect to the contents hereof. 18. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart shall for all purposes be deemed to be an original. 19. ENTIRE AGREEMENT. This Agreement including the Exhibits referenced herein and attached hereto sets forth the entire understanding of the parties with respect to the Company's employment of the Employee and supersedes all previous agreements and understandings with respect to such matter, and it may not be changed except by a written document executed by all of the parties hereto. 20. BINDING EFFECT. The terms of this agreement shall be binding upon and inure to the benefit of and shall be enforceable by the parties' respective successors, assigns, heirs, beneficiaries and personal representatives. 8 9 21. NOTICES. Any notices to be given hereunder by either party to the other shall be in writing and shall be deemed given when personally delivered or five (5) days after having been mailed by Federal Express or other overnight mail service, or by certified mail, postage prepaid, return receipt requested, addressed as follows: If to the Company, Holdings or the Broadcasting Subsidiary: c/o Chancellor Broadcasting Company 12655 North Central Expressway Suite 405 Dallas, Texas 75243 Attention: Steven Dinetz With a copy to: Matthew Leibowitz, Esq. Leibowitz & Associates, P.A. 1 SE 3 Avenue, Suite 1450 Miami, Florida 33131 Jeremy W. Dickens Weil, Gotshal & Manges, L.L.P. 100 Crescent Court Suite 1300 Dallas, Texas 75201 If to the Employee: George C. Toulas 6750 Hidden Hill Cincinnati, Ohio 45230 With a copy to: Cyd Beth Wolf, Esq. 2840 Legg Mason Tower 111 South Calbert Street Baltimore, MD 21202 22. ATTORNEY'S FEES. In the event any action at law or in equity is necessary to enforce or interpret the terms of this AGREEMENT, the prevailing part shall be entitled to receive reasonable attorneys fees, expenses and costs, in addition to any other relief to which the party may be entitled, for both the trial and appellate levels. 9 10 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. CHANCELLOR HOLDINGS CORP. By: /s/ STEVEN DINETZ ---------------------------- Steven Dinetz President CHANCELLOR BROADCASTING COMPANY By: /s/ STEVEN DINETZ ---------------------------- Steven Dinetz President CHANCELLOR RADIO BROADCASTING COMPANY By: /s/ STEVEN DINETZ ---------------------------- Steven Dinetz President /s/ GEORGE C. TOULAS -------------------------------- George C. Toulas EX-10.20 4 EMPLOYMENT AGREEMENT - JACQUES KERREST 1 EXHIBIT 10.20 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement" is entered into effective as of February 14, 1996, between Chancellor Broadcasting Company, a Delaware corporation (the "Company"), Chancellor Radio Broadcasting Company, a Delaware corporation (the "Broadcasting Subsidiary"), and Jacques Kerrest (the "Employee"); W I T N E S S E T H: WHEREAS, the Company and the Broadcasting Subsidiary desire to employ Employee, and Employee desires to be employed by the Company and the Broadcasting Subsidiary, in accordance with the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants and promises made by the parties and intending to be legally bound, the parties agree as follows: 1 . EMPLOYMENT. The Company and the Broadcasting Subsidiary hereby employ Employee for the Employment Period specified in Section 2 below in the capacity of EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER or such other comparable management position or positions as designated by the Board of Directors of the Company (the "Board of Directors") from time to time. The Employee hereby accepts such employment and, unless otherwise agreed to by the Board of Directors, agrees to devote his full business time and efforts to the performance of his duties hereunder and as an employee of the Company and the Broadcasting Subsidiary or their respective subsidiaries, and under the direction of the President and Chief Executive Officer of the Company and Broadcasting Subsidiary; provided, however, that nothing contained in this Section 1 shall be construed to prevent the Employee from devoting a reasonable amount of time to personal business and civic activities. Employee shall be responsible for finance, treasury, administration, acquisition, and strategic initiatives for the Company and Broadcasting Subsidiary. 2. EMPLOYMENT PERIOD. The period of the Employee's employment under this Agreement (the "Current Employment Period") shall be for a term of two (2) years, commencing on February 14, 1996, and shall be extended for successive one (1) year terms on the same terms and conditions as this Agreement unless re-negotiated by mutual consent of the parties, or upon termination of this Agreement as contemplated by Section 6 below, unless the Company or the Employee gives the other written notice to the contrary not more than 90 days and not less than 30 days prior to expiration of the Employment Period. 3. COMPENSATION. As compensation for all services rendered and to be rendered pursuant to this Agreement, the Company and the Broadcasting Subsidiary agree to pay Employee: 2 (i) a base salary (pro rata for any partial year) at the rate of $225,000 per year (the "Base Salary", which base salary shall be adjusted by either (a) 5% p.a. or (b) at discretion of Board of Directors (Compensation Committee); and (ii) an annual bonus of up to $75,000 for each fiscal year, to be negotiated in good faith and adjusted annually to reflect the performance of the Company and Broadcasting Subsidiary and subject to the determination of the Chief Executive Officer. The Base Salary, when payable pursuant to the terms hereof, shall be payable in semi-monthly installments in accordance with the payroll practices of the Company and the Broadcasting Subsidiary as in effect from time to time. The Bonuses, when payable pursuant to the terms hereof, shall be payable within ninety days after the end of the applicable periods. To the extent the Company and the Broadcasting Subsidiary desire, the amounts payable under this Agreement may be paid by one or more subsidiaries of the Company or the Broadcasting Subsidiary. The party making such payment shall have the right to deduct from any compensation and other amounts paid under this Agreement all taxes and other amounts which may be required to be deducted or withheld by law (including, but not limited to, income tax withholding and social security payments), whether such laws are now in effect or become effective after the date of this Agreement. 4. EMPLOYMENT BENEFITS. (a) The company shall provide the benefits to the Employee set forth below, which benefits may be modified from time to time, at the sole discretion of the Company, e.g., the Company may select a different health care provider with competitive rates, provided that comparable benefits are offered to the Employee in place of the benefits which are modified. (b) The Company shall provide the Employee, and keep in full force and effect, without cost to Employee, a term life insurance policy with a face amount of Two Hundred Fifty Thousand Dollars ($250,000). The Employee shall be solely responsible for the payment of any federal and/or state taxes that may be levied as a result of the Company furnishing said policy, and the Employee, his estate, or heirs shall indemnify and hold harmless the Company from any and all taxes related thereto. The Employee shall have the privilege of designating the beneficiary thereof and may change the beneficiary thereby by written notice to the Company and shall further have any other rights of ownership provided by said policy subjectrmination of this Agreement, the Company shall assign said policy to the Employee without cost to the Employee (provided that the Employee shall pay all premiums and other costs relating to such policy from the date of such assignment). (c) The company shall provide the Employee and his immediate family major medical coverage and, if the Employee qualifies, disability insurance in an annual amount of One Hundred Twenty-Five Thousand Dollars ($125,000). If the Company is notified that the Employee does not qualify for such disability insurance, the Company will give the Employee written notice within five (5) days after the Company is so notified. 2 3 (d) The Employee shall be reimbursed for all reasonable and necessary business expenses for travel (which shall be deemed to include first class air travel) and entertainment in connection with the Company's business; provided, however, that no reimbursement shall be made for any expenses unless they are evidenced by valid receipts and documents and are property deductible, to the extent such expenses are deductible for federal income tax purposes, and are consistent with the Company's policies as established from time to time. In the event that the Company shall determine in its sole discretion that certain categories of expenses have which have been previously been reimbursable will not be reimbursable then, in that event, the Company shall provide the Employee with thirty (30) days written notice of same; provided, however, that any such unreimbursable expenses incurred by the Employee prior to the effective date of the notice will nevertheless be reimbursed by the Company. (e) In addition, the Company will provide the Employee with use of an automobile with a value of up to Forty Thousand Dollars ($40,000) and shall reimburse the Employee for taxes associated with said automobile. (f) The Employee shall be given four (4) weeks paid vacation each calendar year, as well as personal leave, holiday leave, and sick leave in accordance with the general practice of the Company. Said vacation shall not be taken for four (4) continuous weeks, but must be taken in accordance with the Company's policies, as in effect from time to time. (g) The Company shall provide the Employee with a membership at a tennis, fitness, or business lunch club, or similar facility, the use of which shall be for business pur0). The Company shall have the right to approve such membership. The Employee's membership in said club shall automatically terminate upon the termination of his employment for any reason. (h) The Employee shall be entitled to participate in the Company's Stock Award Plan in accordance with the terms thereof and, at the discretion of the Chief Executive Officer of the Company, shall be granted awards thereunder from time to time (i) The Employee shall be reimbursed moving expenses for him and his family when head office is permanent and shall be reimbursed for travel expenses for spouse to search for living accommodations. 5. TERMINATION OF EMPLOYMENT. (a) The Employment Period may be terminated at any time Broadcasting Subsidiary by written notice to the Employee. Notwithstanding anything to the contrary contained herein, if such termination is "for cause" (as defined below), all of the Employee's rights to compensation and other rights under Sections 3 and 4 above shall terminate upon such termination, except the right to payment for amounts accrued in respect of periods prior to such termination, which amounts, if any, shall be paid in a lump sum. If such termination is with Financial Cause (as defined below) (but without Cause) the Company and the Broadcasting Subsidiary shall pay to the Employee, in monthly installments equal to Employee's monthly Base 3 4 Salary at the time of termination, an amount equal to (x) any amounts accrued in respect of periods prior to such termination, plus (y)one years' Base Salary. (b) If such termination is "without cause" or Financial Cause, or in the event the duties,functions, or responsibilities of Employee change materially, the Company and the Broadcasting Subsidiary shall pay to the Employee, in a lump sum, an amount equal to (x) two years annual bonus plus (y) his aggregate Base Salary, for two years from the date of termination. "Cause" shall mean (i) fraud, dishonesty, unethical practices or gross misconduct in office on the part of the Employee, (ii) a material breach by the Employee of any of his obligations hereunder which is not cured within 30 days after written notice from the Company to Employee, (iii) a material failure to perform Employee's duties as an employee of the Company, the Broadcasting Subsidiary or any of their subsidiaries, as determined by the Chief Executive Officer, which failure is not cured within 60 days after written notice from the Chief Executive Officer, or (iv) conviction of the Employee for fraud, misappropriation, embezzlement or any felony. "Financial Cause" shall mean (i) that either (A) the Company, the Broadcasting Subsidiary or any of their subsidiaries shall violate any financial covenant contained in any debt instrument or agreement to which the Company, the Broadcasting Subsidiary or any of its subsidiaries is a party or by which it may be bound or (B) the Employee shall act or fail to act with respect to a matter for which Employee is directly responsible, in either case with the result that such violation, action, or failure to act (x) results in the acceleration of the maturity of any debt of the Company, the Broadcasting Subsidiary or any of their subsidiaries or (y) enables (or, with the giving of notice or lapse of time or both, would enable) the holder or holders of such debt to accelerate the maturity thereof and such violation, action or failure to act remains uncured for a period of 91 consecutive days, or (ii) the Company or the Broadcasting Subsidiary shall fail to meet at least 90 of its budgeted operating income, as approved by the Chief Executive Officer, for two consecutive fiscal years. (c) The Employment Period may be terminated at any time by the Employee for Good Reason (as defined below) by written notice to the Company and the Broadcasting Subsidiary. "Good Reason" shall mean: (i) any change in the Employee's functions, duties or responsibilities from his position on the Employment Date without Employee's consent if such change would (A) reduce the Employee's functions, duties, or responsibilities from those in effect on the Employment Date or the date of amendment, whichever is applicable, to a level that is not commensurate with those of an executive in the Employee's position prior to such change (it being understood that the reassignment of any of Employee's functions, duties, or responsibilities (other than those customarily performed by a chief financial officer of a business of comparable size and complexity) to one or more other persons who report directly or indirectly to Employee shall not be considered a reduction of Employee's functions, duties or responsibilities), or (6) cause the Employee's position with the Company and the Broadcasting Subsidiary to become one of lesser importance or scope; and (ii) any material breach of this Agreement by the Company or the Broadcasting Subsider written notice from Employee to the Company and the Broadcasting Subsidiary. If the Employment Period is terminated by the Employee for Good Reason, the 4 5 Company and the Broadcasting Subsidiary shall pay to the Employee, in monthly installments equal to Employee's monthly Base Salary at the time of termination, the same amount Employee would have been paid had the Company and the Broadcasting Subsidiary terminated his employment without Cause or Financial Cause. If Employee voluntarily terminates his employment without Good Reason, all his rights to compensation and other rights under Sections 3, 4 and 5 shall terminate immediately. (d) If Employee shall die during the Employment Period, the Employment Period shall terminate, and the Company and the Broadcasting Subsidiary shall pay, in monthly installments equal to Employee's monthly Base Salary at the time of termination, to any beneficiary or beneficiaries designated by the Employee in writing or, if none, to his estate or legal representative an amount equal to (x) any amounts accrued in respect of periods prior to Employee'sdeath plus (y) six months' Base Salary. (e) If Employee is unable to discharge his duties hereunder for a period of six consecutive months, or for a total of six months in any 12-month period, by reason of physical or mental illness, injury or incapacity, the Company and the Broadcasting Subsidiary may, by written notice to Employee, terminate the Employment Period. In such case, the Company and the Broadcasting Subsidiary shall pay to the Employee, in monthly installments equal to Employee's monthly Base Salary at the time of termination, an amount equal to (x) any amounts accrued in respect of periods prior to Employee's incapacity (or disability) plus (y) six months' Base Salary less (z) the amount of any and all proceeds received or receivable by the Employee from any disability insurance policies maintained by the Company and the Broadcasting Subsidiary. (f) Any amounts payable to the Employee in installments pursuant to this Section 5 may, at the Company's and the Broadcasting Subsidiary's option, be paid in a lump sum rather than installments as provided above. In any event, all such amounts (whether paid in installments or in a lump sum) shall be considered severance payments and be in full and complete satisfaction of the obligation of the Company and the Broadcasting Subsidiary to Employee in connection with the termination of the Employee. For purposes of this Section 5, Employee's right to Bonus payments shall accrue only on the date the Board of Directors awards such Bonus. During the period any payments are being made to Employee pursuant to this Section 5, Employee shall be entitled to continue to participate in all employee benefit plans available to employees of the Company and the Broadcasting Subsidiary generally and to continuation of any perquisites provided the Employee by the Company and the Broadcasting Subsidiary at the time of termination (except that Employee will be required to return the automobile provided by the Company and the Broadcasting Subsidiary pursuant hereto within 30 days of Employee's termination). 6. CONFIDENTIALITY. (a) During the Employment Period and for an additional period of five years thereafter, Employee shall not use for his personal benefit, or disclose, communicate or divulge 5 6 to, or use for the direct or indirect benefit of any person, firm, association or company other than the Company or its subsidiaries, any Confidential Information. "Confidential Information" means information relating to the services or operations of the Company or any subsidiary thereof that is not generally known, is proprietary to the Company or such subsidiary and is made known to Employee or learned or acquired by Employee while in the employ of the Company or the Broadcasting Subsidiary, including, without limitation, (i) information relating to research, development, purchasing, accounting, marketing, merchandising, advertising, selling, leasing, finance and business methods and techniques and (ii) customer lists and other information relating to past, present or prospective customers, However, Confidential Information shall not include under any circumstances any information with respect to the foregoing matters that becomes publicly available through no fault of Employee or is available to Employee from other sources who have not secured such information on a confidential basis from the Company or any affiliate thereof. All materials or articles of information of any kind fumished to Employee by the Company or any of its subsidiaries or developed by Employee in the coperty of the Company or such subsidiary, as applicable; and if the Company or such subsidiary, as applicable, requests the return of such information at any time during, upon or after the termination of Employee's employment, Employee shall immediately deliver the same to the Company or such subsidiary, as applicable (b) Employee acknowledges that, in view of the nature of the business in Company and its subsidiaries are engaged, the restrictions contained in Sections 6(a) are reasonable and necessary in order to protect the legitimate interests of the Company and its subsidiaries, and that any violation thereof would result in irreparable injuries to the Company and its subsidiaries, and Employee therefore further acknowledges that, in the event Employee violates, or threatens to violate, any of such Restrictions, the Company and its subsidiaries shall be entitled to obtain from any court of competent jurisdiction, without the posting of any bond or other security, preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity,to which the Company or its subsidiaries may be entitled. (c) If any Restriction, or any part thereof, shall be determined in any judicial or administrative proceeding to be invalid or unenforceable, the remainder of the Restrictions shall not thereby beaffected and shall be given full effect, without regard to the invalid provisions. If the period of time or the area specified in the Restrictions shall be determined in any judicial or administrative proceeding to be unreasonable, then the court or administrative body shall have the power to reduce the period of time or the area covered and, in its reduced form, such provisions shall then be enforceable and shall be enforced. (d) If Employee violates any of the Restrictionse of the commencement of any such violation until such time as such violation shall be cured by Employee to the reasonable satisfaction of the Company or its subsidiaries, as applicable. 6 7 7. REPRESENTATIONS BY EMPLOYEE. The Employee hereby represents and warrants to the Company and the Broadcasting Subsidiary that (a) the Employee's execution and delivery of this Agreement and his performance of his duties and obligations hereunder will not conflict with, or cause a default under, or give any party a right to damages under, or to terminate, any other agreement to which the Employee is a party or by which he is bound, and (b) there are no agreements or understandings that would make unlawful the Employee's execution or delivery of this Agreement or his employment hereunder. 8. NOTICES. All notices and other communications required or permitted hereunder will be in writing and, unless otherwise provided in this Agreement, will be deemed to have been duly given when delivered in person or when dispatched by electronic facsimile transfer (confirmed in writing by mail simultaneously dispatched) or one business day (if sent to and from locations in the same country) or three business days (if sent to or from the United States from or to any other territory) after having been dispatched by a nationally recognized overnight couder service to the appropriate party at the address specified below: If to the Company or the Broadcasting Company: 12655 N. Central Expressway, Suite 405 Dallas, Texas 75243 Fax No.: 214/239-0220 Attn: Steven Dinetz with copies to: Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attention: Eric C. Neuman Fax No.: 214/740-7355 and, in the case of the Employee, at his business address at: 12655 N. Central Expressway, Suite 405 Dallas, Texas 75243 Fax No.: 214/239-0220 Either party may designate a different address by giving notice of change of address in the manner provided above. 9. WAIVER. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provisions hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar 7 8 to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 10. BINDING EFFECT; SUCCESSORS. This Agreement shall be binding upon and shall inure to the benefit of the Company and the Broadcasting Subsidiary and their respective successors and assigns, and shall inure to the benefit of and be binding on upon the Employee and his executors, administrators, heirs and legal representatives. Because the Employee's duties and services hereunder are special, personal and unique in nature, the Employee may not transfer, sell or otherwise assign his rights, obligations or benefits under this Agreement. 11. CONTROLLING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas applicable to contracts made and to be performed therein. 12. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect or impair the validity or enforceability of the remaining provisions of this Agreement, which shall remain in full force and effect and the parties hereto shall continue to be bound thereby. 13. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties relating to the subject matter hereof and shall supersede all previous agreements (including the Original Employment Agreement) between the parties, whether written or oral, with respect to the subject matter hereof. This Agreement cannot be modified, altered or amended except by a writing signed by all the parties hereto. IN WITNESS WHEREOF, the Company, the Broadcasting Subsidiary and the Employee have executed this Agreement as of the day and year first above written. COMPANY: CHANCELLOR BROADCASTING COMPANY By: /s/ STEVEN DINETZ --------------------------------------------- Name: Steven Dinetz Title: President and Chief Executive Officer BROADCASTING SUBSIDIARY: CHANCELLOR RADIO BROADCASTING COMPANY By: /s/ STEVEN DINETZ --------------------------------------------- Name: Title: EMPLOYEE: /s/ JACQUES KERREST ------------------------------------------------- Jacques Kerrest 8 EX-10.22 5 STOCK AWARD PLAN 1 EXHIBIT 10.22 CHANCELLOR BROADCASTING COMPANY STOCK AWARD PLAN 2 CHANCELLOR BROADCASTING COMPANY STOCK AWARD PLAN 1. PURPOSE The Chancellor Broadcasting Company Stock Award Plan (the "Plan") is intended to provide incentives which will attract, retain and motivate eligible persons whose present and potential contribution are important to the success of Chancellor Broadcasting Company (the "Company"). These eligible persons will be offered an opportunity to participate in the Company's future performance by providing them opportunities to acquire shares of the Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock") through awards of stock options, restricted stock and stock bonuses ("Stock Awards"). In addition, the Plan is intended to assist in aligning the interests of the Company's officers and key employees to those of its stockholders. 2. TERM The Plan shall be effective as of the date it is approved by the Company's stockholders (the "Effective Date"). The Plan shall terminate on the tenth anniversary of the Effective Date, unless terminated by the Board of Directors of the Company (the "Board") pursuant to Section 18 below prior to such date. 3. ADMINISTRATION (a) The Plan shall be administered by the Company's Compensation Committee (the "Committee") appointed by the Board from among its members, which shall be comprised of not less than two nonemployee members of the Board ("Nonemployee Directors") each of whom qualifies as (i) a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder; provided, however, that prior to the effectiveness under the Exchange Act of a registration statement filed by the Company with the Securities and Exchange Commission, the Committee may be comprised of any two members of the Board or may be the entire Board. The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Stock Awards granted hereunder as it deems 1 3 necessary or advisable. All determinations and interpretations made by the Committee shall be binding and conclusive on all participants and their legal representatives. No member of the Board, no member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company, a subsidiary or an affiliate against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's bad faith, gross negligence or willful misconduct. (b) The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the subsidiary or affiliate whose employees have benefitted from the Plan, as determined by the Committee. 4. PARTICIPANTS Participants shall consist of such officers and key employees of the Company and its subsidiaries and affiliates as the Committee in its sole discretion determines to be significantly responsible for the success and future growth and profitability of the Company and whom the Committee may designate from time to time to receive Stock Awards under the Plan. Nonemployee Directors shall also participate in the Plan, but only to the extent provided in Section 9 below. Designation of a participant in any year shall not require the Committee to designate such person to receive a Stock Award in any other year or, once designated, to receive the same type or amount of Stock Award as granted to the participant in any other year. The Committee shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective Stock Awards. 2 4 5. TYPE OF STOCK AWARDS Stock Awards under the Plan may be granted in any one or a combination of (i) Stock Options, (ii) Restricted Stock and (iii) Stock Bonuses. Stock Awards shall be evidenced by agreements (which need not be identical) in such forms as the Committee may from time to time approve; provided, however, that in the event of any conflict between the provisions of the Plan and any such agreements, the provisions of the Plan shall prevail. 6. COMMON STOCK AVAILABLE UNDER THE PLAN The aggregate number of shares of Class A Common Stock that may be subject to Stock Awards granted under this Plan shall be 916,456 shares of Class A Common Stock, which may be authorized and unissued or treasury shares, subject to any adjustments made in accordance with Section 11 below. The maximum number of shares of Class A Common Stock with respect to which Stock Awards may be granted to any individual participant under the Plan shall be (i) 500,000 shares in any fiscal year and (ii) an aggregate of 500,000 shares over the life of the Plan. Any shares of Class A Common Stock subject to a Stock Option which for any reason is cancelled or terminated without having been exercised, any shares subject to other Stock Awards which are forfeited, or any shares delivered to the Company as part of full payment for the exercise of a Stock Option shall again be available for Stock Awards under the Plan, to the extent permitted by Rule 16b-3 under the Exchange Act regarding the availability of such shares. 7. STOCK OPTIONS (a) In General. Stock Options shall consist of awards from the Company that shall enable the holder to purchase a specific number of shares of Class A Common Stock, at set terms and at a fixed purchase price. Stock Options may be (i) "incentive stock options" ("Incentive Stock Options"), as such term is used in Section 422 of the Code, or (ii) stock options which do not constitute Incentive Stock Options ("Nonqualified Stock Options"). The Committee shall have the authority to grant to any participant one or more Incentive Stock Options, Nonqualified Stock Options, or both types of Stock Options. Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Committee may impose from time to time, subject to the below limitations. (b) Exercise Price. Each Stock Option granted hereunder shall have such per-share exercise price as the Committee may determine on the date of grant; provided, however, that the per-share exercise price shall not be less than 100 percent of Fair Market Value, meaning the closing price of the Class A Common Stock on the date of grant (or on 3 5 the last preceding trading date if Class A Common Stock was not traded on such date) if the Class A Common Stock is readily tradeable on a national securities exchange or other market system. If the Class A Common Stock is not readily tradeable, Fair Market Value shall mean the amount determined in good faith by the Committee as the fair market value of the Class A Common Stock. (c) Vesting. The Committee shall, in its sole discretion, determine a vesting schedule upon which each Stock Option shall become exercisable and remain exercisable; provided, however, that if the Committee does not determine such vesting schedule, such Stock Option shall become exercisable as follows: 20 percent on the first anniversary of the date of grant and the remaining 80 percent shall vest pro rata on a monthly basis over the four-year period following the first anniversary of the date of grant. (d) Payment of Exercise Price. The option exercise price may be paid in cash or, in the discretion of the Committee, by the delivery of shares of Class A Common Stock of the Company then owned by the participant, or by a combination of these methods. In the discretion of the Committee, payment may also be made by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The Committee may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law and the purpose of the Plan, including, without limitation, in lieu of the exercise of a Stock Option by delivery of shares of Class A Common Stock of the Company then owned by a participant, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company would issue to the participant only the number of incremental shares to which the participant is entitled upon exercise of the Stock Option. The Committee may, at the time of grant, provide for the grant of a subsequent Restoration Stock Option if the exercise price is paid for by delivering previously owned shares of Class A Common Stock of the Company. Restoration Stock Options (i) may be granted in respect of no more than the number of shares of Class A Common Stock tendered in exercising the predecessor Stock Option, (ii) shall have an exercise price equal to 100 percent of Fair Market Value on the date the Restoration Stock Option is granted, and (iii) may have an exercise period that does not extend beyond the remaining term of the predecessor Stock Option. In determining which methods a participant may utilize to pay the exercise price, the Committee may consider such factors as it determines are appropriate. 4 6 (e) Term of Stock Option. Stock Options granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; provided, however, that no Stock Option shall be exercisable later than ten years after the date it is granted except in the event of a participant's death, in which case, the exercise period of such participant's Stock Options may be extended by the Committee in its sole discretion beyond such period but no later than one year after the participant's death. (f) Limitations on Incentive Stock Options. Incentive Stock Options may be granted only to participants who are employees of the Company or one of its subsidiaries (within the meaning of Section 424(f) of the Code) on the date of grant. The aggregate market value (determined as of the time the option is granted) of the Class A Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all option plans of the Company and of any parent corporation or subsidiary corporation (as defined in Sections 424(e) and (f) of the Code, respectively)) shall not exceed $100,000. For purposes of the preceding sentence, Incentive Stock Options shall be taken into account in the order in which they are granted. Incentive Stock Options may not be granted to any participant who, at the time of grant, owns stock possessing (after the application of the attribution rules of Section 424(d) of the Code) more than 10 percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company, unless the option price is fixed at not less than 110 percent of Fair Market Value of the Class A Common Stock on the date of grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option. (g) Post-Employment Exercises. Following a participant's termination of employment other than a termination of employment due to death, Stock Options granted hereunder shall be exercisable only for the three-month period following the date of termination of employment; provided, however, that in the event a participant's employment is terminated for cause, all Stock Options held by such participant shall immediately be cancelled as of the date of termination of employment for cause. The Committee may, in its sole discretion, extend the post-employment exercise period beyond the three-month period, so long as the post-employment exercise period ends prior to the original option expiration date. In addition, the Committee may, at the time of grant and in its sole discretion, subject the exercise of any Stock Option after termination of employment to the satisfaction of the conditions precedent that the participant neither (i) competes with, or takes other employment with or renders services to a competitor of, the Company, its subsidiaries or affiliates without the written consent of the Company, nor (ii) conducts himself or herself in a manner adversely affecting the Company. 5 7 8. OTHER STOCK AWARDS The Committee may, in its sole discretion, grant Stock Awards in the form of Restricted Stock or Stock Bonuses (which may include mandatory payment of bonus incentive compensation in stock) consisting of Class A Common Stock issued or transferred to participants with or without other payments therefor as additional compensation for services to the Company. Such Stock Awards may be subject to such terms and conditions as the Committee determines appropriate, including, without limitation, restrictions on the sale or other disposition of such shares, the right of the Company to reacquire such shares for no consideration upon termination of the participant's employment within specified periods, and conditions requiring that the shares be earned in whole or in part upon the achievement of performance goals established by the Committee over a designated period of time. Such performance goals shall be based on any one or combination of the following financial measures: revenues, income, cash flow, earnings per share, return on assets, and return on equity. The Committee may require the participant to deliver a duly signed stock power, endorsed in blank, relating to the Class A Common Stock covered by such an Award. The Committee may also require that the stock certificates evidencing such shares be held in custody or bear restrictive legends until the restrictions thereon shall have lapsed. The Committee shall determine whether the participant shall have, with respect to the shares of Class A Common Stock subject to a Stock Award, all of the rights of a holder of shares of Class A Common Stock of the Company, including the right to receive dividends and to vote the shares. 9. NONEMPLOYEE DIRECTOR FORMULA AWARDS (a) After the Effective Date, a Nonemployee Director who (i) was not a Nonemployee Director as of the Effective Date and (ii) does not represent an investor who owns more than 10 percent of the Class A Common Stock automatically shall be granted an option to purchase 5,000 shares of Class A Common Stock on the date he or she first becomes a member of the Board (an "Initial Nonemployee Director Stock Option"). (b) Each Initial Nonemployee Director Stock Option shall (i) be fully exercisable on the date of grant, (ii) be granted with an exercise price equal to 100 percent of Fair Market Value and (iii) expire on the tenth anniversary of the date of grant. (c) If a Nonemployee Director ceases to be a director of the Company for any reason other than due to death or disability, each Initial Nonemployee Director Stock Option shall remain exercisable only for the three- month period following the date the Nonemployee Director ceases to be a director of the Company. 6 8 (d) The agreements accompanying the formula awards made under this Section 9 may contain additional restrictions or limitations not inconsistent with the provisions of the Plan. 10. FOREIGN OPTIONS AND RIGHTS The Committee may grant Stock Awards to individual participants who are subject to the tax laws of nations other than the United States, which Stock Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Stock Awards by the appropriate foreign governmental entity; provided, however, that no such Stock Awards may be granted pursuant to this Section 10 and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law. 11. ADJUSTMENT PROVISIONS; CHANGE IN CONTROL (a) If there shall be any change in the Class A Common Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spinoff, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company, an adjustment shall be made to each outstanding Stock Award to reflect such change or distribution. In the case of Restricted Stock or Stock Bonuses, the number of shares of Class A Common Stock shall be appropriately adjusted, and in the case of Stock Options, both the number of underlying shares and the exercise price shall be appropriately adjusted. Such adjustments shall be made successively each time any such change or distribution occurs. In addition, in the event of any such change or distribution, in order to prevent dilution or enlargement of participants' rights under the Plan, the Committee shall have authority to adjust, in an equitable manner, the number and kind of shares that may be issued under the Plan, the number and kind of shares subject to outstanding Stock Awards, the exercise price applicable to outstanding Stock Options, and the Fair Market Value of the Class A Common Stock and other value determinations applicable to outstanding Stock Awards. Appropriate adjustments may also be made by the Committee in the terms of any Stock Awards under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Stock Awards on an equitable basis, including modifications of performance targets and changes in the length of performance periods. In addition, the Committee is authorized to make adjustments to the terms and conditions of, and the criteria included in, Stock Awards in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company, or 7 9 in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of the Code and (ii) in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder other than an incentive stock option for purposes of Section 422 of the Code. (b) Notwithstanding anything herein to the contrary, if there is a Change in Control of the Company, all then outstanding Restricted Stock shall immediately become transferable and all outstanding Stock Options shall become immediately exercisable. For purposes of this Section 11(b), a "Change in Control" of the Company shall be deemed to have occurred upon any of the following events: (1) A change in control of the direction and administration of the Company's business of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A (Rule 14a- 101) promulgated under the Exchange Act; or (2) During any period of two consecutive years, the individuals who at the beginning of such period constitute the Board or any individuals who would be "Continuing Directors" (as hereinafter defined) cease for any reason to constitute at least a majority thereof; or (3) The Company's Class A Common Stock shall cease to be publicly traded; or (4) The Board shall approve a sale of all or substantially all of the assets of the Company, and such transaction shall have been consummated; or (5) The Board shall approve any merger, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in Section 11(b)(2) or 11(b)(3) above, and such transaction shall have been consummated. Notwithstanding the foregoing, (i) any spin-off of a division or subsidiary of the Company to its stockholders or (ii) any event listed in this Section 11(b)(1) through Section 11(b)(5) that the Board determines is not to be regarded as a Change in Control of the Company, shall not 8 10 constitute a Change in Control of the Company. For purposes of this Section 11(b), "Continuing Directors" shall mean (x) the directors of the Company in office on the Effective Date and (y) any successor to any such director and any additional director who after the Effective Date was nominated or selected by a majority of the Continuing Directors in office at the time of his or her nomination or selection. (c) The Committee may, in its sole discretion, determine that, upon the occurrence of a Change in Control of the Company, each Stock Option outstanding hereunder shall terminate within a specified number of days after notice to the holder, and such holder shall receive, with respect to each share of Class A Common Stock subject to such Stock Option, an amount equal to the excess of the Fair Market Value of such shares of Class A Common Stock immediately prior to the occurrence of such Change in Control over the exercise price per share of such Stock Option; such amount to be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine. The provisions contained in the preceding sentence shall be inapplicable to a Stock Option granted within six months before the occurrence of a Change in Control if the holder of such Stock Option is subject to the reporting requirements of Section 16(a) of the Exchange Act and no exception from liability under Section 16(b) of the Exchange Act is otherwise available to such holder. 12. NONTRANSFERABILITY Each Stock Award granted under the Plan to a participant shall not be transferable otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the participant's lifetime, only by the participant. In the event of the death of a Participant, each Stock Option theretofore granted to him or her shall be exercisable during such period after his or her death as the Committee shall in its discretion set forth in such option or right on the date of grant and then only by the executor or administrator of the estate of the deceased participant or the person or persons to whom the deceased participant's rights under the Stock Option shall pass by will or the laws of descent and distribution. 13. OTHER PROVISIONS The award of any Stock Award under the Plan may also be subject to such other provisions (whether or not applicable to the Stock Award awarded to any other participant) as the Committee determines appropriate, including, without limitation, for the installment purchase of Class A Common Stock under Stock Options, to assist the participant in financing the acquisition of Class A Common Stock, for the forfeiture of, or restrictions 9 11 on resale or other disposition of, Class A Common Stock acquired under any form of Stock Award, for the acceleration of exercisability or vesting of Stock Awards in the event of a Change in Control of the Company, for the payment of the value of Stock Awards to participants in the event of a Change in Control of the Company, or to comply with federal and state securities laws, or understandings or conditions as to the participant's employment in addition to those specifically provided for under the Plan. 14. WITHHOLDING All payments or distributions of Stock Awards made pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. If the Company proposes or is required to distribute Class A Common Stock pursuant to the Plan, it may require the recipient to remit to it or to the corporation that employs such recipients an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Class A Common Stock. In lieu thereof, the Company or the employing corporation shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the recipient as the Committee shall prescribe. The Committee may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit an optionee or award or right holder to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Stock Award consisting of shares of Class A Common Stock by electing to have the Company withhold shares of Class A Common Stock having a Fair Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation. 15. TENURE A participant's right, if any, to continue to serve the Company or any of its subsidiaries as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by his or her designation as a participant under the Plan. 16. UNFUNDED PLAN Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that 10 12 any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended. 17. NO FRACTIONAL SHARES No fractional shares of Class A Common Stock shall be issued or delivered pursuant to the Plan or any Stock Award. The Committee shall determine whether cash, or Stock Awards, or other property shall be issued or paid in lieu of fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 18. AMENDMENT AND TERMINATION The terms and conditions applicable to any Stock Award granted after the Effective Date may be amended or modified by mutual agreement between the Company and the participant or such other persons as may then have an interest therein. Also, by mutual agreement between the Company and a participant hereunder, under this Plan or under any other present or future plan of the Company, Stock Awards may be granted to such participant in substitution and exchange for, and in cancellation of, any Stock Awards previously granted such participant under this Plan, or any other present or future plan of the Company. The Board may amend the Plan from time to time or suspend or terminate the Plan at any time. However, no action authorized by this Section 18 shall reduce the amount of any existing Stock Award or change the terms and conditions thereof without the participant's consent. No amendment of the Plan shall, without approval of the stockholders of the Company, (i) materially increase the total number of shares which may be issued under the Plan; (ii) materially increase the amount or type of Stock Awards that may be granted under the Plan; or (iii) materially modify the requirements as to eligibility for Stock Awards under the Plan; provided, however, that no amendment may be made without approval of the stockholders of the Company if the amendment shall disqualify any Incentive Stock Options granted hereunder. In addition, the provisions of Section 9 above, regarding Nonemployee Director formula awards, shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974 or the rules thereunder. 11 13 19. GOVERNING LAW This Plan, Stock Awards granted hereunder and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Texas without reference to principles of conflict of laws. 20. COMPLIANCE WITH RULE 16B-3 With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 (or its successors) promulgated under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 12 EX-10.24 6 AMENDED & RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.24 ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT among CHANCELLOR BROADCASTING COMPANY, CHANCELLOR RADIO BROADCASTING COMPANY, VARIOUS BANKS, GOLDMAN SACHS CREDIT PARTNERS L.P., as DOCUMENTATION AGENT NATIONSBANK OF TEXAS, N.A., as SYNDICATION AGENT and BANKERS TRUST COMPANY, as MANAGING AGENT and ARRANGER ---------------------------------- Dated as of February 14, 1996 and Amended and Restated as of January 23, 1997 ---------------------------------- ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . 1 1.01 The Commitments . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Minimum Amount of Each Borrowing . . . . . . . . . . . . . . 3 1.03 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . 3 1.04 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . 4 1.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.06 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.07 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . 6 1.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.09 Interest Periods . . . . . . . . . . . . . . . . . . . . . . 7 1.10 Increased Costs, Illegality, etc. . . . . . . . . . . . . . . 9 1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 11 1.12 Change of Lending Office . . . . . . . . . . . . . . . . . . 12 1.13 Replacement of Banks . . . . . . . . . . . . . . . . . . . . 12 SECTION 2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 14 2.01 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 14 2.02 Letter of Credit Requests . . . . . . . . . . . . . . . . . . 15 2.03 Letter of Credit Participations . . . . . . . . . . . . . . . 16 2.04 Agreement to Repay Letter of Credit Drawings . . . . . . . . 18 2.05 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3. Commitment Commission; Fees; Reductions of Commitment . . . . . 20 3.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.02 Voluntary Termination and Reduction of Commitments . . . . . 22 3.03 Mandatory Reduction of Commitments . . . . . . . . . . . . . 23 SECTION 4. Prepayments; Payments; Taxes . . . . . . . . . . . . . . . . . 24 4.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . 24 4.02 Mandatory Repayments and Commitment Reductions . . . . . . . 25 4.03 Method and Place of Payment . . . . . . . . . . . . . . . . . 32 4.04 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5A. Conditions Precedent to Credit Events on the Restatement Effective Date . . . . . . . . . . . . . . . . . . . . . . 35
