-----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, JpXCDr7Pw8HhX6jAbRy/wR0zEoSwb23kYmhkdEEYYAQ0cks602RgtXXSwqdVq0CX R8jdBCS02V+N9uO2SDdAjw== 0000950134-98-002548.txt : 19980330 0000950134-98-002548.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950134-98-002548 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTAR RADIO BROADCASTING PARTNERS INC CENTRAL INDEX KEY: 0000945821 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 13334720 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-92732 FILM NUMBER: 98576680 BUSINESS ADDRESS: STREET 1: 600 CONGRESS AVE STREET 2: STE 1400 CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 2123022727 MAIL ADDRESS: STREET 1: 500 FIFTH AVE STREET 2: STE 3000 CITY: NEW YORK STATE: NY ZIP: 10110 FORMER COMPANY: FORMER CONFORMED NAME: COMMODORE MEDIA INC DATE OF NAME CHANGE: 19950526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPSTAR BROADCASTING PARTNERS INC CENTRAL INDEX KEY: 0001026516 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752672663 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-25263 FILM NUMBER: 98576681 BUSINESS ADDRESS: STREET 1: 600 CONGRESS AVE STREET 2: SUITE 1400 CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124046380 MAIL ADDRESS: STREET 1: 600 CONGRESS AVE STREET 2: SUITE 1400 CITY: AUSTIN STATE: TX ZIP: 78701 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K
(MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 333-25683 COMMISSION FILE NO. 33-92732 CAPSTAR BROADCASTING CAPSTAR RADIO BROADCASTING PARTNERS, INC. PARTNERS, INC. (Exact name of Registrant as (Exact name of Registrant as specified in its charter) specified in its charter) DELAWARE DELAWARE (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 75-2672663 13-3034720 (I.R.S. Employer (I.R.S. Employer Identification Number) Identification Number) 600 CONGRESS AVENUE 78701 SUITE 1400 (Zip Code) AUSTIN, TEXAS (Address of principal executive offices)
--------------------- Registrants' telephone number, including area code: (512) 340-7800 Securities registered pursuant to Section 12(b) of the Act: NONE (Title of Class) Securities registered pursuant to Section 12(g) of the Act: NONE (Title of Class) Indicate by check mark whether Capstar Broadcasting Partners, Inc. and Capstar Radio Broadcasting Partners, Inc. (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. [X] AT MARCH 23, 1998, 279,632,180 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE ("PARTNERS COMMON STOCK"), OF CAPSTAR BROADCASTING PARTNERS, INC. WERE OUTSTANDING. AS OF SUCH DATE, THERE WAS NO PUBLIC MARKET FOR THE PARTNERS COMMON STOCK. AT MARCH 23, 1998, 1,051,394,410 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE ("RADIO COMMON STOCK"), OF CAPSTAR RADIO BROADCASTING PARTNERS, INC. WERE OUTSTANDING. AS OF SUCH DATE, THERE WAS NO PUBLIC MARKET FOR THE RADIO COMMON STOCK. Documents Incorporated by Reference NO DOCUMENTS ARE INCORPORATED BY REFERENCE INTO PARTS I, II OR III. ================================================================================ 2 TABLE OF CONTENTS FORM 10-K
PAGE NO. -------- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 38 Item 3. Legal Proceedings........................................... 39 Item 4. Submission of Matters to a Vote of Security Holders......... 39 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters......................................... 39 Item 6. Selected Historical Financial Data.......................... 40 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 43 Item 7A. Quantitative and Qualitative Disclosure about Market Risk... 49 Item 8. Financial Statements and Supplementary Data................. 49 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................... 50 PART III Item 10. Directors and Executive Officers of the Registrants......... 50 Item 11. Executive Compensation...................................... 52 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 58 Item 13. Certain Relationships and Related Transactions.............. 60 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 66
(i) 3 PART I ITEM 1. BUSINESS As used in this Annual Report on Form 10-K, unless the context otherwise requires, (i) "Capstar Partners" refers to Capstar Broadcasting Partners, Inc., (ii) the "Company" collectively refers to Capstar Broadcasting Partners, Inc. and its subsidiaries after consummation of the Pending Transactions (as defined), (iii) "Capstar Radio" refers to Capstar Radio Broadcasting Partners, Inc., a wholly owned subsidiary of Capstar Partners, (iv) the "Companies" collectively refers to Capstar Partners and Capstar Radio, (v) "Atlantic Star" refers to Atlantic Star Communications, Inc., (vi) "Southern Star" refers to Southern Star Communications, Inc., (vii) "GulfStar" refers to GulfStar Communications, Inc., (viii) "Central Star" refers to Central Star Communications, Inc., and (ix) "Pacific Star" refers to Pacific Star Communications, Inc. Certain capitalized terms used in this Annual Report on Form 10-K and not otherwise defined are defined herein under the caption "Glossary of Certain Terms." GENERAL In October 1996, Capstar Partners was incorporated and acquired Commodore Media, Inc., which was subsequently renamed Capstar Radio Broadcasting Partners, Inc. In June 1997, Capstar Broadcasting Corporation ("Capstar Broadcasting") acquired all of the outstanding common stock of Capstar Partners. The Company is the largest radio broadcaster in the United States operating primarily in mid-sized markets. Since its first acquisition in October 1996, the Company has assembled, on a pro forma basis after giving effect to the Pending Transactions, a nationwide portfolio of 240 owned and operated or programmed stations in 57 mid-sized markets. This portfolio includes clusters of four or more stations in 35 markets and comprises the leading station group, in terms of revenue share and/or audience share, in 39 markets. R. Steven Hicks, an executive with over 30 years of experience in the radio broadcasting industry, and Hicks, Muse, Tate & Furst Incorporated, a Dallas-based private equity firm ("Hicks Muse"), formed the Company to capitalize on the consolidation opportunities produced by the Telecommunications Act of 1996 (the "Telecom Act"). R. Steven Hicks and Hicks Muse recognized that the Telecom Act created a particularly attractive and unique opportunity to consolidate stations in mid-sized markets and, accordingly, created a company that was designed specifically to address this market opportunity. Because the Telecom Act enabled operators in mid-sized markets for the first time to form clusters of four or more stations in individual markets, R. Steven Hicks and Hicks Muse believed that the Company could achieve the economies of scale necessary to support an investment in higher quality managers, programming and systems in these markets. The creation of sizable operations allows the Company to upgrade its stations' programming, sales, promotions, engineering and administrative operations to standards previously seen only in larger markets. Management believes that this positions the Company to help generate revenue growth in these markets in excess of historical growth rates, to increase its audience and revenue shares within these markets and, by capitalizing on economies of scale, to achieve increases in its BCF growth rates and margins. Management believes that the Company's national portfolio of 240 stations creates significant revenue and cash flow growth opportunities for the Company, previously unavailable to mid-sized market operators. For example, the Company is utilizing innovative computer networking technology to distribute high quality programming created in centralized locations to selected stations throughout the country, while maintaining the local character of each broadcast. This allows management to reduce staffing and programming costs while substantially increasing the quality of programming. In addition, the Company's national audience of 17 million listeners per week, the largest national audience among middle market radio broadcasters, has created, for the first time, an opportunity for national, network and regional advertisers to easily reach listeners in mid-sized markets. Furthermore, management believes that the Company's well-developed infrastructure allows it to efficiently acquire and integrate additional stations. Because the Company has assembled its portfolio of 240 stations over the past 18 months, management considers many of these newly formed station clusters to be underdeveloped with the potential for substantial growth as the Company capitalizes on the opportunities created by industry deregulation and the implementation of its acquisition strategy. 1 4 STATION PORTFOLIO The Companies are holding companies which conduct substantially all of their operations through their subsidiaries, Atlantic Star, Southern Star, GulfStar, Central Star, and Pacific Star. To effectively and efficiently manage its station portfolio, the Company has developed a flexible operating structure designed to manage a large and growing number of radio stations throughout the United States. The station portfolio is operationally organized into five regions: the Northeast (Atlantic Star), the Southeast (Southern Star), the Southwest (GulfStar), the Midwest (Central Star) and the West (Pacific Star), each of which is managed by regional executives in conjunction with general managers in each of the Company's markets. The following table sets forth certain information regarding the Company's station portfolio, assuming consummation of the Pending Transactions:
NUMBER OF STATIONS COMPANY COMPANY MSA --------- REVENUE SHARE AUDIENCE SHARE MARKET(1) RANK(2) FM AM RANK(2) RANK(3) --------- ------- --- --- ------------- -------------- NORTHEAST REGION (ATLANTIC STAR) Allentown-Bethlehem, PA.................................... 65 2 2 1 1 Harrisburg-Lebanon-Carlisle, PA............................ 73 1 1 2 2 Wilmington, DE............................................. 74 2 2 3 2 Roanoke, VA................................................ 102 4 1 2 1 Worcester, MA.............................................. 107 1 1 1 1 Fairfield County, CT(4).................................... 112 2 2 2 4 Portsmouth-Dover-Rochester, NH............................. 117 4 3 1 1 Huntington, WV-Ashland, KY(5).............................. 139 5 5 1 1 Manchester, NH............................................. 193 1 1 2 2 Wheeling, WV(5)............................................ 216 5 2 1 1 Winchester, VA............................................. 219 2 1 1 1 Burlington, VT............................................. 221 1 -- 2 4t Lynchburg, VA.............................................. NA 3 1 1 1 --- -- Subtotal............................................. 33 22 SOUTHEAST REGION (SOUTHERN STAR) Birmingham, AL............................................. 55 2 1 3 3 Columbia, SC............................................... 90 4 2 1 1 Melbourne-Titusville-Cocoa, FL............................. 96 3 2 1 1 Huntsville, AL............................................. 113 4 2 1 1 Ft. Pierce-Stuart-Vero Beach, FL(5)........................ 119 5 1 1 1 Montgomery, AL............................................. 143 3 -- 2 1 Savannah, GA............................................... 154 4 2 1 1 Asheville, NC.............................................. 176 1 1 1 1 Tuscaloosa, AL(5).......................................... 215 3 1 1 1 Jackson, TN................................................ 260 2 1 1 1 Statesville, NC............................................ NA 1 1 NA NA Gadsden, AL................................................ NA 1 1 NA NA --- -- Subtotal............................................. 33 15 SOUTHWEST REGION (GULFSTAR) Austin, TX(5).............................................. 50 2 1 1 1 Baton Rouge, LA............................................ 81 3 3 1 1 Pensacola, FL.............................................. 123 4 -- 1 1 Corpus Christi, TX......................................... 127 4 2 1 1 Beaumont, TX............................................... 128 3 1 1 1 Shreveport, LA............................................. 129 2 1 2 2 Tyler-Longview, TX(5)...................................... 141 4 1 1 1 Killeen, TX(5)............................................. 151 2 -- 1 1 Fayetteville, AR........................................... 156 4 -- 1 1 Ft. Smith, AR.............................................. 169 2 1 1 1 Lubbock, TX................................................ 173 4 2 1 1 Midland, TX(5)............................................. 174 3 -- 2 2 Amarillo, TX(5)............................................ 188 3 1 2 2 Waco, TX................................................... 192 4 2 1 1 Alexandria, LA(5).......................................... 200 3 1 1 1
2 5
NUMBER OF STATIONS COMPANY COMPANY MSA --------- REVENUE SHARE AUDIENCE SHARE MARKET(1) RANK(2) FM AM RANK(2) RANK(3) --------- ------- --- --- ------------- -------------- Texarkana, TX(5)........................................... 241 4 2 1 1 Lawton, OK................................................. 249 2 -- 1 1 Lufkin, TX(5).............................................. NA 3 1 NA 1 Victoria, TX............................................... NA 2 -- NA 1 --- -- Subtotal............................................. 58 19 MIDWEST REGION (CENTRAL STAR) Grand Rapids, MI........................................... 65 3 1 2 2 Des Moines, IA............................................. 88 2 1 3 3t Madison, WI................................................ 120 4 2 1 1 Springfield, IL............................................ 190 2 1 3 3 Cedar Rapids, IA........................................... 199 2 -- 2 2 Battle Creek-Kalamazoo, MI................................. 232 2 2 1 1 --- -- Subtotal............................................. 15 7 WEST REGION (PACIFIC STAR) Honolulu, HI............................................... 59 4 3 1 1 Fresno, CA(5).............................................. 64 6 3 2 2 Modesto-Stockton, CA(5).................................... 121 3 2 2 2 Anchorage, AK.............................................. 170 4 2 2 1 Fairbanks, AK(4)........................................... NA 3 1 NA 1 Farmington, NM............................................. NA 3 1 NA NA Yuma, AZ................................................... NA 2 1 NA 1 --- -- Subtotal............................................. 25 13 Total(6)............................................. 164 76 === ==
- --------------- NA Information not available. t Tied with another radio station group. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) Metropolitan Statistical Area ("MSA") rank and Company revenue share rank obtained from BIA Research-Master Access, Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenue figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending either Spring or Fall 1997 for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market which was obtained from AccuRatings. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signals originate outside the MSA. (4) Fairfield County, Connecticut is a custom survey area ("CSA") as defined by Arbitron. The CSA includes the Arbitron markets of Bridgeport, Stamford-Norwalk and Danbury, Connecticut with market rankings of 112, 134 and 191, respectively. MSA rank is listed for the Bridgeport market only. The combined rank for the CSA has not been estimated. Fairbanks, Alaska is a CSA as defined by Arbitron, for which audience share rank was obtained from Arbitron's Fall 1997 CSA Market Report. (5) The Company provides certain sales and marketing services to stations WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, WEEL-FM in Wheeling, West Virginia, and KLFX-FM in Killeen, TX pursuant to JSAs (as defined). The Company provides certain sales, programming and marketing services to stations WHRD-AM in Huntington, West Virginia and KTFS-AM and KTWN-FM in Texarkana, Texas; and pending consummation of the respective acquisitions to stations KZBQ-FM in Tuscaloosa, Alabama; KKTX-AM and KKTX-FM in Tyler-Longview, Texas, KASE-FM, KVET-FM and KVET-AM in Austin, Texas; KCDQ-FM, KCHX-FM and KMRK-FM in Midland, Texas; KMML-FM, KBUY-FM, KNSY-FM and KIXZ-AM in Amarillo, Texas; and KRRV-FM, KKST-FM, KZMZ-FM and KDBS-AM in Alexandria, Louisiana; KTBQ-FM and KSFA-AM in Lufkin, Texas; KEZL-FM, KFSO-FM, KTHT-FM, KFSO-AM in Fresno, California; and KOSO-FM in Modesto-Stockton, California pursuant to LMAs (as defined). The chart includes these stations. (6) The table does not include the stations that the Company has under contract to acquire in regard to the Big Chief Acquisition, the KRNA Acquisition, and the Gibbons Acquisition (each as defined in "-- Glossary of Certain Terms"), which may not be completed due to regulatory reasons. See "-- The Transactions" and "-- Federal Regulation of Radio Broadcasting -- Federal Antitrust Laws." 3 6 OPERATING STRATEGY The Company's primary goals are to (i) achieve revenue growth rates at its stations that are significantly in excess of historical growth rates achieved in comparable markets and (ii) to increase its operating margins at these stations at growth rates which exceed the average in operating margins growth rates being achieved in large markets. The Company intends to achieve these goals through the implementation of the following strategies: Enhance Revenue Growth through Multiple Station Ownership. The ownership of multiple stations in a market allows the Company to coordinate its programming to appeal to a broad spectrum of listeners. Once a station cluster has been created, the Company can provide one-stop shopping to advertisers attempting to reach a wide range of demographic groups in the Company's markets. Management believes that simplifying the buying of advertising time for customers encourages increased advertiser usage, thereby enhancing the Company's revenue generating potential. The Company also believes this simplification of the buying process is particularly effective outside the largest markets because advertisers in smaller markets typically perform more functions in the buying process for themselves (as opposed to outsourcing these functions to advertising firms or other vendors). By offering broad demographic coverage, the Company can also compete more effectively against alternative media, such as newspaper and television, thus potentially increasing radio's share of the total advertising dollars spent in a given market. The Company believes that multiple station ownership will allow it to be more effective in pursuing national, network and regional advertisers, a source of revenues which was previously limited in mid-sized