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Page ---- 5A.01 Execution of Agreement; Notes . . . . . . . . . . . . . . . 35 5A.02 Fees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 35 5A.03 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . 35 5A.04 Corporate Documents; Proceedings; etc. . . . . . . . . . . . 36 5A.05 Shareholders' Agreements; Management Agreements; Employment Agreements; Tax Sharing Agreements . . . . . . 36 5A.06 Consummation of the Transaction . . . . . . . . . . . . . . 36 5A.07 Amended and Restated Subsidiary Guaranty . . . . . . . . . . 38 5A.08 Pledge Agreements . . . . . . . . . . . . . . . . . . . . . 38 5A.09 Amended and Restated Security Agreements . . . . . . . . . . 39 5A.10 Existing Mortgages; Title Insurance; etc. . . . . . . . . . 40 5A.11 Amended and Restated Environmental Indemnity Agreement . . . 42 5A.12 Original Credit Agreement; etc. . . . . . . . . . . . . . . 42 5A.13 Adverse Change, etc. . . . . . . . . . . . . . . . . . . . . 42 5A.14 Solvency Letter; Environmental Analyses; Insurance . . . . . 42 5A.15 Pro Forma Balance Sheet; Projections . . . . . . . . . . . . 43 SECTION 5B. Conditions Precedent to Credit Events on the OmniAmerica Borrowing Date . . . . . . . . . . . . . . . . . . . . . . 43 5B.01 Officer's Certificate . . . . . . . . . . . . . . . . . . . 43 5B.02 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . 44 5B.03 Detroit Disposition . . . . . . . . . . . . . . . . . . . . 44 5B.04 Consummation of the OmniAmerica Transactions . . . . . . . . 45 5B.05 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 46 5B.06 Security Interests . . . . . . . . . . . . . . . . . . . . . 46 5B.07 Environmental Assessments; Insurance . . . . . . . . . . . . 47 5B.08 Fees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 47 5B.09 OmniAmerica FCC Licenses . . . . . . . . . . . . . . . . . . 47 SECTION 6. Conditions Precedent to All Credit Events . . . . . . . . . . . 47 6.01 No Default; Representations and Warranties . . . . . . . . . 48 6.02 Notice of Borrowing; Letter of Credit Request . . . . . . . . 48 SECTION 7. Representations, Warranties and Agreements . . . . . . . . . . 48 7.01 Corporate Status . . . . . . . . . . . . . . . . . . . . . . 49 7.02 Corporate Power and Authority . . . . . . . . . . . . . . . . 49 7.03 No Violation . . . . . . . . . . . . . . . . . . . . . . . . 49 7.04 Governmental Approvals . . . . . . . . . . . . . . . . . . . 50 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. . . . . . . . . . . . . . . 51
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Page ---- 7.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.07 True and Complete Disclosure . . . . . . . . . . . . . . . . 52 7.08 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . 52 7.09 Tax Returns and Payments . . . . . . . . . . . . . . . . . . 53 7.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . 54 7.11 The Security Documents . . . . . . . . . . . . . . . . . . . 54 7.12 Representations and Warranties in Documents . . . . . . . . . 55 7.13 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.14 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 56 7.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 57 7.16 Compliance with Statutes, etc. . . . . . . . . . . . . . . . 57 7.17 Investment Company Act . . . . . . . . . . . . . . . . . . . 58 7.18 Public Utility Holding Company Act . . . . . . . . . . . . . 58 7.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . 58 7.20 Patents, Licenses, Franchises and Formulas . . . . . . . . . 58 7.21 Transaction . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.22 Special Purpose Corporations . . . . . . . . . . . . . . . . 59 7.23 FCC Licenses . . . . . . . . . . . . . . . . . . . . . . . . 59 7.24 Subordinated Notes . . . . . . . . . . . . . . . . . . . . . 60 SECTION 8. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . 61 8.01 Information Covenants . . . . . . . . . . . . . . . . . . . . 61 8.02 Books, Records and Inspections . . . . . . . . . . . . . . . 64 8.03 Maintenance of Property; Insurance . . . . . . . . . . . . . 64 8.04 Corporate Franchises . . . . . . . . . . . . . . . . . . . . 66 8.05 Compliance with Statutes, etc. . . . . . . . . . . . . . . . 66 8.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 8.07 End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . 67 8.08 Performance of Obligations . . . . . . . . . . . . . . . . . 67 8.09 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . 67 8.10 Maintenance of Separateness . . . . . . . . . . . . . . . . . 68 8.11 Dividends on Series A Exchangeable Preferred Stock and Exchangeable Preferred Stock. . . . . . . . . . . . . . . . 68 8.12 Additional Security; Further Assurances. . . . . . . . . . . 68 8.13 Designation of Agent . . . . . . . . . . . . . . . . . . . . 72 SECTION 9. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 72 9.01 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. . . . 75 9.03 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 79
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Page ---- 9.04 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 81 9.05 Advances, Investments and Loans . . . . . . . . . . . . . . . 84 9.06 Transactions with Affiliates . . . . . . . . . . . . . . . . 86 9.07 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 87 9.08 Maximum Leverage Ratio . . . . . . . . . . . . . . . . . . . 89 9.09 Minimum Consolidated EBITDA . . . . . . . . . . . . . . . . . 90 9.10 Consolidated EBITDA to Consolidated Net Cash Interest Expense . . . . . . . . . . . . . . . . . . . . . 91 9.11 Limitation on Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; Limitations of Prepayments and Modifications of Indebtedness; etc. . . . . 92 9.12 Limitation on Certain Restrictions on Subsidiaries . . . . . 93 9.13 Limitation on Issuance of Capital Stock . . . . . . . . . . . 93 9.14 Business . . . . . . . . . . . . . . . . . . . . . . . . . . 94 9.15 Limitation on Creation of Subsidiaries. . . . . . . . . . . . 94 9.16 No Other Designated Senior Debt . . . . . . . . . . . . . . . 94 SECTION 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . 94 10.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 94 10.02 Representations, etc. . . . . . . . . . . . . . . . . . . . 95 10.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 95 10.04 Default Under Other Agreements . . . . . . . . . . . . . . . 95 10.05 Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . 95 10.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 10.07 Security Documents . . . . . . . . . . . . . . . . . . . . . 96 10.08 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . 97 10.09 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . 97 10.10 Change of Ownership . . . . . . . . . . . . . . . . . . . . 97 10.11 Environmental Matters . . . . . . . . . . . . . . . . . . . 97 SECTION 11. Definitions and Accounting Terms . . . . . . . . . . . . . . . 98 11.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 12. The Managing Agent . . . . . . . . . . . . . . . . . . . . . . 134 12.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . 134 12.02 Nature of Duties . . . . . . . . . . . . . . . . . . . . . . 135 12.03 Lack of Reliance on the Managing Agent . . . . . . . . . . . 135 12.04 Certain Rights of the Managing Agent . . . . . . . . . . . . 135 12.05 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . 136 12.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . 136
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Page ---- 12.07 The Managing Agent in Its Individual Capacity . . . . . . . 136 12.08 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 137 12.09 Resignation by the Managing Agent . . . . . . . . . . . . . 137 SECTION 13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 137 13.01 Payment of Expenses, etc. . . . . . . . . . . . . . . . . . 137 13.02 Right of Setoff; Collateral Matters . . . . . . . . . . . . 139 13.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 140 13.04 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . 140 13.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . 142 13.06 Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . 142 13.07 Calculations; Computations . . . . . . . . . . . . . . . . . 143 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . 143 13.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 145 13.10 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . 145 13.11 Headings Descriptive . . . . . . . . . . . . . . . . . . . . 146 13.12 Amendment or Waiver; etc. . . . . . . . . . . . . . . . . . 146 13.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 148 13.14 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . 148 13.15 Limitation on Additional Amounts, etc. . . . . . . . . . . . 148 13.16 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 148 13.17 Register . . . . . . . . . . . . . . . . . . . . . . . . . . 149 13.18 Additions of New Banks; Conversion of Original Loans of Continuing Banks; Termination of Commitments of Non-Continuing Banks . . . . . . . . . . . . . . . . . . . 150 SECTION 14. Holdings Guaranty . . . . . . . . . . . . . . . . . . . . . . 151 14.01 The Guaranty . . . . . . . . . . . . . . . . . . . . . . . . 151 14.02 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 151 14.03 Nature of Liability . . . . . . . . . . . . . . . . . . . . 151 14.04 Independent Obligation . . . . . . . . . . . . . . . . . . . 152 14.05 Authorization . . . . . . . . . . . . . . . . . . . . . . . 152 14.06 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . 153 14.07 Subordination . . . . . . . . . . . . . . . . . . . . . . . 153 14.08 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 14.09 Nature of Liability . . . . . . . . . . . . . . . . . . . . 155
(v) 7 SCHEDULE I Commitments SCHEDULE II Real Property SCHEDULE III FCC Licenses SCHEDULE IV Insurance SCHEDULE V Existing Liens SCHEDULE VI Existing Indebtedness SCHEDULE VII Existing Letters of Credit SCHEDULE VIII Existing Investments ANNEX 7.23 EXHIBIT A Notice of Borrowing EXHIBIT B-1 Term Note EXHIBIT B-2 Revolving Note EXHIBIT C Letter of Credit Request EXHIBIT D Section 4.04(b)(ii) Certificate EXHIBIT E-1 Opinion of Weil Gotshal & Manges L.L.P., Special Counsel to the Credit Parties EXHIBIT E-2 Opinion of Liebowitz & Associates, Special FCC Counsel to the Credit Parties EXHIBIT F Officers' Certificate EXHIBIT G Amended and Restated Subsidiary Guaranty EXHIBIT H-1 Amended and Restated Holdings Pledge Agreement EXHIBIT H-2 Amended and Restated Borrower Pledge Agreement EXHIBIT H-3 Amended and Restated Subsidiary Pledge Agreement EXHIBIT I-1 Amended and Restated Holdings Security Agreement EXHIBIT I-2 Amended and Restated Borrower Security Agreement EXHIBIT I-3 Amended and Restated Subsidiary Security Agreement EXHIBIT J Form of Mortgage EXHIBIT K Amended and Restated Environmental Indemnity Agreement EXHIBIT L Assignment and Assumption Agreement (vi) 8 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 14, 1996 and amended and restated as of January 23, 1997, among CHANCELLOR BROADCASTING COMPANY, (formerly known as CHANCELLOR CORPORATION), a Delaware corporation ("Holdings"), CHANCELLOR RADIO BROADCASTING COMPANY (formerly known as CHANCELLOR BROADCASTING COMPANY), a Delaware corporation (the "Borrower"), the Banks party hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation Agent, NATIONSBANK OF TEXAS, N.A., as Syndication Agent, and BANKERS TRUST COMPANY, as Managing Agent (all capitalized terms used herein and defined in Section 11 are used herein as therein defined). W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Original Banks and Bankers Trust Company, as Managing Agent, are party to a Credit Agreement, dated as of February 14, 1996 (as the same has been amended, modified or supplemented to, but not including, the Restatement Effective Date, the "Original Credit Agreement"); and WHEREAS, the parties hereto wish to amend and restate the Original Credit Agreement as herein provided; NOW, THEREFORE, the parties hereto agree that the Original Credit Agreement shall be and hereby is amended and restated in its entirety as follows: NOW, THEREFORE, IT IS AGREED: SECTION 1. Amount and Terms of Credit. 1.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each Bank with a Term Loan Commitment severally agrees, (A) in the case of each Continuing Bank, to convert into Term Loans (each, a "Term Loan Conversion", and collectively, the "Term Loan Conversions") on the Restatement Effective Date, the Original Term Loans made by such Continuing Bank to the Borrower pursuant to the Original Credit Agreement and outstanding on the Restatement Effective Date in an aggregate principal amount equal to the aggregate principal amount of such Original Term Loans made by such Continuing Bank and so outstanding and/or (B) to make, (I) on the Restatement Effective Date and (II) on a 9 single date occurring after the Restatement Effective Date and on or prior to the Term Loan Availability Termination Date (each date upon which Term Loans are made, a "Term Loan Borrowing Date"), a term loan or term loans (together with each Term Loan Conversion each, a "Term Loan" and, collectively, the "Term Loans") to the Borrower, which Term Loans (i) made or converted on the Restatement Effective Date, shall not exceed for any Bank, that amount which equals such Bank's TL Percentage of the aggregate principal amount of Term Loans incurred on such date, (ii) made on either Term Loan Borrowing Date, shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that, except as otherwise specifically provided in Section 1.10(b), all Term Loans comprising the same Borrowing shall at all times be of the same Type and (iii) made on either Term Loan Borrowing Date, shall not exceed for any Bank, in initial principal amount for the Term Loans being made by such Bank on any such Term Loan Borrowing Date, that amount which equals the remaining Term Loan Commitment, if any, of such Bank as in effect on such Term Loan Borrowing Date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(b)(i) or (ii), but after giving effect to (x) any reductions thereto on or prior to such date pursuant to Section 3.03(b)(iii) and (y) the Term Loan Conversions referred to in clause (A) above). Once repaid, Term Loans borrowed hereunder may not be reborrowed. Notwithstanding anything to the contrary contained above, the aggregate amount of Term Loans incurred on the Restatement Effective Date shall not exceed $155,000,000. (b) Subject to and upon the terms and conditions set forth herein, each Bank with a Revolving Loan Commitment severally agrees, (A) in the case of each Continuing Bank, to convert into Revolving Loans (each a "Revolving Loan Conversion", and together the "Revolving Loan Conversions"), on the Restatement Effective Date, Original Revolving Loans made by such Continuing Bank to the Borrower pursuant to the Original Credit Agreement and outstanding on the Restatement Effective Date in an aggregate principal amount equal to the lesser of (x) the aggregate principal amount of such Original Revolving Loans made by such Continuing Bank and so outstanding and (y) such Continuing Bank's Adjusted RL Percentage of the aggregate principal amount of Revolving Loans made by all Banks and outstanding on the Restatement Effective Date and/or (B) at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or revolving loans (together with each Revolving Loan Conversion each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower, which Revolving Loans (i) shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that, except as otherwise specifically provided in Section 1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be of the same Type, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed for any Bank at any time -2- 10 outstanding that aggregate principal amount (which amount, in the case of each Continuing Bank, shall include the principal amount of each Revolving Loan Conversion) which, when added to the product of (x) such Bank's Adjusted RL Percentage and (y) the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, equals the Adjusted Available Revolving Loan Commitment of such Bank at such time and (iv) shall not exceed for all Banks at any time outstanding that aggregate principal amount which, when added to the amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, equals the Total Available Revolving Loan Commitment at such time. Notwithstanding anything to the contrary contained above, the aggregate amount of Revolving Loans incurred on the Restatement Effective Date shall not exceed $16,000,000. 1.02 Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of Term Loans shall not be less than $2,000,000 and, if greater, shall be in an integral multiple of $100,000. The aggregate principal amount of each Borrowing of Revolving Loans shall be not less than $250,000 and, if greater, shall be in an integral multiple of $50,000 or, if less, the then remaining Total Available Revolving Loan Commitment. More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than ten Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur a Borrowing hereunder, it shall give the Managing Agent at its Notice Office at least one Business Day's prior written (or telephonic promptly confirmed in writing) notice of each Base Rate Loan and at least three Business Days' prior written (or telephonic promptly confirmed in writing) notice of each Eurodollar Loan to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) in the case of a Borrowing of Eurodollar Loans, or 12:00 Noon (New York time) in the case of a Borrowing of Base Rate Loans, on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and shall be given by the Borrower in the form of Exhibit A, appropriately completed to specify the aggregate principal amount of the Loans to be made pursuant to such Borrowing, the date of such Borrowing (which shall be a Business Day), whether the Loans being made pursuant to such Borrowing shall constitute Term Loans or Revolving Loans and whether the Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The -3- 11 Managing Agent shall promptly give each Bank which is required to make Loans of the Tranche specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Bank's proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. (b) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice of any Borrowing of Loans, the Managing Agent may act without liability upon the basis of telephonic notice of such Borrowing, believed by the Managing Agent in good faith to be from the President, Chief Financial Officer or Senior Vice President of Finance of the Borrower (or any other officer of the Borrower designated in writing to the Managing Agent by the President, the Chief Financial Officer or Senior Vice President of Finance of the Borrower as being authorized to give such notices under this Agreement) prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Managing Agent's record of the terms of such telephonic notice of such Borrowing of Loans. 1.04 Disbursement of Funds. Except as otherwise specifically provided in the second succeeding sentence, no later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing, each Bank with a Commitment of the respective Tranche will make available its pro rata portion of each such Borrowing requested to be made on such date. All such amounts shall be made available in Dollars and in immediately available funds at the Payment Office of the Managing Agent, and the Managing Agent will make available to the Borrower at the Payment Office the aggregate of the amounts so made available by the Banks (prior to 1:00 P.M. on such day, to the extent of funds actually received by the Managing Agent prior to 12:00 Noon on such day). Unless the Managing Agent shall have been notified by any Bank prior to the date of Borrowing that such Bank does not intend to make available to the Managing Agent such Bank's portion of any Borrowing to be made on such date, the Managing Agent may assume that such Bank has made such amount available to the Managing Agent on such date of Borrowing and the Managing Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Managing Agent by such Bank, the Managing Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Managing Agent's demand therefor, the Managing Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Managing Agent. The Managing Agent shall also be entitled to recover on demand from such Bank or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Managing Agent to the Borrower until the date such -4- 12 corresponding amount is recovered by the Managing Agent, at a rate per annum equal to (i) if recovered from such Bank, at the overnight Federal Funds Rate and (ii) if recovered from the Borrower, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Bank from its obligation to make Loans hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any failure by such Bank to make Loans hereunder. 1.05 Notes. (a) The Borrower's obligation to pay the principal of, and interest on, the Loans made by each Bank shall, if requested by any Bank, be evidenced (i) if Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a "Term Note" and, collectively, the "Term Notes") and (ii) if Revolving Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-2, with blanks appropriately completed in conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving Notes"). (b) The Term Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the Term Loan Commitment of such Bank as in effect on the Restatement Effective Date (before giving effect to any reductions thereto as a result of the making of Term Loans by such Bank on such date) and be payable in the principal amount of Term Loans evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) The Revolving Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Bank and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. -5- 13 (d) Each Bank will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation or endorsement shall not affect the Borrower's obligations in respect of such Loans. 1.06 Conversions. The Borrower shall have the option to convert, on any Business Day, all or a portion equal to at least (x) in the case of a conversion of Term Loans, $2,000,000 (and, if greater, in an integral multiple of $100,000) and (y) in the case of a conversion of Revolving Loans, $1,000,000 (and, if greater, in an integral multiple of $250,000), of the outstanding principal amount of Loans made pursuant to one or more Borrowings (so long as of the same Tranche) of one or more Types of Loans into a Borrowing (of the same Tranche) of another Type of Loan, provided that (i) except as otherwise provided in Section 1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable to the Loans being converted and no partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of such Eurodollar Loans made pursuant to a single Borrowing to less than (x) in the case of Term Loans, $2,000,000, and (y) in the case of Revolving Loans, $1,000,000, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion and (iii) no conversion pursuant to this Section 1.06 shall result in a greater number of Eurodollar Loans than is permitted under Section 1.02. Each such conversion shall be effected by the Borrower by giving the Managing Agent at its Notice Office prior to 12:00 Noon (New York time) at least three Business Days' prior notice (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Managing Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans. 1.07 Pro Rata Borrowings. All Borrowings of Term Loans and Revolving Loans under this Agreement shall be incurred from the Banks pro rata on the basis of their Term Loan Commitments or Revolving Loan Commitments, as the case may be. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Bank to make its Loans hereunder. 1.08 Interest. (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to the Borrower until the earlier of (i) the maturity (whether by -6- 14 acceleration, optional or mandatory or otherwise) of such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time. (b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to the Borrower until the earlier of (i) the maturity (whether by acceleration, optional or mandatory or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin plus the Eurodollar Rate for such Interest Period. (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the greater of (x) 2% per annum in excess of the rate otherwise applicable to Base Rate Loans of the respective Tranche of Loans from time to time and (y) the rate which is 2% in excess of the rate then borne by such Loans, in each case with such interest to be payable on demand. (d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iii) in respect of each Loan, on any repayment or prepayment (on the amount repaid or prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) Upon each Interest Determination Date, the Managing Agent shall determine the Eurodollar Rate for each Interest Period applicable to Eurodollar Loans and shall promptly notify the Borrower and the Banks thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. 1.09 Interest Periods. At the time it gives any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), the Borrower shall have the right to elect, by giving the Managing Agent notice thereof, the interest period (each an -7- 15 "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrower, be a one, two, three, six or, if available to each of the Banks, nine or twelve month period, provided that: (i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period; (ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Eurodollar Loan (including the date of any conversion thereto from a Loan of a different Type) and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (iii) if any Interest Period relating to a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be selected at any time when a Default or Event of Default is then in existence; (vi) no Interest Period in respect of any Borrowing of Term Loans shall be selected which extends beyond the Term Loan Maturity Date; (vii) no Interest Period in respect of any Borrowing of Revolving Loans shall be selected which extends beyond the Revolving Loan Maturity Date; and (viii) no Interest Period in respect of any Borrowing of Term Loans shall be selected which extends beyond any date upon which a mandatory repayment of Term Loans will be required to be made under Section 4.02(b) if after giving effect to the selection of such Interest Period, the aggregate principal amount of Term Loans which have Interest Periods which will expire after such date of mandatory repayment will be in excess of the aggregate principal amount of -8- 16 Term Loans then outstanding less the aggregate amount of such required repayment. If upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that any Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Managing Agent): (i) on any Interest Determination Date that, by reason of any changes arising after the Restatement Effective Date affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the Restatement Effective Date in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Bank of the principal of or interest on such Eurodollar Loan or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Bank, or any franchise tax based on the net income or profits of such Bank, in either case pursuant to the laws of the United States of America or the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a), or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate and/or (y) other circumstances since the Restatement Effective Date affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market; or -9- 17 (iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Bank in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Restatement Effective Date which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Bank (or the Managing Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the Borrower and, except in the case of clause (i) above, to the Managing Agent of such determination (which notice the Managing Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Managing Agent notifies the Borrower and the Banks that the circumstances giving rise to such notice by the Managing Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall, subject to the provisions of Section 13.15 (to the extent applicable) pay to such Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing the basis for the calculation thereof, submitted to the Borrower by such Bank in good faith shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. Each of the Managing Agent and each Bank agrees that if it gives notice to the Borrower of any of the events described in clause (i) or (iii) above, it shall promptly notify the Borrower and, in the case of any such Bank, the Managing Agent, if such event ceases to exist. If any such event described in clause (iii) above ceases to exist as to a Bank, the obligations of such Bank to make Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans on the terms and conditions contained herein shall be reinstated. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and in the case of a Eurodollar Loan affected by the circumstances described in Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then being made initially or pursuant to a conversion, cancel the respective Borrowing by giving the Managing Agent telephonic notice (confirmed in writing) on the same date that the Borrower was notified -10- 18 by the affected Bank or the Managing Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' written notice to the Managing Agent, require the affected Bank to convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than one Bank is affected at any time, then all affected Banks must be treated the same pursuant to this Section 1.10(b). (c) If at any time after the Restatement Effective Date any Bank determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank based on the existence of such Bank's Commitments hereunder or its obligations hereunder, then the Borrower shall, subject to the provisions of Section 13.15 (to the extent applicable), pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank or such other corporation for the increased cost to such Bank or such other corporation or the reduction in the rate of return to such Bank or such other corporation as a result of such increase of capital. In determining such additional amounts, each Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Bank's reasonable good faith determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Bank, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Borrower, which notice shall show the basis for calculation of such additional amounts. 1.11 Compensation. The Borrower shall, subject to the provisions of Section 13.15 (to the extent applicable), compensate each Bank, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Loans but excluding any loss of anticipated profit) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Managing Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a) or (b)); (ii) if any repayment (including any repayment made pursuant to Section 4.02 or as a result of an acceleration of the Loans pursuant to Section 10) or conversion of any of its Eurodollar Loans occurs on -11- 19 a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Loans when required by the terms of this Agreement or any Note held by such Bank or (y) any election made pursuant to Section 1.10(b). 1.12 Change of Lending Office. Each Bank agrees that upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to such Bank, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of the Borrower or the right of any Bank provided in Sections 1.10, 2.05 and 4.04. 1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings, (y) upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to any Bank which results in such Bank charging to the Borrower increased costs in excess of those being generally charged by the other Banks or (z) as provided in Section 13.12(b) in the case of certain refusals by a Bank (other than a Bank whose commitments are terminated in accordance with Section 3.02(b) and/or whose Loans are repaid in accordance with Section 4.01(v)) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrower shall have the right, if no Default or Event of Default will exist immediately after giving effect to the respective replacement, to either replace such Bank (the "Replaced Bank") with one or more other Eligible Transferee or Transferees, none of whom shall constitute a Defaulting Bank at the time of such replacement (collectively, the "Replacement Bank") reasonably acceptable to the Managing Agent or, at the option of the Borrower, to replace only (a) the Term Loan Commitment or Term Loans of the Replaced Bank with an identical Term Loan Commitment or Term Loans provided by the Replacement Bank or (b) the Revolving Loan Commitment (and outstandings pursuant thereto) of the Replaced Bank with an identical Revolving Loan Commitment provided by the Replacement Bank, provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Bank shall enter into one or more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement Bank) pursuant to which the Replacement Bank shall acquire all of the Commitments -12- 20 and outstanding Loans (or, in the case of the replacement of only (a) the Term Loan Commitment or Term Loans, the Term Loan Commitment or Term Loans or (b) the Revolving Loan Commitment, the Revolving Loan Commitment and outstanding Revolving Loans) of, and in each case (except for the replacement of only the outstanding Term Loans) participations in Letters of Credit by, the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans (or of the Loans of the respective Tranche being replaced) of the Replaced Bank, (B) except for the replacement of only the outstanding Term Loans, an amount equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Bank, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank (but only with respect to the relevant Tranche, in the case of all Tranches of Loans being held by the respective Replaced Bank) pursuant to Section 3.01 and (y) except in the case of the replacement of only the outstanding Term Loans of the Replaced Bank, any Issuing Bank an amount equal to such Replaced Bank's Adjusted RL Percentage (for this purpose, determined as if the adjustment described in clause (y) of the immediately succeeding sentence had been made with respect to such Replaced Bank) of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Bank, and (ii) all obligations of the Borrower owing to the Replaced Bank (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Bank concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Note or Notes executed by the Borrower, (x) the Replacement Bank shall become a Bank hereunder and, unless the respective Replaced Bank continues to have outstanding Loans or Commitments hereunder, the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 12.06 and 13.01, as the same may be limited by Section 13.15 (to the extent applicable)), which shall survive as to such Replaced Bank and (y) in the case of a replacement of a Defaulting Bank with a Non-Defaulting Bank, the Adjusted RL Percentages of the Banks shall be automatically adjusted at such time to give effect to such replacement (and to give effect to the replacement of a Defaulting Bank with one or more Non-Defaulting Banks). -13- 21 SECTION 2. Letters of Credit. 2.01 Letters of Credit. (a) Subject to and upon the terms and conditions set forth herein, the Borrower may request that any Issuing Bank issue, at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, (x) for the account of the Borrower and for the benefit of any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Obligations of the Borrower or any of its Subsidiaries, an irrevocable sight standby letter of credit, in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank (each such standby letter of credit, a "Standby Letter of Credit") in support of such L/C Supportable Obligations and (y) for the account of the Borrower and for the benefit of sellers of goods to the Borrower or any of its Subsidiaries, an irrevocable sight commercial letter of credit in a form customarily used by such Issuing Bank (each such commercial letter of credit, a "Trade Letter of Credit" and each such Trade Letter of Credit and each Standby Letter of Credit, a "Letter of Credit") in support of commercial transactions of the Borrower and its Subsidiaries. (b) Each Issuing Bank may agree in its sole discretion, and BTCo hereby agrees that, in the event a requested Letter of Credit is not issued by one of the other Issuing Banks, it will (subject to the terms and conditions contained herein), at any time and from time to time on or after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, following its receipt of the respective Letter of Credit Request, issue for the account of the Borrower one or more Letters of Credit (x) in the case of Standby Letters of Credit, in support of such L/C Supportable Obligations of the Borrower or any of its Subsidiaries and (y) in the case of Trade Letters of Credit, in support of sellers of goods as referenced in Section 2.01(a), provided that the respective Issuing Bank shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Bank from issuing such Letter of Credit or any requirement of law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Bank is not otherwise compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuing Bank -14- 22 as of the date hereof and which such Issuing Bank in good faith deems material to it; or (ii) such Issuing Bank shall have received notice from any Bank prior to the issuance of such Letter of Credit of the type described in the penultimate sentence of Section 2.02(b). (c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time would exceed either (x) $40,000,000 minus the aggregate amount of cash earnest money deposits outstanding at such time pursuant to Section 9.01(xix) or (y) when added to the aggregate outstanding principal amount of all Revolving Loans of Non-Defaulting Banks, the Adjusted Total Available Revolving Loan Commitment; (ii) each Letter of Credit shall be denominated in Dollars; and (iii) each Letter of Credit shall by its terms terminate (A) in the case of Standby Letters of Credit, on or before the earlier of (x) the date which occurs 12 months after the date of the issuance thereof (although any such Letter of Credit may be extendable for successive periods of up to 12 months, but not beyond the Revolving Loan Maturity Date, on terms acceptable to the Issuing Bank thereof) and (y) the Revolving Loan Maturity Date and (B) in the case of Trade Letters of Credit, on or before the earlier of (x) the date which occurs 180 days after the date of issuance thereof and (y) the date which is 30 days prior to the Revolving Loan Maturity Date. (d) Schedule VII contains a description of all letters of credit issued by BTCo pursuant to the Original Credit Agreement and which are to remain outstanding on the Restatement Effective Date. Each Existing Letter of Credit, including any extension thereof, issued by BTCo shall constitute a "Letter of Credit" for all purposes of this Agreement. Each Existing Letter of Credit shall be deemed issued for purposes of Sections 3.01(b) and 3.01(c) on the Restatement Effective Date. 2.02 Letter of Credit Requests. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account, the Borrower shall give the Managing Agent and the respective Issuing Bank at least two Business Days' (or such shorter period as is acceptable to the respective Issuing Bank) written notice thereof. In the case of Letters of Credit to be issued pursuant to Section 2.01, each notice shall be in the form of Exhibit C (each a "Letter of Credit Request"). (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.01(c). Unless -15- 23 the respective Issuing Bank has received notice from any Bank before it issues a Letter of Credit that one or more of the conditions specified in Section 5 or Section 6 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.01(c), then such Issuing Bank may issue the requested Letter of Credit for the account of the Borrower in accordance with such Issuing Bank's usual and customary practices. Upon its issuance of any Standby Letter of Credit, such Issuing Bank shall promptly notify each Bank participating therein of such issuance, which notice shall be accompanied by a copy of the Letter of Credit actually issued and any amendments thereto. For Trade Letters of Credit on which the Issuing Bank is other than the Managing Agent, the Issuing Bank will send to the Managing Agent by facsimile transmission, promptly on the first Business Day of each week, the daily aggregate Stated Amounts of Trade Letters of Credit available during the preceding week. The Managing Agent will send to each Bank with a Revolving Loan Commitment, after each calendar month end and upon each Letter of Credit Fee payment, a report setting forth for the relevant period the daily aggregate Stated Amount under Trade Letters of Credit of all Issuing Banks during such period. 2.03 Letter of Credit Participations. (a) Immediately upon the issuance by any Issuing Bank of any Letter of Credit, such Issuing Bank shall be deemed to have sold and transferred to each Bank with a Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its capacity under this Section 2.03, a "Participant"), and each such Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Participant's Adjusted RL Percentage, in such Letter of Credit, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto (although the Letter of Credit Fee shall be payable directly to the Managing Agent for the account of the Participants as provided in Section 3.01(b) and the Participants shall have no right to receive any portion of any Facing Fees). Upon any change in the respective Revolving Loan Commitments or Adjusted RL Percentages of the Banks pursuant to Section 1.13 or 13.04 or as a result of a Bank Default, it is hereby agreed that, with respect to all such outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.03 to reflect the new Adjusted RL Percentages of the assignor and assignee Bank or of all Banks with respective Revolving Loan Commitments. (b) In determining whether to pay under any Letter of Credit, such Issuing Bank shall have no obligation relative to the other Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the -16- 24 requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Borrower or any Bank. (c) In the event that any Issuing Bank makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such Issuing Bank pursuant to Section 2.04(a), such Issuing Bank shall promptly notify the Managing Agent, which shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Bank the amount of such Participant's Adjusted RL Percentage of such unreimbursed payment in Dollars and in same day funds. If the Managing Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to such Issuing Bank in Dollars such Participant's Adjusted RL Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its Adjusted RL Percentage of the amount of such payment available to such Issuing Bank, such Participant agrees to pay to such Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to such Issuing Bank at the overnight Federal Funds Rate. The failure of any Participant to make available to such Issuing Bank its Adjusted RL Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Bank its Adjusted RL Percentage of any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to such Issuing Bank such other Participant's Adjusted RL Percentage of any such payment. (d) Whenever any Issuing Bank receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Bank shall pay to each Participant which has paid its Adjusted RL Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations. (e) The obligations of the Participants to make payments to each Issuing Bank with respect to Letters of Credit issued by it shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the -17- 25 terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Managing Agent, any Issuing Bank, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or (v) the occurrence of any Default or Event of Default. 2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower hereby agrees to reimburse the respective Issuing Bank, by making payment directly to such Issuing Bank in immediately available funds, for any payment or disbursement made by it under any Letter of Credit (each such amount, so paid until reimbursed, an "Unpaid Drawing"), no later than three Business Days after the date of such payment or disbursement, with interest on the amount so paid or disbursed by such Issuing Bank, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Issuing Bank was reimbursed by the Borrower therefor at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans; provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time) on the fifth Business Day following such payment or disbursement, interest shall thereafter accrue on the amounts so paid or disbursed by such Issuing Bank (and until reimbursed by the Borrower) at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans plus 2%, in each such case, with interest to be payable on demand. The respective -18- 26 Issuing Bank shall give the Borrower prompt notice of each Drawing under any Letter of Credit, provided that the failure to give any such notice shall in no way affect, impair or diminish the Borrower's obligations hereunder. (b) The obligations of the Borrower under this Section 2.04 to reimburse the respective Issuing Bank with respect to drawings on Letters of Credit (each, a "Drawing") (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Bank (including in its capacity as the issuer of the Letter of Credit or as Participant), or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing, the respective Issuing Bank's only obligation to the Borrower being to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Borrower. 