markets. For example, the Company believes that its participation in the AMFM Radio Network, a national radio network owned by Chancellor Media Corporation ("Chancellor Media"), illustrates the Company's ability to attract new sources of network revenues to its stations as a result of its large audience reach. Utilize Sophisticated Revenue Generating Techniques. Following the acquisition of a station or station group, the Company implements sophisticated techniques such as advertising inventory management systems and centralized sales training programs to allow such stations to serve their advertising clients better and to compete more effectively with other media. It also utilizes in-depth music research studies to improve the quality of the programming and its responsiveness to the local market. Management believes that many single station or single market operators cannot justify the costs associated with utilizing these management techniques. Use Innovative Computer Technology to Enhance Programming. The Company is an industry leader in using computer network technology to deliver high quality programming. The Company's StarSystem, a Company-owned programming distribution network, is designed to broadcast quality programming from centralized locations to selected stations throughout its markets. With this system, a single radio personality is able to introduce programming in multiple markets by digitally transferring individual introductions for each local market and inserting them into the playlist via the Company's wide area computer network. StarSystem therefore enables the Company to make high quality on-air talent available on a cost-effective basis in markets that previously could not afford that level of programming while still maintaining a station's local identity. Management believes that in addition to the cost reductions associated with this system, StarSystem provides the Company with a competitive advantage by allowing management to implement format changes quickly, and integrate newly acquired stations and clusters more efficiently. To date, the Company has installed and is utilizing StarSystem at 16 stations at a one time cost of approximately $43,000 per station, which has resulted in average cost reductions of approximately $44,000 at each such station on an annualized basis. The Company intends to expand its StarSystem to an additional 133 stations by December 31, 1998. The Company plans to develop additional regionalized programming centers to continue its expansion of StarSystem during 1999. Create Low Cost Operating Structure. Management believes that it can create a low cost operating structure in mid-sized markets for several reasons. First, because stations in mid-sized markets typically have less direct format competition, the Company is less reliant on expensive on-air celebrities and costly advertising and promotional campaigns to capture listeners. Second, the ownership of multiple stations within a market allows the Company to achieve substantial cost savings through the consolidation of facilities, 4 7 management, sales and administrative personnel and operating resources (such as on-air talent, programming and music research) and through the elimination of redundant corporate expenses. Furthermore, the Company, as a result of its large station portfolio, combined with the consolidated purchasing power of other companies affiliated with Hicks Muse, has realized volume discounts in such areas as national representation commissions, employee benefits, casualty insurance premiums and other operating expenses. Capitalize on Extensive Regional Management Experience. Each of the Company's regional presidents and chief executive officers has extensive industry experience, having served as a senior executive and/or owner of, or consultant to, one or more substantial station groups in mid-sized to large markets. The Company has capitalized on this experience by designing a regional organizational structure to manage its station portfolio effectively and to accommodate future in-market or station group acquisitions. Each regional operating executive reports directly to the Company's Chief Operating Officer. The Company believes that each of its regional executives possesses considerable knowledge of its region's other radio broadcasters and is therefore well situated to identify strategic acquisition candidates. ACQUISITION STRATEGY The Company is the leading consolidator of radio stations in mid-sized markets throughout the United States. Management has achieved this position using an acquisition strategy that it believes allows the Company to develop radio station clusters at reasonable prices. First, the Company seeks to enter attractive new mid-sized markets by acquiring a leading station (or a group that owns a leading station). The Company then uses the initial acquisition as a platform to acquire additional stations. Management believes by leveraging its existing infrastructure, knowledge of and relationships with advertisers and substantial experience, it can improve the operating performance and financial results of acquired stations. From time to time, management also evaluates other acquisition opportunities in advertising related businesses that it believes would complement the Company's radio broadcasting business. From time to time, the Company may acquire station groups or companies with one or more stations in large markets. Although the Company's primary acquisition strategy is to acquire and operate stations in mid-sized markets, the Company may in the future retain and operate such large market stations. 5 8 THE TRANSACTIONS Completed Transactions Since its formation in 1996, the Company has acquired 231 stations in 27 separate transactions with purchase prices ranging from $200,000 to $225.0 million, and for strategic or regulatory reasons has sold 14 stations in seven separate transactions with sale prices ranging from $100,000 to $40.0 million. The following table summarizes the Completed Transactions that have been consummated by the Company.
STATIONS ACQUIRED/ DISPOSED OF DATE ------------ TRANSACTION(1) CLOSED FM AM REGION -------------- ------ --- --- ------ Acquisitions Commodore.................................. October 1996 18 12 NE/SE Osborn..................................... February 1997 12 6 NE/SE Space Coast................................ April 1997 3 2 Southeast Osborn Tuscaloosa.......................... April 1997 1 1 Southeast Osborn Huntsville.......................... May 1997 1 2 Southeast GulfStar................................... July 1997 34 12 SW/W Community Pacific.......................... July 1997 6 5 MW/W Cavalier................................... July 1997 4 1 Northeast McForhun................................... August 1997 1 -- Southwest Livingston................................. August 1997 -- 1 Southwest Benchmark.................................. August 1997 20 10 NE/SE/SW Emerald City............................... August 1997 1 -- Southeast Madison.................................... August 1997 4 2 Midwest WRIS....................................... September 1997 1 -- Northeast Booneville................................. September 1997 1 -- Southwest American General........................... October 1997 1 -- Southwest Ameron..................................... October 1997 2 1 Southeast Griffith................................... October 1997 3 -- Southeast KJEM....................................... October 1997 1 -- Southwest KLAW....................................... October 1997 2 -- Southwest COMCO...................................... November 1997 4 2 West Knight..................................... January 1998 5 3 Northeast Quass...................................... January 1998 2 -- Midwest East Penn.................................. January 1998 -- 1 Northeast Patterson.................................. January 1988 25 14 NE/SE/SW/MW/W Commonwealth............................... February 1998 2 1 West Reynolds................................... February 1998 1 -- Southeast --- -- Total.............................. 155 76 === == Dispositions Osborn Ft. Myers........................... April 1997 2 1 Southeast Wilmington................................. September 1997 1 -- Northeast KASH....................................... November 1997 -- 1 West Bryan...................................... September 1997 1 1 Southwest Allentown.................................. January 1998 1 1 Northeast Jackson.................................... February 1998 2 2 Southeast Dayton..................................... February 1998 1 -- Northeast --- -- Total.............................. 8 6 === ==
- --------------- (1) As defined in "-- Glossary of Certain Terms." Does not include (i) 30 stations for which the Company currently provides services pursuant to LMAs and JSAs and (ii) one station for which a third party provides services pursuant to an LMA. Pending Transactions The Company has entered into 12 agreements to acquire 33 additional stations (24 FM and nine AM) in 14 mid-sized markets (including 24 stations in nine mid-sized markets for which the Company currently provides services pursuant to an LMA) for $157.4 million (the "Pending Acquisitions"), and five agreements to dispose of 16 stations (11 FM and five AM) for $96.9 million (the "Pending Dispositions" and, together with the Pending Acquisitions, the "Pending Transactions"). Upon completion of the Pending Transactions, the Company will own and operate or program 240 radio stations in 57 mid-sized markets located throughout 6 9 the United States. The Company must obtain additional financing to consummate the Pending Transactions and there can be no assurance that such financing will be available to the Company on terms acceptable to its management. Consummation of each of the Pending Transactions is subject to numerous conditions, including governmental approvals. Accordingly, the actual date of consummation of each of the Pending Transactions may vary from the anticipated closing dates. No assurances can be given that any or all of the Pending Transactions will be consummated or that, if completed, they will be successful. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The following table summarizes the Pending Transactions.
STATIONS TO BE ACQUIRED/ DISPOSED OF ESTIMATED -------------- EXPECTED PURCHASE TRANSACTION(1) FM AM REGION CLOSING DATE PRICE -------------- ---- ---- ------ ------------- --------------- ($ IN MILLIONS) Acquisitions Grant.......................................... 1 -- Southeast April 1998 $ 3.2 KOSO........................................... 1 -- West April 1998 8.0 Class Act...................................... 1 1 Southwest April 1998 0.9 Fairbanks...................................... 1 -- West April 1998 0.2 KDOS........................................... 1 1 Southwest April 1998 3.4 Americom(2).................................... 3 1 West May 1998 21.0 Austin(3)...................................... 2 1 Southwest May 1998 90.3 Shreveport-KMJJ................................ 1 -- Southwest June 1998 5.5 Pensacola-WYCL................................. 1 -- Southeast June 1998 6.2 Portsmouth..................................... 2 2 Northeast July 1998 6.0 Champion....................................... 9 2 Southwest January 1999 11.3 Noalmark(4).................................... 1 1 Southwest March 2000 1.4 -- -- ------ Total.................................. 24 9 $157.4 == == ====== Dispositions Westchester.................................... 2 1 Northeast April 1998 35.0 Americom(2).................................... 2 1 West May 1998 4.5 Salisbury-Ocean City........................... 2 -- Northeast May 1998 7.5 Greenville(5).................................. 3 1 Southeast May 1998 35.0 Upper Fairfield(5)............................. 2 2 Northeast May 1998 14.9 -- -- ------ Total.................................. 11 5 $ 96.9 == == ======
- --------------- (1) As hereinafter defined and/or in "-- Glossary of Certain Terms." The table also does not include (i) the Big Chief Acquisition, the KRNA Acquisition, the KATQ Acquisition or the Gibbons Acquisition (each as defined in "-- Glossary of Certain Terms"), each of which the Company does not anticipate will close due to regulatory reasons, (ii) the SFX Jackson-Biloxi Acquisition, which the Company expects will be terminated upon the consummation of the SFX Acquisition (as defined) and (iii) the McCarthy Acquisition (as defined), which is in litigation and is not expected to be consummated. See "-- Federal Regulation of Radio Broadcasting -- Federal Antitrust Laws." (2) The Company will purchase three radio stations (two FM and one AM) from Americom for cash and, concurrently therewith, exchange three of the Company's radio stations (two FM and one AM) for another FM radio station of Americom. (3) See " -- The SFX Transactions -- SFX Related Transactions." (4) The Company has an option to acquire two stations in the Longview, Texas market from Noalmark Broadcasting Corp. on or before March 6, 2000. The Company currently provides services for such stations pursuant to an LMA and expects to exercise the option on or before March 6, 2000. (5) The sale of such stations on or before the consummation of the SFX Acquisition is required to avoid violation of the multiple station ownership limitations under the Communications Act (as defined). If such dispositions cannot be consummated on or before the consummation of the SFX Acquisition, then, subject to the approval of the Federal Communications Commission (the "FCC"), the Company intends to place the assets of such stations (including FCC licenses) in trust pending the disposition of thereof by the trustee. Upon the consummation of the sale of any assets that may be placed in trust, the trustee would distribute the net proceeds therefrom to the Company. The Company cannot predict whether or when such assets, if placed in trust, will be sold, or if sold, whether they will be sold at a profit to the Company. 7 10 THE SFX TRANSACTIONS SFX Acquisition Pursuant to a merger agreement dated as of August 24, 1997, as amended (the "Merger Agreement"), a subsidiary of SBI Holding Corporation ("SBI") will be merged, subject to certain conditions, with and into SFX Broadcasting, Inc. ("SFX"), with SFX continuing as the surviving corporation and an indirect wholly-owned subsidiary of Capstar Broadcasting and, perhaps, the Company (the "SFX Acquisition"). The total cash cost of the merger and related repayment of existing indebtedness under the existing credit facility of SFX (the "SFX Credit Facility") is expected to be approximately $1.5 billion if completed by June 1998 and assuming that either a Spin-Off (as defined below) or an Alternative Transaction (as defined below) is consummated on or before the effective time of the SFX Acquisition. The Company expects that Hicks, Muse, Tate & Furst Equity Fund III, L.P., the sole stockholder of SBI, will contribute SBI to Capstar Broadcasting prior to the SFX Acquisition. Capstar Broadcasting has announced that it has filed with the Securities and Exchange Commission a registration statement for a proposed initial public offering of shares of Capstar Broadcasting's Class A common stock, the proceeds of which would be used to partially finance the SFX Acquisition. There are no assurances that Capstar Broadcasting's proposed offering will be completed. If completed, however, the Company expects that the Company will also partially finance the SFX Acquisition with borrowings under the credit facility of Capstar Radio (the "Capstar Credit Facility"), and that SFX, once acquired, will be contributed through Capstar Partners to Capstar Radio. If the proposed public offering is not completed, the Company does not expect SFX to become a subsidiary of Capstar Radio, although the Company does expect that it will partially finance the SFX Acquisition through a combination of borrowings under the Capstar Credit Facility and asset sales to SFX. Except as described in "-- The Transactions -- Pending Transactions," the Company has not specifically identified radio stations that may be sold in connection with the consummation of the SFX Acquisition. No assurances can be given that the SFX Acquisition will be consummated or, if consummated, that the Company will acquire a portion or all of SFX's capital stock or, if acquired, that such investment will be successful. R. Steven Hicks, the Company's Chief Executive Officer, co-founded SFX and served as its chief executive officer for three years before resigning in 1996 to form the Company with Hicks Muse. Pursuant to the Merger Agreement, SFX has contributed all of the capital stock of SFX Concerts, Inc. (formerly known as Delsener/Slater Enterprises, Inc.) to SFX Entertainment, Inc., a wholly-owned subsidiary of SFX which holds all of SFX's live entertainment business ("SFX Entertainment"). The Merger Agreement requires SFX, prior to the consummation of the merger, to either distribute all of the capital stock owned by SFX in SFX Entertainment to certain of SFX's stockholders and other securityholders (the "Spin-Off") or otherwise dispose of SFX Entertainment if the Spin-Off would violate applicable law or any material agreement to which SFX or any of its subsidiaries is a party (an "Alternate Transaction"). If SFX does not dispose of SFX Entertainment, whether through a Spin-Off or Alternative Transaction, then SBI may elect whether to consummate the SFX Acquisition (by increasing the merger consideration by an additional $42 million) and thereby acquiring SFX Entertainment and its subsidiaries or terminating the Merger Agreement. The Company expects that the Spin-Off or an Alternative Transaction will occur on or before the effective time of the SFX Acquisition. The SFX Acquisition is subject to a number of conditions which are beyond Capstar Broadcasting's and the Company's control. The following is a summary of certain of the material provisions of the Merger Agreement and does not purport to be a complete description of the Merger Agreement. Merger Consideration. Pursuant to the Merger Agreement, the issued and outstanding shares (other than shares held by persons who exercise statutory dissenters' appraisal rights) of SFX's Class A common stock, Class B common stock, Series C preferred stock, and Series D preferred stock will be converted into the right to receive cash in an amount equal to approximately $1.2 billion in the aggregate at the effective time of the merger (the "Effective Time"), subject to adjustment as described hereinafter and assuming that a Spin-Off or Alternative Disposition will not occur. Each issued and outstanding share of 12 5/8% Series E Cumulative Preferred Stock, par