2.05 Increased Costs. If at any time after the Restatement Effective Date, the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Bank or any Participant, or any corporation controlling such Person, with any request or directive by any such authority (whether or not having the force of law), shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued by any Issuing Bank or participated in by any Participant, or (ii) impose on any Issuing Bank or any Participant, or any corporation controlling such Person, any other conditions relating, directly or indirectly, to this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Issuing Bank or any Participant of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Issuing Bank or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Issuing Bank or such Participant, or any corporation controlling such Person, or any franchise tax based on the net income or profits of such Bank or Participant, or any corporation controlling such Person, in either case pursuant to the laws of the United States of America, the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of taxes pursuant to Section -19- 27 4.04(a), then, upon demand to the Borrower by such Issuing Bank or any Participant (a copy of which demand shall be sent by such Issuing Bank or such Participant to the Managing Agent) and subject to the provisions of Section 13.15 (to the extent applicable), the Borrower shall pay to such Issuing Bank or such Participant such additional amount or amounts as will compensate such Bank for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. Any Issuing Bank or any Participant, upon determining that any additional amounts will be payable pursuant to this Section 2.05, will give prompt written notice thereof to the Borrower, which notice shall include a certificate submitted to the Borrower by such Issuing Bank or such Participant (a copy of which certificate shall be sent by such Issuing Bank or such Participant to the Managing Agent), setting forth in reasonable detail the basis for the calculation of such additional amount or amounts necessary to compensate such Issuing Bank or such Participant. The certificate required to be delivered pursuant to this Section 2.05 shall, if delivered in good faith and absent manifest error, be final and conclusive and binding on the Borrower. SECTION 3. Commitment Commission; Fees; Reductions of Commitment. 3.01 Fees. (a) (i) The Borrower agrees to pay the Managing Agent for distribution to each Non-Defaulting Bank with a Term Loan Commitment a commitment commission (the "Term Loan Commitment Commission") for the period from the Restatement Effective Date to and including the Term Loan Availability Termination Date (or such earlier date as the Total Term Loan Commitment shall have been terminated), computed at a rate for each day equal to (x) 3/8 of 1% per annum, if on the relevant Quarterly Payment Date or the Term Loan Availability Termination Date (or such earlier date upon which the Total Term Loan Commitment shall have been terminated) the Leverage Ratio is equal to or greater than 4.5 to 1 or (y) 1/4 of 1% per annum, if on the relevant Quarterly Payment Date or the Term Loan Availability Termination Date (or such earlier date upon which the Total Term Loan Commitment shall have been terminated) the Leverage Ratio is less than 4.5 to 1, in each case on the daily average Unutilized Term Loan Commitment of such Non-Defaulting Bank. Accrued Term Loan Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Term Loan Availability Termination Date or such earlier date upon which the Total Term Loan Commitment is terminated. (ii) The Borrower agrees to pay the Managing Agent for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment a commitment commission (the "Revolving Loan Commitment Commission" and together with the Term Loan Commitment Commission, the "Commitment Commission") for the period -20- 28 from the Restatement Effective Date to and including the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated), computed at a rate for each day equal to (x) 3/8 of 1% per annum, if on the relevant Quarterly Payment Date or the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated) the Leverage Ratio is equal to or greater than 4.5 to 1 or (y) 1/4 of 1% per annum, if on the relevant Quarterly Payment Date or the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated) the Leverage Ratio is less than 4.5 to 1, in each case on the daily average Unutilized Revolving Loan Commitment of such Non-Defaulting Bank. Accrued Revolving Loan Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity Date or such earlier date upon which the Total Revolving Loan Commitment is terminated. (b) The Borrower agrees to pay to the Managing Agent for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment, as the case may be (based on their respective Adjusted RL Percentages), a fee in respect of each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the period from and including the date of issuance of such Letter of Credit, to and including the termination of such Letter of Credit computed at a rate per annum equal to the Applicable Margin for Revolving Loans maintained as Eurodollar Loans as in effect from time to time on the daily Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day on or after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding. (c) The Borrower agrees to pay to the respective Issuing Bank, for its own account, a facing fee in respect of each Letter of Credit issued for its account hereunder (the "Facing Fee") for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the daily Stated Amount of such Letter of Credit; provided, that in no event shall the annual Facing Fee be less than $500. Accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the date upon which the Total Revolving Loan Commitment has been terminated and no Letters of Credit remain outstanding. (d) The Borrower shall pay, upon each payment under, issuance of, or amendment to, any Letter of Credit, such amount as shall at the time of such event be the administrative charge which the respective Issuing Bank is generally imposing in connection with such occurrence with respect to letters of credit. -21- 29 (e) The Borrower shall pay to the Managing Agent, for its own account, such other fees as have been agreed to in writing by the Borrower and the Managing Agent. 3.02 Voluntary Termination and Reduction of Commitments. (a) Upon at least two Business Days' prior written notice (or telephonic notice confirmed in writing) to the Managing Agent at its Notice Office (which notice the Managing Agent shall promptly transmit to each of the Banks), the Borrower shall have the right, at any time or from time to time, without premium or penalty, to terminate or partially reduce the Total Unutilized Revolving Loan Commitment, in whole or in part, provided that (x) each such reduction shall apply proportionately to permanently reduce the Revolving Loan Commitment of each Bank with a Revolving Loan Commitment (y) any partial reduction pursuant to this Section 3.02 shall be in integral multiples of $500,000 and (z) the reduction to the Total Unutilized Revolving Loan Commitment shall in no case be in an amount which would cause the Revolving Loan Commitment of any Bank to be reduced (as required by the preceding clause (x)) by an amount which exceeds the Unutilized Revolving Loan Commitment of such Bank as in effect immediately before giving effect to such reduction. (b) In the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrower may, upon five Business Days' written notice to the Managing Agent at its Notice Office (which notice the Managing Agent shall promptly transmit to each of the Banks) terminate the entire Revolving Loan Commitment and/or, if prior to the Term Loan Availability Termination Date, the Term Loan Commitment of such Bank, so long as (i) all Loans, together with accrued and unpaid interest, Fees and other amounts, owing to such Bank (other than amounts owing in respect of Term Loans maintained by such Bank, if such Term Loans are not being repaid pursuant to Section 13.12(b)) are repaid concurrently with the effectiveness of such termination (at which time Schedule I shall be deemed modified to reflect such changed amounts), and at such time, unless the respective Bank continues to have outstanding Term Loans hereunder, such Bank shall no longer constitute a "Bank" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 12.06 and 13.01, as the same may be limited by Section 13.15 (to the extent applicable)), which shall survive as to such repaid Bank and (ii) the Managing Agent and each other Bank which will be party to this Agreement after giving effect to such change, waiver, discharge or termination with respect to this Agreement consents to such termination of Revolving Loan Commitment and repayment of Loans. -22- 30 3.03 Mandatory Reduction of Commitments. (a) Unless the Restatement Effective Date shall have occurred on or before February 28, 1997, the Total Commitment (and the Term Loan Commitment and the Revolving Loan Commitment of each Bank) shall terminate in its entirety. (b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Term Loan Commitment (and the Term Loan Commitment of each Bank) shall (i) be reduced on each Term Loan Borrowing Date (after giving effect to the incurrence of the Term Loans on such date), in an amount equal to the aggregate principal amount of Term Loans incurred on such date, (ii) terminate in its entirety on the Term Loan Availability Termination Date (after giving effect to the making of Term Loans on or prior to such date) and (iii) prior to the termination of the Total Term Loan Commitment as provided above, be reduced from time to time to the extent required by Section 4.02. (c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on the Revolving Loan Maturity Date. (d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date after the Restatement Effective Date upon which a mandatory repayment of Term Loans pursuant to Section 4.02(e) is required (and exceeds in amount the aggregate principal amount of Term Loans then outstanding) or would be required if Term Loans were then outstanding, the Total Term Loan Commitment shall be permanently reduced by the amount, if any, by which the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the aggregate principal amount of Term Loans then outstanding. (e) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date after the Restatement Effective Date upon which a mandatory repayment of Term Loans pursuant to Section 4.02(e) is required (and exceeds in amount the aggregate principal amount of Term Loans then outstanding plus the Total Term Loan Commitment then in effect) or would be required if Term Loans were then outstanding, the Total Revolving Loan Commitment shall be permanently reduced by the amount, if any, by which the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the aggregate principal amount of Term Loans then outstanding plus the Total Term Loan Commitment then in effect. -23- 31 (f) On each date after the Restatement Effective Date upon which Holdings or any of its Subsidiaries receives proceeds in connection with the consummation of the American Radio Exchange and/or the Milwaukee Disposition, the Total Revolving Loan Commitment shall be permanently reduced by an amount equal to 100% of the Net Sale Proceeds from each such event; provided, that in no event shall the Total Revolving Loan Commitment be reduced by more than $20,000,000 pursuant to this Section 3.03(f). (g) Each reduction to the Total Term Loan Commitment and/or the Total Revolving Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02) shall be applied proportionately to reduce the Term Loan Commitment or the Revolving Loan Commitment, as the case may be, of each Bank with such a Commitment. SECTION 4. Prepayments; Payments; Taxes. 4.01 Voluntary Prepayments. The Borrower shall have the right to prepay the Loans, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) the Borrower shall give the Managing Agent prior to 12:00 Noon (New York time) at its Notice Office (x) at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Base Rate Loans and (y) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Eurodollar Loans, whether Term Loans or Revolving Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made, which notice the Managing Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an aggregate principal amount of at least $100,000, provided that if any partial prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than (1) in the case of Term Loans, $2,000,000, and (2) in the case of Revolving Loans, $250,000, then such Borrowing may not be continued as a Borrowing of Eurodollar Loans and any election of an Interest Period with respect thereto given by the Borrower shall have no force or effect; (iii) prepayments of Eurodollar Loans made pursuant to this Section 4.01 may only be made on the last day of an Interest Period applicable thereto (except in connection with payments made pursuant to clause (v) below); (iv) each prepayment in respect of any Loans made pursuant to a Borrowing shall, except as provided in clauses (v) and (vi) below, be applied pro rata among the Banks which made such Loans; (v) in the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved -24- 32 by the Required Banks, the Borrower may, upon five Business Days' written notice to the Managing Agent at its Notice Office (which notice the Managing Agent shall promptly transmit to each of the Banks) repay all Loans, together with accrued and unpaid interest, Fees and other amounts, owing to such Bank (or owing to such Bank with respect to each Tranche which gave rise to the need to obtain such Bank's individual consent) in accordance with said Section 13.12(b) so long as (A) in the case of the repayment of Revolving Loans of any Bank pursuant to this clause (b), the Revolving Loan Commitment of such Bank, is terminated concurrently with such repayment (at which time Schedule I shall be deemed modified to reflect such changed amounts), (B) in the case of the repayment of Term Loans of any Bank pursuant to this clause (b), the Term Loan Commitment of such Bank (to the extent not theretofore terminated) is terminated concurrently with such repayment (at which time Schedule I shall be deemed modified to reflect such changed amounts) and (C) the Managing Agent and each other Bank which will be party to this Agreement after giving effect to such change, waiver, discharge or termination with respect to this Agreement consents to such repayment of Loans and such termination of Revolving Loan Commitment; (vi) at the Borrower's election in connection with any prepayment of Revolving Loans, such prepayment shall not be applied to the Revolving Loans of a Defaulting Bank; and (vii) each voluntary prepayment of Term Loans made pursuant to this Section 4.01 (other than prepayments made pursuant to preceding clauses (v) and (vi)) shall be applied to reduce the then remaining Scheduled Repayments pro rata based upon the then remaining number of Scheduled Repayments after giving effect to all prior reductions thereto; provided that if the amount to be applied to any Scheduled Repayment (whether pursuant to preceding clause (vii) or as a result of this proviso) would exceed the then remaining amount of such Scheduled Repayment, then an amount equal to such excess shall be applied to reduce the other then remaining Scheduled Repayments pro rata based upon the then remaining number of such Scheduled Repayments after giving effect to all prior reductions thereto (including the amount of prepayments theretofore allocated pursuant to preceding clause (vii) and this proviso); provided further, that notwithstanding the foregoing, the Borrower may apply prepayments of Term Loans pursuant to this Section 4.01 in an aggregate amount not to exceed $15,000,000 in any order the Borrower may elect. 4.02 Mandatory Repayments and Commitment Reductions. (a) (i) On any day on which the sum of the aggregate outstanding principal amount of the Revolving Loans made by the Non-Defaulting Banks and the Letter of Credit Outstandings exceeds the Adjusted Total Available Revolving Loan Commitment as then in effect, the Borrower shall prepay on such date principal on Revolving Loans of the Non-Defaulting Banks in an amount equal to such excess. If, after giving effect to the prepayment of all Revolving Loans of Non-Defaulting Banks, the aggregate amount of the Letter of Credit Outstandings exceeds the Adjusted Total Available Revolving Loan -25- 33 Commitment as then in effect, the Borrower shall pay to the Managing Agent at the Payment Office on such date an amount of cash or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the Borrower to Non-Defaulting Banks hereunder in a cash collateral account to be established by the Managing Agent. (ii) On any day on which the aggregate outstanding principal amount of the Revolving Loans made by any Defaulting Bank exceeds the Available Revolving Loan Commitment of such Defaulting Bank, the Borrower shall prepay principal of Revolving Loans of such Defaulting Bank in an amount equal to such excess. (b) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the Borrower shall be required to repay that principal amount of Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(i), a "Scheduled Repayment"):
Scheduled Repayment Date Amount ------------------------ ------ Quarterly Payment Date in April 1997 $ 3,125,000 Quarterly Payment Date in July 1997 $ 3,125,000 Quarterly Payment Date in October 1997 $ 3,125,000 Quarterly Payment Date in January 1998 $ 3,125,000 Quarterly Payment Date in April 1998 $ 6,250,000 Quarterly Payment Date in July 1998 $ 6,250,000 Quarterly Payment Date in October 1998 $ 6,250,000 Quarterly Payment Date in January 1999 $ 6,250,000 Quarterly Payment Date in April 1999 $ 9,375,000 Quarterly Payment Date in July 1999 $ 9,375,000 Quarterly Payment Date in October 1999 $ 9,375,000 Quarterly Payment Date in January 2000 $ 9,375,000 Quarterly Payment Date in April 2000 $11,250,000 Quarterly Payment Date in July 2000 $11,250,000 Quarterly Payment Date in October 2000 $11,250,000 Quarterly Payment Date in January 2001 $11,250,000 Quarterly Payment Date in April 2001 $12,500,000 Quarterly Payment Date in July 2001 $12,500,000 Quarterly Payment Date in October 2001 $12,500,000 Quarterly Payment Date in January 2002 $12,500,000 Quarterly Payment Date in April 2002 $13,750,000 Quarterly Payment Date in July 2002 $13,750,000 Quarterly Payment Date in October 2002 $13,750,000 Term Loan Maturity Date $13,750,000
-26- 34 ; provided that in the event the aggregate principal amount of Term Loans incurred at the time that the Total Term Loan Commitment is terminated in accordance with Section 3.03(b) is less than $225,000,000, an amount equal to such deficiency shall be applied to reduce the Scheduled Repayments pro rata based on the then remaining principal amount of each such Scheduled Repayment. (c) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which Holdings or any of its Subsidiaries receives any proceeds from any sale or issuance of its equity (other than (i) proceeds received from the issuance of shares of Holdings Common Stock as a result of the exercise of options issued (x) pursuant to the Dinetz Employment Contract or the agreements granting certain options to Ms. Matrice Ellis-Kirk, Mr. Marvin Dinetz, Mr. Eric W. Neumann, Mr. Jeffrey A. Marcus and Mr. John H. Massey as in effect on the Restatement Effective Date, (y) pursuant to the Employee Stock Option Plan or (z) as a result of any reissuance of Holdings Common Stock to new employees pursuant to, and as permitted by Section 9.03(iii)(B)(z) to the extent that the aggregate proceeds (after deduction of amounts used to purchase Holdings Common Stock in the case of reissuances of the type described in Section 9.03(iii)(B)(z) excluded pursuant to this clause (i)) do not exceed $2,500,000 in any fiscal year of Holdings, (ii) the proceeds received from the Exchangeable Preferred Stock Issuance, (iii) proceeds received from any Permitted Issuance and (iv) the proceeds received from the Convertible Preferred Stock Issuance), an amount equal to 100% of the cash proceeds of the respective sale or issuance (net of all reasonable costs associated therewith, including, without limitation, all due diligence costs and expenses paid for, or reimbursed by, Holdings and/or any of its Subsidiaries, underwriting or similar fees discounts and commissions, attorneys' fees and expenses paid for, or reimbursed by, Holdings and/or any of its Subsidiaries and other direct costs associated therewith) shall be applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Sections 4.02(h) and (i). -27- 35 (d) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which Holdings or any of its Subsidiaries receives any proceeds from any incurrence by Holdings or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred pursuant to Section 9.04 as such Section is in effect on the Restatement Effective Date), an amount equal to 100% of the cash proceeds of the respective incurrence of Indebtedness (net of all reasonable costs associated therewith, including, without limitation, all due diligence costs and expenses paid for, or reimbursed by, Holdings and/or any of its Subsidiaries, any underwriting or similar fees, discounts and commissions, attorneys' fees and expenses paid for, or reimbursed by, Holdings and/or any of its Subsidiaries, all financing and/or commitment fees and other direct costs associated therewith) shall be applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Sections 4.02(h) and (i). (e) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Restatement Effective Date upon which Holdings or any of its Subsidiaries receives proceeds from any sale of assets (including capital stock and securities held thereby, but excluding sales of assets to the extent permitted by Sections 9.02(ii), (v), (vi), (vii), (ix), (xi), (xii), (xiii), (xvi), (xvii), (xviii), (xix) and (xx)); an amount equal to 100% of the Net Sale Proceeds therefrom shall be applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Sections 4.02(h) and (i) provided, that so long as no Default or Event of Default then exists, the Net Sale Proceeds of the sale of any of the Stations (whether as an asset sale, stock transfer, merger or otherwise (including sales or swaps of Stations pursuant to the sales, Station Swaps or Stock Swaps, respectively effected pursuant to Section 9.02(viii) or (ix)) shall not be required to be so applied on the date of receipt thereof to the extent the Borrower has delivered a certificate to the Managing Agent on or prior to such date stating that such Net Sale Proceeds shall be reinvested or shall be committed to be reinvested in radio stations (and related assets) or 100% of the capital stock or other equity interests (whether by merger of the Borrower or any of its Subsidiaries (including Subsidiaries created pursuant to Section 9.15), or a Stock Swap or a Station Swap effected pursuant to Section 9.02(viii) or (ix)) of a Person whose only business is the ownership of radio stations (and related assets) or equipment to be used at the Stations (each a "Reinvestment Asset" and together the "Reinvestment Assets") within 180 days following such date, and the entire amount of such Net Sale Proceeds shall be deposited with the Managing Agent pursuant to a cash collateral arrangement reasonably satisfactory to the Managing Agent whereby such proceeds shall be disbursed to the Borrower to pay actual costs incurred by it in connection with the acquisition of Reinvestment Assets or the making of any escrow deposits in connection therewith, provided further, that at any time an -28- 36 Event of Default has occurred and is continuing the Required Banks may direct the Managing Agent (in which case the Managing Agent shall, and is hereby authorized by the Borrower to follow said directions) to apply any and all proceeds then on deposit in such collateral account to the repayment of Obligations in the same manner as proceeds would be applied pursuant to the Amended and Restated Borrower Security Agreement and, provided further, that if all or any portion of such Net Sale Proceeds not applied as a mandatory repayment and/or commitment reduction pursuant to the preceding proviso are either (a) not so used or committed to be used within 180 days after the date of receipt of such Net Sale Proceeds or (b) if committed to be so used within 180 days after the date of receipt of such Net Sale Proceeds and not so used within 360 days after the date of receipt of such Net Sale Proceeds, then, in either such case, such remaining portion not used or committed to be used in the case of preceding clause (a) and not used in the case of preceding clause (b) shall be applied on the date which is 180 days following the date of receipt of such Net Sale Proceeds in the case of clause (a) above, or the date occurring 360 days after the date of receipt of such Net Sale Proceeds in the case of clause (b) above as a mandatory repayment and/or commitment reduction in accordance with the requirements of Sections 4.02(h) and (i). At the time of the acquisition of any Reinvestment Assets, Holdings shall comply and shall cause its Subsidiaries to comply with Section 8.12. (f) In addition to any other mandatory repayments pursuant to this Section 4.02, on each Excess Cash Payment Date, an amount equal to 50% of the Excess Cash Flow for the relevant Excess Cash Payment Period shall be applied as a mandatory repayment of principal of outstanding Term Loans in accordance with the requirements of Sections 4.02(h) and (i). (g) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, within 10 days following each date after the Restatement Effective Date on which Holdings or any of its Subsidiaries receives any proceeds from any Recovery Event, an amount equal to 100% of the proceeds of such Recovery Event (net of reasonable costs including, without limitation, legal costs and expenses and taxes incurred in connection with such Recovery Event) shall be applied as a mandatory repayment and/or commitment reduction in accordance with the requirements of Sections 4.02(h) and (i), provided that (x) so long as no Default or Event of Default then exists and such proceeds do not exceed $2,500,000, such proceeds shall not be required to be so applied on such date to the extent that the Borrower has delivered a certificate to the Managing Agent on or prior to such date stating that such proceeds shall be used to replace or restore any properties or assets in respect of which such proceeds were paid within 180 days following the date of such Recovery Event (which certificate shall set forth the estimates of the proceeds to be so expended) and (y) so long as no Default or Event of Default then exists and to the -29- 37 extent that (a) the amount of such proceeds exceeds $2,500,000, (b) the Borrower has delivered to the Managing Agent a certificate on or prior to the date the application would otherwise be required pursuant to this Section 4.02(g) in the form described in clause (x) above and also certifying the sufficiency of business interruption insurance as required by succeeding clause (c), and (c) the Borrower has delivered to the Managing Agent such evidence as the Managing Agent may reasonably request in form and substance satisfactory to the Managing Agent establishing that the Borrower has sufficient business interruption insurance and that the Borrower will be receiving regular payments thereunder in such amounts and at such times as are necessary to satisfy all obligations and expenses of the Borrower (including, without limitation, all debt service requirements, including pursuant to this Agreement), without any delay or extension thereof, for the period from the date of the respective casualty, condemnation or other event giving rise to the Recovery Event and continuing through the completion of the replacement or restoration of respective properties or assets, then the entire amount and not just the portion in excess of $2,500,000 shall be deposited with the Managing Agent pursuant to a cash collateral arrangement reasonably satisfactory to the Managing Agent whereby such proceeds shall be disbursed to the Borrower from time to time as needed to pay actual costs incurred by it in connection with the replacement or restoration of the respective properties or assets (pursuant to such certification requirements as may be established by the Managing Agent), provided further, that at any time while an Event of Default has occurred and is continuing (other than an Event of Default existing solely as a result of the violation of any or all of Sections 9.08, 9.09 and 9.10, but in each case only if, and to the extent, that the violation of said covenant has occurred as a result of the underlying event giving rise to the Recovery Event), the Required Banks may direct the Managing Agent (in which case the Managing Agent shall, and is hereby authorized by the Borrower to, follow said directions) to apply any or all proceeds then on deposit in such collateral account to the repayment of Obligations hereunder in the same manner as proceeds would be applied pursuant to the Amended and Restated Borrower Security Agreement, and, provided further, that if all or any portion of such proceeds not required to be applied as a mandatory repayment and/or commitment reduction pursuant to the second preceding proviso (whether pursuant to clause (x) or (y) thereof) are either (A) not so used within 180 days after the date of receipt of proceeds from the respective Recovery Event or (B) if committed to be used within 180 days after the date of receipt of proceeds from the respective Recovery Event and not so used within 360 days after the date of receipt of proceeds from the respective Recovery Event, then, in either case, such remaining portion not used or committed to be used in the case of the preceding clause (A) and not used in the case of preceding clause (B), shall be applied on the date which is 180 days following the date of receipt of proceeds from the respective Recovery Event in the case of clause (A) above, or the date which is 360 days after the date of receipt of proceeds from the respective Recovery Event in the case of clause (B) above as a mandatory -30- 38 repayment and/or commitment reduction in accordance with the requirements of Section 4.02(h) and (i). (h) Each amount required to be applied to repay Term Loans (or to reduce the Total Term Loan Commitment) pursuant to Sections 4.02(c) through (g) shall be applied to reduce the then remaining Scheduled Repayments pro rata based upon the then remaining number of Scheduled Repayments after giving effect to all prior reductions thereto (i.e., each then remaining Scheduled Repayment shall be reduced by an amount equal to the aggregate amount to be applied to the Term Loans divided by the then remaining Scheduled Repayments); provided, that if the amount to be applied to any Scheduled Repayment would exceed the then remaining amount of such Scheduled Repayment, then an amount equal to such excess shall be applied to reduce the other then remaining Scheduled Repayments, after giving effect to all prior reductions thereto (including the amount of prepayments theretofore allocated pursuant to the preceding portion of this sentence), pro rata based upon the then remaining number of Scheduled Repayments in the manner described above; provided further, that notwithstanding the foregoing, the Borrower may apply prepayments of Term Loans pursuant to this Section 4.02 in an amount not to exceed $15,000,000 in any order the Borrower may elect. (i) With respect to each repayment of Loans required by this Section 4.02, the Borrower may designate the Types of Loans of the respective Tranche which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the respective Tranche pursuant to which made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than (x) in the case of Term Loans, $2,000,000, and (y) in the case of Revolving Loans, $1,000,000, such Borrowing shall be converted at the end of the then current Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of any Loans made pursuant to a Borrowing shall be applied pro rata among the Banks which made such Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Managing Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11. Notwithstanding the foregoing provisions of this Section 4.02, if at any time the mandatory prepayment of Term Loans pursuant to Sections 4.02(c) through (g) above would result, after giving effect to the procedures set forth above, in the Borrower incurring breakage costs under Section 1.11 as a result of Eurodollar -31- 39 Loans being prepaid other than on the last day of an Interest Period applicable thereto (the "Affected Eurodollar Loans"), then the Borrower may in its sole discretion initially deposit a portion (up to 100%) of the amounts that otherwise would have been paid in respect of the Affected Eurodollar Loans with the Managing Agent (which deposit must be equal in amount to the amount of Affected Eurodollar Loans not immediately prepaid) to be held as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Managing Agent, with such cash collateral to be directly applied upon the first occurrence (or occurrences) thereafter of the last day of an Interest Period applicable to the relevant Term Loans that are Eurodollar Loans (or such earlier date or dates as shall be requested by the Borrower), to repay an aggregate principal amount of such Term Loans equal to the Affected Eurodollar Loans not initially repaid pursuant to this sentence. Notwithstanding anything to the contrary contained in the immediately preceding sentence, all amounts deposited as cash collateral pursuant to the immediately preceding sentence shall be held for the sole benefit of the Banks whose Term Loans would otherwise have been immediately repaid with the amounts deposited and upon the taking of any action by the Managing Agent or the Banks pursuant to the remedial provisions of Section 10, any amounts held as cash collateral pursuant to this Section 4.02(i) shall, subject to the requirements of applicable law, be immediately applied to the relevant Term Loans. 4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Managing Agent for the account of the Bank or Banks entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Managing Agent. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 4.04 Net Payments. (a) All payments made by the Borrower hereunder or under any Note will be made without set-off, counterclaim or other defense. Except as provided in Section 4.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Bank, or any franchise tax based on the net income or net profits of a Bank, in either case pursuant to the laws of the United States of America or the jurisdiction in -32- 40 which it is organized or in which the principal office or applicable lending office of such Bank is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non- excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence of this Section 4.04(a), then the Borrower agrees to reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income or net profits of such Bank, or any franchise tax based on the net income or net profits of such Bank, in either case pursuant to the laws of the jurisdiction in which such bank is organized or in which the principal office or applicable lending office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which the principal office or applicable lending office of such Bank is located and for any withholding of income or similar taxes imposed by the United States of America as such Bank shall determine in good faith are payable by, or withheld from, such Bank in respect of such amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. The Borrower will furnish to the Managing Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Bank, and reimburse such Bank upon its written request, for the amount of any Taxes described in the preceding sentences and subject to payment by Borrower which are so levied or imposed and paid by such Bank. (b) Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower and the Managing Agent on or prior to the Restatement Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Sections 1.13 or 13.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Bank, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or Form 1001 (or successor forms) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii) -33- 41 Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Bank agrees that from time to time after the Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Managing Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the Managing Agent of its inability to deliver any such form or Certificate, in which case such Bank shall not be required to deliver any such form or Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Bank has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect of income or similar taxes imposed by the United States if (I) such Bank has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case of a payment, other than interest, to a Bank described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the Borrower agrees to pay additional amounts and to indemnify each Bank in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Restatement Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. -34- 42 (c) Each Bank that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) will provide an original signed copy of Internal Revenue Service Form W-9 (or successor form) to each of the Borrower and the Managing Agent upon the reasonable written request of the Borrower. (d) The provisions of this Section 4.04 are subject to the provisions of Section 13.15 (to the extent applicable). SECTION 5A. Conditions Precedent to Credit Events on the Restatement Effective Date. The occurrence of the Restatement Effective Date pursuant to Section 13.10 and the obligation of each Bank to make or maintain Loans and to participate in Letters of Credit under this Agreement, and the obligations of each Issuing Bank to issue Letters of Credit, in each case on the Restatement Effective Date is subject, at the time of such Credit Event, to the satisfaction of the following conditions: 5A.01 Execution of Agreement; Notes. On or prior to the Restatement Effective Date (i) this Agreement shall have been executed and delivered as provided in Section 13.10 and (ii) there shall have been delivered to the Managing Agent for the account of each of the Banks that has requested a Note the appropriate Term Note and/or Revolving Note executed by the Borrower, in each case in the amount, maturity and as otherwise provided herein. 5A.02 Fees, etc. On the Restatement Effective Date, the Borrower shall have paid to the Managing Agent and the Banks all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to the Managing Agent and the Banks to the extent then due. 5A.03 Opinions of Counsel. On the Restatement Effective Date, the Managing Agent shall have received (i) from Weil, Gotshal & Manges LLP, special counsel to Holdings and its Subsidiaries, an opinion addressed to the Managing Agent and each of the Banks and dated the Restatement Effective Date covering the matters set forth in Exhibit E-1, (ii) from Liebowitz & Associates, FCC counsel to Holdings and its Subsidiaries, an opinion addressed to the Managing Agent and each of the Banks and dated the Restatement Effective Date covering the matters set forth in Exhibit E-2 and (iii) from local counsel satisfactory to the Managing Agent, opinions each of which shall be in form and substance reasonably satisfactory to the Managing Agent and the Required Banks and shall cover the perfection of the security interests granted pursuant to the Amended and Restated Security Agreements and the Mortgages and such other matters incident to the transactions contemplated herein as the Managing Agent may reasonably request. -35- 43 5A.04 Corporate Documents; Proceedings; etc. (a) On the Restatement Effective Date, the Managing Agent shall have received a certificate, dated the Restatement Effective Date, signed by an Authorized Officer of each Credit Party, and attested to by the Secretary or any Assistant Secretary of such Credit Party, all in the form of Exhibit F with appropriate insertions, together with copies of the Certificate of Incorporation and By- Laws of such Credit Party, as the case may be, and the resolutions, or such other administrative approval, of such Credit Party, as the case may be, referred to in such certificate, and the foregoing shall be reasonably acceptable to the Managing Agent. (b) On the Restatement Effective Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be reasonably satisfactory in form and substance to the Managing Agent and the Required Banks, and the Managing Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring-down telegrams or facsimiles, if any, which the Managing Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. 5A.05 Shareholders' Agreements; Management Agreements; Employment Agreements; Tax Sharing Agreements. On the Restatement Effective Date, there shall have been delivered to the Managing Agent true and correct copies, certified as true and complete by an Authorized Officer of Holdings or its respective Subsidiaries of (i) the Stockholders' Agreement and all other agreements entered into by Holdings or any of its Subsidiaries governing the terms and relative rights of its capital stock and any agreements entered into by shareholders, relating to any such entity with respect to its capital stock (collectively, the "Shareholders' Agreements"), (ii) all agreements with senior members of, or with respect to, the management of Holdings or any of its Subsidiaries (collectively, the "Management Agreements"), (iii) the Dinetz Employment Contract and (iv) all agreements relating to the sharing of tax liabilities and benefits among Holdings and/or its Subsidiaries (each a "Tax Sharing Agreement" and collectively, the "Tax Sharing Agreements"); all of which Shareholders' Agreements, Management Agreements, Dinetz Employment Contract and Tax Sharing Agreements, shall be in form and substance reasonably satisfactory to the Managing Agent and the Required Banks and shall be in full force and effect on the Restatement Effective Date. 5A.06 Consummation of the Transaction. (a) On or prior to the Restatement Effective Date: -36- 44 (i) (x) Holdings shall have received gross cash proceeds of at least $100,000,000 from the issuance of Convertible Preferred Stock (the "Convertible Preferred Stock Issuance"), (y) Holdings shall have contributed the full amount of the net cash proceeds received by it from the Convertible Preferred Stock Issuance to the capital of the Borrower as a capital contribution and (z) the Borrower shall have utilized the full amount of such cash contribution to make payments owing in connection with the Transaction prior to utilizing any proceeds of Loans for such purpose; (ii) the Borrower shall have received gross cash proceeds of at least $200,000,000 from the issuance of Exchangeable Preferred Stock (the "Exchangeable Preferred Stock Issuance"), provided that the Borrower shall have used the total amount of net proceeds received by it from the Exchangeable Preferred Stock Issuance to make payments owing in connection with the Transaction before using proceeds of any Loans for such purpose; (iii) prior to or concurrently with the initial borrowing of Loans on the Restatement Effective Date, the Borrower shall have used (or caused to be used) at least $20,000,000 of cash held in escrow by Colfax pursuant to that Asset Purchase Agreement, dated as of August 24, 1996 (the "Colfax Purchase Agreement"), among Holdings, the Borrower and Colfax, the full amount of the capital contribution from Holdings referred to in clause (i) above and the entire proceeds of the Exchangeable Preferred Stock Issuance to make payments owing in connection with the purchase by the Borrower of the Colfax Stations, pursuant to the Colfax Acquisition Documents (the "Colfax Acquisition"); and (iv) immediately prior to or after giving effect to the Colfax Acquisition, the License Subsidiary shall hold all the FCC Licenses (other than the OmniAmerica FCC Licenses) all in accordance with any rules of, or consents required by the FCC and on terms and conditions reasonably satisfactory to the Managing Agent and the Required Banks. (b) On or prior to the Restatement Effective Date, there shall have been delivered to the Agents copies of all the Transaction Documents, all of which shall be certified by an Authorized Officer of Holdings and/or its Subsidiaries as true and correct and be in full force and effect. On the Restatement Effective Date, the Transaction shall have been consummated in accordance with the Transaction Documents, which shall be reasonably satisfactory to the Managing Agent, and all applicable laws relating thereto. All conditions in the Transaction Documents shall have been satisfied, without waiver or modification (except with the consent of the Managing Agent and the Required Banks, which consent shall not be unreasonably withheld), and all covenants -37- 45 in the Colfax Purchase Agreement shall have been performed in all material respects, without waiver or modification (except with the consent of the Managing Agent and the Required Banks, which consent shall not be unreasonably withheld), and all representations and warranties contained therein shall be true and correct in all material respects, without waiver or modification (except with the consent of the Managing Agent and the Required Banks, which consent shall not be unreasonably withheld), and all terms and conditions of, and documentation for, the Colfax Acquisition, the Convertible Preferred Stock Issuance and the Exchangeable Preferred Stock Issuance (including the New Junior Exchange Debentures), including, without limitation, amortization, maturities, interest rates, covenants, defaults, remedies, subordination provisions and all other terms, shall be reasonably acceptable to the Managing Agent and the Required Banks. (c) On or prior to the Restatement Effective Date, all necessary and material governmental (domestic and foreign) and third party approvals in connection with the Transaction, including, without limitation, approval from the FCC of the transfers of the Colfax FCC Licenses contemplated by the Transaction, shall have become final, and the transactions contemplated by the Credit Documents and otherwise referred to herein or therein, shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes, in the judgment of the Managing Agent, materially adverse conditions upon the consummation of the Transaction and the transactions contemplated by this Agreement. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the consummation of the Transaction or the transactions contemplated by this Agreement. 5A.07 Amended and Restated Subsidiary Guaranty. On the Restatement Effective Date, each Subsidiary of the Borrower shall have duly authorized, executed and delivered an Amended and Restated Subsidiary Guaranty in the form of Exhibit G hereto (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Subsidiary Guaranty"). 5A.08 Pledge Agreements. (a) On the Restatement Effective Date, Holdings shall have duly authorized, executed and delivered an Amended and Restated Pledge Agreement in the form of Exhibit H-1 (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Holdings Pledge Agreement") and shall have delivered to the Collateral Agent, as Pledgee, all the Pledged Securities referred to therein then owned by Holdings, -38- 46 together with executed and undated stock powers, in the case of capital stock constituting Pledged Securities. (b) On the Restatement Effective Date, the Borrower shall have duly authorized, executed and delivered an Amended and Restated Pledge Agreement in the form of Exhibit H-2 (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Borrower Pledge Agreement") and shall have delivered to the Collateral Agent, as Pledgee, all the Pledged Securities referred to therein then owned by the Borrower, together with executed and undated stock powers in the case of capital stock constituting Pledged Securities. (c) On the Restatement Effective Date, each Subsidiary of the Borrower shall have duly authorized, executed and delivered an Amended and Restated Pledge Agreement in the form of Exhibit H-3 (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Subsidiary Pledge Agreement") and shall have delivered to the Collateral Agent, as Pledgee, all the Pledged Securities referred to therein then owned by such Subsidiary, together with executed and undated stock powers, in the case of capital stock constituting Pledged Securities. 