value $0.01 per share ("12 5/8% SFX Preferred Stock"), of SFX will remain outstanding after the Effective Time. After the consummation of the SFX Acquisition $122.3 million in aggregate 8 11 liquidation preference of the 12 5/8% SFX Preferred Stock may be redeemed for an aggregate purchase price of $137.8 million, including $15.5 million in redemption premium. Each option or warrant to purchase shares of SFX capital stock will, at the Effective Time, represent only the right to receive cash from SFX (net of any applicable exercise price). Closing Extension and Adjustment to Merger Consideration. The "Termination Date" of the Merger Agreement is June 1, 1998, subject to extension by SBI for up to three months, in one-calendar-month intervals; however, if SBI extends the closing date beyond June 1, 1998, subject to certain exceptions, the merger consideration payable to holders of SFX's Class A common stock ("Class A Merger Consideration") and holders of Class B common stock ("Class B Merger Consideration") will increase by $1.00 per share for each calendar month of extension. Under certain circumstances, if any judicial order delaying the merger is lifted, and if SBI fails to consummate the merger within 10 days thereafter, then the Class A Merger Consideration and Class B Merger Consideration will be increased by $2.00 per share for each calendar month (or partial calendar month) between the Termination Date and the Effective Time. Covenants. SFX has agreed that, until the Effective Time, it will, and will cause its subsidiaries to, carry on their businesses in the ordinary and usual course, and (except as contemplated by the Merger Agreement) it will not, and will not permit its subsidiaries to, without the consent of SBI, among other things, (a) declare or pay dividends or other distributions or sell or acquire any shares of its capital stock, (b) amend the certificate of incorporation or by-laws of SFX, (c) acquire or sell any assets, (d) incur indebtedness or make loans, (e) modify or terminate any material contract, (f) fail to act in the ordinary course of business consistent with past practices to (i) preserve substantially intact SFX's and each of its subsidiary's present business organization, (ii) keep available the services of certain employees or (iii) preserve its relationships with customers, suppliers and others, (g) fail to use commercially reasonable efforts to maintain SFX's assets, (h) merge or consolidate with any other entity or dissolve or liquidate any material subsidiary, (i) materially increase the compensation or benefits of any director, officer or employee, (j) pay, discharge or satisfy certain material claims or liabilities, (k) enter into a local marketing agreement, joint sales agreement or similar agreement with any entity other than SBI, (l) engage in any transaction with any of its affiliates, other than transactions that do not contain any ongoing obligations of SFX after the closing and would not reasonably be expected to have a material adverse effect on SFX or to materially delay or prevent the consummation of the transactions contemplated by the Merger Agreement or (m) authorize, commit or agree to take any of the foregoing transactions. None of the foregoing prohibitions prohibits the Spin-Off or an Alternate Transaction. SBI has agreed that, until the Effective Time, it will, and will cause its subsidiaries to, carry on their businesses in the ordinary and usual course, unless SFX otherwise agrees in writing or except as otherwise required by the Merger Agreement. Pursuant to the Merger Agreement, holders of options and stock appreciation rights ("SARs") issued by SFX will receive cash equal to the merger consideration paid to the SFX stockholders less the exercise price per option or base price per SARs. SFX is required to cause its outstanding indebtedness as of immediately prior to the Effective Time to consist only of borrowings under the SFX Credit Facility and SFX's 10 3/4% Senior Subordinated Notes due 2006 and 11 3/8% Senior Subordinated Notes due 2000. According to SFX, as of December 31, 1997, approximately $908,000 of indebtedness must be retired by SFX prior to the Effective Time. SFX and SBI are required to use all reasonable efforts to complete the merger, to file an application requesting the approval of the FCC (the "FCC Consent") for the transfer of control of SFX's radio stations resulting from the merger and to file all documents required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Without the prior written consent of SBI, SFX is prohibited, with certain exceptions, from taking any action that could impair or delay obtaining the FCC Consent or complying with or satisfying the terms thereof. The FCC application was filed on September 23, 1997, and has not been granted to date. The filing under the HSR Act was made on September 23, 1997, and the DOJ has requested additional information from SFX. See "Item 1. Business -- Federal Regulation of Radio Broadcasting -- Federal Antitrust Laws." 9 12 The Merger Agreement contains certain additional provisions requiring the surviving corporation to (a) provide certain employee benefits, (b) indemnify officers, directors and employees and (c) maintain directors' and officers' liability insurance. No Solicitation. Until the termination of the Merger Agreement, SFX, its subsidiaries and their representatives are prohibited from soliciting, initiating or encouraging the submission of certain takeover proposals (a "Takeover Proposal"), or discussing, negotiating, or furnishing information regarding any Takeover Proposal. However, prior to the receipt of stockholder approval of the Merger Agreement and the merger, SFX and its representatives may under certain circumstances, in order to comply with the fiduciary duties of SFX's Board of Directors, furnish information and conduct negotiations regarding any unsolicited Takeover Proposal meeting certain criteria. The Merger Agreement requires SFX to keep SBI fully informed of the status and details of any Takeover Proposal. In addition, neither SFX's Board of Directors nor the SFX's independent committee of directors may (a) withdraw or modify, in a manner adverse to SBI, their approval of the merger or (b) approve or recommend any Takeover Proposal. However, this prohibition does not apply to certain Takeover Proposals which are on more favorable terms to SFX's stockholders than the merger, if SFX terminates the Merger Agreement. Conditions. The obligations of each party to consummate the merger are subject to the satisfaction or waiver of the following conditions: (a) the FCC Consent must be granted, (b) the waiting period under the HSR Act must expire or terminate and (c) there must be no injunction or other legal restraint on the merger. On March 26, 1998, a meeting of SFX's stockholders was held at which the stockholders of SFX approved the Merger Agreement, the merger and certain amendments to SFX's certificate of incorporation. The obligations of SBI and its merger subsidiary ("SBI Merger Sub") to consummate the merger are subject to the satisfaction or waiver of the following additional conditions: (a) the accuracy of SFX's representations and warranties in the Merger Agreement, (b) SFX's performance of its obligations pursuant to the Merger Agreement, (c) the finality of the FCC Consent, (d) obtaining releases of options and SARs from SFX's executive officers and directors and assumptions by SFX Entertainment of their employment agreements, (e) consummation of the Spin-Off or an Alternate Transaction and (f) obtaining material third party consents to the merger. SBI's and SBI Merger Sub's obligations under the Merger Agreement are not subject to any conditions regarding their ability to obtain financing. The obligations of SFX to consummate the merger are subject to the satisfaction or waiver of the following additional conditions: (a) the accuracy of SBI's and SBI Merger Sub's representations and warranties in the Merger Agreement and (b) SBI's and SBI Merger Sub's performance of their obligations pursuant to the Merger Agreement. Termination; Fees and Expenses; Letter of Credit. The Merger Agreement may be terminated: (a) By the mutual written consent of SFX, SBI and SBI Merger Sub. (b) By either SFX or SBI if the merger is not consummated on or before the Termination Date as such may be extended. (c) By either SFX or SBI if the Merger is permanently prohibited or enjoined. If the prohibition or injunction arises from litigation involving SFX and its stockholders and the Merger Agreement is terminated as set forth in this paragraph, then SFX must pay SBI $10.0 million (and an additional $40.0 million if, within 1 year of the termination, either SFX enters into a Takeover Proposal or 50% of the capital stock of SFX is acquired in a tender offer) and must reimburse SBI for its reasonable out-of-pocket expenses (not to exceed $10.0 million). (d) By SBI if (i) SFX breaches any representation or warranty contained in the Merger Agreement, unless the breach has no material adverse effect on SFX, or (ii) SFX fails to perform its obligations under the Merger Agreement. However, SBI may not terminate if the breach or failure to perform is cured within 30 days after notice thereof. (e) By SFX if (i) SBI or its merger subsidiary breaches any representation or warranty contained in the Merger Agreement, unless the breach has no material adverse effect on SBI's ability to perform its obligations under the Merger Agreement, or (ii) SBI and SBI Merger Sub fail to perform their 10 13 obligations under the Merger Agreement. However, SFX may not terminate if the breach or failure to perform is cured within 30 days after notice. (f) By SFX if (i) SFX notifies SBI of a superior proposal (as defined in the Merger Agreement), and (ii) within five business days from receipt of the notice, SBI does not offer to revise the terms of the merger or the Board of Directors determines in good faith, after receiving advice from its financial adviser, that the superior proposal is superior to SBI's revised offer. If the Merger Agreement is terminated as set forth in this paragraph, SFX must pay SBI a termination fee of $50.0 million and must reimburse SBI for its reasonable out-of-pocket expenses (not to exceed $2.5 million). (g) By SBI if (i) a tender or exchange offer for 50% or more of the capital stock of SFX is commenced and SFX's Board of Directors fails to recommend that SFX's stockholders not tender their shares, or (ii) a Takeover Proposal is announced and the Board of Directors fails to reaffirm its recommendation of the merger. If the Merger Agreement is terminated as set forth in this paragraph, SFX must pay SBI a termination fee of $50.0 million and must reimburse SBI for its reasonable out-of-pocket expenses (not to exceed $2.5 million). Simultaneously with the execution of the Merger Agreement, SBI placed into escrow an irrevocable letter of credit for $100.0 million. The escrowed amount must be released to SFX if the Merger Agreement is terminated because: (a) the merger has not been consummated on or before the Termination Date, and, as of that date, the FCC Consent is not granted or the applicable waiting period under the HSR Act has not expired or been terminated, in each case other than primarily for certain reasons that are outside SBI's control; (b) the merger is permanently prohibited or enjoined (other in litigation involving SFX and its stockholders); or (c) SFX terminates the Merger Agreement as described in paragraph (e) above. The release of the letter of credit to SFX will be its sole remedy if the Merger Agreement is terminated as discussed above. If the Merger Agreement is terminated for reasons other than those for which the Merger Agreement provides liquidated damages, the non-breaching party will be entitled to recover its damages and expenses from the other party or parties. Sillerman Consulting and Non-Competition Agreement and Stockholder Agreement. Concurrently with the execution of the Merger Agreement, Robert F.X. Sillerman, SFX's Executive Chairman and a director of SFX, entered into a Consulting, Non-Compete and Termination Agreement with SBI and SFX, effective as of the Effective Time, pursuant to which Mr. Sillerman (i) tendered his resignation as an officer and director of SFX, (ii) agreed to release SFX from all claims he may then have against SFX, with certain specified exceptions, (iii) agreed to serve as an adviser and consultant for a period of two years, and (iv) agreed that, subject to certain exceptions and for a period of five years commencing at the Effective Time, he would not engage in, manage or operate any entity (or be connected as a stockholder, director, officer, employee or agent of any entity) that engages in the business of owning, operating or providing services to radio stations in certain markets. SFX agreed to pay Mr. Sillerman, at the Effective Time, $2.0 million for his agreement to provide consulting services to SFX and $23.0 million for his agreement not to compete with SFX. Provisions Regarding the Spin-Off. Before the Spin-Off, SFX and SFX Entertainment will enter into a Distribution Agreement (the "Distribution Agreement"), a Tax Sharing Agreement (the "Tax Sharing Agreement"), and an Employee Benefits Agreement (the "Employee Benefits Agreement"). The Distribution Agreement, which contains the terms and conditions pursuant to which SFX and SFX Entertainment propose to separate their businesses, will be entered into by SFX, SFX Entertainment, and SBI before the Spin-Off. The terms and conditions of the Distribution Agreement include the following: the manner of effecting the Spin-Off, the transfer of certain assets to and the assumption of liabilities by SFX Entertainment, the obligation of SFX's senior management and certain other SFX employees to continue to devote time to the operations of SFX if the Spin-Off occurs prior to the Effective Time, the manner of allocating working capital (in general, current assets minus current liabilities of SFX, subject to certain agreed on adjustments) between SFX and SFX Entertainment, and the assignment of the use of the name "SFX" and other specific intellectual property of SFX to SFX Entertainment no later than six months from the date of the consummation of the merger. The Company expects that SFX Entertainment will be obligated to pay SFX 11 14 approximately $3.0 million in settlement of the working capital allocation upon the consummation of the merger. Prior to the Spin-Off, SFX and SFX Entertainment will enter into the Tax Sharing Agreement. Under the Tax Sharing Agreement, SFX Entertainment will agree to pay to SFX its allocable share of the amount of the tax liability of SFX and SFX Entertainment combined, and each of SFX and SFX Entertainment will indemnify the other for any tax adjustment made in subsequent years that relates to taxes properly attributable to SFX Entertainment during the period prior to and including the Spin-Off. SFX Entertainment also will be responsible for any taxes of SFX resulting from the Spin-Off, including any income taxes that result from gain on the distribution that exceeds the net operating losses of SFX and SFX Entertainment available to offset gain resulting from the Spin-Off. The actual amount of the gain will be based on the excess of the value of the SFX Entertainment common stock distributed over the tax basis of such stock. The Company believes that the value of the SFX Entertainment common stock for tax purposes will be determined by no later than the first trading date following the date on which such common stock is distributed in the Spin-Off. Increases or decreases in the value of the SFX Entertainment common stock subsequent to such date will not effect the amount of the tax liability. If the SFX Entertainment common stock has a value of approximately $15 per share at the time of the Spin-Off, the Company believes that the indemnification payment that it would be entitled to receive from SFX Entertainment would not be material. The Company believes that such indemnification obligation would be approximately $4.0 million at $16 per share, and would increase by approximately $7.7 million for each $1.00 increase above $16 per share. The Company expects that any such indemnity payment will be due on or about June 15, 1998. Prior to the Spin-Off, SFX and SFX Entertainment will enter into an Employee Benefits Agreement in which each party agrees to take all actions necessary or appropriate so that, as of the Spin-Off, SFX Entertainment and its subsidiaries will no longer be participating employers and sponsors of the SFX's employee benefit plans. 12 15 SFX Related Transactions SFX has one acquisition pending to acquire three radio stations for $35.0 million and, concurrently with the consummation of the SFX Acquisition, will be required to dispose of nine radio stations for the Company and SFX to remain in compliance with the multiple station ownership limitations under the Communications Act of 1934, as amended (the "Communications Act"), and with the requirements of the U.S. Department of Justice (the "DOJ"). See "-- Federal Regulation of Radio Broadcasting." In addition, Capstar Broadcasting has entered into a long-term, approximately $637.5 million station exchange agreement (the "Chancellor Exchange Agreement") with Chancellor Media, pursuant to which, if the SFX Acquisition is consummated, among other things, (i) ten SFX stations in the Dallas, Houston, San Diego and Pittsburgh markets will be sold to Chancellor Media in exchange for radio stations identified by Capstar Broadcasting over a three-year period and (ii) an SFX station in the Houston market will be sold to Chancellor Media in exchange for two stations of Chancellor Media in the Jacksonville, Florida market, and $90.25 million in cash, which cash would be used to consummate the Austin Acquisition. As part of the Chancellor Exchange Agreement, Chancellor Media would provide services to the ten SFX stations under separate LMAs for approximately $49.4 million per year, with corresponding decreases in the amount of the LMA fees received by the Company (assuming that Capstar Broadcasting contributes SFX to the Company) as stations are exchanged. No assurance can be given that SFX, if acquired, will be contributed to the Company or, if contributed, that stations acquired in exchange for the ten SFX stations will, either initially when such stations are acquired or thereafter, generate cash flow comparable to the LMA fees. All of these transactions are referred to herein as the "SFX Related Transactions" and, together with the SFX Acquisition, are referred to herein as the "SFX Transactions." The following table summarizes the stations that would be owned by SFX upon the consummation of the SFX Transactions.