5A.09 Amended and Restated Security Agreements. On the Restatement Effective Date, (i) Holdings shall have duly authorized, executed and delivered an Amended and Restated Security Agreement in the form of Exhibit I-1 (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Holdings Security Agreement") covering all of Holdings' present and future Security Agreement Collateral, (ii) the Borrower shall have duly authorized, executed and delivered an Amended and Restated Security Agreement in the form of Exhibit I-2 (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Borrower Security Agreement") covering all of the Borrower's present and future Security Agreement Collateral, (iii) each Subsidiary of the Borrower shall have duly authorized, executed and delivered an Amended and Restated Security Agreement in the form of Exhibit I-3 (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Subsidiary Security Agreement") covering all of such Subsidiaries' present and future Security Agreement Collateral, (iv) no filings, recordings, registrations or other actions shall be necessary or desirable to maintain the perfection and priority of the security interests granted by the original parties to the Amended and Restated Security Agreements in the Security Agreement Collateral covered thereby (except to the extent made pursuant to clauses (c) or (d) below), and (v) in the case of each of the Amended and Restated Security Agreements, the Managing Agent shall have received: -39- 47 (a) executed copies of Financing Statements (Form UCC-1) in appropriate form for filing under the UCC of each jurisdiction as may be necessary to perfect the security interests purported to be created by the Amended and Restated Security Agreements; (b) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all effective financing statements that name Colfax or any Subsidiary of Colfax as debtor and that are filed in any jurisdiction where a filing may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interest purported to be created by such Amended and Restated Security Agreement, together with copies of such financing statements (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have received termination statements (Form UCC-3) or such other termination statements as shall be required by local law); (c) evidence of the completion of all other recordings and filings of, or with respect to, the respective Amended and Restated Security Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by such Amended and Restated Security Agreement; and (d) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the respective Amended and Restated Security Agreement have been taken. 5A.10 Existing Mortgages; Title Insurance; etc. On the Restatement Effective Date, the Collateral Agent shall have received: (a) duly authorized, fully executed, acknowledged, and delivered deeds of trust, mortgages, leasehold deeds of trust or leasehold mortgages substantially in the form of Exhibit J (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, each a "Mortgage" and, collectively, the "Mortgages"), which Mortgages shall cover such of the Real Property owned or leased by Holdings and/or its Subsidiaries and shall be designated as such on Part A of Schedule II as a Mortgaged Property thereunder (each, a "Mortgaged Property" and, collectively, the "Mortgaged Properties"); provided that the Collateral Agent shall not have been required to have received Mortgages with respect to those Mortgaged Properties covered by the Existing Mortgages (which shall be designated as Existing Mortgaged Properties on Part -40- 48 A of Schedule II), but instead the Collateral Agent shall have received a fully executed counterpart of an amendment (the "Mortgage Amendment"), in form and substance satisfactory to the Managing Agent, to the Existing Mortgages, together with evidence that counterparts of the Mortgages and Mortgage Amendments have been delivered to the title insurance company insuring the Lien on the Mortgages and Existing Mortgages for recording in all places to the extent necessary, or, in the reasonable opinion of the Collateral Agent, desirable to effectively create or maintain a valid and enforceable first priority mortgage lien on the Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors; (b) duly authorized, fully executed, acknowledged, and delivered subordination, nondisturbance and attornment agreements, assignments of leases, landlord consents, tenant estoppel certificates, and such other documents relating to the Mortgages that the Collateral Agent may reasonably request; (c) ALTA Lender's extended coverage policies of mortgage title insurance (or the equivalent in the state where the respective Mortgaged Property is located) covering each Mortgaged Property, together with all endorsements reasonably requested by the Collateral Agent relating thereto issued by Commonwealth Land Title Company or such other title insurers reasonably satisfactory to the Collateral Agent (the "Mortgage Policies") in amounts reasonably satisfactory to the Managing Agent (but not in excess of the value of the respective Mortgaged Property) assuring the Collateral Agent that the Mortgages on such Mortgaged Properties are valid and enforceable first priority mortgage liens on the respective Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances and such Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to the Managing Agent and the Required Banks and shall include, as appropriate, an endorsement for future advances under this Agreement and the Notes and for any other matter that the Collateral Agent in its reasonable discretion may reasonably request, shall not include an exception for mechanics' liens, and shall provide for affirmative insurance and such reinsurance as the Collateral Agent in its discretion may reasonably request; and (d) endorsements of the authorized issuing agent for title insurer reasonably satisfactory to the Collateral Agent to each Existing Mortgage Policy assuring the Collateral Agent that the Existing Mortgages are valid and enforceable first priority mortgage liens on the respective Existing Mortgaged -41- 49 Properties, free and clear of all defects and encumbrances except Permitted Encumbrances. 5A.11 Amended and Restated Environmental Indemnity Agreement. On the Restatement Effective Date, the Collateral Agent shall have received a duly authorized and fully executed Amended and Restated Environmental Indemnity Agreement substantially in the form of Exhibit K (as amended, modified, extended, renewed, replaced, restated or supplemented from time to time, the "Amended and Restated Environmental Indemnity Agreement") from Holdings and its Subsidiaries. 5A.12 Original Credit Agreement; etc. On the Restatement Effective Date, (i) each Original Bank shall have surrendered to the Managing Agent for cancellation the promissory notes issued to it pursuant to the Original Credit Agreement in respect of its Original Loans, (ii) each Continuing Bank shall have converted its Original Term Loan and Original Revolving Loan as contemplated by Sections 1.01(a) and (b), respectively, (iii) each Original Bank which is not a Continuing Bank shall have received payment in full of all amounts then due and owing to it under the Original Credit Agreement, (iv) each Continuing Bank whose Original Loans outstanding on the Restatement Effective Date exceed the aggregate principal amount of Loans to be made available by such Continuing Bank on such date shall have received payment in full of all amounts then due and owing to it as provided in Section 13.18(c), (v) the Borrower shall have paid all interest and fees (including commitment fees) owing under the Original Credit Agreement through the Restatement Effective Date, and (vi) the Managing Agent shall have received evidence in form, scope and substance satisfactory to it that the matters set forth in this Section 5A.12 have been satisfied on such date. 5A.13 Adverse Change, etc. On the Restatement Effective Date, after giving effect to the Transaction, nothing shall have occurred since September 30, 1996 which could reasonably be likely to have a material adverse effect on the rights or remedies of the Managing Agent or the Banks, or on the ability of the Credit Parties to perform their respective obligations to the Managing Agent and the Banks or which could reasonably be likely to have a material adverse effect on the operations, property, assets, liabilities or condition (financial or otherwise) of Holdings and its Subsidiaries taken as a whole. 5A.14 Solvency Letter; Environmental Analyses; Insurance. On or before the Restatement Effective Date, the Borrower shall have delivered or shall cause to be delivered to the Managing Agent (i) a solvency letter in form and substance satisfactory to the Managing Agent from Murray, Devine & Co., Inc., setting forth its conclusions that, after giving effect to the Transaction (including the OmniAmerica -42- 50 Transaction), each of Holdings and its Subsidiaries taken as a whole, and the Borrower and its Subsidiaries, taken as a whole, is not insolvent and will not be rendered insolvent by the indebtedness incurred in connection therewith, and will not be left with unreasonably small capital with which to engage in their business and will not have incurred debts beyond their ability to pay debts as they mature, (ii) the Phase I environmental assessments from Dames & Moore, with respect to certain of the Real Property acquired pursuant to the Transaction and (iii) evidence of insurance complying with the requirements of Section 8.03 for the business and properties of Holdings and its Subsidiaries, in scope, form and substance reasonably satisfactory to the Managing Agent and the Required Banks and naming the Collateral Agent as an additional insured and/or loss payee, and stating that such insurance shall not be cancelled or revised without 30 days' prior written notice by the insurer to the Collateral Agent. 5A.15 Pro Forma Balance Sheet; Projections. (a) On the Restatement Effective Date, the Banks shall have received the unaudited projected pro forma consolidated balance sheets of Holdings and the Borrower prepared on a consolidated basis based upon the projected balance sheet at the Restatement Effective Date prepared on a basis consistent with the Projections and in accordance with the financial statement delivered pursuant to Section 7.05(a), both immediately before and immediately after giving effect to the Transaction (including the OmniAmerica Transaction), the related financing thereof and the other transactions contemplated hereby and thereby, which projected pro forma consolidated balance sheets shall be in form and substance reasonably satisfactory to the Managing Agent and the Required Banks. (b) On the Restatement Effective Date, the Banks shall have received the Projections described in Section 7.05(d), which Projections shall be in form and substance reasonably satisfactory to the Managing Agent and the Required Banks. SECTION 5B. Conditions Precedent to Credit Events on the OmniAmerica Borrowing Date. The obligations of each Bank to make Loans on the OmniAmerica Borrowing Date, is subject, at the time of such Credit Event, to the satisfaction of the following conditions: 5B.01 Officer's Certificate. On the OmniAmerica Borrowing Date, the Borrower shall have delivered a certificate of an Authorized Officer of the Borrower, dated the OmniAmerica Borrowing Date, to the effect that, to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing (or would result from the consummation of the OmniAmerica Transaction) or, if any Default or Event of Default has occurred, is continuing or will occur as a result of the consummation of the OmniAmerica Transaction, such certificate shall specify the nature and the extent thereof. Such certificate shall also indicate that (x) all of the conditions in -43- 51 Sections 5B.03, 5B.04, 5B.05 and 5B.08 have been satisfied on such date and (y) all representations and warranties contained herein or in any other Credit Document are true and correct in all material respects with the same effect as if those representations and warranties had been made on the OmniAmerica Borrowing Date. 5B.02 Opinions of Counsel. On the OmniAmerica Borrowing Date, the Managing Agent shall have received (i) from Weil, Gotshal & Manges LLP, special counsel to Holdings and its Subsidiaries, an opinion addressed to the Agents and each of the Banks and dated the OmniAmerica Borrowing Date in form and substance reasonably satisfactory to the Agents, (ii) from Liebowitz & Associates, FCC counsel to Holdings and its Subsidiaries, an opinion addressed to the Agents and each of the Banks and dated the OmniAmerica Borrowing Date in form and substance reasonably satisfactory to the Agents and (iii) from local counsel satisfactory to the Agents, opinions each of which shall be in form and substance reasonably satisfactory to the Agents and shall cover the perfection of the security interests granted pursuant to the Amended and Restated Security Agreements and the Mortgages and such other matters incident to the transactions contemplated herein as the Agents may reasonably request. 5B.03 Detroit Disposition. (a) On or prior to the date of the consummation of the Detroit Disposition (the "Detroit Disposition Date"), Shamrock shall have assigned its rights in the Detroit Purchase Agreement to a "qualified intermediary" within the meaning of Treasury Regulations Section 1.1031(k)-1(g)(4) such that approximately $30,000,000 of cash proceeds (subject to a purchase price adjustment, or an amount deposited into an escrow account, not to exceed $1,000,000) from the Detroit Disposition will be deposited into an escrow account pursuant to an escrow agreement (the "Escrow Agreement") in form and substance reasonably satisfactory to the Managing Agent. (b) On or prior to the Detroit Disposition Date, there shall have been delivered to the Agents true and correct copies of all Detroit Disposition Documents, and all of the terms and conditions of the Detroit Disposition Documents shall be in form and substance reasonably satisfactory to the Managing Agent. The Detroit Disposition shall have been consummated substantially in accordance with the Detroit Disposition Documents and all applicable laws relating thereto. All conditions in the Detroit Disposition Documents shall have been satisfied, without waiver or material modification, and all covenants in the Detroit Purchase Agreement shall have been performed in all material respects, without waiver or modification, and all representations and warranties contained therein shall be true and correct in all material respects, without waiver or modification (except with the consent of the Agents, which consent shall not be unreasonably withheld). -44- 52 (c) On or prior to the Detroit Disposition Date, all necessary and material governmental (domestic and foreign) and third party approvals in connection with the Detroit Disposition, including, without limitation, approval from the FCC of the transfer of the FCC Licenses contemplated by the Detroit Disposition, shall have become final, and the transactions contemplated by the Detroit Disposition Documents and otherwise referred to herein or therein, shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes, in the judgment of the Managing Agent, materially adverse conditions upon the consummation of the Detroit Disposition and the transactions contemplated by this Agreement. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the consummation of the Detroit Disposition and the transactions contemplated by this Agreement. 5B.04 Consummation of the OmniAmerica Transactions. (a) On or prior to the OmniAmerica Borrowing Date, Holdings shall have issued Holdings Class A Common Stock to OmniAmerica, upon terms and conditions and pursuant to documentation reasonably acceptable to the Agents, in an amount not to exceed $15,000,000 (the "OmniAmerica Equity Issuance") in connection with the OmniAmerica Acquisition. (b) On or prior to the OmniAmerica Borrowing Date, Shamrock shall have used approximately $30,000,000 of cash (subject to a purchase price adjustment, or an amount deposited into an escrow account, not to exceed $1,000,000) held in escrow pursuant to the Escrow Agreement to make payments owing in connection with the OmniAmerica Transaction before proceeds of any Loans are used for such purpose. (c) On or prior to the OmniAmerica Borrowing Date, there shall have been delivered to the Agents copies of all OmniAmerica Transaction Documents, all of which shall be certified by an Authorized Officer of Holdings and/or its Subsidiaries as true and correct and be in full force and effect. On the OmniAmerica Borrowing Date, the OmniAmerica Transaction shall have been consummated in accordance with the OmniAmerica Transaction Documents, which shall be reasonably satisfactory to the Managing Agent, and all applicable laws relating thereto. All conditions in the OmniAmerica Transaction Documents shall have been satisfied, without waiver or modification, and all covenants in the OmniAmerica Purchase Agreement shall have been performed in all material respects, without waiver or modification, and all representations and warranties contained therein shall be true and correct in all material respects, without waiver or modification (except with the consent of the Agents, which consent shall not be unreasonably withheld), and all terms and conditions of, and documentation for, the OmniAmerica Acquisition and the OmniAmerica Equity -45- 53 Issuance, including, without limitation, amortization, maturities, interest rates, covenants, defaults, remedies, subordination provisions and all other terms, shall be reasonably acceptable to the Agents. 5B.05 Approvals. On or prior to the OmniAmerica Borrowing Date, all necessary and material governmental (domestic and foreign) and third party approvals in connection with the OmniAmerica Transaction, including, without limitation, approval from the FCC of the transfers of the FCC Licenses contemplated by the OmniAmerica Transaction (the "OmniAmerica FCC Licenses"), shall have become final, and the transactions contemplated by the OmniAmerica Transaction Documents and otherwise referred to herein or therein, shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes, in the judgment of the Managing Agent, materially adverse conditions upon the consummation of the OmniAmerica Transaction and the transactions contemplated by this Agreement. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the consummation of the OmniAmerica Transaction or the transactions contemplated by this Agreement. 5B.06 Security Interests. On the OmniAmerica Borrowing Date, the Managing Agent shall have received: (a) executed copies of Financing Statements (Form UCC-1) in appropriate form for filing under the UCC of each jurisdiction as may be necessary to perfect the security interests purported to be created by the Amended and Restated Security Agreements; (b) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all effective financing statements that name OmniAmerica or any Subsidiary of OmniAmerica as debtor and that are filed in any jurisdiction where a filing may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interest purported to be created by such Amended and Restated Security Agreement, together with copies of such financing statements (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have received termination statements (Form UCC-3) or such other termination statements as shall be required by local law); -46- 54 (c) evidence of the completion of all other recordings and filings of, or with respect to, the respective Amended and Restated Security Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by such Amended and Restated Security Agreement; and (d) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the respective Amended and Restated Security Agreement have been taken. 5B.07 Environmental Assessments; Insurance. On or before the OmniAmerica Borrowing Date, the Borrower shall have delivered or shall cause to be delivered to the Managing Agent (i) the Phase I environmental assessments from Dames & Moore, with respect to the Real Property acquired and (ii) evidence of insurance complying with the requirements of Section 8.03 for the business and properties of Holdings and its Subsidiaries, in scope, form and substance reasonably satisfactory to the Agents and naming the Collateral Agent as an additional insured and/or loss payee, and stating that such insurance shall not be cancelled or revised without 30 days' prior written notice by the insurer to the Collateral Agent. 5B.08 Fees, etc. On the OmniAmerica Borrowing Date, the Borrower shall have paid to the Managing Agent and the Banks all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to the Managing Agent and the Banks to the extent then due. 5B.09 OmniAmerica FCC Licenses. Chancellor Broadcasting Licensee and/or Shamrock shall hold all the OmniAmerica FCC Licenses, all in accordance with the rules of, or consents required by, the FCC, and on terms and conditions reasonably satisfactory to the Managing Agent. Schedule III hereto shall be deemed to be amended to reflect that Chancellor Broadcasting Licensee and/or Shamrock holds the OmniAmerica FCC Licenses after giving effect to such transfer, assignment or acquisition, and the Borrower will promptly deliver to each Bank a copy of such amended Schedule III, together with true and complete copies of the OmniAmerica FCC Licenses held by, and assigned to, Chancellor Broadcasting Licensee and/or Shamrock on the OmniAmerica FCC Licenses so acquired, as the case may be. SECTION 6. Conditions Precedent to All Credit Events. The obligation of each Bank to make Loans and participate in Letters of Credit (including Loans made and Letters of Credit issued on the Restatement Effective Date), and the obligation of any Issuing Bank to issue any Letter of Credit (including any Letter of Credit issued -47- 55 on the Restatement Effective Date), is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 6.01 No Default; Representations and Warranties. At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in any other Credit Document shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of the making of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan, the Managing Agent shall have received the notice required by Section 1.03. (b) Prior to the issuance of each Letter of Credit, the Managing Agent and the respective Issuing Bank shall have received a Letter of Credit Request meeting the requirements of Section 2.02. The acceptance of the benefit of each Credit Event shall constitute a representation and warranty by Holdings and the Borrower to the Managing Agent and each of the Banks that all the conditions specified in Section 5 and in this Section 6 and applicable to such Credit Event exist as of that time (except to the extent that any of the conditions specified in Section 5 are required to be satisfactory to or determined by any Bank, the Required Banks and/or the Managing Agent). All of the Notes, certificates, legal opinions and other documents and papers referred to in Section 5 and in this Section 6, unless otherwise specified, shall be delivered to the Managing Agent at the Notice Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts or copies for each of the Banks and shall be in form and substance reasonably satisfactory to the Banks. Notwithstanding anything to the contrary contained above or in Section 13.10, if the Restatement Effective Date does not occur on or prior to February 28, 1997, then it shall not thereafter occur (unless the Required Banks agree in writing to an extension of such date), and this Agreement shall cease to be of any force or effect and the Original Credit Agreement shall continue to be effective, as the same may have been, or may thereafter be, amended, modified or supplemented from time to time. SECTION 7. Representations, Warranties and Agreements. In order to induce the Banks to enter into this Agreement and to make the Loans, and issue (or -48- 56 participate in) the Letters of Credit as provided herein, each of Holdings and the Borrower makes the following representations, warranties and agreements, in each case after giving effect to the Transaction, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and the issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Restatement Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct on and as of the Restatement Effective Date and in all material respects on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 7.01 Corporate Status. Holdings, the Borrower and each of their respective Subsidiaries (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its organization, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualifications except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. 7.02 Corporate Power and Authority. Each Credit Party has the corporate power and authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is party and has taken all necessary corporate action, as the case may be, to authorize the execution, delivery and performance by it of each of such Documents. Each Credit Party has duly executed and delivered each of the Documents to which it is party, and each of such Documents constitutes such Credit Party's legal, valid and binding obligation enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 7.03 No Violation. Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, -49- 57 or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the material properties or assets of Holdings, the Borrower or any of their respective Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, to which Holdings, the Borrower or any of their respective Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the Certificate of Incorporation or By-Laws of Holdings, or any of its Subsidiaries. 7.04 Governmental Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to each of the Restatement Effective Date and the OmniAmerica Borrowing Date), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any such Document, except, in the case of any failure to obtain (other than obtaining a final order approving the transfer, simultaneously or prior to the closing of the Colfax Acquisition and the OmniAmerica Acquisition, respectively, of either (x) the Colfax FCC Licenses or (y) the OmniAmerica FCC Licenses) where such failure to so obtain would not have a material adverse effect on (x) the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or Holdings and its Subsidiaries taken as a whole or (y) the ability of the Credit Parties to perform their obligations under the Credit Documents or the rights and remedies of the Managing Agent and the Banks thereunder; provided, however, that: (a) the License Subsidiary and the Borrower will be required to notify the FCC of the consummation of the Colfax Acquisition and the OmniAmerica Acquisition and file ownership reports with the FCC in connection with such consummations; (b) subsequent to the date of execution of the Credit Documents, copies of certain of the Credit Documents are required to be filed with the FCC; (c) the License Subsidiary will be required from time to time to obtain certain authorizations of, or to make certain filings with, the FCC that are required in connection with the ordinary course of business of the License Subsidiary and the Borrower; (d) under the Communications Act and the FCC rules, FCC approval is required prior to the transfer of control of the License Subsidiary, the Borrower or Holdings or the assignment of any of the FCC Licenses or prior to the exercise of any voting rights or management authority over the License Subsidiary, the Borrower or Holdings; and (e) prior to the exercise of certain rights or remedies under the Security Documents by the Managing Agent or the Banks, or their respective successors and assigns, FCC consents and notifications with respect to such exercise may be required to be timely obtained or made. -50- 58 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) The balance sheets, statements of operations, statements of stockholders' equity, statements of changes in stockholders' equity, statements of changes in group deficiency, statements of operations and division equity, statements of assets and liabilities, statements of operating revenues and expenses, statements of changes in net assets, statements of changes in group investment (deficiency) and statements of cash flows of Holdings and its Subsidiaries as set forth in the Borrower's 12% Exchangeable Preferred Stock Offering Memorandum, dated January 17, 1997, furnished to the Banks prior to the Restatement Effective Date fairly present the financial condition and operations of the Stations at and for the periods indicated. All such financial statements are true and correct in all material respects and have been prepared in accordance with GAAP, consistently applied. After giving effect to the Transaction, since September 30, 1996, there has been no material adverse change in the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. (b) On and as of each of the Restatement Effective Date and the OmniAmerica Borrowing Date, after giving effect to the Transaction and to all Indebtedness incurred, and to be incurred, and Liens created, and to be created, by Holdings and its Subsidiaries in connection therewith, (a) the sum of the assets, at a fair valuation, of each of Holdings and its Subsidiaries, and the Borrower and its Subsidiaries, will exceed their debts; (b) each of Holdings and its Subsidiaries, and the Borrower and its Subsidiaries, has not incurred and does not intend to incur, and does not believe that they will incur, debts beyond their ability to pay such debts as such debts mature; and (c) each of Holdings and its Subsidiaries, and the Borrower and its Subsidiaries, will have sufficient capital with which to conduct their businesses. For purposes of this Section 7.05(b), "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (c) Except as fully disclosed in the financial statements delivered pursuant to Section 7.05(a), there were as of the Restatement Effective Date no liabilities or obligations with respect to Holdings or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to the Borrower or to Holdings and its Subsidiaries taken as a whole. As of the Restatement Effective Date, neither Holdings nor the Borrower knows of any basis for the assertion against it of any -51- 59 liability or obligation of any nature whatsoever that is not fully disclosed in the financial statements delivered pursuant to Section 7.05(a) which, either individually or in the aggregate, could be material to Holdings and its Subsidiaries or the Borrower. (d) On and as of the Restatement Effective Date, the financial projections dated as of November 26, 1996 (the "Projections") previously delivered to the Managing Agent and the Banks have been prepared on a basis consistent with the financial statements referred to in Section 7.05(a) (other than as set forth or presented in such Projections), and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Borrower to be misleading in any material respect or which fail to take into account material information regarding the matters reported therein. On the Restatement Effective Date, the Borrower believed that the Projections were reasonable and attainable, but the Banks acknowledge that actual results may vary from the Projections and such variations may be significant. 7.06 Litigation. There are no actions, suits or proceedings pending or, to the best knowledge of Holdings and the Borrower, threatened (i) with respect to any Document or (ii) that could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. 7.07 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of Holdings or the Borrower in writing to the Managing Agent or any Bank (including, without limitation, all information contained in the Documents, but excluding the Projections) for purposes of or in connection with this Agreement, the other Credit Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Borrower in writing to the Managing Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. 7.08 Use of Proceeds; Margin Regulations. (a) The proceeds of the Term Loans shall be used by the Borrower (1) on the Restatement Effective Date, (i) to finance, in part, the Colfax Acquisition, (ii) to refinance certain Existing Indebtedness and (iii) to pay fees and expenses related to the Transaction and (2) on the OmniAmerica Borrowing Date, (i) to finance, in part, the OmniAmerica Acquisition and (ii) to pay fees and expenses related to the OmniAmerica Transaction. -52- 60 (b) The proceeds of Revolving Loans shall be used by the Borrower (1) on the Restatement Effective Date, (i) to finance, in part, the Colfax Acquisition and (ii) to pay fees and expenses related to the Transaction, (2) on the OmniAmerica Borrowing Date, (i) to finance, in part, the OmniAmerica Transaction and (ii) to pay fees and expenses related thereto, (3) in an amount up to $200,000,000 for the purposes set forth in Section 9.02(xiv) and (4) otherwise, for the Borrower's and its Subsidiaries' working capital and general corporate purposes. (c) No part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 7.09 Tax Returns and Payments. Each of Holdings, the Borrower and each of their Subsidiaries have timely filed or caused to be timely filed, on the due dates thereof or within applicable grace periods, with the appropriate taxing authority, all Federal and all material state returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of Holdings and/or any of its Subsidiaries. The Returns accurately reflect in all material respects all liability for taxes of Holdings, the Borrower and their respective Subsidiaries, as the case may be, for the periods covered thereby. Each of Holdings, the Borrower and their respective Subsidiaries have paid all material taxes payable by them other than taxes which are not delinquent, and other than those contested in good faith and for which adequate reserves have been established in accordance with GAAP. Except as disclosed in the financial statements referred to in Section 7.05(a), there is no material action, suit, proceeding, investigation, audit, or claim now pending or, to the best knowledge of Holdings or the Borrower, threatened by any authority regarding any taxes relating to Holdings, the Borrower or any of their respective Subsidiaries. As of the Restatement Effective Date, none of Holdings, the Borrower nor any of their respective Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of Holdings, the Borrower or any of their respective Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of Holdings, the Borrower or any of their respective Subsidiaries not to be subject to the normally applicable statute of limitations. None of Holdings, the Borrower nor any of their respective Subsidiaries has incurred, or will incur, any material tax liability in connection with the Transaction, the OmniAmerica Transaction and the other transactions contemplated hereby. -53- 61 7.10 Compliance with ERISA. Each Plan is in substantial compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan; no Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan has an accumulated or waived funding deficiency, has permitted decreases in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; all contributions required to be made with respect to a Plan have been timely made; none of Holdings, the Borrower nor any of their respective Subsidiaries nor any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to incur any material liability under any of the foregoing Sections with respect to any Plan; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan; no condition exists which presents a material risk to Holdings, the Borrower or any of their respective Subsidiaries or any ERISA Affiliate of incurring a material liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of Holdings, the Borrower, their respective Subsidiaries and their ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Credit Event, would not exceed $50,000; no lien imposed under the Code or ERISA on the assets of Holdings, the Borrower or any of their respective Subsidiaries or any ERISA Affiliate exists or is reasonably likely to arise on account of any Plan; and Holdings, the Borrower and their respective Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA) the obligations with respect to which could reasonably be expected to have a material adverse effect on the ability of Holdings, the Borrower or any of its Subsidiaries to perform their respective obligations under the Credit Documents to which they are a party. 7.11 The Security Documents. (a) The provisions of the Amended and Restated Security Agreements are effective to create in favor of the Collateral Agent for the benefit of the Secured Creditors a legal, valid and enforceable security interest in all right, title and interest of the Credit Parties in the Security Agreement Collateral described therein, and the Amended and Restated Security Agreements, upon the filing of Form UCC-1 financing statements or the appropriate equivalent (which filing, if this representation is being made more than 10 days after the Restatement Effective Date, has been made), create a fully perfected first lien on, and security interest in, all right, -54- 62 title and interest in all of the Security Agreement Collateral described therein, subject to no other Liens other than Permitted Liens. Each of the Credit Parties party to an Amended and Restated Security Agreement has good and indefeasible title to all Security Agreement Collateral described therein, free and clear of all Liens except those described above in this clause (a). (b) The security interests created in favor of the Collateral Agent, as Pledgee, for the benefit of the Secured Creditors under the Amended and Restated Pledge Agreements constitute first priority perfected security interests in the Pledged Securities described in the Amended and Restated Pledge Agreements, subject to no security interests of any other Person. No filings or recordings are required in order to perfect (or maintain the perfection or priority of) the security interests created in the Pledged Securities and the proceeds thereof under the Amended and Restated Pledge Agreements. (c) The Mortgages create, as security for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and mortgage lien on all of the Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors, superior to and prior to the rights of all third persons (except that the security interest and mortgage lien created in the Mortgaged Properties may be subject to the Permitted Encumbrances related thereto) and subject to no other Liens (other than Liens permitted under Section 9.01). Part A and B of Schedule II contain a true and complete list of each parcel of Real Property owned or leased by Holdings, the Borrower and their respective Subsidiaries on the Restatement Effective Date, and the type of interest therein held by Holdings, the Borrower or such Subsidiary. Holdings, the Borrower and each of their respective Subsidiaries have good and indefeasible title to all Mortgaged Properties free and clear of all Liens except those described in the first sentence of this subsection (c). 7.12 Representations and Warranties in Documents. All representations and warranties set forth in the other Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made). Notwithstanding anything to the contrary contained in the immediately preceding sentence, it shall not be a misrepresentation pursuant to this Section 7.12 if a representation or warranty made by a Person other than a Credit Party pursuant to a Document (other than a Credit Document) is not true and correct in all material respects, but only if (A)(i) the damages to Holdings and its Subsidiaries as a result of the incorrectness of such representation or warranty are fully covered to the extent in excess of $2,500,000 by (x) the escrow of cash or Cash Equivalents pursuant to an escrow arrangement established for the benefit of Holdings and its Subsidiaries or (y) -55- 63 a guaranty or indemnity issued by a solvent guarantor or indemnitor (with such solvency to be determined after giving effect to the required guaranty or indemnity in respect of the incorrectness of such representations and warranties) and (ii) Holdings or the Borrower, as the case may be, is proceeding in good faith to collect the amounts owing pursuant to the respective escrow arrangement, guaranty or indemnity as a result of the incorrectness of the respective representation or warranty (which action shall be required to include, at such time, if any, as the respective escrow monies are not made available in accordance with the terms of the respective escrow arrangement or the respective guarantor or indemnitor has resisted requests for payment, contesting in good faith and by appropriate proceedings the amounts owing to Holdings and its Subsidiaries) or (B)(i) the period of time expressly provided in such Document for the survival of such representation or warranty has expired, (ii) such representation or warranty is made by a Person other than a Credit Party and (iii) the damages resulting from the incorrectness of such representation or warranty could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financed or otherwise) or prospects of the Borrower or Holdings and its Subsidiaries taken as a whole. 7.13 Properties. Holdings, the Borrower and each of their respective Subsidiaries have good and indefeasible title to all properties (or a valid leasehold estate with respect to leased properties) owned by them after giving effect to the Transaction in accordance with the Documents, including all property reflected in the balance sheet of the Borrower referred to in Section 7.05(a) and in the pro forma balance sheet referred to in Section 5.15, free and clear of all Liens, other than (i) as referred to in the balance sheet or in the notes thereto or in the pro forma balance sheet or (ii) Permitted Liens. 7.14 Capitalization. (a) On the Restatement Effective Date and after giving effect to the Transaction and the other transactions contemplated hereby, the authorized capital stock of Holdings shall consist of (i) 40,000,000 shares of Class A Common Stock, $.01 par value per share ("Holdings Class A Common Stock"), of which 9,937,320 shares shall be issued and outstanding, (ii) 10,000,000 shares of Class B Common Stock ("Holdings Class B Common Stock"), $.01 par value per share, 8,484,410 shares of which shall be issued and outstanding, (iii) 10,000,000 shares of Class C Common Stock, $.01 par value per share ("Holdings Class C Common Stock"), none of which are outstanding and (iv) 10,000,000 shares of preferred stock, $.01 par value per share, 2,300,000 shares of which shall be designated Convertible Preferred Stock, of which 2,000,000 shares shall be issued and outstanding. All such outstanding shares have been duly and validly issued, are fully paid and non- assessable and have been issued free of preemptive rights. As of the Restatement Effective Date, Holdings does not have outstanding any securities convertible into or exchangeable for -56- 64 its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock, in each case other than (x) the options outstanding or to be issued pursuant to the Dinetz Employment Contract, the Employee Stock Option Plan or the agreements granting certain options to purchase Holdings Class A Common Stock to Ms. Matrice Ellis-Kirk, Mr. Marvin Dinetz, Mr. Eric W. Neumann, Mr. Jeffrey A. Marcus and Mr. John H. Massey. and (y) the Convertible Preferred Stock. (b) On the Restatement Effective Date and after giving effect to the Transaction and the other transactions contemplated hereby, the authorized capital stock of the Borrower shall consist of (x) 1,000 shares of common stock, $.01 par value per share, all of which shall be issued and outstanding, and (y) 10,000,000 shares of preferred stock, $.01 par value per share, (i) 1,000,000 shares of which are designated Series A Exchangeable Preferred Stock, all of which shall be issued and outstanding, (ii) 1,000,000 shares of which are designated 12 1/4% Senior Cumulative Preferred Stock, none of which shall be issued and outstanding, and (iii) 3,600,000 shares of which are designated Exchangeable Preferred Stock, of which 2,000,000 shares shall be issued and outstanding. All such outstanding shares have been duly and validly issued, are fully paid and nonassessable, are free of preemptive rights and, in the case of all such outstanding shares of common stock, have been pledged pursuant to the Holdings Pledge Agreement. As of the Restatement Effective Date, the Borrower does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock, other than the Series A Exchangeable Preferred Stock and the Exchangeable Preferred Stock. 7.15 Subsidiaries. After giving effect to the Transaction, as of the Restatement Effective Date, Holdings will have no direct or indirect Subsidiaries other than the Borrower, Chancellor Broadcasting Licensee, Trefoil, Shamrock, Shamrock Radio, Shamrock Broadcasting of Texas, Inc., a Texas corporation, Shamrock Broadcasting Licenses and Radio 100 L.L.C., a Delaware limited liability company. 7.16 Compliance with Statutes, etc. Except for matters relating to the compliance by Holdings and its Subsidiaries with Environmental Laws, which matters are governed by the Amended and Restated Environmental Indemnity Agreement, each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, individually or in the aggregate, -57- 65 reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. 7.17 Investment Company Act. None of Holdings, the Borrower nor any of their respective Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 7.18 Public Utility Holding Company Act. None of Holdings, the Borrower nor any of their respective Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.19 Labor Relations. None of Holdings, the Borrower nor any of their respective Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a material adverse effect on the Borrower or on Holdings and its Subsidiaries taken as a whole. There is (i) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries or, to the best knowledge of Holdings or the Borrower, threatened against any of them, before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against Holdings or any of its Subsidiaries or, to the best knowledge of Holdings or the Borrower, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against Holdings or any of its Subsidiaries or, to the best knowledge of Holdings and the Borrower, threatened against Holdings or any of its Subsidiaries and (iii) to the best knowledge of Holdings and the Borrower, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of Borrower or of Holdings and its Subsidiaries taken as a whole. 7.20 Patents, Licenses, Franchises and Formulas. Each of Holdings and its Subsidiaries owns all material patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and has obtained assignments of all leases and other rights of whatever nature, necessary for the present conduct of its business, without any known conflict with the rights of others which, or the failure to obtain which, as the case may be, -58- 66 could reasonably be likely to result in a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. 7.21 Transaction. The Transaction has been consummated in all material respects in accordance with the terms of the respective Documents and all applicable laws. All consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities (including the consent from the FCC approving the transfer of the FCC Licenses contemplated by the Documents which consent shall have become final) required in order to make or consummate the Transaction will have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained), except where the failure to so obtain, give, file or take would not have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as whole. All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transaction. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Transaction, or any Credit Event or the performance by any Credit Party of its obligations under the respective Documents. All actions taken by each Credit Party pursuant to or in furtherance of the Transaction have been taken in compliance with the respective Documents and all applicable laws. 7.22 Special Purpose Corporations. Holdings was formed for the purpose of holding all of the capital stock of the Borrower and is authorized to effect the Transaction and except in connection with the foregoing (or as may be permitted by this Agreement), Holdings engages in no business activities and has no significant assets (other than the stock of the Borrower) or liabilities (other than liabilities which are expressly permitted under this Agreement). Chancellor Broadcasting Licensee was formed for the purpose of holding all rights, title and interests in certain of the FCC Licenses to be used by the Borrower and its Subsidiaries in connection with their respective businesses and otherwise engages in no business activities and has no significant assets or liabilities. 