STATIONS REVENUE AUDIENCE MSA --------- SHARE SHARE MARKET(1) RANK(2) FM AM RANK(2) RANK(3) --------- ------- --- --- ------- -------- Milwaukee, WI............................................. 30 1 1 4 5 Providence, RI............................................ 31 2 1 2 2 Charlotte-Gastonia-Rock Hill, NC.......................... 36 3 -- 2 2 Indianapolis, IN.......................................... 37 2 1 2 3 Greensboro, NC............................................ 40 2 2 4 4 Hartford, CT.............................................. 42 4 1 2 2 Nashville, TN............................................. 44 4 1 1 1 Raleigh-Durham, NC........................................ 48 4 -- 1 1 Jacksonville, FL.......................................... 51 4 2 1 1 Richmond, VA.............................................. 56 4 -- 2 2 Albany-Schenectady-Troy, NY*.............................. 57 3 2 1 1 Greenville, SC............................................ 58 3 1 1 1 Tucson, AZ*............................................... 61 2 2 1 2 Springfield, MA........................................... 77 2 1 1 3 Wichita, KS............................................... 89 2 1 3 2 New Haven, CT............................................. 95 2 -- 1 1 Jackson, MS............................................... 118 3 1 1 2 Biloxi-Gulfport-Pascagoula, MS............................ 137 2 -- 1 1 --- -- Total............................................... 49 17 === ==
- --------------- (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank and Company revenue share rank obtained from BIA Research-Master Access, Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenue figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending either Spring or Fall 1997 for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signal originate outside the MSA. 13 16 Other Transactions As part of the Company's ongoing acquisition strategy, the Company is continually evaluating other potential acquisition opportunities. The Company has entered into three separate nonbinding letters of intent to acquire and/or exchange substantially all of the assets of the respective potential sellers used or useful in the operations of each seller's radio stations, each of which is subject to various conditions, including the ability of the Company to enter into a definitive agreement to acquire such assets. No assurances can be given that definitive agreements will be entered into to acquire such assets or that such transactions will be consummated. See "-- Risks Associated with Business Activities -- Risks of Acquisition Strategy." REGIONAL OPERATING GROUPS Regional Executives Each of the regional operating groups is operated by a regional president who has extensive industry experience, having served as a senior executive and/or owner of, or consultant to, one or more substantial station groups in mid-sized to large markets. Northeast Region. The Northeast Region is managed by its president and chief executive officer, James T. Shea, Jr. Mr. Shea has over 24 years of experience in the radio broadcasting industry. Mr. Shea's operating knowledge and strong advertising relationships helped Commodore Media, Inc. become a leading radio group in each of its markets prior to its acquisition by the Company in 1996. Southeast Region. The Southeast Region is managed by its president and chief executive officer, Rick Peters. Mr. Peters brings more than 25 years of broadcasting experience to the Company, including, most recently, serving as the President of Peters Communications, Inc., a programming consulting firm affiliated with radio stations in various mid-sized and large markets. Southwest Region. The Southwest Region is managed by its president and chief executive officer, John D. Cullen. Mr. Cullen has served as president and chief operating officer of GulfStar since 1996 and brings more than 16 years of radio experience to the Company. Prior to joining GulfStar, Mr. Cullen served as a regional manager for SFX. Midwest Region. The Midwest Region is managed by its president and chief executive officer, Mary K. Quass. Ms. Quass has more than 20 years experience in the radio broadcasting industry in numerous roles, including, most recently, serving as the president and chief executive officer of Quass Broadcasting Company until its acquisition by the Company in January 1998. West Region. The West Region is managed by its president and chief executive officer, Dex Allen, who has over 35 years of experience in the radio broadcasting industry. Mr. Allen served as the managing member of Commonwealth Broadcasting of Arizona, L.L.C. from 1984 until its acquisition by the Company in February 1998. In addition to a regional president, management for each region includes a human resources director, a controller, a director of programming, an engineer and one or more advertising sales people. 14 17 Regional Station Portfolios The following tables set forth certain information regarding to the Company's station portfolio in each of its five regions, assuming consummation of the Pending Transactions. NORTHEAST REGION (ATLANTIC STAR)
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ ALLENTOWN-BETHLEHEM, PA 65 1 1 WAEB-AM.................................. Commodore 35+ News/Talk/Sports WAEB-FM.................................. Commodore F18-49 Hot Adult Contemporary WZZO-FM.................................. Commodore M18-49 Album Rock WKAP-AM.................................. Commodore 35+ Nostalgia HARRISBURG-LEBANON-CARLISLE, PA 73 2 2 WTCY-AM.................................. Patterson 35-54 Urban Adult Contemporary WNNK-FM.................................. Patterson F25-44 Contemporary Hits WILMINGTON, DE 74 3 2 WJBR-AM.................................. Commodore F25-54 Nostalgia WDSD-FM.................................. Benchmark 25-54 Country WRDX-FM.................................. Benchmark 25-54 Album Rock WDOV-AM.................................. Benchmark 25-54 News/Talk ROANOKE, VA(4) 102 2 1 WROV-AM.................................. Benchmark 25-54 Album Rock WROV-FM.................................. Benchmark 18-49 Album Rock WRDJ-FM.................................. Cavalier 35-64 Oldies WJJS-FM.................................. Cavalier 18-34 Contemporary Hits WJLM-FM.................................. WRIS 25-54 Country WORCESTER, MA 107 1 1 WTAG-AM.................................. Knight Quality 35-64 News/Talk/Sports WSRS-FM.................................. Knight Quality F25-44 Lite Rock FAIRFIELD COUNTY, CT(4) 112 2 4 WNLK-AM.................................. Commodore 35+ News/Talk WEFX-FM.................................. Commodore F18-49 Classic Hits WSTC-AM.................................. Commodore 25-54 News/Talk WKHL-FM.................................. Commodore 25-54 Oldies PORTSMOUTH-DOVER-ROCHESTER, NH 117 1 1 WHEB-FM.................................. Knight Quality M25-44 Album Rock WXHT-FM.................................. Knight Quality F25-44 Adult Contemporary WTMN-AM.................................. Knight Quality M18-50 Sports/Talk WQSO-FM.................................. ARS 35-64 Oldies WERZ-FM.................................. ARS 18-34 Contemporary Hits WMYF-AM.................................. ARS 35+ Big Band WZNN-AM.................................. ARS 35+ Nostalgia HUNTINGTON, WV-ASHLAND, KY 139 1 1 WTCR-AM.................................. Commodore 25-54 Classic Country WTCR-FM.................................. Commodore 25-54 Country WIRO-AM.................................. Commodore M25-54 Sports WHRD-AM(5)............................... Commodore M25-54 Sports WZZW-AM.................................. Commodore M25-54 Sports WKEE-AM.................................. Commodore 35+ Big Band WKEE-FM.................................. Commodore 25-54 Adult Contemporary WAMX-FM.................................. Commodore M25-54 Rock WFXN-FM.................................. Commodore M25-54 Classic Rock WBVB-FM.................................. Commodore M18-49 Oldies MANCHESTER, NH 193 2 2 WGIR-AM.................................. Knight Quality 35+ News/Talk/Sports WGIR-FM.................................. Knight Quality M25-49 Album Rock
15 18
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ WHEELING, WV 216 1 1 WWVA-AM.................................. Osborn 25-54 Talk/Country WOVK-FM.................................. Osborn 25-54 Country WKWK-FM.................................. Osborn 25-54 Lite Rock WBBD-AM.................................. Osborn 25-54 Nostalgia WZNW-FM.................................. Osborn 25-54 Hot Adult Contemporary WEGW-FM.................................. Osborn 25-54 Rock WEEL-FM(5)............................... Osborn 25-54 Oldies WINCHESTER, VA 219 1 1 WUSQ-FM.................................. Benchmark 25-54 Country WFQX-FM.................................. Benchmark 18-49 Modern Rock WNTW-AM.................................. Benchmark 25-54 News/Sports/Talk BURLINGTON, VT 221 2 4t WEZF-FM.................................. Knight Quality F25-54 Adult Contemporary LYNCHBURG, VA(4) NA 1 1 WLDJ-FM.................................. Cavalier 35-64 Oldies WJJX-FM.................................. Cavalier 18-34 Contemporary Hits WJJS-AM.................................. Cavalier 25-54 Urban/Solid Gold WYYD-FM.................................. Benchmark 25-54 Country
- --------------- F Female M Male NA Information not available. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank and Company revenue share rank obtained from BIA Research-Master Access Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenue figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending Fall 1997, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signal originate outside the MSA. (4) Fairfield County is a CSA as defined by Arbitron. The CSA includes the Arbitron markets of Bridgeport, Stamford-Norwalk, and Danbury, Connecticut with market rankings of 112, 134, and 191, respectively. MSA Rank is listed for the Bridgeport market only. The combined rank for the CSA has not been estimated. Fairfield County, Connecticut audience share and revenues obtained from Arbitron's Custom Survey Area Report for the Fall 1997 period. Rankings for Roanoke, Virginia, and Lynchburg, Virginia markets were determined separately, using the City of License to determine the split of the market. (5) The Company provides certain sales and marketing services to station WEEL-FM in Wheeling, West Virginia pursuant to a JSA. The Company provides certain sales, programming and marketing services to station WHRD-AM in Huntington, West Virginia pursuant to an LMA. 16 19 SOUTHEAST REGION (SOUTHERN STAR)
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT --------------- ------- ------- ----------- ------- -------- ------ BIRMINGHAM, AL 55 3 3 WMJJ-FM.................................... Ameron F25-54 Adult Contemporary WERC-AM.................................... Ameron M35-54 News/Talk WOWC-FM.................................... Ameron 18-44 Country COLUMBIA, SC 90 1 1 WCOS-FM.................................... Benchmark 25-54 Country WHKZ-FM.................................... Benchmark 25-54 Country WVOC-AM.................................... Benchmark 35-64 News/Talk WSCQ-FM.................................... Benchmark 25-54 Adult Standards WCOS-AM.................................... Benchmark 25-54 Country WNOK-FM.................................... Emerald City 25-54 Contemporary Hits MELBOURNE-TITUSVILLE-COCOA, FL 96 1 1 WMMB-AM.................................... City 50+ Nostalgia WBVD-FM.................................... City 35-64 Classic Rock WMMV-AM.................................... EZY 35-64 Nostalgia WLRQ-FM.................................... EZY 25-54 Adult Contemporary WHKR-FM.................................... Roper 25-54 Country HUNTSVILLE, AL 113 1 1 WDRM-FM.................................... Dixie 25-54 Country WHOS-AM.................................... Dixie 25-54 News WBHP-AM.................................... Dixie 25-54 CNN News WTAK-FM.................................... Griffith M25-54 Classic Rock WXQW-FM.................................... Griffith 25-54 Oldies WWXQ-FM.................................... Griffith 25-54 Oldies FT. PIERCE-STUART-VERO BEACH, FL 119 1 1 WZZR-FM.................................... Commodore M18-49 Classic Rock WQOL-FM.................................... Commodore 25-54 Oldies WPAW-FM(4)................................. Commodore 25-54 Country WBBE-FM.................................... Commodore 25-54 Adult Contemporary WAVW-FM.................................... Commodore 25-54 Country WAXE-AM.................................... Commodore 35+ News/Talk/Financial MONTGOMERY, AL 143 2 1 WZHT-FM.................................... Benchmark 25-54 Urban WMCZ-FM.................................... Benchmark 25-54 Urban/Adult Contemporary WMHS-FM.................................... Benchmark 25-54 R&B/Gospel SAVANNAH, GA 154 1 1 WCHY-AM.................................... Patterson 35-54 Country WCHY-FM.................................... Patterson 25-54 Country WYKZ-FM.................................... Patterson 25-54 Soft Adult Contemporary WAEV-FM.................................... Patterson 18-49 Adult Contemporary WSOK-AM.................................... Patterson 25-54 Gospel WLVH-FM.................................... Patterson 25-54 Urban Adult Contemporary ASHEVILLE, NC 176 1 1 WWNC-AM.................................... Osborn 25-54 Country WKSF-FM.................................... Osborn 25-54 Country TUSCALOOSA, AL 215 1 1 WACT-AM.................................... Osborn 25-54 Gospel WRTR-FM.................................... Osborn 25-54 Classic Rock WTXT-FM.................................... Osborn 25-54 Country WZBQ-FM(5)................................. Grant 18-34 Contemporary Hits JACKSON, TN 260 1 1 WTJS-AM.................................... Osborn 25-54 News/Talk WTNV-FM.................................... Osborn 25-54 Country WYNU-FM.................................... Osborn 25-54 Classic Rock
17 20
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT --------------- ------- ------- ----------- ------- -------- ------ STATESVILLE, NC NA NA NA WFMX-FM.................................... Benchmark 25-54 Country WSIC-AM.................................... Benchmark 25-54 News/Talk GADSDEN, AL NA NA NA WAAX-AM.................................... Osborn 25-54 News/Talk WQEN-FM.................................... Osborn 25-54 Adult Contemporary
- --------------- F Female M Male NA Information not available. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank and Company revenue share rank obtained from BIA Research-Master Access, Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenue figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending Fall 1997, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signal originate outside the MSA. (4) The Company provides certain sales and marketing services to station WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, pursuant to a JSA. The Company provides certain sales, programming and marketing services to station WZBQ-FM in Tuscaloosa, Alabama pursuant to a LMA. SOUTHWEST REGION (GULFSTAR)
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ AUSTIN, TX 50 1 1 KASE-FM(4)............................. Butler 25-54 Country KVET-FM(4)............................. Butler 25-54 Country KVET-AM(4)............................. Butler 25-54 News/Talk/Sports BATON ROUGE, LA 81 1 1 WYNK-FM................................ GulfStar 25-54 Country WYNK-AM................................ GulfStar 12+ Disney WJBO-AM................................ GulfStar M35-64 News/Talk/Sports WLSS-FM................................ GulfStar F18-35 Contemporary Hits KRVE-FM................................ McForhun F25-54 Adult Contemporary WSKR-AM................................ Livingston 65+ Sports PENSACOLA, FL 123 1 1 WMEZ-FM................................ Patterson F25-54 Soft Adult Contemporary WXBM-FM................................ Patterson 25-54 Country WWSF-FM................................ Patterson 35-54 Oldies WYCL-FM................................ Paxon 35-54 Oldies CORPUS CHRISTI, TX 127 1 1 KRYS-FM................................ GulfStar 25-54 Country KRYS-AM................................ GulfStar 12+ Disney KMXR-FM................................ GulfStar F20-45 Hot Adult Contemporary KNCN-FM................................ GulfStar M18-44 Active Rock KUNO-AM................................ KDOS 25-54 Spanish KSAB-FM................................ KDOS 25-54 Tejano BEAUMONT, TX 128 1 1 KLVI-AM................................ GulfStar 30+ News/Talk KYKR-FM................................ GulfStar 25-54 Country KKMY-FM................................ GulfStar 30-54 Adult Contemporary KIOC-FM................................ GulfStar 18-34 Contemporary Hits
18 21