7.23 FCC Licenses. After giving effect to the Transaction, the License Subsidiary holds such validly issued FCC licenses and authorizations as are necessary to operate the Stations as they are currently operated (collectively, the "FCC Licenses"), each of which is in full force and effect. The FCC Licenses as of the Restatement Effective Date are listed on Schedule III (with the Colfax FCC Licenses -59- 67 being designated as such on Schedule III), each of which FCC Licenses has the expiration date indicated on Schedule III. Neither Holdings nor the Borrower has knowledge of any material adverse condition imposed by the FCC as part of any FCC License which is neither set forth on the face thereof as issued by the FCC nor contained in the rules and regulations of the FCC applicable generally to stations of the type, nature, class or location of each Station. Except as set forth on Annex 7.23, each Station is being operated in all material respects in accordance with the terms and conditions of the FCC Licenses applicable to it and in accordance with the rules and regulations of the FCC and the Communications Act of 1934, as amended (the "Communications Act"). Except as set forth on Annex 7.23, no proceedings are pending or, to the knowledge of Holdings or the Borrower, are threatened which may reasonably be expected to result in the revocation, modification, non-renewal or suspension of any of the FCC Licenses, the denial of any pending applications, the issuance of any cease and desist order or the imposition of any material fines, forfeitures or other administrative actions by the FCC with respect to the Stations or their operation, other than proceedings affecting the radio broadcasting industry in general. Except as set forth on Annex 7.23, reports, applications and other documents required to be filed by any Credit Party with the FCC with respect to the Stations have in all material respects been timely filed and all such reports, applications and documents are true, correct and complete in all material respects, and neither Holdings nor the Borrower has knowledge of any matters (i) which could reasonably be expected to result in the suspension or revocation of or the refusal to renew any of the FCC Licenses or the imposition of any material fines or forfeitures by the FCC upon any Credit Party or (ii) which could reasonably be expected to result in the modification or revocation of any FM Stations' authorization to operate as currently authorized, or to operate the AM Stations as currently authorized, as applicable, under the rules and regulations of the FCC. There are no unsatisfied or otherwise outstanding notices of apparent liability or violations issued by the FCC with respect to any Station or its operations. The Borrower has delivered to the Banks true and complete copies of the FCC Licenses (including any and all amendments and other modifications thereto). 7.24 Subordinated Notes. As of each of the Restatement Effective Date and the OmniAmerica Borrowing Date, the subordination provisions contained in the Existing Senior Subordinated Notes are enforceable, and after the issuance, if any, of the Old Junior Exchange Debentures and New Junior Exchange Debentures the subordination provisions contained therein shall be enforceable, by the Banks against the Borrower and the holders of such Existing Senior Subordinated Notes, Old Junior Exchange Debentures or New Junior Exchange Debentures, and all Obligations of the Borrower hereunder or under the other Credit Documents are or will be within the definition of "Senior Debt" included in such provisions of the Existing Senior -60- 68 Subordinated Note Documents or the documents relating to the Old Junior Exchange Debentures or New Junior Exchange Debentures. SECTION 8. Affirmative Covenants. Holdings and the Borrower hereby covenant and agree that on and after the Restatement Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full: 8.01 Information Covenants. Holdings and/or the Borrower will furnish to each Bank: (a) Monthly Reports. Within 30 days after the end of each fiscal month (other than the fiscal months ending March, June, September and December) of Holdings, (i) the combined and combining balance sheets of Holdings and its Consolidated Subsidiaries for each fiscal month, each as of the end of such month and the related combined and combining statements of income and statements of cash flows for such month and for the last elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth in the statements of income only, the comparative figures for the corresponding month in the prior fiscal year and the budgeted figures for such month as set forth in the respective budget delivered pursuant to Section 8.01(e) and (ii) the balance sheets of each of the Stations on an individual basis as of the end of such month and the related statements of income and statements of cash flows for such month and for the elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth in the statements of income only, the comparative figures for the corresponding month in the prior fiscal year and the budgeted figures for such month as set forth in the respective budget delivered pursuant to Section 8.01(e). (b) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of Holdings, (i) the combined and combining balance sheets of Holdings and its Consolidated Subsidiaries for each fiscal quarter, each as of the end of such quarter and the related combined and combining statements of income and statements of cash flows for such quarter and for the last elapsed portion of the fiscal year ended with the last day of such quarter and setting forth in the statements of income only, the comparative figures for the corresponding quarter in the prior fiscal year and the budgeted figures for such quarter as set forth in the respective budget delivered pursuant to Section 8.01(e), and (ii) the balance sheets of each of the Stations as of the -61- 69 end of such quarter and the related statements of income and statements of cash flows for such quarter and for the elapsed portion of the fiscal year ended with the last day of such quarter, in each case setting forth in the statements of income only, the comparative figures for the corresponding quarter in the prior fiscal year and the budgeted figures for such quarter as set forth in the respective budget delivered pursuant to Section 8.01(e). (c) Annual Financial Statements. Within 95 days after the close of each fiscal year of Holdings, (i) the consolidated and consolidating balance sheets of Holdings and its Consolidated Subsidiaries for each fiscal year, each as at the end of such fiscal year and the related statements of income and retained earnings and of cash flows for such fiscal year and, setting forth comparative figures for the preceding fiscal year commencing fiscal year 1996 and certified, in the case of such consolidated statements, by Coopers & Lybrand L.L.P. or such other independent certified public accountants of recognized national standing reasonably acceptable to the Managing Agent, together with a report of such accounting firm (which report shall be unqualified as to scope) stating that in the course of its regular audit of the financial statements of Holdings and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default under Sections 9.03, 9.04, 9.05 and 9.07 through 9.10, inclusive, which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof, (ii) the balance sheets of each of the Stations at the end of such fiscal year and the related statement of income and retained earnings and statement of cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year for income statements only, and (iii) management's discussions and analysis of the important operational and financial developments during such fiscal year in respect of Holdings and its Subsidiaries. (d) Management Letters. Promptly after the receipt thereof by Holdings or any of its Subsidiaries, a copy of any final "management letter" received by Holdings or such Subsidiary from its certified public accountants and management's responses thereto. (e) Budgets. No later than 30 days following the commencement of the first day of each fiscal year of Holdings, a budget in form satisfactory to the Managing Agent prepared by Holdings for (x) in the case of budgeted statements of income, each of the twelve months of such fiscal year prepared in detail, and (y) in the case of budgeted statements of sources and uses of cash and balance -62- 70 sheets, for such fiscal year on an annual basis and prepared in detail and for each of the five years immediately following such fiscal year prepared in summary form, in each case, of each of Holdings and its Subsidiaries and each of the Stations on an individual basis accompanied by the statement of the President, Chief Financial Officer or Senior Vice President of Finance of the Borrower to the effect that, to the best of his knowledge, the budget is a reasonable estimate for the period covered thereby. (f) Officer's Certificates. At the time of the delivery of the financial statements provided for in Section 8.01(a), (b) and (c), a certificate of an Authorized Officer of the Borrower to the effect that, to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall, in the case of any such financial statements delivered in respect of a period ending on the last day of a fiscal quarter or year of Holdings, (x) set forth the calculations required to establish whether the Borrower was in compliance with the provisions of Sections 9.03, 9.04, 9.05, and 9.07 through 9.10, inclusive, at the end of such fiscal quarter or year, as the case may be and (y) if delivered with the financial statements required by Section 8.01(c), set forth the calculations required to establish whether the Borrower was in compliance with the provisions of Section 4.02(f) and set forth the amount of Excess Cash Flow for the respective Excess Cash Payment Period. (g) Notice of Default or Litigation. Promptly, and in any event within three Business Days after an officer of Holdings or the Borrower obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default and (ii) any litigation or governmental investigation or proceeding pending (x) against Holdings or any of its Subsidiaries which could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or Holdings and its Subsidiaries taken as a whole, (y) with respect to any material Indebtedness of the Borrower and its Subsidiaries taken as a whole or (z) with respect to any other Document which could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or Holdings and its Subsidiaries taken as a whole. (h) Other Reports and Filings. Promptly, copies of all (x) financial information, proxy materials and other information and reports, if any, which Holdings or any of its Subsidiaries shall file with the Securities and Exchange -63- 71 Commission or any successor thereto (the "SEC") including, without limitation, in connection with the issuance of the Existing Senior Subordinated Notes or, if issued, the Old Junior Exchange Debentures, the New Junior Exchange Debentures or any securities issued pursuant to the OmniAmerica Equity Issuance, or deliver to holders of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor) and (y) material filings or communications with the FCC or under, or as required by, the Communications Act. (i) Annual Meetings with Banks. At the request of the Managing Agent or the Required Banks, Holdings shall within 120 days after the close of each fiscal year of Holdings hold a meeting at a time and place selected by Holdings and acceptable to the Managing Agent with all of the Banks at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of Holdings and the budgets presented for the current fiscal year of Holdings and its Subsidiaries. (j) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to Holdings or its Subsidiaries as any Bank may reasonably request in writing. 8.02 Books, Records and Inspections. Holdings will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. Holdings will, and will cause each of its Subsidiaries to, permit officers and designated representatives of the Managing Agent or any Bank to visit and inspect, during regular business hours and under guidance of officers of Holdings, the Borrower or such Subsidiary, any of the properties of Holdings, the Borrower or such Subsidiary, and to examine the books of account of Holdings, the Borrower or such Subsidiary and discuss the affairs, finances and accounts of Holdings, the Borrower or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as the Managing Agent or such Bank may request. 8.03 Maintenance of Property; Insurance. (a) Schedule IV sets forth a true and complete listing of all insurance maintained by Holdings, and its Subsidiaries as of the Restatement Effective Date. Holdings will, and will cause each of its Subsidiaries to, (i) keep all property necessary in its business in good working order and condition (ordinary wear and tear excepted), (ii) maintain insurance on all its property in at least such amounts and against at least such risks as is consistent and in -64- 72 accordance with industry practice and (iii) furnish to each Bank, upon written request, full information as to the insurance carried. In addition to the requirements of the immediately preceding sentence, Holdings and the Borrower will at all times cause insurance of the types described in Schedule IV to be maintained (with the same scope of coverage as that described in Schedule IV) at levels which are at least as great as the respective amount described opposite the respective type of insurance on Schedule IV under the column headed "Maximum Amount Required to be Maintained." (b) Holdings will, and will cause its Subsidiaries to, at all times keep their respective property insured in favor of the Collateral Agent, and all policies or certificates (or certified copies thereof) with respect to such insurance (and any other insurance maintained by Holdings or any of its Subsidiaries) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee or as an additional insured), (ii) shall state that such insurance policies shall not be cancelled without 30 days' prior written notice thereof by the respective insurer to the Collateral Agent, (iii) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the Secured Creditors, (iv) shall contain the standard non-contributory mortgagee clause endorsement in favor of the Collateral Agent with respect to hazard insurance coverage, (v) shall, except in the case of public liability insurance and workers' compensation insurance, provide that any losses shall be payable notwithstanding (A) any act or neglect of Holdings or any of its Subsidiaries, (B) the occupation or use of the properties for purposes more hazardous than those permitted by the terms of the respective policy if such coverage is obtainable at commercially reasonable rates and is of the kind from time to time customarily insured against by Persons owning or using similar property and in such amounts as are customary, (C) any foreclosure or other proceeding relating to the insured properties if such coverage is available at commercially reasonable rates or (D) any change in the title to or ownership or possession of the insured properties if such coverage is available at commercially reasonable rates and (vi) shall be deposited with the Collateral Agent if such coverage is available at commercially reasonable rates. (c) If Holdings or any of its Subsidiaries shall fail to maintain all insurance in accordance with this Section 8.03, or if Holdings or any of its Subsidiaries shall fail to so endorse and deposit all policies or certificates with respect thereto, the Managing Agent and/or the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and the Borrower agrees to reimburse the Managing Agent or the Collateral Agent as the case may be, for all costs and expenses of procuring such insurance. -65- 73 8.04 Corporate Franchises. Holdings will, and will cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents (including the rights of the Borrower and the License Subsidiary under the Asset Use and Operating Agreement dated January 10, 1994 and the two separate Asset Use and Operating Agreements dated October 12, 1994, respectively) (each an "Operating Agreement," and, collectively, the "Operating Agreements"); provided, however, that nothing in this Section 8.04 shall prevent (i) sales of assets by Holdings or any of its Subsidiaries in accordance with Section 9.02 or (ii) the withdrawal by Holdings or any of its Subsidiaries of their qualification as a foreign corporation in any jurisdiction where such withdrawal could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities or condition (financial or otherwise) of the Borrower or of Holdings and its Subsidiaries taken as a whole. 8.05 Compliance with Statutes, etc. Except for matters relating to compliance by Holdings and its Subsidiaries with Environmental Laws, which matters are governed by the Amended and Restated Environmental Indemnity Agreement, Holdings will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. 8.06 ERISA. As soon as possible and, in any event, within 20 days after Holdings, the Borrower or any of their respective Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, Holdings or the Borrower will deliver to each of the Banks a certificate of an Authorized Officer of Holdings or the Borrower setting forth details as to such occurrence and the action, if any, that Holdings, the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by Holdings, the Borrower, such Subsidiary, the ERISA Affiliate, the PBGC, or a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred; that an accumulated funding deficiency has been incurred or an application is likely to be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan; that a contribution required to be made to a Plan has not been timely made; that a Plan has been or is reasonably expected to be terminated, reorganized, partitioned or declared insolvent under -66- 74 Title IV of ERISA; that a Plan has an Unfunded Current Liability giving rise to a lien under ERISA or the Code; that proceedings are likely to be or have been instituted or notice has been given to terminate or appoint a trustee to administer a Plan, that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that Holdings, the Borrower, any of their respective Subsidiaries or any ERISA Affiliate will or is reasonably expected to incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971 or 4975 of the Code or Section 409 or 502(i) or 502(l) of ERISA; or that Holdings, the Borrower or any Subsidiary may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA). Upon request the Borrower will deliver to each of the Banks a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Banks pursuant to the first sentence hereof, copies of annual reports and any material notices received by Holdings, the Borrower or any of their respective Subsidiaries or any ERISA Affiliate with respect to any Plan shall be delivered to the Banks no later than 20 days after the date such report has been filed with the Internal Revenue Service or such notice has been received by Holdings, the Borrower, the Subsidiary or the ERISA Affiliate, as applicable. 8.07 End of Fiscal Years; Fiscal Quarters. Holdings shall cause (i) each of its, and each of its Subsidiaries', fiscal years to end on December 31, and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30 and September 30. 8.08 Performance of Obligations. Holdings will, and will cause each of its Subsidiaries to, perform all of their obligations under the terms of each mortgage, indenture, security agreement and other debt instrument by which it is bound, except such non-performances as could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. 8.09 Payment of Taxes. Holdings will pay and discharge or cause to be paid and discharged, and will cause each of its Subsidiaries to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any material properties belonging to it, in each case on a timely basis, and all lawful claims which, if unpaid, might become a lien or charge -67- 75 upon any properties of Holdings or any of its Subsidiaries; provided that none of Holdings nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 8.10 Maintenance of Separateness. Holdings will, and will cause each of its Subsidiaries to, satisfy customary corporate formalities including the holding of regular board of directors' and shareholders' meetings and the maintenance of corporate offices and records. None of the Borrower nor any of its Subsidiaries shall make any payment to a creditor of Holdings in respect of any liability of Holdings which is not a liability of the Borrower or such Subsidiary, and no bank account of Holdings shall be commingled with any bank account of the Borrower or any of its Subsidiaries. Any financial statements distributed to any creditors of Holdings shall, to the extent permitted by GAAP, clearly establish the corporate separateness of Holdings from the Borrower and its Subsidiaries. Finally, neither Holdings nor any of its Subsidiaries shall take any action, or conduct its affairs in a manner, which is likely to result in the corporate existence of Holdings being ignored, or in the assets and liabilities of the Borrower or any of its Subsidiaries being substantively consolidated with those of Holdings in a bankruptcy, reorganization or other insolvency proceeding. 8.11 Dividends on Series A Exchangeable Preferred Stock and Exchangeable Preferred Stock. The Borrower will pay all dividends on (x) the Series A Exchangeable Preferred Stock through the accretion of the liquidation preference on the Series A Exchangeable Preferred Stock rather than in cash, except as otherwise permitted to be paid in cash pursuant to Section 9.03(x), and (y) the Exchangeable Preferred Stock (including at any time on or after January 15, 2002) solely through the issuance of additional shares of Exchangeable Preferred Stock rather than in cash, except as permitted to be paid in cash pursuant to Section 9.03(x). 8.12 Additional Security; Further Assurances. (a) Holdings and the Borrower will, and will cause each of their respective Subsidiaries to, grant to the Collateral Agent security interests in Reinvestment Assets at the time of the acquisition thereof as described in this clause (a). To the extent Reinvestment Assets are acquired by the Borrower and/or its Subsidiaries, the Borrower or such Subsidiary shall grant a Lien on and a security interest in such Reinvestment Assets on the same terms as set forth in the Security Documents and as otherwise set forth in this Section 8.12. To the extent Reinvestment Assets are acquired by a merger or the acquisition of capital stock, the Borrower shall cause the Person acquiring such Reinvestment Assets to become a Subsidiary of the Borrower and/or its Subsidiaries, and shall pledge or cause to be pledged all capital stock of any such Person so acquired pursuant to the Amended and Restated Borrower Pledge Agreement or the Amended and Restated Subsidiary Pledge -68- 76 Agreement and cause such Person to enter into an additional guaranty substantially similar to the Amended and Restated Subsidiary Guaranty and additional security documents substantially similar to the Security Documents, all as otherwise as set forth in this Section 8.12; provided, that, absent a change in the relevant sections of the Code or the rules, regulations, rulings, notices or other official pronouncements issued or promulgated thereunder, the Borrower and its Subsidiaries shall be required to only pledge 65% of the voting capital stock of a foreign Subsidiary and no foreign Subsidiary shall be required to enter into such guaranty or Security Documents; provided further, the Borrower and its Subsidiaries shall not be required to grant a security interest in any Reinvestment Assets that are acquired subject to a Lien permitted by Section 9.01(vii), (viii) or (xx). (b) Holdings will, and will cause each of its Subsidiaries to, grant to the Collateral Agent security interests and mortgages (an "Additional Mortgage") in such Real Property of Holdings or any of its Subsidiaries as are not covered by the Existing Mortgages or Mortgages to the extent acquired after the Restatement Effective Date, and as may reasonably be requested from time to time by the Managing Agent or the Required Banks (each such Real Property, an "Additional Mortgaged Property"). All such Additional Mortgages shall be granted pursuant to documentation substantially in the form of the Mortgages or in such other form as is reasonably satisfactory to the Managing Agent and shall constitute valid and enforceable perfected Liens superior to and prior to the rights of all third Persons and subject to no other Liens except as are permitted by Section 9.01 at the time of perfection thereof. The Additional Mortgages or instruments related thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Additional Mortgages and all taxes, fees and other charges payable in connection therewith shall have been paid in full. Notwithstanding anything to the contrary stated above in this clause (b), Holdings and its Subsidiaries shall be required to only grant Additional Mortgages in fee owned Real Property with a fair market value at the time of acquisition thereof in excess of $500,000. (c) No later than 30 days following the OmniAmerica Borrowing Date, the Borrower shall, execute and deliver to the Collateral Agent an Additional Mortgage on the Real Property listed on Part B of Schedule II, and shall take all other actions and deliver such other documents (including opinions of counsel and title policies) with respect thereto as the Managing Agent may reasonably request. (d) Holdings will, and will cause each of its Subsidiaries to, grant to the Collateral Agent security interests in assets acquired pursuant to Sections 9.02(ix), (xiv) and (xv) at the time of the acquisition thereof as described in this clause (d). To the -69- 77 extent assets are acquired by the Borrower or any of its Subsidiaries pursuant to such Sections, the Borrower or such Subsidiary shall grant a Lien on and a security interest in such assets on the same terms as set forth in the Security Documents and as otherwise set forth in this Section 8.12. In connection with the acquisition of the capital stock of a Person pursuant to such Sections, the Borrower shall cause such Person to become a direct or indirect Subsidiary of the Borrower, and shall pledge or cause to be pledged all capital stock of any such Person so acquired pursuant to the Amended and Restated Borrower Pledge Agreement or the Amended and Restated Subsidiary Pledge Agreement, as applicable, and cause such Person to enter into an additional guaranty substantially similar to the Amended and Restated Subsidiary Guaranty and additional security documents substantially similar to the Security Documents, all as otherwise set forth in this Section 8.12; provided, that, absent a change in the relevant sections of the Code or the rules, regulations, rulings, notices or other official pronouncements issued or promulgated thereunder, the Borrower and its Subsidiaries shall be required to only pledge 65% of the voting capital stock of a foreign Subsidiary and no foreign Subsidiary shall be required to enter into such guaranty or Security Documents; provided further, that the Borrower and its Subsidiaries shall not be required to grant a security interest in such assets that are acquired subject to a Lien permitted by Section 9.01(vii), (viii) or (xx). Notwithstanding anything to the contrary contained above, Holdings and its Subsidiaries shall be required to only grant Additional Mortgages in fee owned Real Property with a fair market value at the time of acquisition in excess of $500,000. (e) Holdings will, and will cause each of its Subsidiaries to, at the expense of the Borrower, make, execute, endorse, acknowledge, file and/ or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, real property surveys, reports and other assurances or instruments and take such further steps relating to the Collateral covered by any of the Security Documents as the Collateral Agent may reasonably require pursuant to this Section 8.12. Furthermore, Holdings and the Borrower shall cause to be delivered to the Collateral Agent such opinions of counsel, title insurance and other related documents as may be requested by the Collateral Agent to assure itself that this Section 8.12 has been complied with. (f) Holdings will cause each Subsidiary established or created in accordance with Section 9.15 to execute and deliver a guaranty of all Obligations and all obligations under Interest Rate Protection Agreements in substantially the form of the Amended and Restated Subsidiary Guaranty; provided that absent a change in the relevant sections of the Code or the rules, regulations, rulings, notices or other official -70- 78 pronouncements issued or promulgated thereunder, no foreign Subsidiary shall be required to enter into such guaranty. (g) Holdings will cause each Subsidiary established or created in accordance with Section 9.15 to grant to the Collateral Agent a first priority Lien on all property (tangible and intangible) of such Subsidiary upon terms similar to those set forth in the Security Documents as appropriate, and satisfactory in form and substance to the Collateral Agent and Required Banks; provided, that absent a change in the relevant sections of the Code or the rules, regulations, rulings, notices or other official pronouncements issued or promulgated thereunder, no foreign Subsidiary shall be required to enter into such Security Documents; provided further, that the Borrower and its Subsidiaries shall not be required to grant a security interest in such assets that are acquired subject to a Lien permitted by Section 9.01(vii), (viii) or (xx); provided further, that such Subsidiary shall be required to only grant Additional Mortgages in fee owned Real Property with a fair market value at the time of acquisition in excess of $500,000. Holdings and the Borrower will cause each Subsidiary, at its own expense, to execute, acknowledge and deliver, or cause the execution, acknowledgement and delivery of, and thereafter register, file or record in any appropriate governmental office, any document or instrument reasonably deemed by the Collateral Agent to be necessary or desirable for the creation and perfection of the foregoing Liens. Holdings and the Borrower will cause each of its Subsidiaries to take all actions requested by the Collateral Agent (including, without limitation, the filing of UCC-1's) in connection with the granting of such security interests. (h) The security interests required to be granted pursuant to this Section 8.12 shall be granted pursuant to security documentation (which shall be substantially similar to the Security Documents already executed and delivered by the Borrower or its Subsidiaries, as applicable) or otherwise satisfactory in form and substance to the Managing Agent and shall constitute valid and enforceable perfected security interests prior to the rights of all third Persons and subject to no other Liens except such Liens as are permitted by Section 9.01. The Additional Security Documents and other instruments related thereto shall be duly recorded or filed in such manner and in such places and at such times as are required by law to establish, perfect, preserve and protect the Liens, in favor of the Collateral Agent for the benefit of the respective Secured Creditors, required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full by the Borrower. At the time of the execution and delivery of the Additional Security Documents, the Borrower shall cause to be delivered to the Collateral Agent such opinions of counsel, Mortgage Policies, title surveys, real estate appraisals and other related documents as may be reasonably requested by the Managing -71- 79 Agent or the Required Banks to assure themselves that this Section 8.12 has been complied with. (i) Each of Holdings and the Borrower agrees that each action required above by Section 8.12(e) shall be completed as soon as possible, but in no event later than 60 days after such action is requested to be taken by the Managing Agent or the Required Banks. Each of Holdings and the Borrower further agrees that each action required by Section 8.12(a) (to the extent applicable in connection with the creation or acquisition of a new Subsidiary), 8.12(d), (f), (g) and (h) with respect to Additional Collateral shall be completed contemporaneously with the creation of such new Subsidiary. 8.13 Designation of Agent. If for any reason the agent designated by Holdings and the Borrower in Section 13.08(a) shall cease to be available to act in such capacity, Holdings and the Borrower shall designate, appoint and empower a new agent in the City of New York satisfactory to the Managing Agent on the terms and for the purposes set forth in Section 13.08(a). SECTION 9. Negative Covenants. Holdings and the Borrower covenant and agree that on and after the Restatement Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full: 9.01 Liens. Holdings will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to Holdings or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 9.01 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; -72- 80 (ii) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the Borrower's or such Subsidiary's property or assets or materially impair the use thereof in the operation of the business of the Borrower or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens in existence on each of the Restatement Effective Date and the OmniAmerica Borrowing Date which are listed, and the property subject thereto described, in Schedule V, but only to the respective date, if any, set forth in such Schedule V for the removal and termination of any such Liens, plus renewals, replacements and extensions of such Liens to the extent set forth on Schedule V, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal, replacement or extension and (y) any such renewal, replacement or extension does not encumber any additional assets or properties of Holdings or any of its Subsidiaries; (iv) Permitted Encumbrances; (v) Liens created pursuant to the Security Documents; (vi) licenses, leases or subleases granted to other Persons in a manner consistent with past practice or the radio industry generally not materially interfering with the conduct of the business of Holdings and its Subsidiaries taken as a whole; (vii) Liens upon assets subject to Capitalized Lease Obligations to the extent permitted by Section 9.04, provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Borrower or any Subsidiary of the Borrower; (viii) Liens placed upon equipment or machinery used in the ordinary course of business of the Borrower or any of its Subsidiaries at the time of -73- 81 acquisition thereof by the Borrower or any such Subsidiary or within 120 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price thereof and all renewals, replacements or extensions thereof, provided that (x) the aggregate outstanding principal amount of all Indebtedness secured by Liens permitted by this clause (viii) shall not at any time exceed $5,000,000 and (y) in all events, the Lien encumbering the equipment or machinery so acquired does not encumber any other asset of the Borrower or such Subsidiary; (ix) easements, rights-of-way, restrictions (including zoning restrictions), encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies, in each case whether now or hereafter in existence, not securing Indebtedness and not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries; (x) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into by Holdings or any of its Subsidiaries in the ordinary course of business; (xi) Liens arising out of the existence of judgments or awards not constituting an Event of Default under Section 10.09, provided that no cash or property is deposited or delivered to secure the respective judgment or award (or any appeal bond in respect thereof, other than appeal bonds secured by deposits not to exceed $5,000,000 in the aggregate); (xii) statutory, contractual and common law landlords' liens under leases to which the Borrower or any of its Subsidiaries is a party; (xiii) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety, stay, customs bonds, statutory bonds (other than appeal bonds), bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (xiv) any interest or title of a lessor, sublessor, licensee or licensor under any lease or license agreement permitted by this Agreement; (xv) Liens in favor of a banking institution arising as a matter of law encumbering deposits (including the right of set-off) held by such banking -74- 82 institutions incurred in the ordinary course of business and which are within the general parameters customary in the banking industry; (xvi) deposits made in the ordinary course of business to secure liabilities for premiums to insurance carriers, provided that such deposits do not exceed in the aggregate an amount equal to $2,500,000 at any time; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by the Borrower or any of its Subsidiaries in the ordinary course of business, in accordance with past practices of the Borrower and its Subsidiaries; (xviii) Liens created to secure obligations permitted by Section 9.02(xii); (xix) cash earnest money deposits in connection with acquisitions otherwise permitted by Section 9.02 in an amount not to exceed that amount, when added to the Stated Amount of all Letters of Credit issued to provide assurance of performance in connection with acquisitions otherwise permitted by Section 9.02, which equals $40,000,000 at any time outstanding; (xx) Liens on property or assets in existence at the time such property or assets are acquired pursuant to Section 9.02(ix), (xiv) or (xv), provided that (x) any Indebtedness that is secured by such Liens is permitted to exist under Section 9.04(xv) and (y) such Liens are not incurred in connection with, or in contemplation or anticipation of, such acquisition and do not attach to any other asset of Holdings or any of its Subsidiaries; and (xxi) Liens not otherwise permitted under this Section 9.01 to the extent attaching to properties and assets with an aggregate fair market value not in excess of, and securing liabilities not in excess of, $2,500,000 in the aggregate at any time outstanding. 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Holdings will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or merge, consolidate, convey, sell, lease or otherwise dispose of all or any part of its property or assets, or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials, equipment and intangible assets, including property acquired by way of trade or barter agreements, in the ordinary course of business) of any Person, except that: -75- 83 (i) Capital Expenditures made by the Borrower and its Subsidiaries shall be permitted to the extent not in violation of Section 9.07; (ii) each of the Borrower and its Subsidiaries may in the ordinary course of business, sell, lease or otherwise dispose of any assets provided that the aggregate Net Sale Proceeds of all assets subject to sales or other dispositions pursuant to this clause (ii) shall not exceed $2,500,000 in any fiscal year of the Borrower; (iii) investments may be made to the extent permitted by Section 9.05; (iv) each of the Borrower and its Subsidiaries may lease (as lessee) real or personal property in the ordinary course of business (so long as such lease does not create a Capitalized Lease Obligation not otherwise permitted by Section 9.04(v)); (v) each of the Borrower and its Subsidiaries may make sales or other transfers of airtime in the ordinary course of business and consistent with past practices; (vi) licenses or sublicenses by the Borrower and its Subsidiaries of software, trademarks and other intellectual property and general intangibles and licenses, leases or subleases of other property in the ordinary course of business and which do not materially interfere with the business of the Borrower or any Subsidiary; (vii) the Borrower or any Wholly-Owned Subsidiary of the Borrower may transfer assets to or lease assets to or acquire or lease assets from the Borrower or any Wholly-Owned Subsidiary (so long as the security interests granted pursuant to the Security Documents are not, in the judgment of the Collateral Agent, adversely affected thereby) or any Subsidiary of the Borrower may be merged or consolidated with or into, or be liquidated or dissolved into, the Borrower or any Wholly- Owned Subsidiary of the Borrower (so long as the Borrower or such Wholly-Owned Subsidiary is the surviving corporation); (viii) (x) the sale or other disposition of Stations of the Borrower shall be permitted for cash at fair market value (as determined in good faith by the Borrower) so long as the proceeds thereof are applied in accordance with Section 4.02(e), provided that the Broadcast Cash Flow attributable to the Stations so sold or disposed during any fiscal year of the Borrower shall not exceed 20% of Consolidated Broadcast Cash Flow for such fiscal year and (y) -76- 84 the acquisition for no more than fair market value of Reinvestment Assets shall be permitted in accordance with Sections 4.02(e) and 8.12; (ix) so long as (x) no Default or Event of Default then exists or would arise therefrom and (y) Holdings shall be in compliance with the financial covenants contained in Sections 9.08 through 9.10, inclusive, with such financial covenants to be calculated on a pro forma basis as if such Stock Swap and/or Station Swap had been consummated on the first day of the then most recently ended Test Period (and any Indebtedness incurred, issued or assumed in connection therewith had been incurred on the first day of, and remained outstanding throughout, such Test Period), the Borrower may, and may permit its Subsidiaries to, simultaneously exchange (for reasonably equivalent value, a portion thereof which may include cash) (x) 100% of the capital stock of any Subsidiary of such Person (the "Stock Swapped Station") for 100% of the capital stock of any Person (the "Stock Target Station") owning a station (each such occurrence a "Stock Swap") or (y) all or substantially all of the assets of a radio Station or group of Stations (the "Asset Swapped Station," with each Stock Swapped Station and Asset Swapped Station, a "Swapped Station") for all or substantially all of the assets of another radio station or group of stations (the "Asset Target Station," with each Stock Target Station and each Asset Target Station, a "Target Station") (each such occurrence a "Station Swap"), provided, that at the time of such Stock Swap or Station Swap the Borrower and/or such Subsidiary, and the newly acquired entity, shall comply with Section 8.12, provided further, that any cash proceeds received by Borrower or any of its Subsidiaries in connection with any such Stock Swap or Asset Swap shall be applied in accordance with the requirements of Section 4.02(e); (x) the Colfax Acquisition shall be permitted; (xi) the OmniAmerica Transaction, shall be permitted; (xii) the Borrower and its Subsidiaries may sell or discount, accounts receivable arising in the ordinary course of business (x) which are overdue or (y) which the Borrower may reasonably determine are difficult to collect, but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale or financing of receivables); (xiii) transfers of condemned property to the respective governmental authority or agency that have condemned same (whether by deed in lieu of condemnation or otherwise), and transfers of properties that have been subject to -77- 85 a casualty to the respective insurer of such property or its designee as part of an insurance settlement, so long as the proceeds thereof are applied as required by Section 4.02(g); (xiv) so long as no Default or Event of Default then exists or would arise therefrom, the Borrower may and may permit its Subsidiaries to, acquire the capital stock or assets of any Person so long as (x) any such acquisition is for all the capital stock or all or substantially all of the business of, or an operating division or a business unit of, such Person, (y) the aggregate consideration paid (including Indebtedness assumed in connection therewith) pursuant to this clause (xiv) does not exceed $200,000,000 and (z) Holdings shall be in compliance with the financial covenants contained in Sections 9.08 through 9.10, inclusive, with such financial covenants to be calculated on a pro forma basis as if such acquisition had been consummated on the first day of the then most recently ended Test Period (and any Indebtedness incurred, issued or assumed in connection therewith had been incurred on the first day of, and remained outstanding throughout, such Test Period); (xv) in addition to the acquisitions permitted pursuant to preceding clause (xiv), the Borrower and its Subsidiaries may acquire all or substantially all of the business of, or operating division or a business unit of, any Person with the reinvestment of Excess Cash Flow for the relevant Excess Cash Payment Period to the extent (w) not required to be applied to repay Loans pursuant to Section 4.02(f), (x) not used to prepay Holdings Subordinated Notes pursuant to Section 9.11(ii), (y) not used to make Capital Expenditures pursuant to Section 9.07(c)(iii) and (z) not used to make investments pursuant to Section 9.05(x); (xvi) the Detroit Disposition shall be permitted; (xvii) the American Radio Exchange shall be permitted; (xviii) the SFX Exchange shall be permitted; (xix) the Milwaukee Disposition shall be permitted; and (xx) each of the Borrower and its Subsidiaries may in the ordinary course of business sell or otherwise dispose of equipment which, in the reasonable judgment of such Person, is obsolete, worn out or otherwise no longer useful, in the conduct of such Person's business. -78- 86 To the extent the Required Banks waive the provisions of this Section 9.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 9.02 (other than clause (vii) thereof), such Collateral shall be sold free and clear of the Liens created by the Security Documents, and the Managing Agent and Collateral Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing; provided, that immediately prior to the consummation of the Detroit Disposition, the Liens in the cash proceeds from the Detroit Disposition shall be released for the period beginning on such date and ending upon the earliest of (i) the forty-sixth day thereafter (the "Identification Date"), if Shamrock has not identified replacement property (within the meaning of Treasury Regulations Section 1.1031(k)-1(g)(6)(ii)) by such date, (ii) the day after the end of the "exchange period" (within the meaning of Treasury Regulations Section 1.1031(k)-1(b)(2)(ii)) or (iii) any date after the Identification Date on which the written agreement to acquire the replacement property is terminated for reasons beyond the control of Shamrock and the Borrower. 