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ SHREVEPORT, LA 129 2 2 KRMD-FM................................ Benchmark 25-54 Country KRMD-AM................................ Benchmark 25-54 Sports KMJJ-FM................................ Sunburst 25-54 Urban TYLER-LONGVIEW, TX 141 1 1 KNUE-FM................................ GulfStar 25-54 Country KISX-FM................................ GulfStar 18-34 Adult Contemporary KTYL-FM................................ GulfStar F30-54 Adult Contemporary KKTX-AM(4)............................. Noalmark M30-49 Classic Rock KKTX-FM(4)............................. Noalmark M30-49 Classic Rock KILLEEN, TX 151 1 1 KIIZ-FM................................ GulfStar 25-54 Urban KLFX-FM(5)............................. GulfStar 18-34 Active Rock FAYETTEVILLE, AR 156 1 1 KEZA-FM................................ GulfStar 25-54 Soft Adult Contemporary KKIX-FM................................ GulfStar 25-54 Country KMXF-FM................................ GulfStar 25-54 Hot Adult Contemporary KJEM-FM................................ KJEM 35-64 Classic Rock FT. SMITH, AR 169 1 1 KWHN-AM................................ GulfStar 35-64 News/Talk KMAG-FM................................ GulfStar 25-59 Country KZBB-FM................................ Booneville 25-54 Contemporary Hits LUBBOCK, TX 173 1 1 KFMX-FM................................ GulfStar M18-34 Active Rock KKAM-AM................................ GulfStar 18+ Talk KZII-FM................................ GulfStar 12-34 Contemporary Hits KFYO-AM................................ GulfStar 35+ News/Talk/Sports KCRM-FM................................ GulfStar F18-49 Classic Rock KKCL-FM................................ American General 35-64 Oldies MIDLAND, TX 174 2 2 KCDQ-FM(4)............................. Champion 18-34 Classic Rock KCHX-FM(4)............................. Champion 18-34 Contemporary Hits Radio KMRK-FM(4)............................. Champion 25-54 Tejano AMARILLO, TX 188 2 2 KMML-FM(4)............................. Champion 25-54 Country KBUY-FM(4)............................. Champion 25-54 Country KNSY-FM(4)............................. Champion 18-34 Hot Adult Contemporary KIXZ-AM(4)............................. Champion 35-64 Nostalgia WACO, TX 192 1 1 KBRQ-FM................................ GulfStar M25-54 Classic Rock KKTK-AM................................ GulfStar M18-49 Sports WACO-FM................................ GulfStar 25-54 Country KCKR-FM................................ GulfStar 18-49 New Country KWTX-FM................................ GulfStar F25-54 Contemporary Hits KWTX-AM................................ GulfStar 25-54 News/Talk ALEXANDRIA, LA 200 1 1 KRRV-FM(4)............................. Champion 25-54 Country KKST-FM(4)............................. Champion 18-34 Adult Contemporary KZMZ-FM(4)............................. Champion 18-34 Classic Rock KDBS-AM(4)............................. Champion 25-54 News/Talk TEXARKANA, TX 241 1 1 KKYR-AM................................ GulfStar 25-54 Country KKYR-FM................................ GulfStar 25-54 Country KTHN-FM................................ GulfStar 18-49 Contemporary Hits KYGL-FM................................ GulfStar 35-49 Classic Rock KTFS-AM(4)............................. KATQ 25-54 Talk KTWN-FM(4)............................. KATQ 18-34 Hot-Adult Contemporary LAWTON, OK 249 1 1 KLAW-FM................................ KLAW 25-54 Country KZCD-FM................................ KLAW M25-54 Rock
19 22
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ LUFKIN, TX NA NA 1 KYKS-FM................................ GulfStar 12+ Country KAFX-FM................................ GulfStar 18-49 Contemporary Hits KTBQ-FM(5)............................. Class Act 18-34 Classic Rock KSFA-AM(5)............................. Class Act 25-54 News/Talk/Sports VICTORIA, TX NA NA 1 KIXS-FM................................ GulfStar 25-54 Country KLUB-FM................................ GulfStar 25-49 Classic Rock
- --------------- F Female M Male NA Information not available. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank and Company revenue share rank obtained from BIA Research-Master Access, Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenues figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending Fall 1997, except for Lufkin, Texas, and Victoria, Texas, which are reported as of Spring 1997 because the markets were not rated for the Fall 1997 period, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signal originate outside the MSA. (4) The Company provides certain sales, programming and marketing services to stations KTFS-AM and KTWN-FM in Texarkana, Texas and pending the consummation of the respective Pending Acquisitions, the Company provides certain sales, programming and marketing services pursuant to LMAs to stations KASE-FM, KVET-FM, and KVET-AM in Austin, Texas; KKTX-FM and KKTX-AM in Tyler-Longview, Texas; KTBQ-FM and KSFA-AM in Lufkin, Texas; KCDQ-FM, KCHX-FM and KMRK-FM in Midland, Texas; KMML-FM, KBUY-FM, KNSY-FM and KIXZ-AM in Amarillo, Texas; and KRRV-FM, KKST-FM, KZMZ-FM and KDBS-AM in Alexandria, Louisiana. (5) The Company provides certain sales and marketing services to station KLFX-FM in Killeen, Texas, pursuant to a JSA. MIDWEST REGION (CENTRAL STAR)
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ GRAND RAPIDS, MI 65 2 2 WGRD-FM............................... Patterson 18-34 Modern Rock WRCV-AM............................... Patterson 35+ Country WLHT-FM............................... Patterson 25-54 Adult Contemporary WQFN-FM............................... Patterson F25-54 Soft Adult Contemporary DES MOINES, IA 88 3 3t KHKI-FM............................... Community Pacific 25-54 Country KGGO-FM............................... Community Pacific 25-54 Album Rock KDMI-AM............................... Community Pacific NA Gospel/Talk MADISON, WI 120 1 1 WIBA-AM............................... Madison 35-64 News/Talk WIBA-FM............................... Madison 25-54 Classic Rock WMAD-FM............................... Madison 18-34 Modern Rock WTSO-AM............................... Madison 35-64 Nostalgia WZEE-FM............................... Madison 18-49 Contemporary Hits WMLI-FM............................... Madison F25-54 Soft Adult Contemporary SPRINGFIELD, IL 190 3 3 WFMB-AM............................... Patterson M35-64 News/Talk/Sports WFMB-FM............................... Patterson 25-54 Country WCVS-FM............................... Patterson 25-54 Classic Hits
20 23
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ CEDAR RAPIDS, IA 199 2 2 KHAK-FM............................... Quass 25-54 Country KDAT-FM............................... Quass 25-54 Soft Rock BATTLE CREEK/KALAMAZOO, MI 232 1 1 WBCK-AM............................... Patterson 35-64 News/Talk WBXX-FM............................... Patterson 25-54 Adult Contemporary WRCC-AM............................... Patterson 45+ Nostalgia WWKN-FM............................... Patterson 35-64 Oldies
- --------------- F Female M Male NA Information not available. t Tied with another company. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank and Company revenue share rank obtained from BIA Research-Master Access, Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenue figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending Fall 1997, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signal originate outside the MSA. WEST REGION (PACIFIC STAR)
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ HONOLULU, HI 59 1 1 KSSK-AM.............................. Patterson 25-54 Hot Adult Contemporary KSSK-FM.............................. Patterson 25-54 Hot Adult Contemporary KUCD-FM.............................. Patterson 35-54 Modern Adult Contemporary KHVH-AM.............................. Patterson 35-64 News/Talk KKLV-FM.............................. Patterson M35-54 Classic Rock KIKI-AM.............................. Patterson 18-34 Country KIKI-FM.............................. Patterson 18-34 Urban FRESNO, CA 64 2 2 KBOS-FM.............................. Patterson 18-34 Contemporary Hits KCBL-AM.............................. Patterson M18-49 Sports/Talk KRZR-FM.............................. Patterson M18-49 Album Rock KRDU-AM.............................. Patterson 35-64 Religion KSOF-FM.............................. Patterson 25-54 Soft Rock KEZL-FM(5)........................... Americom 35-54 Smooth Jazz KFSO-FM(5)........................... Americom 25-54 Oldies KTHT-FM(5)........................... Americom 25-54 Adult Contemporary KFSO-AM(5)........................... Americom NA Oldies MODESTO-STOCKTON, CA 121 2 2 KFRY-FM.............................. Community Pacific 18-49 Country KJAX-AM.............................. Community Pacific 35-64 News/Talk KJSN-FM.............................. Community Pacific 25-54 Adult Contemporary KFIV-AM.............................. Community Pacific 35-64 News/Talk KOSO-FM(5)........................... KOSO 25-54 Adult Contemporary
21 24
COMPANY COMPANY TARGET REVENUE AUDIENCE MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT ----------------------- ------- ------- ----------- ------- -------- ------ ANCHORAGE, AK 170 2 1 KBFX-FM.............................. Community Pacific 18-49 Classic Rock KASH-FM.............................. Community Pacific 25-54 Country KENI-AM.............................. Community Pacific 25-54 News/Talk KYAK-AM.............................. COMCO 25-54 Sports/Talk KGOT-FM.............................. COMCO 25-54 Contemporary Hits KYMG-FM.............................. COMCO 25-54 Adult Contemporary FAIRBANKS, AK(4) NA NA 1 KIAK-FM.............................. COMCO 25-54 Country KIAK-AM.............................. COMCO 25-54 News/Talk KAKQ-FM.............................. COMCO 25-54 Adult Contemporary KUAB-FM.............................. Univ. of Alaska 25-54 Classic Hits FARMINGTON, NM NA NA NA KKFG-FM.............................. GulfStar 25-54 Country KDAG-FM.............................. GulfStar M25-54 Classic Rock KCQL-AM.............................. GulfStar 35+ Oldies/Talk KTRA-FM.............................. GulfStar 18-49 Traditional Country YUMA, AZ NA NA 1 KYJT-FM.............................. Commonwealth 25-49 Classic Rock KTTI-FM.............................. Commonwealth 25-54 Country KBLU-AM.............................. Commonwealth 35-64 News/Talk/Sports
- --------------- F Female M Male NA Information not available. (1) Actual city of license may be different from metropolitan market served. Market may be different from market definition used under FCC multiple ownership rules. (2) MSA rank and Company revenue share obtained from BIA Research-Master Access, Version 2.0 Radio Analysis Database (current as of February 27, 1998). Revenue figures based upon 1997 gross revenue for the indicated markets. (3) Company audience share rank obtained from Arbitron's Radio Market Reports, based on average quarter hour estimates for the last available reporting period ending Fall 1997, for the demographic of persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market which was obtained from AccuRatings, Spring 1997. To account for listeners lost to other nearby markets, a radio station's "local" audience share is derived by comparing the radio station's average quarter hour share to the total average quarter hour share for all stations whose signals are heard within the MSA, excluding audience share for listeners who listen to stations whose signal originate outside the MSA. (4) Fairbanks, Alaska is a CSA as defined by Arbitron. Audience share and audience share rank obtained from Arbitron's Fall 1997 CSA Market Report. (5) Pending the consummation of the respective Pending Acquisitions, the Company provides certain sales, programming and marketing services pursuant to LMAs to stations KEZL-FM, KFSO-FM, KTHT-FM and KFSO-AM in Fresno, California and KOSO-FM in Modesto-Stockton, California. COMPETITION; CHANGES IN BROADCASTING INDUSTRY The radio broadcasting industry is highly competitive. 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 within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base consisting of a specific demographic group in each of its markets, the Company is able to attract advertisers seeking to reach those listeners. Factors that are material to a radio station's competitive position include management experience, the station's local audience rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations and other advertising media in the market area. The Company attempts to improve its competitive position with promotional campaigns aimed at the demographic groups 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 22 25 multiple local radio stations. Management believes that radio stations that elect to take advantage of joint arrangements such as LMAs or JSAs may in certain circumstances have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the Company currently operates several multiple station groups and intends to pursue the creation of additional multiple station groups, the Company's competitors in certain markets include operators of multiple stations or operators who already have entered into LMAs or JSAs. Barriers to entry into the radio broadcasting industry exist. 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 that regulate the number of stations that may be owned and controlled by a single entity. See "-- Federal Regulation of Radio Broadcasting." The Company's stations also compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media, newspapers, magazines, cable television, outdoor advertising and direct mail. 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 broadcast ("DAB"). DAB may deliver by satellite to nationwide and regional audiences, multi-channel, multi-format, digital radio services with sound quality equivalent to compact discs. The delivery of information through the presently unregulated Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. 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 has allocated spectrum for a new technology, digital audio radio services ("DARS"), to deliver audio programming. The FCC has adopted licensing and operating rules for DARS and in April 1997 awarded two licenses for this service. DARS may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and/or national audiences. Digital technology also may be used in the future by terrestrial radio broadcast stations either on existing or alternate broadcasting frequencies, and the FCC has stated that it will consider making changes to its rules to permit AM and FM radio stations to offer digital sound following industry analysis of technical standards. In addition, the FCC has authorized an additional 100 kHz of bandwidth for the AM band and has allotted frequencies in this new band to certain existing AM station licensees that applied for migration to the expanded AM band prior to the FCC's cut-off date, subject to the requirement that such licensees apply to the FCC to implement operations on their expanded band frequencies. At the end of a transition period, those licensees will be required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. 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 proposals or changes might have on its business. The Company employs a number of on-air personalities and generally enters into employment agreements with certain of these personalities to protect its interests in those relationships that it believes to be valuable. The loss of certain 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. 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. 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 23 26 that directly 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 ordinarily granted by the FCC for maximum terms of eight 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 renewal applications are 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 or material question of fact exists as to whether (i) the station has served the public interest, convenience and necessity, (ii) there have been serious violations by the licensee of the Communications Act or the FCC rules thereunder or (iii) there have been other violations by the licensee of the Communications Act or the FCC rules thereunder that, taken together, constitute a pattern of abuse. 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 nonrenewal of one or more of the Company's licenses could have a material adverse effect on the Company. 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 on an unlimited time basis and are designated to render primary and secondary service over an extended area; Class B stations, which operate on an unlimited time basis and are designed to render service only over a primary service area; and Class D stations, which operate either during daytime hours only, during limited times only or on an unlimited time basis with low nighttime power. A regional channel is one on which Class B and Class D AM stations may operate and serve primarily a principal center of population and the rural areas contiguous to it. A local channel is one on which AM stations operate on an unlimited time basis 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 FM 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, C3, B, C2, C1 and C. Ownership Matters. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee, including compliance with the various rules limiting common ownership of media 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 FCC equal employment opportunity requirements. A transfer of control of a corporation controlling a broadcast license may occur in various ways. For example, a transfer of control occurs if an individual stockholder gains or loses "affirmative" or "negative" control of such corporation through issuance, redemption or conversion of stock. "Affirmative" control would consist of control of more than 50% of such corporation's outstanding voting power and "negative" control would consist of control of exactly 50% of such voting power. To obtain the FCC's prior consent to assign or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a "substantial change" in ownership or control, the application must be placed on public notice for a period of approximately 30 days during which petitions to deny the application may be filed by interested 24 27 parties, including members of the public. If the application does not involve a "substantial change" in ownership or control, it is a "pro forma" application. The "pro forma" application is nevertheless subject to having informal objections filed against it. If the FCC grants an assignment or transfer application, interested parties have approximately 30 days from public notice of the grant to seek reconsideration of that grant. Generally, parties that do not file initial petitions to deny or informal objections against the application face a high hurdle in seeking reconsideration of the grant. The FCC normally has approximately an additional ten days to set aside such grant on its own motion. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer of the broadcast license to any party other than the assignee or transferee specified in the application. In response to the Telecom Act, the FCC amended its multiple ownership rules to eliminate the national limits on ownership of AM and FM stations. 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 five AM or five 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 can be 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 can be in a single radio service. Finally, in radio markets having 14 or fewer commercial radio stations, a licensee may own up to five radio stations, no more than three of which can be in the same service; provided that the licensee may not own more than one half of the radio stations in the market. FCC ownership rules continue to permit an entity to own one FM and one AM station in a local market regardless of market size. 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 daily newspaper or television broadcast station (other than low-power television) in any geographic market in which it now owns radio broadcast properties. On October 1, 1996, the FCC commenced a proceeding to explore possible revisions of its policies concerning waiver of the newspaper/radio cross-ownership restrictions. 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, or through subsidiaries controlling, broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's voting stock (or 10% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable. Thomas O. Hicks, a director of the Company, is the President, the sole director and the sole shareholder of HM2/Chancellor, which through its subsidiaries, including Chancellor Media, holds attributable interests in radio stations in various markets in the States of Arizona, California, Colorado, Florida, Georgia, Illinois, Massachusetts, Michigan, Minnesota, New York, Ohio, Pennsylvania, and Texas, as well as in Washington, D.C. Thomas O. Hicks is also the President, the sole director and the sole shareholder of HM3/Sunrise, which through its subsidiaries owns television stations in California, Michigan, New York and Ohio and is seeking to acquire an attributable interest in television stations in Vermont, Texas and Rhode Island. In addition, Thomas O. Hicks is the sole member of TOH/Ranger LLC, which controls LIN Holdings Corporation ("LHC"), which has recently acquired LIN Television Corporation ("LIN"), and is a director and Chairman of LHC and LIN. LIN and its subsidiaries own television stations in Connecticut, New York, Virginia, Indiana, Illinois, and Texas, and have agreements to acquire interests in television stations in Alabama, California and Michigan. Lawrence D. Stuart, Jr. and Eric C. Neuman, directors of the Company, also serve as directors of LHC and LIN. In determining whether the Company is in compliance with the local ownership limits on AM and FM stations, the FCC will consider the Company's AM and FM holdings as well as the attributable broadcast interests of the Company's officers, directors and attributable stockholders. Accordingly, the attributable broadcast interests of the Company's officers and directors described in the preceding paragraph will limit the 25 28 number of radio stations the Company may acquire or own in any market in which such officers or directors hold or acquire attributable broadcast interests. In addition, the Company's officers and directors may from time to time hold various nonattributable interests in media properties. The FCC "one-to-a-market" rule generally prohibits an entity from holding an attributable interest in both a television station and radio stations in the same market. The FCC has granted waivers of this rule in certain circumstances. Some such waivers (including one recently granted for the Company's stations in the Fairfield County, Connecticut market) have been conditioned on the outcome of a pending rulemaking proceeding in which the FCC is considering whether to modify the rule and/or the current waiver policy. Requests for similar "one-to-a-market" waivers in other markets are pending before the FCC in the application for approval of the Austin Acquisition. There can be no assurance that these waiver requests will be granted. Likewise, depending on the outcome of the pending FCC rulemaking, the Company may in the future have to divest stations for which "one-to-a-market" waivers were previously granted. Under its "cross-interest" policy, the FCC considers certain "meaningful" relationships among competing media outlets in the same market, even if the ownership rules do not specifically prohibit the relationship. Under the cross-interest policy, the FCC in certain instances may prohibit one party from acquiring an attributable interest in one media outlet and a substantial non-attributable economic interest in another media outlet in the same market. Under this policy, the FCC may consider significant equity interests combined with an attributable interest in a media outlet in the same market, joint ventures, and common key employees among competitors. The cross-interest policy does not necessarily prohibit all of these interests, but requires that the FCC consider whether, in a particular market, the "meaningful" relationships between competitors could have a significant adverse effect upon economic competition and program diversity. Heretofore, the FCC has not applied its cross-interest policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking proceeding concerning the attribution rules described below, the FCC has sought comment on, among other things, (i) whether the cross-interest policy should be applied only in smaller markets and (ii) whether non-equity financial relationships such as debt, when combined with multiple business interrelationships such as LMAs and JSAs, raise concerns under the cross-interest policy. The Communications Act prohibits the issuance of broadcast licenses to, or the holding of broadcast licenses by, any corporation of which more 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 Aliens. 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 has made such a finding only in limited circumstances generally involving licenses other than broadcast licenses. The FCC has issued interpretations of existing law (i) under which these restrictions in modified form apply to other forms of business organizations, including partnerships and (ii) indicating how alien interests in a company that are held directly through intermediate entities should be considered in determining whether that company is in compliance with these alien ownership restrictions. 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 were directly or indirectly owned or voted by Aliens. Capstar Broadcasting's Certificate of Incorporation restricts the ownership, voting and transfer of Capstar Broadcasting's capital stock in accordance with the Communications Act and the rules of the FCC, and prohibits ownership of more than 25% of Capstar Broadcasting'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. The Certificate of Incorporation of Capstar Broadcasting authorizes Capstar Broadcasting's Board of Directors to adopt such provisions as it deems necessary to enforce these prohibitions. In addition, the Certificate of Incorporation of Capstar Broadcasting provides that shares of capital stock of Capstar Broadcasting determined by Capstar Broadcasting's Board of Directors to be owned beneficially by an Alien or an entity directly or indirectly owned by 26 29 Aliens in whole or in part shall always be subject to redemption by Capstar Broadcasting by action of its Board of Directors to the extent necessary, in the judgment of the Board of Directors of Capstar Broadcasting, to comply with these alien ownership restrictions. Local Marketing Agreements. Over the past few 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 requirement that the licensee of each station maintain 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, whereby 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 commercial advertising announcements during the time periods in question. The FCC has specifically revised its "cross-interest" policy to make that policy inapplicable to time brokerage arrangements. Furthermore, 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 licensee or a radio station that brokers 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, in a market where it owns a radio station, the Company would not be permitted to enter into an LMA with another local radio station in the same market that it could not own under the revised local ownership rules, unless the Company's programming constituted 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. Such 25% simulcasting limitation also applies to commonly owned stations in the same broadcast service that serve substantially the same area. Joint Sales Agreements. Over the past few years, a number of radio stations have entered into cooperative arrangements commonly known as joint sales agreements or JSAs. While these agreements may take varying forms, under the typical JSA, a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station in the same market. The typical JSA also customarily involves the provision by the selling licensee of certain sales, accounting and "back office" services to the station whose advertising is being sold. The typical JSA is distinct from an LMA in that a JSA normally does not involve programming. The FCC has determined that issues of joint advertising sales should be left to enforcement by antitrust authorities, and therefore does not generally regulate joint sales practices between stations. Currently, stations for which a licensee sells time under a JSA are not deemed by the FCC to be attributable interests of that licensee. However, in connection with its ongoing rulemaking proceeding concerning the attribution rules, the FCC is considering whether JSAs should be considered attributable interests or within the scope of the FCC's cross-interest policy, particularly when JSAs contain provisions for the supply of programming services and/or other elements typically associated with LMAs. If JSAs become attributable interests as a result of changes in the FCC rules, the Company may be required to terminate any JSA it might have with a radio station which the Company could not own under the FCC's multiple ownership rules. 27 30 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 pay regulatory and application fees and 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 human exposure to 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) license renewal or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed and Recent Changes. The FCC has pending a rulemaking proceeding that seeks, among other things, comment on whether the FCC should modify 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 outstanding voting power, (ii) increasing from 10% to 20% of the licensee's outstanding voting power the attribution benchmark for "passive investors" in corporate licensees, (iii) attributing certain minority stockholdings in corporations with a single majority shareholder and (iv) attributing certain LMA, JSA, debt or non-voting stock interests that have heretofore been non-attributable. Moreover, Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, 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 to finance those acquisitions. Such matters may include spectrum use or other fees on FCC licenses; foreign ownership of broadcast licenses; revisions to the FCC's equal employment opportunity rules and rules 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 attribution policies; new technologies such as DAB; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder. The Company cannot predict what other matters might be considered in the future by the FCC or Congress, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. Federal Antitrust Laws. In addition to the risks associated with the acquisition of radio stations, the Company is also aware of the possibility that certain acquisitions it proposes to make may be investigated by the FTC or the DOJ, which are the agencies responsible for enforcing the federal antitrust laws. The agencies have recently investigated several radio station acquisitions where an operator proposed to acquire new stations in its existing markets, including the Patterson Acquisition. The DOJ's investigation with respect to the Patterson Acquisition was closed, however, when the DOJ granted early termination of the applicable waiting period under the HSR Act in January 1998 after the Company agreed to sell two stations in Allentown, Pennsylvania that were to be acquired in the Patterson Acquisition. The Company cannot predict the outcome of any specific DOJ or FTC investigation, which are necessarily fact specific. Any decision by the FTC or the DOJ to challenge a proposed acquisition could affect the ability of the Company to consummate the acquisition or to consummate it on the proposed terms. For an acquisition meeting certain size thresholds, the HSR Act and the rules promulgated thereunder require the parties to file Notification and Report Forms with the FTC and the DOJ and to observe specified 28 31 waiting period requirements before consummating the acquisition. During the initial 30-day period after the filing, the agencies decide which of them will investigate the transaction. If the investigating agency determines that the transaction does not raise significant antitrust issues, then it will either terminate the waiting period or allow it to expire after the initial 30 days. On the other hand, if the agency determines that the transaction requires a more detailed investigation, then at the conclusion of the initial 30-day period, it will issue a formal request for additional information ("Second Request"). The issuance of a Second Request extends the waiting period until the twentieth calendar day after the date of substantial compliance by all parties to the acquisition. Thereafter, such waiting period may only be extended by court order or with the consent of the parties. In practice, complying with a Second Request can take a significant amount of time. In addition, if the investigating agency raises substantive issues in connection with a proposed transaction, then the parties frequently engage in lengthy discussions or negotiations with the investigating agency concerning possible means of addressing those issues, including but not limited to persuading the agency that the proposed acquisition would not violate the antitrust laws, restructuring the proposed acquisition, divestiture of other assets of one or more parties, or abandonment of the transaction. Such discussions and negotiations can be time-consuming, and the parties may agree to delay consummation of the acquisition during their pendency. At any time before or after the consummation of a proposed acquisition, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition or seeking divestiture of the business acquired or other assets of the Company. Acquisitions that are not required to be reported under the HSR Act may be investigated by the FTC or the DOJ under the antitrust laws before or after consummation. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws. Except as described hereinafter, the Company does not believe that any Pending Transaction will be adversely affected in any material respect by review under the HSR Act. Although no filing under the HSR Act is required for each of the Big Chief, KRNA, KATQ and Gibbons Acquisitions, the DOJ is investigating the competitive effects of combining the stations with the Company's currently owned stations in each of the Fort Smith, Arkansas; Baton Rouge, Louisiana; Cedar Rapids, Iowa; Texarkana, Texas; and Roanoke, Virginia areas. See "The Transactions." The Company is currently subject to two consent decrees and a letter agreement with the DOJ with respect to certain markets. As a result of the GulfStar Acquisition, the Company is subject to a letter agreement in the northwest Arkansas area which requires the Company to notify the DOJ at least 30 days prior to the consummation of an acquisition in such area for a ten-year period beginning on March 4, 1997. SFX has entered into a consent decree (the "Long Island Consent Decree") with the DOJ and Chancellor Media with respect to the Long Island, New York market under which SFX agreed not to acquire WALK-FM. The Company will become subject to the Long Island Consent Decree as a result of the SFX Acquisition. Capstar Broadcasting and SFX executed a consent decree (the "SFX Consent Decree") with the DOJ, which required the Company to agree to divest the stations that are the subject of the Long Island, Houston-KKPN, Pittsburgh-WTAE, Greenville and Jackson-WJDX Dispositions before the DOJ would permit the consummation of the SFX Acquisition. The SFX Consent Decree also requires the Company to give the DOJ notice of any acquisition in the Long Island, New York; Houston, Texas; Pittsburgh, Pennsylvania; Greenville, South Carolina; and Jackson, Mississippi areas at least 30 days prior to the consummation thereof for a period of up to ten years unless the Company and Chancellor Media do not own stations in these areas at the time of the proposed acquisitions. As part of its increased scrutiny of radio station acquisitions, the DOJ has stated publicly that it believes that LMAs, JSAs and other similar agreements customarily entered into in connection with radio station transfers if such agreements take effect prior to the expiration of the waiting period under the HSR Act could violate the HSR Act. Furthermore, the DOJ has noted that JSAs may raise antitrust concerns under Section 1 of the Sherman Act and has challenged JSAs in certain locations. 