9.03 Dividends. Holdings shall not, and shall not permit any of its Subsidiaries to, authorize, declare or pay any Dividends with respect to Holdings or any of its Subsidiaries except that: (i) any Subsidiary of the Borrower may pay Dividends to the Borrower or any Wholly-Owned Subsidiary of the Borrower; (ii) the Borrower may pay cash Dividends to Holdings for the purpose of paying, so long as all proceeds thereof are promptly used by Holdings to pay, its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including, without limitation, legal and accounting expenses and similar expenses) in a maximum principal amount of $2,000,000 per annum; (iii) Holdings may pay cash Dividends, and the Borrower may pay cash Dividends to Holdings to enable Holdings, to make payments (A) to pay management fees or executive compensation to the extent such management fees or executive compensation are permitted by Section 9.06(v) and (vi) and pursuant to the Monitoring and Oversight Agreements, to the extent permitted pursuant to Section 9.06(iv), (B) to repurchase Holdings Common Stock and/or options to purchase Holdings Common Stock held by (x) Dinetz pursuant to the Dinetz Employment Contract or (y) directors, executives, officers, members of management, or employees of Holdings, the Borrower or any of its Subsidiaries upon the exercise of options in accordance with the Employee Stock Option Plan, or (z) other stockholders of Holdings so long as the purpose of such purchase is to acquire Holdings Common Stock for reissuance to new employees -79- 87 of Holdings and its Subsidiaries to the extent so reissued within 12 months of any such purchase so long as the aggregate amount of cash expended by Holdings pursuant to subclause (B) of this clause (iii) shall not exceed $2,500,000 in any fiscal year or $5,000,000 in the aggregate (plus the amount of cash proceeds paid by any new employee in consideration for reissuance of Holdings Common Stock repurchased by Holdings to the extent received by Holdings within 12 months following any such repurchase, minus the amount of cash paid in respect of Holdings Subordinated Notes permitted under Section 9.11(ii)) and (C) on the Holdings Subordinated Notes, to the extent permitted under Section 9.11(ii), so long as in the case of subclauses (B) and (C) of this clause (iii), no Default or Event of Default exists or would result therefrom; (iv) the Borrower may pay cash Dividends to Holdings for the purpose of paying, so long as all proceeds thereof are promptly used by Holdings to pay franchise taxes and federal, state and local income taxes and interest, and penalties with respect thereto, if any, payable by Holdings, provided that any refund shall be promptly returned by Holdings to the Borrower; (v) the Borrower may pay cash Dividends to Holdings to enable Holdings to pay cash Dividends to redeem fractional shares of its common stock so long as the aggregate amount thereof does not exceed $5,000; (vi) the Borrower may pay regularly scheduled Dividends on its Exchangeable Preferred Stock pursuant to the terms thereof solely through the issuance of additional shares of Exchangeable Preferred Stock; (vii) so long as no Default or Event of Default then exists or would result therefrom, the Borrower may pay cash Dividends to Holdings for the purpose of paying, so long as all proceeds thereof are promptly used by Holdings to pay, regularly scheduled Dividends on its Convertible Preferred Stock; provided, that (x) the aggregate amount of cash Dividends paid pursuant to this clause (vii) shall not exceed 7% per annum of the original aggregate liquidation preference of the Convertible Preferred Stock in any fiscal year of the Borrower and (y) such payment of cash Dividends is permitted under the Series A Exchangeable Preferred Stock Documents, the Exchangeable Preferred Stock Documents and any other indenture, certificate of designation or other agreement which may restrict such payments; (viii) the Borrower may pay cash Dividends to Holdings for the purpose of making, so long as all proceeds thereof are promptly used by Holdings -80- 88 to make, cash payments in lieu of issuing fractional shares of Holdings Common Stock upon the conversion of the Convertible Preferred Stock in an aggregate amount not to exceed $150,000; (ix) the Borrower may pay cash Dividends on its Exchangeable Preferred Stock in lieu of issuing fractional shares of Exchangeable Preferred Stock; and (x) so long as (x) no Default or Event of Default then exists or would result therefrom, (y) the Leverage Ratio on the date of payment thereof is less than 4.00:1.00 and (z) such payment of cash Dividends is permitted under the indentures, certificates of designation and other agreements which may restrict such payments, the Borrower may pay regularly scheduled Dividends on its Series A Exchangeable Preferred Stock and Exchangeable Preferred Stock. 9.04 Indebtedness. Holdings will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents; (ii) Indebtedness existing on the Restatement Effective Date shall be permitted to the extent the same is listed on Schedule VI, and extensions, replacements, refinancings or renewals thereof, provided that no such extension, replacement, refinancing or renewal shall increase the principal amount thereof; (iii) so long as the Total Revolving Loan Commitment shall have been terminated and all Revolving Loans have been paid in full, at any time following the Revolving Loan Maturity Date, Indebtedness of the Borrower and its Subsidiaries in respect of unsecured revolving lines of credit in an aggregate principal amount not to exceed $50,000,000 at any time outstanding; (iv) Indebtedness under Interest Rate Protection Agreements to the extent entered into pursuant to Section 9.05; (v) Indebtedness evidenced by Capitalized Lease Obligations to the extent permitted pursuant to Section 9.07; (vi) Indebtedness subject to Liens permitted under Section 9.01(viii); -81- 89 (vii) Indebtedness of Holdings not to exceed $2,000,000 at any time outstanding evidenced by subordinated notes in form and upon terms reasonably satisfactory to the Managing Agent (the "Holdings Subordinated Notes") issued to effectuate the stock repurchases described in Section 9.03(iii); (viii) Indebtedness (x) of the Borrower evidenced by the Existing Senior Subordinated Notes in an aggregate principal amount not to exceed $260,000,000 and (y) arising under guaranties by the Subsidiaries of the Borrower of the obligations of the Borrower under the Existing Senior Subordinated Notes; (ix) additional Indebtedness of the Borrower and its Subsidiaries not otherwise permitted under this Section 9.04 not to exceed $5,000,000 in aggregate principal amount outstanding at any time; (x) Contingent Obligations of the Borrower or any Subsidiary as a guarantor of the lessee under any lease pursuant to which the Borrower or a Subsidiary is the lessee so long as such lease is otherwise permitted hereunder; (xi) intercompany Indebtedness of any Wholly-Owned Subsidiary of Holdings owing to the Borrower or any other Wholly-Owned Subsidiary of Holdings, or of the Borrower owing to any Wholly-Owned Subsidiary of Holdings, to the extent permitted by Section 9.05(xi); (xii) as long as no Default or Event of Default then exists or would arise therefrom, with the consent of the Total Supermajority Banks, the Borrower may exchange all of the Series A Exchangeable Preferred Stock into the Old Junior Exchange Debentures in accordance with the terms of the Series A Exchangeable Preferred Stock Documents; (xiii) so long as no Default or Event of Default then exists or would arise therefrom, with the consent of the Total Supermajority Banks, the Borrower may exchange all of the Exchangeable Preferred Stock into the New Junior Exchange Debentures in accordance with the terms of the Exchangeable Preferred Stock Documents; (xiv) so long as (i) the Borrower shall have delivered a certificate of an Authorized Officer of the Borrower to the effect that, to the best of such officer's knowledge, (x) no Default or Event of Default has occurred and is continuing (or would result from the incurrence of the additional Indebtedness contemplated by this clause 9.04 (xiv)), and (y) all representations and warranties -82- 90 herein or in any other Credit Document are true and correct in all material respects with the same effect as if these representations and warranties had been made on the date of the incurrence of Indebtedness contemplated by this clause 9.04(xiv) (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) new Notes and other documentation necessary to incur such Indebtedness are delivered in form and substance satisfactory to the Managing Agent pursuant to Sections 13.04 and 13.12, then the Borrower may increase the Total Revolving Loan Commitment, in whole or in part, by an amount not to exceed $200,000,000 in the aggregate with the consent of the Banks providing such additional amount (and no other Banks); (xv) (A) unsecured Indebtedness of the Borrower and its Subsidiaries owing to the seller in any acquisition permitted pursuant to Section 9.02(ix), (xiv) and (xv) in an aggregate principal amount not to exceed $15,000,000 at any time outstanding or (B) Indebtedness of the Borrower and its Subsidiaries assumed in connection with any such acquisition of an asset securing such Indebtedness in an aggregate principal amount not to exceed $15,000,000 at any time outstanding, provided that such Indebtedness was not incurred in connection with, or in anticipation or contemplation of, such acquisition; (xvi) Contingent Obligations of the Borrower or any of its Subsidiaries (other than License Subsidiary) as a guarantor of Indebtedness permitted pursuant to Section 9.04(ii) existing on the Restatement Effective Date and extensions, replacements, refinancings and renewals thereof, provided that no such extension, replacement, refinancing or renewal shall (x) amend, modify or supplement the subordination provisions, if any, contained in such guaranty in a manner adverse to interests of the Banks or (y) increase the principal amount of such Indebtedness guaranteed by the original guaranty; and (xvii) guarantees (other than guarantees of Indebtedness (other than Capitalized Lease Obligations)) made in the ordinary course of business, provided that such guarantees could not, individually or in the aggregate, have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of Holdings and its Subsidiaries taken as a whole. Notwithstanding anything to the contrary contained in this Agreement, in no event shall the License Subsidiary contract, create, incur, assume or suffer to -83- 91 exist any Indebtedness (other than the Indebtedness incurred pursuant to the Subsidiary Guaranty). 9.05 Advances, Investments and Loans. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents, except that the following shall be permitted: (i) the Borrower and its Subsidiaries may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms; (ii) the Borrower and its Subsidiaries may acquire and hold cash and Cash Equivalents, provided that during any time that Revolving Loans of Non-Defaulting Banks are outstanding, the aggregate amount of cash and Cash Equivalents permitted to be held by the Borrower and its Subsidiaries shall not exceed $5,000,000 for any period of five consecutive days (exclusive of any cash held by the Borrower (x) from proceeds of the New Stock that were contributed to the Borrower by Holdings to the extent such proceeds are used to redeem Existing Senior Subordinated Notes in accordance with Section 4.02(c), (y) pursuant to an earnest money escrow account to the extent such account is permitted by Section 9.01(xviii) and (z) from proceeds of the Detroit Disposition that are placed in escrow for purposes of effecting the OmniAmerica Transaction); (iii) the Borrower and its Subsidiaries may make loans and advances in the ordinary course of business to their respective officers, directors and employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $1,000,000; (iv) the Borrower may enter into Interest Protection Agreements on terms reasonably satisfactory to the Managing Agent; (v) Holdings may repurchase Holdings Common Stock to the extent permitted by Section 9.03; -84- 92 (vi) Holdings and any of its Subsidiaries may make investments in accordance with Section 4.02(e) (including investments necessary to form Subsidiaries under Section 9.15); (vii) promissory notes and other similar non-cash consideration received by the Borrower and its Subsidiaries in connection with dispositions permitted by Section 9.02 so long as the aggregate principal amount thereof does not exceed $1,000,000 at any one time outstanding; (viii) the Borrower and its Subsidiaries may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (ix) investments by the Borrower in any Wholly-Owned Subsidiary; (x) investments by the Borrower and its Subsidiaries consisting of the reinvestment of Excess Cash Flow for the relevant Excess Cash Payment Period to the extent (v) not required to be applied to repay the Loans pursuant to Section 4.02(f), (w) not used to prepay Holdings Subordinated Notes pursuant to Section 9.11(ii), (x) not used to make Capital Expenditures pursuant to Section 9.07(c)(iii), (y) not used to make acquisitions pursuant to Section 9.02(xv) and (z) such investments (other than investments resulting in the ownership by the Borrower and/or its Subsidiaries of 100% of the capital stock of the Person in which such investment is made) in an aggregate principal amount not to exceed $10,000,000; (xi) any Wholly-Owned Subsidiary may make intercompany loans and advances to the Borrower or any Wholly-Owned Subsidiary and the Borrower may make intercompany loans and advances to any Wholly-Owned Subsidiary, provided that if such intercompany loans are evidenced by an intercompany promissory note, such note is pledged by the Borrower or such Wholly-Owned Subsidiary as Collateral pursuant to the applicable Pledge Agreement; (xii) in addition to investments permitted by clauses (i) through (xi) of this Section 9.05, the Borrower and its Subsidiaries may make additional loans, advances and investments in an aggregate principal amount not to exceed $2,500,000 at any time outstanding; -85- 93 (xiii) investments by the Borrower or any of its Subsidiaries to the extent permitted by Section 9.07; (xiv) advances, loans and investments made by the Borrower and its Subsidiaries in existence on the Restatement Effective Date and set forth on Schedule VIII shall be permitted, without giving effect to any additions thereto or replacements thereof; and (xv) guarantees of Indebtedness made by the Borrower or any of its Subsidiaries to the extent otherwise permitted by Section 9.04. 9.06 Transactions with Affiliates. Holdings will not, and will not permit any of its Subsidiaries to enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of Holdings or any of its Subsidiaries, other than in the ordinary course of business and on terms and conditions substantially as favorable to Holdings or such Subsidiary as would reasonably be obtained by Holdings or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except that: (i) Dividends may be paid to the extent provided in Section 9.03; (ii) loans may be made and other transactions may be entered into by the Borrower and its Subsidiaries to the extent permitted by Sections 9.02, 9.04 and 9.05; (iii) customary fees may be paid to non-officer directors of Holdings; (iv) Holdings or to the extent not paid by Holdings, the Borrower may pay to Hicks, Muse & Co. Partners, L.P., its Affiliates or any successor thereto controlled by Jack D. Furst, Charles W. Tate, Thomas O. Hicks and/or John R. Muse, the amounts set forth in the Amended and Restated Financial Monitoring and Oversight Agreement dated as of January 1, 1996, among Holdings, the Borrower and Hicks, Muse & Co. Partners, L.P. and the Financial Advisory Agreement dated as of January 1, 1996 among HM2/Management Partners L.P., the Company and Holdings in the form delivered to the Banks on or prior to the Restatement Effective Date, as it may be modified thereafter but without giving effect to any modifications thereto which in any way adversely affects the interests of the Banks (including, without limitation, by increasing in any respect the costs or liabilities of Holdings or any of its Subsidiaries) without the consent of the Managing Agent and the Required Banks ("the Monitoring and Oversight Agreements"); -86- 94 (v) Holdings and its Subsidiaries may enter into and make payments pursuant to employment arrangements with executive officers and senior management employees in the ordinary course of business; (vi) Holdings and its Subsidiaries may make payments pursuant to employment agreements existing on the Restatement Effective Date; (vii) Holdings and its Subsidiaries may make payments pursuant to the Tax Sharing Agreements; (viii) The Borrower and the License Subsidiary may maintain their present Operating Agreements; (ix) Holdings may make capital contributions to the Borrower; and (x) customary fees and reimbursement of expenses may be paid to directors of Holdings. Except as specifically provided above, no management or similar fees shall be paid or payable by Holdings or any of its Subsidiaries to any Person other than the Borrower. 9.07 Capital Expenditures. (a) Holdings will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that during any fiscal period set forth below (taken as one accounting period) the Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount of such Capital Expenditures made under this Section 9.07(a) does not exceed in any period set forth below the amount set forth opposite such period below:
Period Amount ------ ------ Restatement Effective Date to $6,500,000 and including the last day of the Fiscal Year ending December 31, 1997 Fiscal Year ending $7,000,000 December 31, 1998 Fiscal Year ending $7,500,000 December 31, 1999 Fiscal Year ending $8,000,000 December 31, 2000 Fiscal Year ending $8,500,000 December 31, 2001 Fiscal Year ending $9,000,000 December 31, 2002 January 1, 2003 to and including $1,000,000 the Term Loan Maturity Date
-87- 95 (b) Notwithstanding anything to the contrary contained in clause (a) above, (x) to the extent that the Capital Expenditures made by the Borrower and its Subsidiaries in any period set forth in clause (a) above are less than the amount permitted to be made in such period (without giving effect to any additional amount available as a result of this clause (b) or clause (c) below), the amount of such difference may be carried forward and used to make Capital Expenditures in the immediately succeeding fiscal year of the Borrower and (y) to the extent that the Capital Expenditures made by the Borrower and its Subsidiaries in fiscal year 1996 are less than the amount permitted to be made in such fiscal year pursuant to Section 9.07(a) of the Original Credit Agreement (without giving effect to any additional amounts available as a result of clause (b) or clause (c) of Section 9.07 thereunder), the amount of such difference may be carried forward and used to make Capital Expenditures in fiscal year 1997. (c) In addition to the Capital Expenditures permitted pursuant to preceding clauses (a) and (b), the Borrower and its Subsidiaries may make additional Capital Expenditures consisting of (i) the reinvestment of Net Sale Proceeds of asset sales not required to be applied to prepay the Loans pursuant to Section 4.02(e) as a result of clauses (ii) or (v) of the first parenthetical phrase contained therein, or as a result of the proviso contained in Section 4.02(e), (ii) the reinvestment of proceeds of Recovery Events not required to be applied to repay the Loans pursuant to Section 4.02(g) and (iii) the reinvestment of the amounts of Excess Cash Flow (w) not required to be applied to repay the Loans pursuant to Section 4.02(f), (x) not used to prepay the Holdings Subordinated Notes pursuant to Section 9.11(ii), (y) not used to make acquisition pursuant to Section 9.02(xv) or (z) not used to make investments pursuant to Section 9.05(x). -88- 96 9.08 Maximum Leverage Ratio. Holdings will not permit the Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below:
Period Ratio ------ ----- Fiscal quarter ended June 30, 1997 6.25 to 1 Fiscal quarter ended September 30, 1997 5.75 to 1 Fiscal quarter ended December 31, 1997 5.50 to 1 Fiscal quarter ended March 31, 1998 4.25 to 1 Fiscal quarter ended June 30, 1998 3.95 to 1 Fiscal quarter ended September 30, 1998 3.65 to 1 Fiscal quarter ended December 31, 1998 3.30 to 1 Fiscal quarter ended March 31, 1999 3.10 to 1 Fiscal quarter ended June 30, 1999 3.00 to 1 Fiscal quarter ended September 30, 1999 3.00 to 1 Fiscal quarter ended December 31, 1999 3.00 to 1 Fiscal quarter ended March 31, 2000 3.00 to 1 Fiscal quarter ended June 30, 2000 3.00 to 1 Fiscal quarter ended September 30, 2000 3.00 to 1 Fiscal quarter ended December 31, 2000 3.00 to 1 Fiscal quarter ended March 31, 2001 3.00 to 1 Fiscal quarter ended June 30, 2001 3.00 to 1 Fiscal quarter ended September 30, 2001 3.00 to 1 Fiscal quarter ended December 31, 2001 3.00 to 1 Fiscal quarter ended March 31, 2002 3.00 to 1 Fiscal quarter ended June 30, 2002 3.00 to 1 Fiscal quarter ended September 30, 2002 3.00 to 1 Fiscal quarter ended December 31, 2002 3.00 to 1 Fiscal quarter ended March 31, 2003 3.00 to 1 Fiscal quarter ended June 30, 2003 3.00 to 1 Fiscal quarter ended September 30, 2003 3.00 to 1 Fiscal quarter ended December 31, 2003 3.00 to 1
-89- 97 9.09 Minimum Consolidated EBITDA. Holdings will not permit Consolidated EBITDA for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on the Restatement Effective Date and ending on the last day of a fiscal quarter ended thereafter), in each case taken as one accounting period, ended on the last day of any fiscal quarter set forth below to be less than the amount set forth opposite such fiscal quarter below:
Fiscal Quarter Amount -------------- ------ Fiscal quarter ended June 30, 1997 $ 25,200,000 Fiscal quarter ended September 30, 1997 $ 50,500,000 Fiscal quarter ended December 31, 1997 $ 80,800,000 Fiscal quarter ended March 31, 1998 $104,300,000 Fiscal quarter ended June 30, 1998 $108,400,000 Fiscal quarter ended September 30, 1998 $112,500,000 Fiscal quarter ended December 31, 1998 $117,400,000 Fiscal quarter ended March 31, 1999 $119,700,000 Fiscal quarter ended June 30, 1999 $122,700,000 Fiscal quarter ended September 30, 1999 $125,700,000 Fiscal quarter ended December 31, 1999 $129,200,000 Fiscal quarter ended March 31, 2000 $131,600,000 Fiscal quarter ended June 30, 2000 $134,600,000 Fiscal quarter ended September 30, 2000 $137,500,000 Fiscal quarter ended December 31, 2000 $141,100,000 Fiscal quarter ended March 31, 2001 $143,100,000 Fiscal quarter ended June 30, 2001 $145,600,000 Fiscal quarter ended September 30, 2001 $148,000,000 Fiscal quarter ended December 31, 2001 $151,000,000 Fiscal quarter ended March 31, 2002 $153,100,000 Fiscal quarter ended June 30, 2002 $155,800,000 Fiscal quarter ended September 30, 2002 $158,500,000 Fiscal quarter ended December 31, 2002 $161,700,000 Fiscal quarter ended March 31, 2003 $164,000,000 Fiscal quarter ended June 30, 2003 $166,900,000 Fiscal quarter ended September 30, 2003 $169,700,000 Fiscal quarter ended December 31, 2003 $173,200,000
-90- 98 9.10 Consolidated EBITDA to Consolidated Net Cash Interest Expense. Holdings will not permit the ratio of Consolidated EBITDA to Consolidated Net Cash Interest Expense for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on the Restatement Effective Date and ending on the last day of a fiscal quarter ended thereafter), in each case taken as one accounting period, ended on the last day of any fiscal quarter set forth below to be less than the amount set forth opposite such fiscal quarter below:
Fiscal Quarter Ratio -------------- ----- Fiscal quarter ended June 30, 1997 2.00 to 1 Fiscal quarter ended September 30, 1997 2.00 to 1 Fiscal quarter ended December 31, 1997 2.25 to 1 Fiscal quarter ended March 31, 1998 2.45 to 1 Fiscal quarter ended June 30, 1998 2.60 to 1 Fiscal quarter ended September 30, 1998 2.80 to 1 Fiscal quarter ended December 31, 1998 3.00 to 1 Fiscal quarter ended March 31, 1999 3.15 to 1 Fiscal quarter ended June 30, 1999 3.35 to 1 Fiscal quarter ended September 30, 1999 3.60 to 1 Fiscal quarter ended December 31, 1999 3.85 to 1 Fiscal quarter ended March 31, 2000 4.00 to 1 Fiscal quarter ended June 30, 2000 4.00 to 1 Fiscal quarter ended September 30, 2000 4.00 to 1 Fiscal quarter ended December 31, 2000 4.00 to 1 Fiscal quarter ended March 31, 2001 4.00 to 1 Fiscal quarter ended June 30, 2001 4.00 to 1 Fiscal quarter ended September 30, 2001 4.00 to 1 Fiscal quarter ended December 31, 2001 4.00 to 1 Fiscal quarter ended March 31, 2002 4.00 to 1 Fiscal quarter ended June 30, 2002 4.00 to 1 Fiscal quarter ended September 30, 2002 4.00 to 1 Fiscal quarter ended December 31, 2002 4.00 to 1 Fiscal quarter ended March 31, 2003 4.00 to 1 Fiscal quarter ended June 30, 2003 4.00 to 1 Fiscal quarter ended September 30, 2003 4.00 to 1 Fiscal quarter ended December 31, 2003 4.00 to 1
-91- 99 9.11 Limitation on Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; Limitations of Prepayments and Modifications of Indebtedness; etc. Holdings will not, and will not permit any of its Subsidiaries to (i) make (or give any notice with respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due), after the issuance thereof, any Old Junior Exchange Debentures, New Junior Exchange Debentures or any Existing Senior Subordinated Notes, (ii) make any cash payments whatsoever in respect of Holdings Subordinated Notes issued pursuant to Section 9.04(vii) unless the aggregate amount of such payments made in respect of such Holdings Subordinated Notes, when added to the aggregate amount of Dividends theretofore paid pursuant to Section 9.03(iii)(B), do not exceed $2,500,000 in any fiscal year or $5,000,000 in the aggregate (plus the amount of cash proceeds paid by any new employee in consideration for reissuance of Holdings Common Stock repurchased by Holdings to the extent received by Holdings within six months following any such repurchase), (iii) amend or modify, or permit the amendment or modification of any provision of the foregoing Indebtedness (including, without limitation, the Existing Senior Subordinated Note Documents), the Series A Exchangeable Preferred Stock Documents (including as relating to the Old Junior Exchange Debentures), the Exchangeable Preferred Stock Documents (including as relating to the New Junior Exchange Debentures), the Tax Sharing Agreement, the Detroit Disposition Documents, the SFX Exchange Documents, the OmniAmerica Purchase Agreement or the American Radio Exchange Documents (other than in the case of the Tax Sharing Agreement, the Detroit Disposition Documents, the SFX Exchange Documents, the OmniAmerica Purchase Agreement and the American Radio Exchange Documents, in a manner not reasonably likely to be materially adverse to the interest of the Banks) or (iv) amend, modify or change its Certificate of Incorporation (including, without limitation, by the filing or modification of any certificate of designation) or By-Laws, or any agreement entered into by it, as the case may be, with respect to its capital stock (including any Stockholders' Agreement), or enter into any new -92- 100 agreement with respect to its capital stock, other than any amendments, modifications or changes pursuant to this clause or any such new agreements which do not in any way adversely affect the interests of the Banks. 9.12 Limitation on Certain Restrictions on Subsidiaries. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or any Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any Subsidiary of the Borrower or (c) transfer any of its properties or assets to the Borrower or any Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement, the other Credit Documents and the Colfax Acquisition Documents, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Subsidiary of the Borrower, (iv) customary provisions restricting assignment of any licensing agreement entered into by the Borrower or any Subsidiary of the Borrower in the ordinary course of business and (v) customary restrictions in any industrial revenue bond, purchase money financing, capital lease or any other agreement permitted by this Agreement. 9.13 Limitation on Issuance of Capital Stock. (a) Holdings will not issue (i) any preferred stock or (ii) any class of redeemable common stock, other than the Convertible Preferred Stock and Permitted Issuances. (b) The Borrower will not issue, or permit any of its Subsidiaries to issue, any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and similar issuances which do not decrease the percentage ownership of Holdings or any of its Subsidiaries in any class of the capital stock of the Borrower or such Subsidiary, (iii) to qualify directors to the extent required by applicable law, (iv) the Borrower may issue additional shares of common stock to Holdings, so long as all such shares are immediately delivered to the Collateral Agent and pledged pursuant to the Amended and Restated Holdings Pledge Agreement, (v) Series A Exchangeable Preferred Stock, provided that the Borrower may not exchange the Series A Exchangeable Preferred Stock for Old Junior Exchange Debentures other than in accordance with Section 9.04(xii), (vi) Exchangeable Preferred Stock, provided that the Borrower may not exchange the Exchangeable Preferred Stock for New Junior Exchange -93- 101 Debentures other than in accordance with Section 9.04(xiii), and (vii) in connection with the creation of Subsidiaries of the Borrower in compliance with Section 9.15. 9.14 Business. (a) Holdings shall engage in no types of business and shall have no assets or liabilities, other than its ownership of the capital stock of the Borrower and liabilities incident thereto, and liabilities expressly permitted under this Agreement. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage (directly or indirectly) in any business other than the type of business in which the Borrower and its Subsidiaries are engaged on the Restatement Effective Date and reasonable extensions thereof. (c) Chancellor Broadcasting Licensee shall engage in no business activities and have no assets or liabilities, other than the holding of certain of the FCC Licenses and its operations pursuant to Operating Agreements with the Borrower and liabilities incident thereto. 9.15 Limitation on Creation of Subsidiaries. Holdings shall not and will not permit any Subsidiary to establish, create or acquire any additional Subsidiaries after the Restatement Effective Date without the prior written consent of the Required Banks, except that the Borrower may create or otherwise acquire new Subsidiaries in connection with the acquisition of Stations in compliance with Sections 4.02(e), 9.02(ix), 9.02(xiv), 9.02(xv), 9.05(x) or 9.05(xii). 9.16 No Other Designated Senior Debt. Holdings will not, and will not permit any Subsidiary to, create or permit the creation after the Restatement Effective Date of, any class of "Designated Senior Debt," or any Indebtedness with similar rights, including pursuant to clause (ii) of the definition of "Designated Senior Debt" appearing in the Existing Senior Subordinated Note Indentures, the Old Junior Exchange Debenture Indenture or the New Junior Exchangeable Debenture Indenture. SECTION 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"): 10.01 Payments. The Borrower shall (i) default in the payment when due of any principal of any Loan or any Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any Unpaid Drawings or interest on any Loan or Note, or any Fees or any other amounts owing hereunder, thereunder or under any other Credit Document; or -94- 102 10.02 Representations, etc. Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 10.03 Covenants. Holdings or the Borrower shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.01(g)(i), 8.07, 8.11, 8.12, 8.13 or Section 9 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement (other than as described in Section 10.01, 10.02 or 10.03(i)), and such default shall continue unremedied for a period of 30 days after written notice to the Borrower by the Managing Agent or any Bank; or 10.04 Default Under Other Agreements. Holdings or any of its Subsidiaries shall (i) default in any payment of any Indebtedness (other than the Obligations) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Obligations) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity, or (iii) any Indebtedness (other than the Obligations) of Holdings or any of its Subsidiaries shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, provided that (x) it shall not be a Default or Event of Default under this Section 10.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) through (iii), inclusive, is at least $1,500,000; or 10.05 Bankruptcy, etc. Holdings or any of its Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against Holdings or any of its Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Holdings or any of its Subsidiaries, or Holdings or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Holdings or any of its -95- 103 Subsidiaries, or there is commenced against Holdings or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days, or Holdings or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Holdings or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or Holdings or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by Holdings or any of its Subsidiaries for the purpose of effecting any of the foregoing; or 10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code, any Plan shall have had or, in the reasonable opinion of the Required Banks, is likely to have a trustee appointed to administer such Plan, any Plan is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made to a Plan has not been made, Holdings, the Borrower or any of their respective Subsidiaries or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code, or Holdings, the Borrower or any of their respective Subsidiaries has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) which provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or employee pension benefit plans (as defined in Section 3(2) of ERISA); (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and in each case in clauses (a) and (b) above, such lien, security interest or liability, in the reasonable opinion of the Required Banks, will have a material adverse effect upon the business, operations, property, assets, liabilities or condition (financial or otherwise) of Holdings, the Borrower or of Holdings and its Subsidiaries taken as a whole; or 10.07 Security Documents. At any time after the execution and delivery thereof, any of the Security Documents shall cease to be in full force and effect, or shall cease in any material respect to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral), in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 9.01), and subject to no other Liens (except as permitted by Section 9.01), or any Credit Party shall default in the due -96- 104 performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any of the Security Documents and such default shall continue beyond any grace period specifically applicable thereto pursuant to the terms of such Security Document; or 10.08 Guaranty. Any Guaranty or any provision thereof shall cease to be in full force or effect as to the relevant Guarantor or other party thereunder (other than in accordance with the express terms thereof) or any Guarantor or other party thereunder or Person acting by or on behalf of such Guarantor or such party shall deny or disaffirm such Guarantor's or such party's obligations under the relevant Guaranty, or any Guarantor or such party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any Guaranty; or 10.09 Judgments. One or more judgments or decrees shall be entered against Holdings or any of its Subsidiaries involving in the aggregate for Holdings and its Subsidiaries a liability (not paid or fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days, and the aggregate amount of all such judgments exceeds $2,000,000; or 10.10 Change of Ownership. A Change of Ownership shall occur; or 10.11 Environmental Matters. At any time after the execution and delivery thereof, the Amended and Restated Environmental Indemnity Agreement or any provision thereof shall cease to be in full force or effect as to Holdings or any of its Subsidiaries, or Holdings or any of its Subsidiaries shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Amended and Restated Environmental Indemnity Agreement, and such default shall continue unremedied for a period of 30 days after written notice to the Borrower by the Managing Agent or any Bank; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Managing Agent, upon the written request of the Required Banks, shall by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Managing Agent, any Bank or the holder of any Note to enforce its claims against any Credit Party (provided that, if an Event of Default specified in Section 10.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Managing Agent to the Borrower as specified in clauses (i) and (ii) below shall occur automatically without the -97- 105 giving of any such notice): (i) declare the Total Commitments terminated, whereupon all Commitments of each Bank shall forthwith terminate immediately and any Commitment Commission shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; (iv) direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to the Borrower, it will pay) to the Collateral Agent at the Payment Office such additional amount of cash, to be held as security by the Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of the Borrower and then outstanding; (v) enforce, as Collateral Agent, all of the Liens and security interests created pursuant to the Security Documents and (vi) apply any cash collateral held pursuant to Section 4.02 in satisfaction of the Obligations. SECTION 11. Definitions and Accounting Terms. 11.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Collateral" shall mean all property (whether real or personal) in which security interests are granted (or have been purported to be granted) (and continue to be in effect at the time of determination) pursuant to Section 8.12 (which shall in any event exclude any interest in the FCC Licenses to the extent prohibited by applicable law). "Additional Mortgage" shall have the meaning provided in Section 8.12(b). "Additional Mortgaged Property" shall have the meaning provided in Section 8.12(b). "Additional Security Documents" shall mean all mortgages, pledge agreements, security agreements and other security documents entered into pursuant to Section 8.12 with respect to Additional Collateral. -98- 106 "Adjusted Available Revolving Loan Commitment" for each Bank, shall mean, at any time, such Bank's Revolving Loan Commitment less such Bank's Adjusted RL Percentage of the Blocked Commitment, if any, at such time. "Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum (rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x) the most recent weekly average dealer offering rate for negotiable certificates of deposit with a three-month maturity in the secondary market as published in the most recent Federal Reserve System publication entitled "Select Interest Rates," published weekly on Form H.15 as of the date hereof, or if such publication or a substitute containing the foregoing rate information shall not be published by the Federal Reserve System for any week, the weekly average offering rate determined by the Managing Agent on the basis of quotations for such certificates received by it from three certificate of deposit dealers in New York of recognized standing or, if such quotations are unavailable, then on the basis of other sources reasonably selected by the Managing Agent, by (y) a percentage equal to 100% minus the stated maximum rate of all reserve requirements as specified in Regulation D applicable on such day to a three-month certificate of deposit of a member bank of the Federal Reserve System in excess of $100,000 (including, without limitation, any marginal, emergency, supplemental, special or other reserves), plus (2) the then daily net annual assessment rate as estimated by the Managing Agent for determining the current annual assessment payable by the Managing Agent to the Federal Deposit Insurance Corporation for insuring three-month certificates of deposit. "Adjusted Consolidated Net Income" for any period shall mean Consolidated Net Income for such period plus, without duplication, the sum of the amount of all net non-cash charges (including, without limitation, depreciation, amortization, deferred tax expense and non-cash interest expense, but excluding any net non-cash charges reflected in Adjusted Consolidated Working Capital) and net non-cash losses which were included in arriving at Consolidated Net Income for such period less the sum of the amount of all net non-cash gains (exclusive of such non-cash items reflected in Adjusted Consolidated Working Capital) included in arriving at Consolidated Net Income for such period. "Adjusted Consolidated Working Capital" at any time shall mean Consolidated Current Assets (but excluding therefrom all cash and Cash Equivalents) less Consolidated Current Liabilities. "Adjusted RL Percentage" shall mean (x) at a time when no Bank Default exists, for each Bank, such Bank's RL Percentage and (y) at a time when a Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and (ii) for each Bank that is a Non-Defaulting Bank, the percentage determined by dividing in the case of -99- 107 such Bank's RL Percentage, such Bank's Revolving Loan Commitment at such time by the Adjusted Total Revolving Loan Commitment at such time, it being understood that all references herein to Revolving Loan Commitments and the Adjusted Total Revolving Loan Commitment at a time when the Total Revolving Loan Commitment or Adjusted Total Revolving Loan Commitment, as the case may be, has been terminated shall be references to the Revolving Loan Commitments or Adjusted Total Revolving Loan Commitment, as the case may be, in effect immediately prior to such termination, provided that (A) no Bank's Adjusted RL Percentage shall change upon the occurrence of a Bank Default from that in effect immediately prior to such Bank Default if after giving effect to such Bank Default, and any repayment of Revolving Loans at such time pursuant to Section 4.02(a) or otherwise, the sum of the aggregate outstanding principal amount of Revolving Loans of all Non-Defaulting Banks plus the Letter of Credit Outstandings, exceed the Adjusted Total Revolving Loan Commitment; (B) the changes to the Adjusted RL Percentage that would have become effective upon the occurrence of a Bank Default but that did not become effective as a result of the preceding clause (A) shall become effective on the first date after the occurrence of the relevant Bank Default on which the sum of the aggregate outstanding principal amount of the Revolving Loans of all Non-Defaulting Banks plus the Letter of Credit Outstandings is equal to or less than the Adjusted Total Revolving Loan Commitment; and (C) if (i) a Non-Defaulting Bank's Adjusted RL Percentage is changed pursuant to the preceding clause (B) and (ii) any repayment of such Bank's Revolving Loans, or of Unpaid Drawings with respect to Letters of Credit, that were made during the period commencing after the date of the relevant Bank Default and ending on the date of such change to its Adjusted RL Percentage must be returned to the Borrower as a preferential or similar payment in any bankruptcy or similar proceeding of the Borrower, then the change to such Non-Defaulting Bank's Adjusted RL Percentage effected pursuant to said clause (B) shall be reduced to that positive change, if any, as would have been made to its Adjusted RL Percentage if (x) such repayments had not been made and (y) the maximum change to its Adjusted RL Percentage would have resulted in the sum of the outstanding principal of Revolving Loans made by such Bank plus such Bank's new Adjusted RL Percentage of the outstanding principal amount of Letter of Credit Outstandings equalling such Bank's Revolving Loan Commitment at such time. "Adjusted Total Available Revolving Loan Commitment" shall mean, at any time, the Total Available Revolving Loan Commitment at such time less the aggregate Revolving Loan Commitments of all Defaulting Banks at such time. "Adjusted Total Revolving Loan Commitment" shall mean at any time the Total Revolving Loan Commitment less the aggregate Revolving Loan Commitments of all Defaulting Banks. -100- 108 "Affected Eurodollar Loans" shall have the meaning provided in Section 4.02(i). "Affiliate" shall mean, with respect to any Person, any other Person (including for purposes of Section 9.06 only, all directors, officers and partners of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person; provided, however, that for purposes of Section 9.06, an Affiliate of Holdings shall include any Person that directly or indirectly owns more than 10% of any class of the capital stock of Holdings. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agents" shall mean the Managing Agent and each of Goldman Sachs Credit Partners L.P., as documentation agent, and NationsBank, N.A., as syndication Agent, so long as each remains a Bank. "Agreement" shall mean this Amended and Restated Credit Agreement, as amended, modified, extended, renewed, replaced, restated or supplemented from time to time. "Amended and Restated Borrower Pledge Agreement" shall have the meaning provided in Section 5A.08(b). "Amended and Restated Borrower Security Agreement" shall have the meaning provided in Section 5A.09. "Amended and Restated Environmental Indemnity Agreement" shall have the meaning provided in Section 5A.11. "Amended and Restated Holdings Pledge Agreement" shall have the meaning set forth in Section 5A.08(a). "Amended and Restated Holdings Security Agreement" shall have the meaning provided in Section 5A.09. "Amended and Restated Pledge Agreements" shall mean the Amended and Restated Holdings Pledge Agreement, the Amended and Restated Borrower Pledge Agreement and the Amended and Restated Subsidiary Pledge Agreement. -101- 109 "Amended and Restated Security Agreements" shall mean and include the Amended and Restated Holdings Security Agreement, the Amended and Restated Borrower Security Agreement, the Amended and Restated Subsidiary Security Agreement and any Additional Security Document delivered pursuant to Section 8.12. "Amended and Restated Subsidiary Guaranty" shall have the meaning provided in Section 5A.07. "Amended and Restated Subsidiary Pledge Agreement" shall have the meaning provided in Section 5A.08(c). "Amended and Restated Subsidiary Security Agreement" shall have the meaning provided in Section 5A.09. "American Radio" shall mean American Radio Systems Corporation, a Delaware corporation. "American Radio Exchange" shall mean the simultaneous exchange by the Borrower of certain of the OmniAmerica Stations for certain radio stations owned by American Radio in accordance with the terms and provisions of the American Radio Exchange Documents. "American Radio Exchange Documents" shall mean the agreement, dated as of July 31, 1996, between the Borrower and American Radio, as in effect on the Restatement Effective Date, and all other agreements and documents relating to the American Radio Exchange. "American Radio Station" shall mean KSTE (AM), Rancho Cordova, California. "Applicable Margin" shall mean a percentage per annum equal to (x) in the case of Base Rate Loans, 1.125% and (y) in the case of Eurodollar Loans, 2.125%, reduced in each case by the applicable Interest Reduction Discount. "Asset Swapped Station" shall have the meaning provided in Section 9.02(ix). "Asset Target Station" shall have the meaning provided in Section 9.02(ix). -102- 110 "Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit L (appropriately completed). "Authorized Officer" of any Credit Party shall mean any of the Chairman of the Board, the President, the Chief Executive Officer, any Vice President, the Treasurer, the Secretary, any Assistant Secretary, any Assistant Treasurer, the Chief Financial Officer or the Controller of such Credit Party or any other officer of such Credit Party which is designated in writing to the Managing Agent and the Issuing Bank or any of the foregoing officers of such Credit Party as being authorized to give such notices under this Agreement. "Available Revolving Loan Commitment" for any Bank shall mean, at any time, the Revolving Loan Commitment of such Bank as then in effect less such Bank's RL Percentage of the amount of the Blocked Commitment, if any, at such time. "Bank" shall mean each financial institution listed on Schedule I, as well as any Person which becomes a "Bank" hereunder pursuant to Sections 1.13 and 13.04(b). "Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under Section 2.03(c) or (ii) a Bank having notified in writing the Borrower and/or the Managing Agent that it does not intend to comply with its obligations under Section 1.01(a), 1.01(b) or 2, in the case of either clause (i) or (ii) as a result of any takeover of such Bank by any regulatory authority or agency. "Bankruptcy Code" shall have the meaning provided in Section 10.05. "Base Rate" at any time shall mean the higher of (i) 1/2 of 1% in excess of the Adjusted Certificate of Deposit Rate and (ii) the Prime Lending Rate. "Base Rate Loan" shall mean each Loan designated or deemed designated as such by the Borrower at the time of the incurrence thereof or conversion thereto. "Blocked Commitment" shall mean (i) for the period from and including the Restatement Effective Date through but not including the OmniAmerica Borrowing Date, $75,000,000 and (ii) for the period thereafter, $0. "Borrower" shall have the meaning provided in the first paragraph of this Agreement. -103- 111 "Borrowing" shall mean the borrowing of one Type of Loan of a single Tranche from all the Banks having Commitments of the respective Tranche on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans. "Broadcast Cash Flow" shall mean, with respect to any Station during any period, the sum of (x) EBITDA of such Station for such period (provided that for purposes of calculating compliance with Section 9.08, non- cash expenses relating to options to purchase common stock of Holdings issued by Holdings in 1994 to Steven Dinetz, the President and Chief Executive Officer of the Borrower, and certain Directors of the Borrower shall not be included in the determination of Broadcast Cash Flow for any period occurring on or after the Restatement Effective Date) and (y) corporate overhead expense allocated to such Station for such period; it being understood that the Broadcast Cash Flow of any Person shall mean the total Broadcast Cash Flow of all Stations owned by such Person. "BTCo" shall mean Bankers Trust Company in its individual capacity. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the New York interbank Eurodollar market. "Capital Expenditures" shall mean, with respect to any Person, all expenditures (excluding barter transactions effected in the ordinary course of business consistent with past practices) by such Person which should be capitalized in accordance with GAAP, including all such expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with GAAP) and the amount of Capitalized Lease Obligations incurred by such Person. "Capitalized Lease Obligations" of any Person shall mean all rental obligations which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with GAAP. -104- 112 "Cash Equivalents" shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof, the District of Columbia or any foreign jurisdiction having capital, surplus and undivided profits aggregating in excess of $200,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than 90 days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing not more than one year after the date of acquisition by such Person, (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above and (vi) demand deposit accounts maintained in the ordinary course of business not in excess of $100,000 in the aggregate. "Chancellor Broadcasting Licensee" shall mean Chancellor Broadcasting Licensee Company, a Delaware corporation. "Change of Ownership" shall mean (i) Holdings shall cease to own beneficially 100% of the capital stock (other than the Series A Exchangeable Preferred Stock and the Exchangeable Preferred Stock) of the Borrower, or the Borrower or a Wholly-Owned Subsidiary of the Borrower shall cease to own beneficially 100% of the capital stock of the Chancellor Broadcasting Licensee, (ii) for any reason whatsoever any "Person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding HM Group, is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than the greater of (x) 15% of the then outstanding Voting Stock of Holdings or (y) the percentage of the then outstanding Voting Stock of Holdings owned beneficially by the HM Group, (iii) the Board of Directors of Holdings shall cease to consist of a majority of Continuing Directors or (iv) a "Change of Control" under and as defined in the Existing Senior Subordinated Note Indentures, the Series A Exchangeable Preferred Stock Documents, the Exchangeable Preferred Stock Documents, or after any issuance thereof, the Old Junior Exchange Debentures or New Junior Exchange Debentures shall have occurred. -105- 113 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the Restatement Effective Date, and to any subsequent provision of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Colfax" shall mean Colfax Communications, Inc. and its affiliates. "Colfax Acquisition" shall have the meaning provided in Section 5A.06(a)(iii). "Colfax Acquisition Documents" shall mean the Colfax Purchase Agreement and all other agreements and documents relating to the Colfax Acquisition. "Colfax FCC Licenses" shall mean the FCC Licenses acquired pursuant to the Colfax Acquisition. "Colfax Purchase Agreement" shall have the meaning provided in Section 5A.06(a)(iii). "Colfax Stations" shall mean the stations that the Borrower has agreed to acquire from Colfax pursuant to the Colfax Purchase Agreement. "Collateral" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purported to be granted) pursuant to any Security Document, including, without limitation, all Pledge Agreement Collateral, all Security Agreement Collateral, all Mortgaged Properties and all cash and Cash Equivalents delivered as collateral pursuant to Section 4.02 or Section 10 hereof and all Additional Collateral, if any (all of which shall in any event exclude any interest in the FCC Licenses to the extent prohibited by applicable law). "Collateral Agent" shall mean the Managing Agent acting as collateral agent for the Secured Creditors pursuant to the Security Documents. "Commitment" shall mean any of the commitments of any Bank, i.e., whether the Term Loan Commitment or Revolving Loan Commitment. "Commitment Commission" shall have the meaning provided in Section 3.01(a)(ii). "Communications Act" shall have the meaning provided in Section 7.23. -106- 114 "Consolidated Broadcast Cash Flow" shall mean, for any period, the Broadcast Cash Flow of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP during such period, provided that if any such period includes any period during which the OmniAmerica Borrowing Date occurs or has not previously occurred, such prior period shall be calculated on the basis of the sum of Broadcast Cash Flow of the OmniAmerica Stations plus the Broadcast Cash Flow of Holdings and its Consolidated Subsidiaries. "Consolidated Current Assets" shall mean, at any time, the consolidated current assets of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP plus the Total Unutilized Revolving Loan Commitment at such time. "Consolidated Current Liabilities" shall mean, at any time, the consolidated current liabilities of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP at such time, but excluding (i) the current portion of any Indebtedness under this Agreement and any other long-term Indebtedness which would otherwise be included therein, (ii) accrued but unpaid interest with respect to the Indebtedness described in clause (i), and (iii) the current portion of Capitalized Lease Obligations. "Consolidated EBIT" shall mean, for any period, the Consolidated Net Income of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, before Consolidated Net Interest Expense and provision for taxes and without giving effect to any extraordinary gains or losses or gains or losses from sales of assets other than inventory sold in the ordinary course of business. "Consolidated EBITDA" shall mean, for any period, Consolidated EBIT, adjusted by adding thereto the amount of all amortization of intangibles and depreciation that were deducted in arriving at Consolidated EBIT for such period provided, for purposes of calculating compliance with Sections 9.08, 9.09 and 9.10, in the event that any sale or other disposition of Stations is made in compliance with Section 9.02, and the proceeds thereof are not applied to repay Loans, all in accordance with Section 4.02(e), for the period (not to exceed 180 days) that the proceeds thereof are held as cash collateral pursuant to Section 4.02(e), the amount equal to the Broadcast Cash Flow of the Stations so sold or so disposed at the end of the most recent fiscal quarter prior to such sale or disposition for the four fiscal quarters prior thereto shall be included in the determination of Consolidated EBITDA during such period, provided further that for purposes of calculating compliance with Sections 9.08, 9.09 and 9.10, non-cash expenses relating to options to purchase common stock of Holdings issued by -107- 115 Holdings in 1994 to Steven Dinetz, the President and Chief Executive Officer of the Borrower, Ms. Matrice Ellis-Kirk, Mr. Marvin Dinetz, Mr. Eric W. Neumann, Mr. Jeffrey A. Marcus, Mr. John H. Massey and certain Directors of the Borrower shall not be included in the determination of Consolidated EBITDA for any period occurring on or after the Restatement Effective Date. "Consolidated Indebtedness" shall mean, at any time, the sum of the aggregate outstanding principal amount of all Indebtedness for borrowed money, and the principal component of Capitalized Lease Obligations of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Net Cash Interest Expense" shall mean, for any period, the total consolidated cash interest expense of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP for such period plus, without duplication, that portion of Capitalized Lease Obligations of Holdings and its Consolidated Subsidiaries representing the interest factor for such period in each case net of the total consolidated cash interest income of Holdings, its Consolidated Subsidiaries for such period. "Consolidated Net Income" shall mean, for any period, net after tax income of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Net Interest Expense" shall mean, for any period, the total consolidated interest expense of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP for such period (calculated without regard to any limitations on the payment thereof) plus, without duplication, that portion of Capitalized Lease Obligations of Holdings and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP representing the interest factor for such period in each case net of the total consolidated cash interest income of Holdings and its Consolidated Subsidiaries for such period, but excluding the amortization of any deferred financing costs incurred in connection with this Agreement. "Consolidated Subsidiaries" shall mean, as to any Person, all Subsidiaries of such Person which are consolidated with such Person for financial reporting purposes in accordance with GAAP. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends -108- 116 or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Continuing Bank" shall mean each Original Bank with a Commitment under this Agreement (immediately upon giving effect to the Restatement Effective Date). "Continuing Directors" shall mean the directors of Holdings on the Restatement Effective Date and each other director, if such director's nomination for election to the Board of Directors of Holdings is recommended by a majority of the then Continuing Directors or any other nominee of the HM Group. "Convertible Preferred Stock" shall mean Holding's 7% Convertible Preferred Stock. "Convertible Preferred Stock Documents" shall mean each document delivered pursuant to the Convertible Preferred Stock Issuance or in connection therewith, which shall be in form and substance satisfactory to the Managing Agent. "Convertible Preferred Stock Issuance" shall have the meaning provided in Section 5A.06(i). -109- 117 "Credit Documents" shall mean this Agreement and, after the execution and delivery thereof pursuant to the terms of this Agreement, each Note, each Security Document, the Amended and Restated Environmental Indemnity Agreement and the Amended and Restated Subsidiary Guaranty. "Credit Event" shall mean the making of any Loan or the issuance of any Letter of Credit. "Credit Party" shall mean Holdings, the Borrower and each Subsidiary thereof party to a Credit Document. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect. "Detroit Disposition" shall mean (i) the entering into of a time brokerage agreement (the "Detroit TBA") and an asset purchase agreement (the "Detroit Purchase Agreement"), dated as of August 12, 1996, among Holdings, Shamrock and Evergreen Media Corporation of the Great Lakes, a Delaware corporation ("Evergreen") pursuant to which Shamrock may outsource to Evergreen certain limited functions of stations WWWW-FM and WDFN-AM in Detroit (the "Detroit Stations") and (ii) the sale of the Detroit Stations to Evergreen for approximately $30,000,000 of gross cash proceeds (subject to a purchase price adjustment, or an amount deposited into an escrow account, not to exceed $1,000,000) pursuant to the Detroit Purchase Agreement. "Detroit Disposition Date" shall have the meaning provided in Section 5B.03(a). "Detroit Disposition Documents" shall mean the Detroit Purchase Agreement, the Detroit TBA and all other agreements and documents relating to the Detroit Disposition. "Detroit Purchase Agreement" shall have the meaning provided in the definition of Detroit Disposition. "Detroit Stations" shall have the meaning provided in the definition of Detroit Disposition. -110- 118 "Detroit TBA" shall have the meaning provided in the definition of Detroit Disposition. "Dinetz" shall mean Mr. Steven Dinetz. "Dinetz Employment Contract" shall mean the contract between Holdings and Dinetz. "Dividend" with respect to any Person shall mean that such Person has declared or paid a dividend or returned any equity capital to its stockholders or authorized or made any other distribution, payment or delivery of property (other than common stock of such Person) or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for consideration any shares of any class of its capital stock outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for consideration any shares of any class of the capital stock of such Person outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock). "Documentation Agent" shall mean Goldman Sachs Credit Partners L.P., in its capacity as Documentation Agent for the Banks hereunder. "Documents" shall mean the Transaction Documents and, on and after the OmniAmerica Borrowing Date, the OmniAmerica Transaction Documents. "Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States. "Drawing" shall have the meaning provided in Section 2.04(b). "EBIT" shall mean, for any period, net after tax income of any Person before Net Interest Expense and provision for taxes and without giving effect to any extraordinary gains or losses or gains or losses from sales of assets other than inventory sold in the ordinary course of business. "EBITDA" shall mean, for any period, EBIT, adjusted by adding thereto the amount of all amortization of intangibles and depreciation that were deducted in arriving at EBIT for such period. -111- 119 "Eligible Transferee" shall mean and include a commercial bank, mutual funds, financial institution or other institutional "accredited investor" (as defined in Regulation D of the Securities Act). "Employee Stock Option Plan" shall mean (i) the Chancellor Corporation Stock Award Plan, (ii) the 1994 Directors Stock Option Plan and (iii) any plan, to be entered into after the Restatement Effective Date, for the compensation of management of Holdings or any of its Subsidiaries, or any arrangement for the benefit of management of Holdings or any of its Subsidiaries, in form and substance reasonably acceptable to the Managing Agent. "End Date" shall have the meaning provided in the definition of Interest Reduction Discount. "Environmental Claims" shall have the meaning provided in the Amended and Restated Environmental Indemnity Agreement. "Environmental Law" shall have the meaning provided in the Amended and Restated Environmental Indemnity Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the Restatement Effective Date and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower or any Subsidiary of the Borrower would be deemed to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Escrow Agreement" shall have the meaning provided in Section 5B.03(a). "Eurodollar Loan" shall mean each Loan designated as such by the Borrower at the time of the incurrence thereof or conversion thereto. "Eurodollar Rate" shall mean the offered quotation to first-class banks in the New York interbank Eurodollar market by BTCo for Dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the Eurodollar Loan of BTCo with maturities comparable to the Interest Period applicable -112- 120 to such Eurodollar Loan commencing two Business Days thereafter as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period, divided (and rounded off to the nearest 1/16 of 1%) by a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "Event of Default" shall have the meaning provided in Section 10. "Evergreen" shall have the meaning provided in the definition of Detroit Disposition. "Excess Cash Flow" shall mean, for any period, the remainder of (a) the sum of (i) Adjusted Consolidated Net Income for such period and (ii) the decrease, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period, minus (b) the sum of (i) the amount of Capital Expenditures made by the Borrower and its Subsidiaries on a consolidated basis during such period pursuant to and in accordance with Section 9.07(a) and (b), except to the extent financed with the proceeds of Indebtedness or pursuant to Capitalized Lease Obligations, (ii) the aggregate amount of permanent principal payments of Indebtedness for borrowed money of the Borrower and the permanent repayment of the principal component of Capitalized Lease Obligations of the Borrower and its Subsidiaries (excluding (1) payments with proceeds of issuances of Indebtedness or equity or with proceeds of asset sales and (2) payments of Loans or other Obligations, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repayments were (x) required as a result of a Scheduled Repayment under Section 4.02(b) (but not as a reduction to the amount of Scheduled Repayments pursuant to another provision of this Agreement) or (y) made as a voluntary prepayment pursuant to Section 4.01 with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans, only to the extent accompanied by a voluntary reduction to the Total Revolving Loan Commitment)) during such period, (iii) cash Dividends paid by Holdings during such period, (iv) the increase, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period and (v) the amount of all expenses (including expenses incurred in connection with acquisitions) that have been paid during such period to the extent that such expenses have been capitalized in accordance with GAAP but only to the extent that the payment thereof does not otherwise reduce Adjusted Consolidated Net Income. -113- 121 "Excess Cash Payment Date" shall mean the date occurring 90 days after the last day of each fiscal year of the Borrower (beginning with its fiscal year ending December 31, 1997). "Excess Cash Payment Period" shall mean with respect to the repayment required on each Excess Cash Payment Date, the immediately preceding fiscal year of the Borrower. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exchangeable Preferred Stock" shall mean the Borrower's 12% Exchangeable Preferred Stock due 2009. "Exchangeable Preferred Stock Documents" shall mean each document delivered pursuant to the Exchangeable Preferred Stock Issuance or in connection therewith (including, but not limited to, the New Junior Exchange Debenture Indenture and all documents relating thereto), which shall be in form and substance satisfactory to the Managing Agent. "Exchangeable Preferred Stock Issuance" shall have the meaning provided in Section 5A.06(ii). "Existing Letters of Credit" shall mean those letters of credit issued under the Original Credit Agreement prior to the Restatement Effective Date and which remain outstanding following the Restatement Effective Date, as disclosed on Schedule VII. "Existing Mortgage Policies" shall mean the Mortgage Policies under, and as defined in, the Original Credit Agreement. "Existing Mortgaged Properties" shall mean all Real Property of the Borrower and its Subsidiaries listed on Part A of Schedule II and designated as "Existing Mortgaged Properties" therein. "Existing Mortgages" shall mean all Mortgages (as defined in the Original Credit Agreement) granted by the Borrower and its Subsidiaries pursuant to the Original Credit Agreement and which have not been released by the lenders thereunder prior to the Restatement Effective Date. -114- 122 "Existing Senior Subordinated Note Documents" shall mean and include each of the documents and other agreements entered into (including, without limitation, the Existing Senior Subordinated Note Indenture and the Second Senior Subordinated Note Indenture) relating to the issuance by the Borrower of the Existing Senior Subordinated Notes, as in effect on the Restatement Effective Date and as the same may be entered into, modified, supplemented or amended from time to time pursuant to the terms hereof and thereof. "Existing Senior Subordinated Note Indenture" shall mean that certain indenture dated as of October 12, 1994 by and between the Borrower and United States Trust Company of Texas, as Trustee, as amended, modified, extended, renewed, replaced, restated or supplemented from time to time. "Existing Senior Subordinated Notes" shall mean the Borrower's 12 1/2% Senior Subordinated Notes due 2004, issued pursuant to the Existing Senior Subordinated Note Indenture and the Borrower's 9-3/8% Senior Subordinated Notes due 2004 issued pursuant to the Second Senior Subordinated Note Indenture. "Facing Fee" shall have the meaning provided in Section 3.01(c). "FCC" shall mean the Federal Communications Commission, or any successor thereto. "FCC Licenses" shall have the meaning provided in Section 7.23. "Federal Funds Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Managing Agent from three Federal Funds brokers of recognized standing selected by the Managing Agent. "Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01. "GAAP" shall have the meaning provided in Section 13.07(a). -115- 123 "Guaranteed Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of the principal and interest on each Note issued by the Borrower to such Bank, and Loans made, under the Credit Agreement and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit, together with all the other obligations and liabilities (including, without limitation, indemnities, fees and interest thereon) of the Borrower to such Bank now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement or any other Credit Document and the due performance and compliance with all the terms, conditions and agreements contained in the Credit Documents by the Borrower and (ii) the full and prompt payment when due (whether by acceleration or otherwise) of all obligations of the Borrower owing under any Interest Rate Protection Agreement, whether now in existence or hereafter arising, and the due performance and compliance with all terms, conditions and agreements contained therein. "Guarantor" shall mean Holdings and any guarantor that is party to the Amended and Restated Subsidiary Guaranty. "Guaranty" shall mean the guaranty made by Holdings pursuant to Section 14, the Amended and Restated Subsidiary Guaranty, and any guaranty executed pursuant to Section 8.12(f). "Hazardous Materials" shall have the meaning provided in the Amended and Restated Environmental Indemnity Agreement. "HM Group" shall mean, collectively, (i) Hicks, Muse, Tate & Furst Incorporated, its Affiliates and Dinetz taken as a whole, (ii) so long as Hicks, Muse, Tate & Furst Incorporated, its Affiliates and Dinetz taken as a whole possess sole voting right with respect to the Voting Stock held by each such individual, such individuals who are or were employees, officers, directors or partners of Hicks, Muse, Tate & Furst Incorporated or such Affiliate and the family members of such individuals or trusts created for the sole benefit of such family members and (iii) so long as Hicks, Muse, Tate & Furst Incorporated, its Affiliates and Dinetz taken as a whole possess sole voting right with respect to the Voting Stock of Holdings held by each such Person, any Person not otherwise described by clause (i) and (ii) above, provided that the aggregate number of shares held by all such Persons in accordance with this clause (iii) at any time shall not exceed 3% of the aggregate number of shares held by the Persons described in clause (i) and (ii) above at such time. "Holdings" shall have the meaning provided in the first paragraph of this Agreement. -116- 124 "Holdings Class A Common Stock" shall have the meaning provided in Section 7.14(a). "Holdings Class B Common Stock" shall have the meaning provided in Section 7.14(a). "Holdings Class C Common Stock" shall have the meaning provided in Section 7.14(a). "Holdings Common Stock" shall mean Holdings Class A Common Stock, Holdings Class B Common Stock and Holdings Class C Common Stock. "Holdings Guaranty" shall mean the guaranty provided to the Banks pursuant to Section 14. "Holdings Subordinated Notes" shall have the meaning set forth in Section 9.04(vii). "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services due more than 90 days after acquisition of the property or receipt of services or which is otherwise represented by a note, (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (to the extent of the lesser of the amount of such Indebtedness and the value of the respective property), (iv) Capitalized Lease Obligations, (v) all obligations of such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person and (vii) all obligations under any Interest Rate Protection Agreement or under any similar type of agreement; provided, that Indebtedness shall not include trade payables and accrued expenses, in each case arising in the ordinary course of business. "Initial Borrowing Date" shall have the meaning provided in the Original Credit Agreement. "Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan. -117- 125 "Interest Period" shall have the meaning provided in Section 1.09. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement or other similar agreement or arrangement. "Interest Reduction Discount" shall mean (i) initially 0.125% and (ii) from and after each day of delivery of any certificate delivered in accordance with the following sentence indicating an entitlement to an Interest Reduction Discount other than zero (each, a "Start Date") to and including the applicable End Date described below, the percentage set forth below opposite the Leverage Ratio indicated to have been achieved in any certificate delivered in accordance with the following sentence:
Base Rate Eurodollar Leverage Ratio Loans Loans -------------- --------- ---------- Equal to or greater than 6.0:1 0.375% 0.375% Equal to or greater than 5.5:1 but less than 6.0:1 0.625% 0.625% Equal to or greater than 5.0:1 but less than 5.5:1 0.875% 0.875% Equal to or greater than 4.5:1 but less than 5.0:1 1.125% 1.125% Less than 4.5:1 1.125% 1.375%
The Leverage Ratio shall be determined based on the delivery of a certificate of the Borrower to the Managing Agent (with a copy to be sent by the Borrower to each Bank), certified by an Authorized Officer of the Borrower within 30 days after the last day of any fiscal quarter of the Borrower, (commencing with its fiscal quarter ending June 30, 1997), which certificate shall set forth the calculation of the Leverage Ratio for the Test Period ended immediately prior to the relevant Start Date and the Interest Reduction Discount which shall be thereafter applicable (until same is changed or ceases to apply in accordance with the following sentences). The Interest Reduction Discount so determined shall apply, except as set forth in the succeeding sentence, from the Start -118- 126 Date to the earlier of (x) the date on which the next certificate is delivered to the Managing Agent and (y) the date which is 30 days following the last day of the fiscal quarter in which the previous Start Date occurred (the "End Date"), at which time, if no certificate has been delivered to the Managing Agent indicating an entitlement to an Interest Reduction Discount other than zero (and thus commencing a new Start Date), the Interest Reduction Discount shall be reduced to zero. Notwithstanding anything to the contrary contained above in this definition, the Interest Reduction Discount shall be reduced to zero at all times during which there shall exist a Default or an Event of Default. "Issuing Bank" shall mean, BTCo and any Bank which at the request of the Borrower and with the consent of the Managing Agent agrees, in such Bank's sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2. The sole Issuing Bank on the Restatement Effective Date is BTCo. "L/C Supportable Obligations" shall mean (i) obligations of the Borrower or its Subsidiaries incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations and (ii) such other obligations of the Borrower or any of its Subsidiaries as are reasonably acceptable to the respective Issuing Bank and otherwise permitted to exist pursuant to the terms of this Agreement (including, but not limited to, obligations of the Borrower to provide an earnest money deposit in an amount not to exceed $10,000,000 pursuant to the OmniAmerica Purchase Agreement. "Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Letter of Credit" shall have the meaning provided in Section 2.01(a). "Letter of Credit Fee" shall have the meaning provided in Section 3.01(b). "Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the amount of all Unpaid Drawings relating to Letters of Credit. "Letter of Credit Request" shall have the meaning provided in Section 2.02(a). -119- 127 "Leverage Ratio" shall mean on the date of determination thereof the ratio of (x) Consolidated Indebtedness on such date to (y) (i) in the case of any date occurring on or after the Test Period ending March 31, 1997 (but prior to the last date of the next succeeding Test Period), Consolidated EBITDA for such Test Period multiplied by 4, (ii) in the case of any date occurring on or after the Test Period ending June 30, 1997 (but prior to the last date of the next succeeding Test Period), Consolidated EBITDA for such Test Period multiplied by 2, (iii) in the case of any date occurring on or after the Test Period ending September 30, 1997 (but prior to the last date of the next succeeding Test Period), Consolidated EBITDA for such Test Period multiplied by 4/3 and (iv) thereafter Consolidated EBITDA for the Test Period most recently ended (taken as one accounting period) and ending on such date. Notwithstanding anything to the contrary contained in the immediately preceding sentence, for purposes of determining the Leverage Ratio in connection with Sections 3.01(a)(i) and (ii), the denominator shall be Consolidated EBITDA for the then most recently ended Test Period. "License Subsidiary" shall mean Chancellor Broadcasting Licensee, Shamrock, Shamrock Radio, Shamrock Licenses and Trefoil. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing). "Loan" shall mean each Term Loan and each Revolving Loan. "Management Agreements" shall have the meaning provided in Section 5A.05. "Managing Agent" shall mean Bankers Trust Company, in its capacity as Managing Agent for the Banks hereunder, and shall include any successor to the Managing Agent appointed pursuant to Section 12.09. "Margin Stock" shall have the meaning provided in Regulation U. "Milwaukee Disposition" shall mean (i) the entering into of the Milwaukee Disposition Documents between the Borrower and both Clear Channel Radio, Inc. and Clear Channel Radio Licenses, Inc., Nevada corporations (collectively, "Clear Channel") for the purchase and sale of Stations WOKY (AM), Milwaukee and -120- 128 WMIL (FM), Waukesha, Wisconsin (the "Milwaukee Stations") and (ii) the sale of the Milwaukee Stations to Clear Channel for approximately $40,000,000 of gross cash proceeds pursuant to the Milwaukee Disposition Documents. "Milwaukee Disposition Documents" shall mean the agreements and documents relating to the Milwaukee Disposition. "Monitoring and Oversight Agreements" shall have the meaning provided in Section 9.06(iv). "Mortgage" shall have the meaning provided in Section 5A.10(a), and, after the execution and delivery thereof, shall include each Additional Mortgage delivered pursuant to Sections 8.12. "Mortgage Amendment" shall have the meaning provided in Section 5A.10(a). "Mortgage Policies" shall have the meaning provided in Section 5A.10(c). "Mortgaged Properties" shall mean the Existing Mortgaged Properties and shall include any real property mortgaged pursuant to Section 8.12. "Net Interest Expense" shall mean, for any period, the total interest expense of any Person for such period (calculated without regard to any limitations on the payment thereof) plus, without duplication, that portion of Capitalized Lease Obligations of such Person representing the interest factor for such period in each case net of the total consolidated cash interest income of such Person for such period, but excluding the amortization of any deferred financing costs incurred in connection with this Agreement. "Net Sale Proceeds" shall mean for any sale, lease, transfer or other disposition of assets, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received by Holdings and/or any of its Subsidiaries from such sale, lease, transfer or other disposition, net of reasonable transaction costs (including, without limitation, any underwriting, brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses, including title and recording expenses and reasonable expenses incurred for preparing such assets for sale, associated therewith) and payments of unassumed liabilities relating to the assets sold at the time of, or within 30 days after, the date of such sale, the amount of such gross cash -121- 129 proceeds required to be used to repay any Indebtedness (other than Indebtedness of the Banks pursuant to this Agreement) which is secured by the respective assets which were sold, and the estimated marginal increase in income taxes which will be payable by Holdings' consolidated group with respect to the fiscal year in which the sale occurs as a result of such sale; but excluding any portion of any such gross cash proceeds which Holdings determines in good faith should be reserved for post-closing adjustments (to the extent Holdings' delivers to the Banks a certificate signed by an Authorized Officer as to such determination), it being understood and agreed that on the day that all such post-closing adjustments have been determined (which shall not be later than six months following the date of the respective asset sale), the amount (if any) by which the reserved amount in respect of such sale or disposition exceeds the actual post-closing adjustments payable by Holdings or any of its Subsidiaries shall constitute Net Sale Proceeds on such date). "New Banks" shall mean each of the Persons listed on Schedule I hereto which is not a Continuing Bank. "New Junior Exchange Debenture Indenture" shall mean that certain indenture dated as of the date of issuance of the New Junior Exchange Debentures, by and between the Borrower and [the United States Trust Company of Texas, N.A.], as trustee, which shall be in form and substance satisfactory to the Managing Agent. "New Junior Exchange Debentures" shall mean the Borrower's Subordinated Notes due 2009 issued pursuant to the New Junior Exchange Debenture Indenture. "New Stock" shall have the meaning provided in the Original Credit Agreement. "Non-Continuing Bank" shall have the meaning provided in Section 13.18. "Non-Defaulting Bank" shall mean and include each Bank which is not a Defaulting Bank. "Note" shall mean each Term Note and each Revolving Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03(a). "Notice of Conversion" shall have the meaning provided in Section 1.06. -122- 130 "Notice Office" shall mean the office of the Managing Agent located at 130 Liberty Street, New York, New York 10006, Attention: Mary Kay Coyle, or such other office as the Managing Agent may hereafter designate in writing as such to the other parties hereto. "Obligations" shall mean all amounts owing to the Managing Agent, the Collateral Agent or any Bank pursuant to the terms of this Agreement or any other Credit Document. "Old Junior Exchange Debenture Indenture" shall mean that certain indenture dated as of the date of issuance of the Old Junior Exchange Debentures, by and between the Borrower and United States Trust Company of Texas, as trustee. "Old Junior Exchange Debentures" shall mean the Borrower's Subordinated Notes due 2006 issued pursuant to the Old Junior Exchange Debenture Indenture. "OmniAmerica" shall mean the OmniAmerica Group. "OmniAmerica Acquisition" shall mean the Borrower's acquisition of the OmniAmerica Stations. "OmniAmerica Borrowing Date" shall mean the date on which the OmniAmerica Acquisition is consummated. "OmniAmerica Equity Issuance" shall have the meaning provided in Section 5B.04(a). "OmniAmerica FCC Licenses" shall have the meaning provided in Section 5B.05. "OmniAmerica Purchase Agreement" shall mean the asset purchase agreement between the Borrower and OmniAmerica, relating to the OmniAmerica Acquisition, dated as of May 14, 1996. "OmniAmerica Stations" shall mean the radio stations that the Borrower has agreed to acquire from OmniAmerica pursuant to the OmniAmerica Purchase Agreement. "OmniAmerica Transaction" shall mean and include the OmniAmerica Acquisition, the OmniAmerica Equity Issuance, the transfer of the OmniAmerica FCC -123- 131 Licenses to the License Subsidiary and all other transactions contemplated by or consummated in connection therewith. "OmniAmerica Transaction Documents" shall mean the OmniAmerica Purchase Agreement, the OmniAmerica Equity Issuance documents and all other agreements and documents relating to the OmniAmerica Acquisition. "Operating Agreement" shall have the meaning provided in Section 8.04. "Original Banks" shall mean each Person which was a Bank under, and as defined in, the Original Credit Agreement. "Original Credit Agreement" shall have the meaning provided in the first Whereas clause of this Agreement. "Original Loans" shall mean, collectively the Original Term Loans and the Original Revolving Loans. "Original Revolving Loans" shall mean the "Revolving Loans" under, and as defined in, the Original Credit Agreement. "Original Term Loans" shall mean the "Term Loans" under, and as defined in, the Original Credit Agreement. "Participant" shall have the meaning provided in Section 2.03(b). "Payment Office" shall mean the office of the Managing Agent located at 130 Liberty Street, New York, New York 10006, Attention: Mary Kay Coyle, or such other office as the Managing Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Encumbrance" shall mean, with respect to any Mortgaged Property, such exceptions to title as are set forth in the title insurance policy or title commitment delivered with respect thereto, all of which exceptions must be acceptable to the Managing Agent in its reasonable discretion. "Permitted Issuance" shall mean (a) the issuance by Holdings of options or other equity securities of Holdings to outside directors, members of management or -124- 132 employees of Holdings or any Subsidiary of Holdings, (b) the issuance of securities as interest or dividends on pay-in-kind debt or preferred equity securities permitted hereunder and under the other Credit Documents, (c) the issuance to Holdings or any Subsidiary (or any director, with respect to directors' qualifying shares) by any of its Subsidiaries of any of their respective capital stock, in each case with respect to this clause (c) to the extent such capital stock is pledged to the Collateral Agent pursuant to the applicable Amended and Restated Pledge Agreement (provided that only 65% of the voting capital stock of a foreign Subsidiary of the Borrower is required to be so pledged) and (d) the issuance by Holdings of shares of capital stock of Holdings to infuse additional capital into Holdings in an aggregate amount not to exceed $25,000,000. "Permitted Liens" shall have the meaning provided in Section 9.01. "Person" shall mean any individual, partnership, joint venture, limited liability company, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any multiemployer or single-employer plan, as defined in Section 4001 of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of), the Borrower or a Subsidiary of the Borrower or an ERISA Affiliate, and each such plan for the five year period immediately following the latest date on which the Borrower, a Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed or had an obligation to contribute to such plan. "Pledge Agreement Collateral" shall mean all "Collateral" as defined in each of the Amended and Restated Pledge Agreements. "Pledged Securities" shall mean "Pledged Securities" as defined in each of the Amended and Restated Pledge Agreements. "Prime Lending Rate" shall mean the rate which Bankers Trust Company announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Bankers Trust Company may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Projections" shall have the meaning provided in Section 7.05(d). -125- 133 "Public Offering" means an underwritten public offering (including the issuance of the New Stock) of common stock of Holdings pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act, which public equity offering results in gross proceeds to Holdings of not less than $25,000,000. "Quarterly Payment Date" shall mean the last Business Day of each January, April, July and October occurring after the Restatement Effective Date. "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recovery Event" shall mean the receipt by Holdings or any of its Subsidiaries of any (i) cash insurance proceeds payable (x) by reason of theft, loss, physical destruction or damage or any other similar event with respect to any property or assets of Holdings or any of its Subsidiaries and (y) under any policy of insurance required to be maintained under Section 8.03 or (ii) condemnation award payable by reason of eminent domain or deed in lieu thereof. "Register" shall have the meaning set forth in Section 13.17. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. -126- 134 "Reinvestment Assets" shall have the meaning provided in Section 4.02(e). "Release" shall have meaning provided on the Amended and Restated Environmental Indemnity Agreement. "Replaced Bank" shall have the meaning provided in Section 1.13. "Replacement Bank" shall have the meaning provided in Section 1.13. "Reportable Event" shall mean an event described in Section 4043(b) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC. "Required Banks" shall mean Non-Defaulting Banks, the sum of whose outstanding Term Loans (and, if prior to the OmniAmerica Borrowing Date, Term Loan Commitments) and Revolving Loan Commitments (or after the termination thereof, outstanding Revolving Loans and Adjusted RL Percentage of Letter of Credit Outstandings) represent an amount greater than 50% of the sum of (x) all outstanding Term Loans (and, if prior to the OmniAmerica Borrowing Date, Term Loan Commitments) of Non-Defaulting Banks and (y) the Total Revolving Loan Commitment (or after the termination thereof, the sum of the then total outstanding Revolving Loans and Adjusted RL Percentage of Letter of Credit Outstandings at such time) of Non-Defaulting Banks. "Restatement Effective Date" shall have the meaning provided in Section 13.10. "Returns" shall have the meaning provided in Section 7.09. "Revolving Loan" shall have the meaning provided in Section 1.01(b). "Revolving Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "Revolving Loan Commitment," as same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b). "Revolving Loan Commitment Commission" shall have the meaning provided in Section 3.01(a)(ii). -127- 135 "Revolving Loan Conversion" shall have the meaning set forth in Section 1.01(b). "Revolving Loan Maturity Date" shall mean January 31, 2003. "Revolving Note" shall have the meaning provided in Section 1.05(a). "RL Percentage" of any Bank at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Revolving Loan Commitment of such Bank at such time and the denominator of which is the Total Revolving Loan Commitment at such time, provided that if the RL Percentage of any Bank is to be determined after the Total Revolving Loan Commitment has been terminated, then the RL Percentages of the Banks shall be determined immediately prior (and without giving effect) to such termination. "Scheduled Repayments" shall have the meaning provided in Section 4.02(b). "SEC" shall have the meaning provided in Section 8.01(h). "Second Senior Subordinated Note Indenture" shall mean that certain indenture dated as of February 8, 1996 by and between the Borrower, the Licensee Subsidiary, as Guarantor and U.S. Trust Company of Texas, N.A., as Trustee, which Second Senior Subordinated Note Indenture shall contain terms and conditions identical to the Existing Senior Subordinated Note Indenture and be reasonably satisfactory to the Managing Agent. "Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b). "Secured Creditors" shall have the meaning assigned that term in the Security Documents. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Security Agreement Collateral" shall mean all "Collateral" as defined in each Amended and Restated Security Agreement (which shall in any event exclude any interests in the FCC Licenses to the extent prohibited or ineffectual under applicable law). -128- 136 "Security Document" shall mean and include each Amended and Restated Pledge Agreement, each Amended and Restated Security Agreement, each Mortgage and, after the execution and delivery thereof, each Additional Mortgage and each Additional Security Document required to be delivered pursuant to Section 8.12. "Series A Exchangeable Preferred Stock" shall mean the Borrower's 12 1/4% Series A Cumulative Exchangeable Preferred Stock due 2008 issued in compliance with the Original Credit Agreement. "Series A Exchangeable Preferred Stock Documents" shall mean each document delivered pursuant to the Series A Exchangeable Preferred Stock Issuance or in connection therewith (including, but not limited to, the Old Junior Exchange Debenture Indenture and all documents relating thereto). "Series A Exchangeable Preferred Stock Issuance" shall mean the "Preferred Stock Issuance" under, and as defined in, the Original Credit Agreement. "SFX" shall mean WBLI, Inc., WHFM, Inc., WBAB, Inc. and WGBB, Inc., all New York corporations, together with WBLI-FM, Inc. and SFX Broadcasting, Inc., two Delaware corporations. "SFX Exchange" shall mean the simultaneous exchange by the Borrower of two of the OmniAmerica Stations (Stations WFYV (FM), Atlantic Beach and WAPE (FM), Jacksonville, Florida) and approximately $11,000,000 in cash for Stations WGBB (AM), Freeport, WBAB-FM, Babylon, WBLI (FM), Patchogue and WHFM (FM), Southampton, New York (the "SFX Stations") in accordance with the terms and provisions of the SFX Exchange Documents. "SFX Exchange Documents" shall mean the agreement, dated as of July 1, 1996, between the Borrower and SFX, as in effect on the Restatement Effective Date, and all other agreements and documents relating to the SFX Radio Exchange. "SFX Stations" shall have the meaning provided in the definition of SFX Exchange. "Shamrock" shall mean Shamrock Broadcasting, Inc., a Delaware corporation. "Shamrock Broadcasting Licenses" shall mean Shamrock Broadcasting Licenses of Denver, Inc., a Delaware corporation. -129- 137 "Shamrock Radio" shall mean Shamrock Radio Licenses, Inc., a Delaware corporation. "Shareholders' Agreements" shall have the meaning provided in Section 5A.05. "Standby Letter of Credit" shall have the meaning provided in Section 2.01(a). "Start Date" shall have the meaning provided in the definition of Interest Reduction Discount. "Stated Amount" of each Letter of Credit shall, at any time, mean the maximum amount available to be drawn thereunder (in each case determined without regard to whether any conditions to drawing could then be met). "Station Swap" shall have the meaning provided in Section 9.02(ix). "Stations" shall mean and include all of the radio stations owned and operated by Holdings and its Subsidiaries on the Restatement Effective Date, after giving effect to the Colfax Acquisition, the Colfax Stations, after giving effect to the OmniAmerica Acquisition, the OmniAmerica Stations, after giving effect to the American Radio Exchange, the American Radio Station, and any radio stations acquired pursuant to Section 4.02(f)). "Stock Swapped Station" shall have the meaning provided in Section 9.02(ix). "Stock Swaps" shall have the meaning provided in Section 9.02(ix). "Stock Target Station" shall have the meaning provided in Section 9.02(ix). "Stockholders Agreement" shall mean the amended and restated stockholders agreement dated as of February 14, 1996, among Holdings and the stockholders of Holdings party thereto, as amended through the Restatement Effective Date. "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might -130- 138 have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. "Supermajority Banks" shall mean Non-Defaulting Banks the sum of whose outstanding Term Loans (and, if prior to the OmniAmerica Borrowing Date, Term Loan Commitment) represent an amount greater than 66-2/3% of outstanding Term Loans (and, if prior to the OmniAmerica Borrowing Date, Total Term Loan Commitment) of Non-Defaulting Banks. "Swapped Station" shall have the meaning provided in Section 9.02(ix). "Syndication Agent" shall mean NationsBank, N.A., in its capacity as Syndication Agent for the Banks hereunder. "Syndication Date" shall mean that date upon which the Managing Agent determines in its sole discretion (and notifies the Borrower) that the primary syndication (and resultant addition of institutions as Banks pursuant to Section 13.04) has been completed. "Target Station" shall have the meaning provided in Section 9.02(ix). "Tax Sharing Agreement" shall have the meaning provided in Section 5A.05. "Taxes" shall have the meaning provided in Section 4.04(a). "Term Loan" shall have the meaning provided in Section 1.01(a). "Term Loan Availability Termination Date" shall mean March 31, 1997. "Term Loan Borrowing Date" shall have the meaning provided in Section 1.01(a). "Term Loan Commitment Commission" shall have the meaning provided in Section 3.01(a)(i). "Term Loan Commitment" shall mean for each Bank the amount set forth opposite such Bank's name in Schedule I hereto in the column entitled "Term Loan Commitment" as same may be (x) reduced from time to time pursuant to Sections 3.03, -131- 139 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b). "Term Loan Conversion" shall have the meaning provided in Section 1.01(a). "Term Loan Maturity Date" shall mean January 31, 2003. "Term Notes" shall have the meaning provided in Section 1.05(a). "Test Period" shall mean (i) for any determination made on and prior to December 31, 1997, the period from January 1, 1997 to the last day of the fiscal quarter then last ended and (ii) for any determination made thereafter, the four consecutive fiscal quarters then last ended (taken as one accounting period). "TL Percentage" of any Bank at any time shall mean a fraction (expressed as a percentage), the numerator of which is the Term Loan Commitment of such Bank at such time and the denominator of which is the Total Term Loan Commitment at such time. "Total Available Revolving Loan Commitment" shall mean, at any time, the Total Revolving Loan Commitment less the Blocked Commitment, if any, at such time. "Total Commitment" shall mean the sum of the Total Term Loan Commitment and the Total Revolving Loan Commitment. "Total Revolving Loan Commitment" shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Banks. "Total Supermajority Banks" shall mean Non-Defaulting Banks the sum of whose outstanding Term Loans (and, if prior to the OmniAmerica Borrowing Date, Term Loan Commitment) and Revolving Commitments (or after the termination thereof, outstanding Revolving Loans and Adjusted RL Percentage or Letter of Credit Outstandings) represent an amount greater than 66-2/3% of outstanding Term Loans (and, if prior to the OmniAmerica Borrowing Date, Term Loan Commitments) and Revolving Commitments (or after the termination thereof, outstanding Revolving Loans and Adjusted RL Percentage or Letter of Credit Outstandings) of Non-Defaulting Banks. -132- 140 "Total Term Loan Commitment" shall mean, at any time, the sum of the Term Loan Commitments of each Bank. "Total Unutilized Revolving Loan Commitment" shall mean, at any time, the sum of the Unutilized Revolving Loan Commitments of each of the Banks. "Trade Letter of Credit" shall have the meaning provided in Section 2.01(a). "Tranche" shall mean the respective facility and commitments utilized in making Loans hereunder, with there being three separate Tranches, i.e., Term Loans, and Revolving Loans. "Transaction" shall mean and include the Colfax Acquisition, the Exchangeable Preferred Stock Issuance, the Convertible Preferred Stock Issuance, the transfer of the Colfax FCC Licenses to the License Subsidiary, the amendment and restatement of the Original Credit Agreement and related guaranties and security documents as provided herein, and on and after the OmniAmerica Borrowing Date, the OmniAmerica Transaction and the payment of fees and expenses in connection with the foregoing. "Transaction Documents" shall mean the Colfax Acquisition Documents, the Exchangeable Preferred Stock Documents, the Convertible Preferred Stock Documents, the Credit Documents and all other documents effectuating the Transaction or executed in connection therewith. "Trefoil" shall mean Trefoil Communications, Inc., a Delaware corporation. "Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated benefits under the Plan as of the close of its most recent plan year, determined in accordance with Statement of Financial Accounting Standards No. 35, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan, exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code. -133- 141 "United States" and "U.S." shall each mean the United States of America. "Unpaid Drawing" shall have the meaning provided in Section 2.04(a). "Unutilized Term Loan Commitment" with respect to any Bank, at any time, shall mean such Bank's Term Loan Commitment at such time. "Unutilized Revolving Loan Commitment" with respect to any Bank, at any time, shall mean such Bank's Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of Revolving Loans made by such Bank plus (ii) such Bank's Adjusted RL Percentage of all Letter of Credit Outstandings. "Voting Stock" shall mean, as to any Person, any class or classes of capital stock of such Person pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of such Person, or any class or classes of capital stock convertible into such stock at the option of the holders thereof. "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. Any reference to a Wholly-Owned Subsidiary, unless expressly to a Wholly-Owned Subsidiary of another Person, shall mean a Wholly-Owned Subsidiary of the Borrower. SECTION 12. The Managing Agent. 12.01 Appointment. The Banks hereby designate BTCo as Managing Agent (for purposes of this Section 12, the term "Managing Agent" shall include BTCo in its capacity as Collateral Agent pursuant to the Security Documents) to act as specified herein and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Managing Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Managing Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Managing Agent may perform any of its duties -134- 142 hereunder by or through its respective officers, directors, agents, employees or affiliates. The Documentation Agent and Syndication Agent shall have no duties or liabilities in acting in such capacities hereunder. 12.02 Nature of Duties. The Managing Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. Neither the Managing Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Managing Agent shall be mechanical and administrative in nature; the Managing Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Bank or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Managing Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 12.03 Lack of Reliance on the Managing Agent. Independently and without reliance upon the Managing Agent, each Bank and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of Holdings and its Subsidiaries and, except as expressly provided in this Agreement, the Managing Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Bank or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Managing Agent shall not be responsible to any Bank or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of Holdings and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of Holdings and its Subsidiaries or the existence or possible existence of any Default or Event of Default. 12.04 Certain Rights of the Managing Agent. If the Managing Agent shall request instructions from the Required Banks with respect to any act or action -135- 143 (including failure to act) in connection with this Agreement or any other Credit Document, the Managing Agent shall be entitled to refrain from such act or taking such action unless and until the Managing Agent shall have received instructions from the Required Banks; and the Managing Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Bank nor the holder of any Note shall have any right of action whatsoever against the Managing Agent as a result of the Managing Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Banks. 12.05 Reliance. The Managing Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Managing Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by the Managing Agent. 12.06 Indemnification. To the extent the Managing Agent is not reimbursed and indemnified by the Borrower, the Banks will reimburse and indemnify the Managing Agent, in proportion to their respective "percentages" as used in determining the Required Banks, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Managing Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Managing Agent's gross negligence or willful misconduct. 12.07 The Managing Agent in Its Individual Capacity. With respect to its obligation to make Loans under this Agreement, the Managing Agent shall have the rights and powers specified herein for a "Bank" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Banks," "Required Banks," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Managing Agent in its individual capacity. The Managing Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower or any other Credit -136- 144 Party for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 12.08 Holders. The Managing Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Managing Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 12.09 Resignation by the Managing Agent. (a) The Managing Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Borrower and the Banks. Such resignation shall take effect upon the appointment of a successor Managing Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Banks shall appoint a successor Managing Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower. (c) If a successor Managing Agent shall not have been so appointed within such 15 Business Day period, the Managing Agent, with the consent of the Borrower, shall then appoint a successor Managing Agent who shall serve as Managing Agent hereunder or thereunder until such time, if any, as the Banks appoint a successor Managing Agent as provided above. (d) If no successor Managing Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the Managing Agent, the Managing Agent's resignation shall become effective and the Required Banks shall thereafter perform all the duties of the Managing Agent hereunder and/or under any other Credit Document until such time, if any, as the Banks appoint a successor Managing Agent as provided above. SECTION 13. Miscellaneous. 13.01 Payment of Expenses, etc. (a) The Borrower shall: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Managing Agent (including, without limitation, the -137- 145 reasonable fees and disbursements of White & Case and local counsel) in connection with the preparation, execution and delivery of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of the Managing Agent in connection with its syndication efforts with respect to this Agreement and of the Managing Agent and, following an Event of Default, each of the Banks in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for the Managing Agent and, following an Event of Default, for each of the Banks including any reasonable allocated costs of in-house counsel); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; and (iii) indemnify the Managing Agent and each Bank, and each of their respective officers, directors, employees, representatives and agents from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not the Managing Agent or any Bank is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or the consummation of any transactions contemplated herein (including, without limitation, the Colfax Transaction and the OmniAmerica Transaction) or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, (excluding Environmental Laws which are governed by the Amended and Restated Environmental Indemnity Agreement) owned or at any time operated by Holdings or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). To the extent that the undertaking to indemnify, pay or hold harmless the Managing Agent or any Bank set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall make the maximum contribution to the -138- 146 payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. (b) Notwithstanding anything to the contrary contained in this Agreement, the indemnification provided for in this Section 13.01 shall not apply to Environmental Claims, Hazardous Materials or Releases, all of which shall be governed exclusively by the Amended and Restated Environmental Indemnity Agreement. 13.02 Right of Setoff; Collateral Matters. (a) In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to Holdings or the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of Holdings or the Borrower against and on account of the Obligations and liabilities of Holdings or the Borrower to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. (b) NOTWITHSTANDING THE FOREGOING SUBSECTION (a), AT ANY TIME THAT THE LOANS OR ANY OTHER OBLIGATION SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO BANK SHALL EXERCISE A RIGHT OF SETOFF, BANKER'S LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY NOTE THAT IS NOT TAKEN BY THE REQUIRED BANKS OR APPROVED IN WRITING BY THE REQUIRED BANKS IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO THE COLLATERAL AGENT PURSUANT TO THE SECURITY DOCUMENTS OR THE ENFORCEABILITY OF THE NOTES AND OTHER OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY BANK OF ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF -139- 147 THE REQUIRED BANKS SHALL BE NULL AND VOID. THIS SUBSECTION (b) SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE MANAGING AGENT, THE COLLATERAL AGENT AND THE BANKS HEREUNDER AND SHALL NOT CREATE ANY RIGHTS FOR THE BENEFIT OF ANY CREDIT PARTY OR ANY OTHER PERSON. 13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to Holdings, at Holdings' address specified opposite its signature below; if to the Borrower, at the Borrower's address specified opposite its signature below; if to any Bank, at its address specified opposite its name below; and if to the Managing Agent, at its Notice Office; or, as to any Credit Party or the Managing Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Bank, at such other address as shall be designated by such Bank in a written notice to the Borrower and the Managing Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Managing Agent and the Borrower shall not be effective until received by the Managing Agent or the Borrower, as the case may be. 13.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, no Credit Party may assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of the Banks and, provided further, that, although any Bank may transfer, assign or grant participations in its rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder (and may not transfer or assign all or any portion of its Commitments hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Bank" hereunder and, provided further, that no Bank shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the -140- 148 amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan and an increase in the available portion of any Commitment of any Bank shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation. (b) Notwithstanding the foregoing, any Bank (or any Bank together with one or more other Banks) may (x) assign all or a portion of its Commitments (and related outstanding Obligations hereunder) and/or its outstanding Term Loans to its parent company and/or any affiliate of such Bank which is at least 50% owned by such Bank or its parent company or to one or more Banks or (y) assign all, or if less than all, a portion equal to at least $5,000,000 in the aggregate for the assigning Bank or assigning Banks, of such Revolving Loan Commitments and outstanding principal amount of Term Loans (and, if prior to the OmniAmerica Borrowing Date, Term Loan Commitment) hereunder to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Bank by execution of an Assignment and Assumption Agreement, provided that, (i) at such time Schedule I shall be deemed modified to reflect the Commitments (and/or outstanding Term Loans, as the case may be) of such new Bank and of the existing Banks, (ii) upon surrender of the old Notes, new Notes will be issued, at the Borrower's expense, to such new Bank and to the assigning Bank, such new Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments (and/or outstanding Term Loans, as the case may be), (iii) the consent of the Managing Agent shall be required in connection with any such assignment (which consent shall not be unreasonably withheld) and (iv) the Managing Agent shall receive at the time of each such assignment, from the assigning or assignee Bank, the payment of a non- refundable assignment fee of $3,500 and, provided further, that such transfer or assignment will not be effective until recorded by the Managing Agent on the Register pursuant to Section 13.17 hereof. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitments. At the time of each assignment -141- 149 pursuant to this Section 13.04(b) to a Person which is not already a Bank hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Bank shall provide to the Borrower and the Managing Agent the appropriate Internal Revenue Service Forms (and, if applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an assignment of all or any portion of a Bank's Commitments and related outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would, at the time of such assignment, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective assigning Bank prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). (c) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. 13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Managing Agent or any Bank or any holder of any Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower or any other Credit Party and the Managing Agent or any Bank or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Managing Agent or any Bank or the holder of any Note would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Managing Agent or any Bank or the holder of any Note to any other or further action in any circumstances without notice or demand. 13.06 Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Managing Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations hereunder, it shall distribute such payment to the Banks (other than any Bank that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. -142- 150 (b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligation then owed and due to such Bank bears to the total of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the respective Credit Party to such Banks in such amount as shall result in a proportional participation by all the Banks in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 13.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks. 13.07 Calculations; Computations. (a) The financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Banks); provided that, except as otherwise specifically provided herein, all computations of Excess Cash Flow and all computations determining compliance with Sections 9.07 through 9.12, inclusive, shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements delivered to the Banks pursuant to Section 7.05(a) (with the foregoing generally accepted accounting principles, subject to the preceding proviso, herein called "GAAP"). (b) All computations of interest, Commitment Commission and Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, Commitment Commission or Fees are payable. 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF -143- 151 THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS BILL EDWARDS, THE VICE PRESIDENT AND GENERAL MANAGER AT WALK-AM/FM, 66 COLONIAL DRIVE, PATCHOGUE, NEW YORK 11772 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH CREDIT PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE MANAGING AGENT UNDER THIS AGREEMENT. EACH OF HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE MANAGING AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION. (b) EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE -144- 152 AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 13.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Managing Agent. 13.10 Effectiveness. (a) This Agreement shall become effective on the date (the "Restatement Effective Date") on which (i) each of the Borrower, the Managing Agent, each Continuing Bank and each New Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile device) the same to the Managing Agent at its Notice Office and (ii) the conditions contained in Sections 5A, 6 and 13.10(b) are met to the satisfaction of the Managing Agent and the Required Banks (determined immediately after the occurrence of the Restatement Effective Date). Unless the Managing Agent has received actual notice from any Bank that the conditions contained in Sections 5A and 6 have not been met to its satisfaction, upon the satisfaction of the condition described in clause (i) of the immediately preceding sentence and upon the Managing Agent's good faith determination that the conditions described in clause (ii) of the immediately preceding sentence have been met, then the Restatement Effective Date shall have been deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto had not been met (although the occurrence of the Restatement Effective Date shall not release the Borrower from any liability for failure to satisfy one or more of the applicable conditions contained in Section 5A or 6). The Managing Agent will give the Borrower and each Bank prompt written notice of the occurrence of the Restatement Effective Date. -145- 153 (b) On the Restatement Effective Date, each New Bank and each Continuing Bank shall have delivered to the Managing Agent for the account of the Borrower an amount equal to (i) in the case of each New Bank, the Term Loans and Revolving Loans to be made by such New Bank on the Restatement Effective Date and (ii) in the case of each Continuing Bank, the amount by which the principal amount of Loans to be made and/or converted by such Continuing Bank on the Restatement Effective Date exceeds the amount of the Original Loans of such Continuing Bank outstanding on the Restatement Effective Date. Notwithstanding anything to the contrary contained in this Section 13.10(b), in satisfying the foregoing condition, unless the Managing Agent shall have been notified by any Bank prior to the occurrence of the Restatement Effective Date that such Bank does not intend to make available to the Managing Agent such Bank's Term Loans and Revolving Loans required to be made by it on such date, then the Managing Agent may, in reliance on such assumption, make available to the Borrower the corresponding amounts in accordance with the provisions of Section 1.04 of this Agreement, and the making available by the Managing Agent of such amounts shall satisfy the condition contained in this Section 13.10(b). 13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank (other than a Defaulting Bank) (with Obligations being directly affected), (i) extend the final scheduled maturity of any Loan or Note or extend the stated maturity of any Letter of Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) release all or substantially all of the Collateral (except as expressly provided in the Credit Documents) under all the Security Documents, (iii) amend, modify or waive any provision of this Section 13.12, (iv) reduce the percentage specified in the definition of Required Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Banks on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date) or (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, -146- 154 discharge or termination shall (u) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitment shall not constitute an increase of the Commitment of any Bank, and that an increase in the available portion of any Commitment of any Bank shall not constitute an increase in the Commitment of such Bank), (v) without the consent of the Managing Agent, amend, modify or waive any provision of Section 2 or alter its rights or obligations with respect to Letters of Credit, (w) without the consent of the Managing Agent, amend, modify or waive any provision of Section 12 as same applies to such Managing Agent or any other provision as same relates to the rights or obligations of such Managing Agent, (x) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent, (y) without the consent of the Supermajority Banks, amend, modify or waive the definition of Supermajority Banks, any Scheduled Repayment or, this clause (x), and (z) without the consent of the Total Supermajority Banks, amend, modify or waive Section 9.04(xii) or 9.04(xiii), reduce the percentage specified in the definition of Total Supermajority Banks (it being understood that, with the consent of the Total Supermajority Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Total Supermajority Banks on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date) or this clause (y) of the final proviso of Section 13.12(a). Notwithstanding anything to the contrary contained herein, the Managing Agent may enter into documentation (including any changes to this Agreement or the other Credit Documents) necessary to effect the increase in the Total Revolving Commitment pursuant to Section 9.04(xiv). (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a), the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Banks are treated as described in clauses (A) or (B) below, to either (A) replace each such non-consenting Bank or Banks with one or more Replacement Banks pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Bank's Revolving Loan Commitment and repay its Loans, in accordance with Sections 3.02(b) and 4.01(v), respectively, provided that in any event the Borrower shall not have the right to replace a Bank, terminate its Revolving Loan Commitment or repay its Loans solely as a result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 13.12(a). -147- 155 13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall, subject to Section 13.15 (to the extent applicable), survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans. 13.14 Domicile of Loans. Each Bank may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Bank. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective Bank prior to such transfer, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes giving rise to such increased costs after the date of the respective transfer). 13.15 Limitation on Additional Amounts, etc. Notwithstanding anything to the contrary contained in Section 1.10, 1.11, 2.05 or 4.04 of this Agreement, unless a Bank gives notice to the Borrower that it is obligated to pay an amount under the respective Section within one year after the later of (x) the date the Bank incurs the respective increased costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Bank has actual knowledge of its incurrence of the respective increased costs, Taxes, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Bank shall only be entitled to be compensated for such amount by the Borrower pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be, to the extent the costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs one year prior to such Bank giving notice to the Borrower that it is obligated to pay the respective amounts pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be. This Section 13.15 shall have no applicability to any Section of this Agreement other than said Sections 1.10, 1.11, 2.05 and 4.04. 13.16 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 13.16, each Bank agrees that it will use its best efforts not to disclose without the prior consent of Holdings or the Borrower (other than to its employees, auditors, advisors or counsel or to another Bank if the Bank or such Bank's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Bank) any information with respect to Holdings or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by Holdings to the Banks in -148- 156 writing as confidential, provided that any Bank may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank, (e) to the Managing Agent or the Collateral Agent and (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Bank, provided that such prospective transferee agrees to abide by the provisions of this Section 13.16. (b) Each of Holdings and the Borrower hereby acknowledges and agrees that each Bank may share with any of its affiliates any information related to Holdings or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of Holdings and its Subsidiaries, provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Bank). 13.17 Register. The Borrower hereby designates the Managing Agent to serve as the Borrower's agent, solely for purposes of this Section 13.17, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Banks, the Loans made by each of the Banks and each repayment in respect of the principal amount of the Loans of each Bank. Failure to make any such recordation, or any error in such recordation shall not affect the Borrower's obligations in respect of such Loans. With respect to any Bank, the transfer of the Commitments of such Bank and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Managing Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Managing Agent on the Register only upon the acceptance by the Managing Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Managing Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Bank shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal -149- 157 amount shall be issued to the assigning or transferor Bank and/or the new Bank. The Borrower agrees to indemnify the Managing Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Managing Agent in performing its duties under this Section 13.17. 13.18 Additions of New Banks; Conversion of Original Loans of Continuing Banks; Termination of Commitments of Non-Continuing Banks. (a) On and as of the occurrence of the Restatement Effective Date in accordance with Section 13.10 hereof, each New Bank shall become a "Bank" under, and for all purposes of, this Agreement and the other Credit Documents. (b) The parties hereto acknowledge that each Original Bank has been offered the opportunity to participate in this Agreement, after the occurrence of the Restatement Effective Date, as a Continuing Bank hereunder, but that no Original Bank is obligated to be a Continuing Bank. (c) Notwithstanding anything to the contrary contained in the Original Credit Agreement, this Agreement or any other Credit Document, the Borrower and each of the Banks hereby agree that on the Restatement Effective Date, (i) each Bank with a Commitment as set forth on Schedule I (after giving effect to the Restatement Effective Date) shall make or maintain (including by way of conversion) that principal amount of Term Loans and/or Revolving Loans to the Borrower as is required by Section 1.01, provided that if the Original Loans of any Continuing Bank outstanding on the Restatement Effective Date (immediately before giving effect thereto) exceed the aggregate principal amount of Loans required to be made available by such Bank on such date (after giving effect to the Restatement Effective Date), then Original Loans of such Continuing Bank in an amount equal to such excess shall be repaid on the Restatement Effective Date, together with interest thereon, to such Continuing Bank and (ii) in the case of each Non-Continuing Bank, all of such Non- Continuing Bank's Original Loans outstanding on the Restatement Effective Date shall be repaid in full on such date, together with interest thereon and all accrued Fees (and any other amounts) owing to such Non-Continuing Bank, and the Term Loan Commitment and/or Revolving Loan Commitment (under, and as defined in, the Original Credit Agreement) of such Non-Continuing Bank, if any, shall be terminated, effective upon the occurrence of the Restatement Effective Date. Notwithstanding anything to the contrary contained in the Original Credit Agreement, this Agreement or any other Credit Document, the parties hereto hereby consent to the repayments and reductions required above, and agree that in the event that any Original Bank shall fail to execute a counterpart of this Agreement prior to the occurrence of the Restatement Effective Date, such Original Bank shall be deemed to be a Non-Continuing Bank and, concurrently with the -150- 158 occurrence of the Restatement Effective Date, the Revolving Loan Commitment (under,and as defined in, the Original Credit Agreement) of such Original Bank, if any, shall be terminated, all Original Loans of such Original Bank outstanding on the Restatement Effective Date shall be repaid in full, together with interest thereon and all accrued Fees (and any other amounts) owing to such Original Bank, and concurrently with the occurrence of the Restatement Effective Date, such Original Bank shall no longer constitute a "Bank" under this Agreement and the other Credit Documents, provided that all indemnities of the Credit Parties under the Original Credit Agreement and the other Credit Documents (as in effect prior to the Restatement Effective Date) for the benefit of such Original Bank shall survive in accordance with the terms thereof. SECTION 14. Holdings Guaranty. 14.01 The Guaranty. In order to induce the Banks to enter into this Agreement and to extend credit hereunder and in recognition of the direct benefits to be received by Holdings from the proceeds of the Loans and the issuance of the Letters of Credit and to induce the Banks or any of their respective Affiliates to enter into Interest Rate Protection Agreements, Holdings hereby agrees with the Banks as follows: Holdings hereby unconditionally and irrevocably guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all of the Guaranteed Obligations of the Borrower to the Secured Creditors. If any or all of the Guaranteed Obligations of the Borrower to the Secured Creditors becomes due and payable hereunder, Holdings unconditionally promises to pay such indebtedness to the Secured Creditors, or order, on demand, together with any and all reasonable expenses which may be incurred by the Managing Agent or the Secured Creditors in collecting any of the Guaranteed Obligations. 14.02 Bankruptcy. Additionally, Holdings unconditionally and irrevocably guarantees the payment of any and all of the Guaranteed Obligations of the Borrower to the Secured Creditors whether or not then due or payable by the Borrower upon the occurrence in respect of the Borrower of any of the events specified in Section 10.05, and unconditionally and irrevocably promises to pay such Guaranteed Obligations to the Secured Creditors, or order, on demand, in lawful money of the United States. 14.03 Nature of Liability. The liability of Holdings hereunder is exclusive and independent of any security for or other guaranty of the Guaranteed Obligations of the Borrower whether executed by Holdings, any other guarantor or by any other party, and the liability of Holdings hereunder shall not be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability -151- 159 of a guarantor or of any other party as to the Guaranteed Obligations of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Managing Agent or the Secured Creditors on the indebtedness which the Managing Agent or such Secured Creditors repay the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and Holdings waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 14.04 Independent Obligation. The obligations of Holdings hereunder are independent of the obligations of any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against Holdings whether or not action is brought against any other guarantor or the Borrower and whether or not any other guarantor or the Borrower be joined in any such action or actions. Holdings waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to Holdings. This Guaranty is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. 14.05 Authorization. Holdings authorizes the Managing Agent and the Secured Creditors without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate or alter, any of the Guaranteed Obligations (including any increase or decrease in the rate of interest thereon), any security therefor, or any liability incurred directly or indirectly in respect thereof, and the Guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) take and hold security for the payment of the Guaranteed Obligations and sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; -152- 160 (c) exercise or refrain from exercising any rights against the Borrower or others or otherwise act or refrain from acting; (d) release or substitute any one or more endorsers, guarantors, the Borrower or other obligors; (e) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower to its creditors other than the Banks; (f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower to the Secured Creditors regardless of what liability or liabilities of Holdings or the Borrower remain unpaid; (g) consent to or waive any breach of, or any act, omission or default under, this Agreement or any of the instruments or agreements referred to herein, or otherwise amend, modify or supplement this Agreement or any of such other instruments or agreements; and/or (h) take any other action which would, under otherwise applicable principles of common law, give rise to a legal or equitable discharge of Holdings from its liabilities under the Holdings Guaranty. 14.06 Reliance. It is not necessary for the Managing Agent or the Secured Creditors to inquire into the capacity or powers of the Borrower or its Subsidiaries or the officers, directors, partners or agents acting or purporting to act on its behalf, and any Guaranteed Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 14.07 Subordination. Any of the indebtedness of the Borrower relating to the Guaranteed Obligations now or hereafter owing to Holdings is hereby subordinated to the Guaranteed Obligations of the Borrower owing to the Managing Agent and the Secured Creditors; and if the Managing Agent so requests at a time when an Event of Default exists, all such indebtedness relating to the Guaranteed Obligations of the Borrower to Holdings shall be collected, enforced and received by Holdings for the benefit of the Secured Creditors and be paid over to the Managing Agent on behalf of the Secured Creditors on account of the Guaranteed Obligations of the Borrower to the Secured Creditors, but without affecting or impairing in any manner the liability of Holdings under the other provisions of this Guaranty. Prior to the transfer by Holdings -153- 161 of any note or negotiable instrument evidencing any of the indebtedness relating to the Guaranteed Obligations of the Borrower to Holdings, Holdings shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. The provisions of this Section 14.07 (and any claims of Holdings as described above) are subject to the provisions of Section 14.08(c) and (d). 14.08 Waiver. (a) Holdings waives any right (except as shall be required by applicable statute and cannot be waived) to require the Managing Agent or the Secured Creditors to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from the Borrower, any other guarantor or any other party or (iii) pursue any other remedy in the Managing Agent's or the Secured Creditors' power whatsoever. Holdings waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party, other than payment in full of the Guaranteed Obligations, based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Guaranteed Obligations. The Managing Agent and the Secured Creditors may, at their election, foreclose on any security held by the Managing Agent, the Collateral Agent or the Secured Creditors by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law, including, but not limited to, the Communications Act), or exercise any other right or remedy the Managing Agent and the Secured Creditors may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of Holdings hereunder except to the extent the Guaranteed Obligations have been paid. Holdings waives any defense arising out of any such election by the Managing Agent and the Secured Creditors, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of Holdings against any Borrower or any other party or any security. (b) Holdings waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Guaranteed Obligations. Holdings assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which Holdings assumes and incurs hereunder, and agrees that the Managing Agent and the Secured Creditors shall have no duty to advise Holdings of information known to them regarding such circumstances or risks. -154- 162 (c) Holdings understands that to the extent the Guaranteed Obligations are secured by Real Property, Holdings shall be liable for the full amount of the liability hereunder notwithstanding foreclosure on any such Real Property by trustee sale or any other reason impairing Holdings' or any secured creditors' right to proceed against the Borrower. Holdings hereby waives, to the fullest extent permitted by applicable laws, all rights and benefits under Sections 580a, 580b, 580d and 726 of the California Code of Civil Procedure. In addition, Holdings hereby waives, to the fullest extent permitted by applicable laws, without limiting the generality of the foregoing or any other provision hereof, all rights and benefits which might otherwise be available to Holdings under California Civil Code Sections 2787 through 2855 inclusive, 2899 and 3433. (d) Holdings understands, is aware and hereby acknowledges that if the Banks elect to foreclose on any of the Mortgaged Property security nonjudicially, any right of subrogation of Holdings against the Borrower may be impaired or extinguished and that as a result of such impairment or extinguishment of subrogation rights, Holdings may have a defense to a deficiency judgment arising out of the operation of Section 580d of the California Code of Civil Procedure and related principles of estoppel. Holdings waives all rights and defenses arising out of an election of remedies by the Banks, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise. 14.09 Nature of Liability. It is the desire and intent of Holdings and the Secured Creditors that this Holdings Guaranty shall be enforced against Holdings to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If, however, and to the extent that, the obligations of Holdings under this Holdings Guaranty shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers), then the amount of the Guaranteed Obligations of Holdings shall be deemed to be reduced and Holdings shall pay the maximum amount of the Guaranteed Obligations which would be permissible under applicable law. -155- 163 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Address: - ------- 12655 North Central Expwy. CHANCELLOR BROADCASTING COMPANY Suite 405 Dallas, TX 75243 By /s/ JD KERREST ----------------------------------- Title: Chief Financial Officer with a copy to: Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Attn: Thomas O. Hicks, John R. Muse, Jack D. Furst and Lawrence D. Stuart, Jr. Telephone: (214) 740-7300 Telecopy: (214) 740-7313 and Hicks, Muse, Tate & Furst Incorporated 1325 Avenue of the Americas 25th Floor New York, New York 10019 Attn: Mr. Charles W. Tate Telephone: (212) 424-1400 Telecopy: (212) 424-1450 12655 North Central Expwy. CHANCELLOR RADIO BROADCASTING Suite 405 COMPANY Dallas, TX 75243 By /s/ JD KERREST ----------------------------------- Title: Chief Financial Officer 130 Liberty Street BANKERS TRUST COMPANY, New York, New York 10006 Individually and as Managing Agent Tel: (212) 250-7188 Fax: (212) 250-7218 Attention: Thomas P. Prior By /s/ MARY KAY COYLE ----------------------------------- Title: 164 85 Broad Street GOLDMAN SACHS CREDIT PARTNERS L.P., New York, New York 10004 Individually and as Documentation Tel: (212) 902-1608 Agent Fax: (212) 346-3552 Attention: Ed Forst By /s/ ED FORST ----------------------------------- Title: Authorized Signatory 901 Main Street NATIONSBANK OF TEXAS, N.A., Dallas, Texas 75202 Individually and as Syndication Tel: (214) 508-2445 Agent Fax: (214) 508-9390 Attention: David James By /s/ DAVID JAMES ----------------------------------- Title: Vice President 165 SCHEDULE I COMMITMENTS
Term Loan Revolving Loan Bank Commitment Commitment ---- ------------ -------------- Bankers Trust Company $112,500,000 $ 60,000,000 Goldman Sachs Credit Partners L.P. $ 56,250,000 $ 30,000,000 Nationsbank, N.A. $ 56,250,000 $ 30,000,000 ------------ ------------ TOTAL $225,000,000 $120,000,000 ============ ============
EX-11.1 7 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 CHANCELLOR BROADCASTING COMPANY COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1994 1995 1996 -------------- ------------- -------------- Computation for statements of earnings: Operating earnings (loss) ................................. $ 711,849 $ (11,531,296) $ (14,272,069) Loss on repurchase of preferred stock of subsidiary ....... -- -- (16,570,065) -------------- ------------- -------------- 711,849 (11,531,296) (30,842,134) Extraordinary losses ...................................... (817,819) -- (4,176,897) -------------- ------------- -------------- Net loss ............................................ $ (105,970) $ (11,531,296) $ (35,019,031) ============== ============= ============== Computation for weighted average common shares outstanding: Weighted average common shares outstanding .............. 5,166,039 8,849,936 16,704,381 Incremental common shares applicable to common stock options based on the estimated fair value of the stock ............................................. -- 99,647 549,009 Common stock options excluded based on anti-dilutive effect ................................................ -- (99,647) (549,009) -------------- ------------- -------------- Weighted average common shares .......................... 5,166,039 8,849,936 16,704,381 ============== ============= ============== Earnings (loss) per common share: Primary and fully diluted Operating earnings (loss) ............................. $ 0.14 $ (1.30) $ (1.85) Extraordinary losses .................................. (0.16) -- (0.25) ------------- ------------- ------------- Net loss .......................................... $ (0.02) $ (1.30) $ (2.10) ============= ============ =============
EX-12.1 8 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1 CHANCELLOR RADIO BROADCASTING COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------------ 1994 1995 1996 ----------- ----------- ----------- Fixed Charges: Interest expense .......................................... $ 5,247 $ 18,115 $ 35,704 Implicit interest in rent ................................. 76 276 1,100 Preferred stock dividends and accretion ................... -- -- 19,262 ----------- ----------- ----------- Total fixed charges and preferred stock dividends and accretion ..................................... $ 5,323 $ 18,391 $ 56,066 =========== =========== =========== Earnings before provision for income taxes ................ $ 1,876 $ (7,731) $ 1,897 Preferred stock dividends and accretion ................... -- -- (19,262) Fixed charges and preferred stock dividends and accretion . 5,323 18,391 56,066 ----------- ----------- ----------- Earnings, as defined ................................ $ 7,199 $ 10,660 $ 38,701 =========== =========== =========== Ratio of earnings to fixed charges and preferred stock dividends and accretion ................................... 1.35 -- -- =========== =========== =========== Deficiency of earnings to fixed charges and preferred stock dividends and accretion.............................. $ -- $ 7,731 $ 17,365 =========== =========== ===========
EX-12.2 9 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.2 TREFOIL COMMUNICATIONS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, PERIOD ENDED --------------------------- FEBRUARY 13, 1994 1995 1996 ----------- ----------- ----------- Fixed Charges: Interest expense .......................................... $ 12,923 $ 14,703 $ 1,651 Implicit interest in rent ................................. 1,100 967 121 Preferred stock dividends and accretion ................... 5,619 6,119 809 Amortization of deferred finance charges .................. 688 690 81 ----------- ----------- ----------- Total fixed charges and preferred stock dividends and accretion ..................................... $ 20,330 $ 22,479 $ 2,662 =========== =========== =========== Earnings before provision for income taxes ................ $ (359) $ (5,630) $ (1,004) Preferred stock dividends and accretion ................... (5,619) (6,119) (809) Fixed charges and preferred stock dividends and accretion . 20,330 22,479 2,662 ----------- ----------- ----------- Earnings, as defined ................................ $ 14,352 $ 10,730 $ 849 =========== =========== =========== Ratio of earnings to fixed charges and preferred stock dividends and accretion.................................... -- -- -- =========== =========== =========== Deficiency of earnings to fixed charges and preferred stock dividends and accretion ............................. $ 5,978 $ 11,749 $ 1,813 =========== =========== ===========
EX-27.1 10 FINANCIAL DATA SCHEDULE
5 0001002909 CHANCELLOR BROADCASTING COMPANY 1,000 YEAR DEC-31-1996 DEC-31-1996 3,789 0 47,608 1,024 0 53,127 58,653 9,530 690,473 24,208 260,000 107,222 0 185 200,806 690,743 0 178,402 0 140,732 68 810 35,704 1,897 4,613 (14,272) 0 4,177 0 (18,449) (2.10) (2.10)
EX-27.2 11 FINANCIAL DATA SCHEDULE
5 0000925744 CHANCELLOR RADIO BROADCASTING COMPANY 1,000 YEAR DEC-31-1996 DEC-31-1996 3,789 0 47,608 1,024 0 53,127 58,653 9,530 690,743 24,208 260,000 107,222 0 1 200,990 690,743 0 178,402 0 140,732 68 810 35,704 1,897 4,613 (2,715) 0 4,177 0 (6,892) 0 0
EX-27.3 12 FINANCIAL DATA SCHEDULE
5 0000925752 CHANCELLOR BROADCASTING LICENSEE COMPANY 1,000 YEAR DEC-31-1996 DEC-31-1996 3,789 0 47,608 1,024 0 53,127 58,653 9,530 690,743 24,208 260,000 170,222 0 1 200,990 690,743 0 178,402 0 140,732 68 810 35,704 1,897 4,613 (2,715) 0 4,177 0 (6,892) 0 0
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