29 32 EMPLOYEES At December 31, 1997, the Company had a staff of 1,871 full-time employees and 793 part-time employees. There are no collective bargaining agreements between the Company and its employees. The Company does have, however, one union member employed in connection with its Muzak franchise in Atlanta, Georgia. The Company believes that its relations with its employees are good. 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. RISKS ASSOCIATED WITH BUSINESS ACTIVITIES Substantial Leverage The Companies have, and, will continue to have, consolidated indebtedness that is substantial in relation to their stockholders' equity. As of December 31, 1997, Capstar Partners had outstanding, on a consolidated basis, long-term indebtedness (including current portions) of $594.6 million and stockholders' equity of approximately $215.9 million, and Capstar Radio had outstanding, on a consolidated basis, long-term indebtedness (including current portions) of $427.6 million and stockholders' equity of $461.3 million. The Indentures (as defined), the Certificate of Designation (the "Certificate of Designation") that governs the outstanding shares of 12% Senior Exchangeable Preferred Stock, par value $.01 per share (the "12% Capstar Preferred Stock"), of Capstar Partners and the Capstar Credit Facility limit the incurrence of additional indebtedness by the Company, in each case subject to certain exceptions. The level of the Companies' indebtedness could have several important consequences to the holders of the Notes (as defined) and the 12% Capstar Preferred Stock, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes may be impaired in the future; (iii) certain of the Company's borrowings are, or will be, at variable rates of interest (including any borrowings under the Capstar Credit Facility), which expose the Company to the risk of increased interest rates; (iv) the Company's leveraged position and the covenants contained in the Indentures, the Certificate of Designation and the Capstar Credit Facility could limit the Company's ability to compete, expand and make capital improvements; and (v) the Company's level of indebtedness could make it more vulnerable to economic downturns, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions. The Company's ability to satisfy its debt service and other obligations will depend upon its future financial and operating performance, which, in turn, are subject to prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. If the Company's cash flow and capital resources are insufficient to fund its debt service and other obligations, the Company may be forced to reduce or delay planned expansion and capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom or that such sales or other capital raising activities or debt restructuring can be effected on terms satisfactory to the Company or at all. See "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." Risks of Acquisition Strategy The Company pursues growth through the acquisition of radio broadcasting companies, radio station groups and individual radio stations primarily in mid-sized markets. The Company cannot predict whether it will be successful in pursuing acquisition opportunities or what the consequences will be of any acquisitions. Consummation of future acquisitions (including the Pending Acquisitions) is subject to various conditions, 30 33 including FCC and other regulatory approval. No assurances can be given that any future acquisitions (including the Pending Acquisitions) will be consummated or that, if completed, they will be successful. In particular, no assurances can be given that the SFX Acquisition will be consummated or, if consummated, that the Company will purchase a portion or all of SFX's capital stock or that such an investment will be successful. The Company's acquisition strategy involves numerous risks, including increasing debt service requirements, difficulties in the integration of operations and systems and the management of a large and geographically diverse group of stations, the diversion of management's attention from other business concerns and the potential loss of key employees of acquired stations. There can be no assurance that the Company's management will be able to manage effectively the resulting business or that such acquisitions will benefit the Company. Depending on the nature, size and timing of future acquisitions, the Company may be required to raise additional financing necessary to consummate the future acquisitions (including the Pending Acquisitions). There can be no assurance that such financing will be permitted under the agreements that govern the outstanding indebtedness of the Company, or any other loan agreements or indebtedness to which the Company may become a party. Moreover, there can be no assurance that such additional financing will be available to the Company on terms acceptable to its management. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." History of Net Losses; Management of Growth The Company was organized in October 1996 and, consequently, has a limited operating history upon which investors may base their evaluation of the Company's performance. Capstar Partners had a net loss of $12.0 million and $39.7 million for the years ended December 31, 1996 and 1997, respectively, and Capstar Radio had a net loss of $9.1 million and $28.0 million for the years ended December 31, 1996 and 1997, respectively. There can be no assurance that the Company will become profitable. The Company incurred or assumed, and will incur or assume, substantial indebtedness to finance the Completed Transactions, the Pending Acquisitions and possibly the SFX Transactions for which it has, and will continue to have, significant debt service requirements. In addition, the Company has, and will continue to have, significant charges for depreciation and amortization expense related to the fixed assets and intangibles acquired, or to be acquired, in its acquisitions. Consequently, the Company expects that, for the foreseeable future as it pursues its acquisition strategy, it will report net losses substantially in excess of those experienced historically, which will result in decreases in stockholders' equity. See "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition." The Company has grown and expects to continue to grow through acquisitions, which places significant demands on its administrative, operational, and financial resources. The Company's future performance and profitability will depend in part on its ability to make additional radio station acquisitions in mid-sized markets, to integrate successfully the operations and systems of acquired radio stations and radio groups, to hire additional personnel, and to implement necessary enhancements to its management systems to respond to changes in its business. The inability of the Company to do any of the foregoing could have a material adverse effect on the Company. Restrictions Imposed by Terms of Indebtedness The Indentures, the Certificate of Designation, and the Capstar Credit Facility contain certain covenants that restrict, among other things, the ability of the Company to incur additional indebtedness, issue preferred stock, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. The Capstar Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. The ability of the Company to meet those financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Indentures and/or the Capstar Credit Facility. Upon an event of default under the Indentures or the Capstar Credit Facility, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately 31 34 due and payable. In the case of the Capstar Credit Facility, if the Company were unable to repay those amounts, the lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. Any such event of default, therefore, could have a material adverse effect on the Company. Competition; Business Risks Radio broadcasting is a highly competitive business. The Company's radio stations, now owned or to be acquired upon completion of the Pending Acquisitions and possibly the SFX Transactions, compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media, such as newspapers, magazines, cable television, outdoor advertising and direct mail. Audience ratings and market shares are subject to change and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. While the Company already competes with other stations with comparable programming formats in many of its markets, if another radio station in the market were to convert its programming format to a format similar to one of the Company's stations, if a new station were to adopt a competitive format, or if an existing competitor were to strengthen its operations, the Company's stations could suffer a reduction in ratings and/or advertising revenue and could require increased promotional and other expenses. The Telecom Act facilitates the entry of other radio broadcasting companies into the markets in which the Company operates or may operate in the future. Some of such companies may have more financial resources than the Company. Future operations are further subject to many variables which could have a material adverse effect on the Company. These variables include economic conditions, both generally and relative to the radio broadcasting industry; shifts in population and other demographics; the level of competition for advertising dollars with other radio stations, television stations, and other entertainment and communications media; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in governmental regulations and policies and actions of federal regulatory bodies, including the DOJ, the FTC (as defined) and the FCC. Although the Company believes that substantially all of its radio stations, now owned or to be acquired upon completion of the Pending Acquisitions and possibly the SFX Transactions, are positioned to compete effectively in their respective markets, there can be no assurance that any such station will be able to maintain or increase its current audience ratings and advertising revenues. Radio broadcasting is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems and the introduction of DAB. DAB may deliver by satellite to nationwide and regional audiences multi-channel, multi-format digital radio services with sound quality equivalent to compact discs. The Company cannot predict the effect, if any, that any such new technologies may have on the radio broadcasting industry or the Company. See "-- Competition; Changes in Broadcasting Industry." Control of the Company Thomas O. Hicks, Capstar Broadcasting's Chairman of the Board, beneficially owns 100.0% of the outstanding common stock of Capstar Broadcasting. Thomas O. Hicks, through his control of Hicks Muse and its affiliates, his personal holdings of the common stock of Capstar Broadcasting and his control of the voting power of the remaining shares of common stock of Capstar Broadcasting through stockholders agreements, is able to control the vote on all matters submitted to the vote of stockholders, and, therefore, is able to direct the management and policies of the Company, except with respect to those matters requiring a class vote by applicable law. See "Item 12. Security Ownership of Certain Beneficial Owners and Management" and "Item 13. Certain Relationships and Related Transactions -- Stockholders Agreements." Dependence on Key Personnel The Company's business depends upon the continued efforts, abilities and expertise of its executive officers and other key employees. The Company has employment agreements with several of the Company's key employees, including R. Steven Hicks. The Company believes that the loss of any of these individuals could have a material adverse effect on the Company. See "Item 10. Directors and Executive Officers of the Registrants." 32 35 Potential Conflicts of Interest Hicks Muse is in the business of making significant investments in existing or newly formed companies and may from time to time acquire and hold controlling or noncontrolling interests in radio broadcasting assets (such as its investment in Chancellor Media) other than through the Company, or in other broadcasting businesses (such as its recent investment in LIN Television Corporation and STC Broadcasting Corporation) that may directly or indirectly compete with the Company for, among other things, advertising revenues and radio stations or other broadcast related businesses. The interests of Hicks Muse (and Thomas O. Hicks) may conflict with those of the holders of the Notes and 12% Capstar Preferred Stock. Hicks Muse and its affiliates (including Chancellor Media) may from time to time identify, pursue and consummate acquisitions of radio stations or other broadcast related businesses that may be complementary to the business of the Company and, therefore, such acquisition opportunities may not be available to the Company. In addition, affiliates of Hicks Muse may from time to time identify and structure acquisitions for the Company and will receive fees in connection with such transactions. Certain affiliates of Hicks Muse have entered, and in the future may enter, into business relationships with the Company. See "Item 13. Certain Relationships and Related Transactions." As a result of the current or future ownership of radio and television broadcast stations by entities in which Hicks Muse has significant equity interests (other than through the Company), regulatory and other restrictions may restrict or prohibit the Company from buying the stations in which those other stations operate or intend to operate. See "-- Federal Regulation of Radio Broadcasting." In addition, Hicks Muse (and Thomas O. Hicks) has required and in the future, may require, the Company to divest itself of one or more radio stations in a market to permit the ownership of radio and television broadcast stations in such market by other entities in which Hicks Muse has significant equity interests. Governmental Regulation of Broadcasting Industry The radio broadcasting industry is subject to extensive federal regulation by the FCC under the Communications Act that, among other things, requires approval by the FCC for the issuance, renewal, transfer of control and assignment of broadcasting station operating licenses and limits the number of broadcasting properties that the Company may acquire in any market. In addition, the Communications Act and FCC rules impose limitations on alien ownership and voting of the capital stock of, and participation in the affairs of, the Company. The Company's business is dependent upon maintaining its broadcasting licenses issued by the FCC, which are ordinarily issued for a maximum term of eight years. Although it is rare for the FCC to deny a license renewal application, there can be no assurance that the future renewal applications of the Company will be approved or that such renewals will not include conditions or qualifications that could adversely affect the Company. The non-renewal of one or more of the Company's licenses could have a material adverse effect on the Company. Moreover, governmental regulations and policies may change over time and there can be no assurance that such changes would not have a material adverse impact upon the Company. As a result of the passage of the Telecom Act, radio broadcasting companies were permitted to increase their ownership of stations within a single market from a maximum of four to a maximum of between five and eight stations, depending on market size. The Telecom Act creates significant new opportunities for broadcasting companies but also creates uncertainties as to how the FCC and the courts will enforce and interpret the Telecom Act. Compliance with the FCC's multiple ownership rules is expected to cause the Company and other radio broadcasters to forego acquisition opportunities that they might otherwise wish to pursue. Compliance with these rules by third parties may also have a significant impact on the Company as, for example, in precluding the consummation of swap transactions that would cause such third parties to violate multiple ownership limitations. The consummation of radio broadcasting acquisitions requires prior approval of the FCC with respect to the transfer of control or assignment of the broadcast licenses of the acquired stations. Certain of the Pending Transactions and the SFX Transactions have not yet received FCC approval. There can be no assurance that the FCC will approve future acquisitions or dispositions by the Company (including the Pending Transactions and the SFX Transactions) or will not impose conditions or qualifications in connection with such acquisitions or dispositions by the Company (including the Pending 33 36 Transactions and the SFX Transactions). As a result of the recent consolidation of ownership in the radio broadcast industry, the DOJ has been giving closer scrutiny to acquisitions in the industry, including certain transactions involving the Company. The DOJ has stated publicly that it has established certain revenue and audience share concentration benchmarks with respect to radio station acquisitions, above which a transaction may receive additional antitrust scrutiny. However, to date, the DOJ has also investigated transactions that do not meet or exceed these benchmarks and has cleared transactions that do exceed the benchmarks. Although the Company does not believe that its acquisition strategy as a whole will be adversely affected in any material respect by antitrust review the HSR Act or by additional divestitures that the Company may have to make as a result of antitrust review, there can be no assurance that this will be the case. The number of radio stations the Company may acquire in any market is limited by FCC rules and may vary depending upon whether the interests in other radio stations or certain other media properties of certain individuals affiliated with the Company are attributable to those individuals under FCC rules. Moreover, under the FCC's cross-interest policy, the FCC in certain instances may prohibit one party from acquiring an attributable interest in one media outlet and a substantial non-attributable economic interest in another media outlet in the same market, thereby prohibiting a particular acquisition by the Company. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. The interests of the Company's officers, directors, and stockholders who have the right to vote 5%. FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements. The words "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "foresee," "will," "could," "may" and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and financial performance and involve risks and uncertainties, including without limitation the risks described in "-- Risks Associated with Business Activities." Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those indicated. GLOSSARY OF CERTAIN TERMS "9 1/4% Capstar Notes" means $200.0 million in aggregate principal amount of Capstar Radio's 9 1/4% Senior Subordinated Notes due 2007. "9 1/4% Capstar Notes Indenture" means the indenture governing the 9 1/4% Capstar Notes. "12 3/4% Capstar Notes" means $277.0 million in aggregate principal amount at maturity of Capstar Partners' 12 3/4% Senior Discount Notes due 2009. "12 3/4% Capstar Notes Indenture" means the indenture governing the 12 3/4% Capstar Notes. "13 1/4% Capstar Notes" means $76.8 million in aggregate principal amount of Capstar Radio's Senior Subordinated Notes due 2003. "13 1/4% Capstar Notes Indenture" means the indenture governing the 13 1/4% Capstar Notes. "Allentown Disposition" means the disposition of radio stations WODS-FM and WEEX-AM serving the Easton, Pennsylvania market to Clear Channel. "American General Acquisition" means the acquisition of radio station KKCL-FM from American General Media of Texas, Inc. serving the Lubbock, Texas market. "Americom Acquisition" means the Company's pending acquisition from Americom II and Americom Las Vegas Limited Partnership of five radio stations (four FM and one AM) serving the Fresno, California market, four of which were acquired for cash and one of which was acquired in consideration for the disposition of three radio stations (two FM and one AM) of the Company. "Americom Disposition" means the Company's pending disposition of three radio stations (two FM and one AM) serving the Reno, Nevada market to Americom Las Vegas Limited Partnership. 34 37 "Ameron Acquisition" means the acquisition of radio stations WMJJ-FM and WERC-AM in Birmingham, Alabama and radio station WOWC-FM from Ameron Broadcasting, Inc. serving the Jasper, Alabama market. "Austin Acquisition" means the Company's pending acquisition of radio stations KVET-AM, KASE-FM and KVET-FM from Butler Broadcasting Company, Ltd. serving the Austin, Texas market. "Benchmark Acquisition" means the acquisitions of, and mergers of directly and indirectly wholly-owned subsidiaries of HM Fund III with, Benchmark Communications Radio Limited Partnership, L.P. and certain of its subsidiary partnerships. "Big Chief Acquisition" means the Company's pending acquisition of radio stations KTCS-FM/AM from Big Chief Broadcasting Co. serving the Fort Smith, Arkansas market. "Booneville Acquisition" means the acquisition of radio station KZBB-FM from Booneville Broadcasting Company and Oklahoma Communications Company serving the Ft. Smith, Arkansas market. "Bryan Disposition" means the disposition of substantially all of its assets used or useful in the operation of two of the Company's radio stations in the College Station, Texas market. "Capstar" or "Company" means Capstar Broadcasting Corporation and its subsidiaries after giving effect to the consummation the Pending Transactions, unless the context otherwise requires. "Capstar Broadcasting" means Capstar Broadcasting Corporation. "Capstar Partners" means Capstar Broadcasting Partners, Inc., a Delaware corporation and a direct subsidiary of Capstar Broadcasting. "Capstar Radio" means Capstar Radio Broadcasting Partners, Inc., a Delaware corporation and a direct subsidiary of Capstar Partners. "Cavalier Acquisition" means the acquisition of substantially all of the assets of Cavalier Communications, L.P. "Champion Acquisition" means the Company's pending acquisition from Champion Broadcasting Corporation, et al of radio stations KCDQ-FM, KCHX-FM and KMRK-FM serving the Midland, Texas market; KMML-FM, KBUY-FM, KNSY-FM and KIXZ-AM serving the Amarillo, Texas market; and KRRV-FM, KKST-FM, KZMZ-FM and KDBS-AM serving the Alexandria, Louisiana market. "Class Act Acquisition" means the Company's pending acquisition of KTBQ-FM and KSFA-AM from Class Act of Texas, Inc. serving the Nacogdoches, Texas market. "COMCO Acquisition" means the acquisition of substantially all of the assets of COMCO Broadcasting, Inc. "Commodore Acquisition" means the acquisition of Commodore Media, Inc. "Commonwealth Acquisition" means the acquisition of substantially all of the assets of Commonwealth Broadcasting of Arizona, L.L.C. "Communications Act" means the Communications Act of 1934, as amended. "Community Pacific Acquisition" means the acquisition of substantially all of the assets of Community Pacific Broadcasting Company L.P. "Completed Acquisitions" means the American General Acquisition, the Ameron Acquisition, the Benchmark Acquisition, the Booneville Acquisition, the Cavalier Acquisition, the COMCO Acquisition, the Commodore Acquisition, the Commonwealth Acquisition, the Community Pacific Acquisition, the East Penn Acquisition, the Emerald City Acquisition, the Griffith Acquisition, the GulfStar Acquisition, the KJEM Acquisition, the KLAW Acquisition, the Knight Acquisition, the Livingston Acquisition, the Madison Acquisition, the McForhun Acquisition, the Osborn Acquisition, the Osborn Huntsville Acquisition, the 35 38 Osborn Tuscaloosa Acquisition, the Patterson Acquisition, the Quass Acquisition, the Reynolds Acquisition, the Space Coast Acquisitions and the WRIS Acquisition. "Completed Dispositions" means the Allentown Disposition, the Bryan Disposition, the Dayton Disposition, the Jackson Disposition, the KASH Disposition, the Osborn Ft. Myers Disposition and the Wilmington Disposition. "Completed Transactions" means the Completed Acquisitions and the Completed Dispositions. "Dayton Disposition" means the disposition of radio station WING-FM serving the Dayton, Ohio market. "DOJ" means the United States Department of Justice. "East Penn Acquisition" means the acquisition of radio station WKAP-AM from East Penn Broadcasting, Inc. serving the Allentown, Pennsylvania market. "Emerald City Acquisition" means the acquisition of radio station WNOK-FM from Emerald City Radio Partners, L.P. serving the Columbia, South Carolina market. "Fairbanks Acquisition" means the Company's pending acquisition of radio station KUAB-FM from the University of Alaska Fairbanks serving the Fairbanks, Alaska market. "FCC" means the United States Federal Communications Commission. "FTC" means the United States Federal Trade Commission. "Gibbons Acquisition" means the Company's pending acquisition of all of the common stock of Jim Gibbons Radio, Inc., a Maryland corporation, and Jim Gibbons Radio, Inc., a Virginia corporation, which own and operate four radio stations (two FM and two AM) serving the Frederick, Maryland and Roanoke, Virginia. "Grant Acquisition" means the Company's pending acquisition of radio station WZBQ-FM from Grant Radio Group serving the Tuscaloosa, Alabama market. "Greenville Disposition" means the Company's pending disposition of radio stations WESC-FM, WESC-AM, WTPT-FM and WJMZ-FM serving the Greenville, South Carolina market. "Griffith Acquisition" means the acquisition of radio stations WTAK-FM, WXQW-FM and WWXQ-FM from Griffith Communications Corporation serving the Huntsville, Alabama market. "GulfStar Acquisition" means the merger of GulfStar with and into a subsidiary of Capstar Broadcasting, pursuant to which the subsidiary was the surviving corporation and was named GulfStar Communications, Inc. and contributed through Capstar Partners to Capstar Radio. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indentures" means the 9 1/4% Capstar Notes Indenture, the 12 3/4% Capstar Notes Indenture and the 13 1/4% Capstar Notes Indenture. "Jackson Disposition" means the disposition of radio stations WJMI-FM, WOAD-FM, WKXI-FM and WKXI-AM serving the Jackson, Mississippi market. "JSA" refers to a joint sales agreement, whereby a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station. JSAs take varying forms. A JSA, unlike an LMA, normally does not involve programming. "KASH Disposition" means the disposition of radio station KASH-AM serving the Anchorage, Alaska market to Chinook Concert Broadcasters, Inc. "KATQ Acquisition" means the Company's pending acquisition of KTFS-AM and KTWN-FM from KATQ Radio, Inc. serving the Texarkana, Texas and Texarkana, Arkansas market. 36 39 "KDOS Acquisition" means the Company's pending acquisition of radio stations KSAB-FM and KUNO-AM from KDOS, Inc. serving the Corpus Christi, Texas market. "KJEM Acquisition" means the acquisition of KJEM-FM, a limited partnership. "KLAW Acquisition" means the acquisition of radio stations KLAW-FM and KZCD-FM from KLAW Broadcasting, Inc. serving the Lawton, Oklahoma market. "Knight Acquisition" means the acquisition of substantially all of the assets of Knight Radio, Inc., Knight Broadcasting of New Hampshire, Inc. and Knight Communications Corp. "KOSO Acquisition" means the Company's pending acquisition of radio station KOSO-FM from KOSO, Inc. serving the Patterson, California market. "KRNA Acquisition" means the Company's pending acquisitions (under separate agreements) of radio stations KRNA-FM and KXMX-FM from KRNA, Inc. serving the Iowa City and Cedar Rapids, Iowa markets. "Livingston Acquisition" means the acquisition of radio station WBIU-AM from Livingston Communications, Inc. serving the Denham Springs, Louisiana market. "LMA" refers to a local marketing agreement, whereby a radio station outsources the management of certain limited functions of its operations. LMAs take varying forms; however, the FCC requires that, in all cases, the licensee maintain independent control over the programming and operations of the station. "Madison Acquisition" means the acquisition of substantially all of the assets of The Madison Radio Group which is comprised of the stations formerly owned by Midcontinent Broadcasting Co. of Wisconsin, Inc. and Point Communications Limited Partnership. "McCarthy Acquisition" means the Company's pending acquisition of radio stations KNCQ-FM, KEWB-FM and KEGR-FM from McCarthy Wireless, Inc. serving the Redding, Anderson and Red Bluff, California markets. "McForhun Acquisition" means the acquisition of radio station KRVE-FM from McForhun, Inc. serving the Brusly, Louisiana market. "Noalmark Acquisition" means the Company's option to acquire radio stations KKTX-FM and KKTX-AM from Noalmark Broadcasting Corporation serving the Longview, Texas market. "Notes" means the 9 1/4% Capstar Notes, the 12 3/4% Capstar Notes and the 13 1/4% Capstar Notes. "Osborn Acquisition" means the acquisition of Osborn Communications Corporation. "Osborn Ft. Myers Disposition" means the disposition of substantially all of the assets used or held for use in connection with the business and operations of Osborn's stations in the Port Charlotte and Ft. Myers, Florida markets. "Osborn Huntsville Acquisition" means the acquisition of Dixie Broadcasting, Inc. and Radio WBHP, Inc. "Osborn Tuscaloosa Acquisition" means the acquisition of Taylor Communications Corporation. "Patterson Acquisition" means the acquisition of all of the outstanding capital stock of Patterson Broadcasting, Inc. "Pending Acquisitions" means the Americom Acquisition, the Austin Acquisition, the Champion Acquisition, the Class Act Acquisition, the Fairbanks Acquisition, the Grant Acquisition, the KDOS Acquisition, the KOSO Acquisition, the Noalmark Acquisition, the Pensacola-WYCL Acquisition, the Portsmouth Acquisition and the Shreveport-KMJJ Acquisition. "Pending Dispositions" means the Americom Disposition, the Greenville Disposition, the Salisbury-Ocean City Disposition, the Upper Fairfield Disposition and the Westchester Disposition. 37 40 "Pending Transactions" means the Pending Acquisitions and the Pending Dispositions. "Pensacola-WYCL Acquisition" means the Company's pending acquisition of radio station WYCL-FM from Paxon Communications Corporation serving the Pensacola, Florida market. "Portsmouth Acquisition" the Company's pending acquisition of radio stations WSRI-FM, WZNN-AM, WERZ-FM and WMYF-AM from American Radio Systems serving the Portsmouth-Dover-Rochester, New York. "Quass Acquisition" means the acquisition of all of the outstanding capital stock of Quass Broadcasting Company. "Reynolds Acquisition" means the acquisition of radio station WMHS-FM from Joan K. Reynolds, d/b/a Brantley Broadcast Associates serving the Birmingham, Alabama market. "Salisbury-Ocean City Disposition" means the Company's pending disposition of radio stations WWFG-FM and WOSC-FM serving the Salisbury-Ocean City, Maryland market. "SFX" means SFX Broadcasting, Inc. "SFX Acquisition" means Capstar Broadcasting's pending acquisition of SFX Broadcasting, Inc. "SFX Jackson-Biloxi Acquisition" means the Company's pending acquisition of six radio stations (five FM and one AM) from SFX serving the Jackson and Biloxi, Mississippi markets. "SFX Transactions" means the SFX Acquisition and the SFX Related Transactions. "Shreveport-KMJJ Acquisition" means the Company's pending acquisition of radio station KMJJ-FM from SunGroup, Inc, et al, serving the Shreveport, Louisiana market. "Space Coast Acquisition" collectively refers to the acquisitions of substantially all of the assets of EZY Com, Inc., City Broadcasting Co., Inc., and Roper Broadcasting, Inc. "Telecom Act" means the Telecommunications Act of 1996. "Upper Fairfield Disposition" means the pending conveyance of radio stations WKRI-FM, WAXB-FM, WPUT-AM and WINE-AM serving the Fairfield County, Connecticut market to a limited liability company in exchange for a non-voting membership interest in such limited liability company. "Westchester Disposition" means the pending conveyance of radio stations WFAS-FM, WFAS-AM and WZZN-FM serving the Westchester-Putnam Counties, New York market to a limited liability company in exchange for a non-voting membership interest in such limited liability company. "Wilmington Disposition" means the conveyance of radio station WJBR-FM serving the Wilmington, Delaware market to a limited liability company in exchange for a non-voting membership interest in such limited liability company. "WRIS Acquisition" means the acquisition of WJLM-FM from WRIS, Inc. serving the Salem, Virginia market. ITEM 2. PROPERTIES The types of properties required to support each of the Company's radio stations include offices, studios and transmitter/antenna sites. No one property is material to the overall operations of the Company. The Company typically leases its studio and office space with lease terms that expire in five to ten years, although the Company does own certain of its facilities. A station's studios are generally housed with its offices in downtown or business districts. The Company generally considers its facilities to be suitable and of adequate size for its current and intended purposes. The Company typically owns its transmitter and antenna sites, although the Company does lease certain of its transmitter/antenna sites with lease terms that expire in three to 20 years. The transmitter/antenna site for each station is generally located so as to provide maximum 38 41 market coverage, consistent with the station's FCC license. The Company does not anticipate any difficulties in renewing any facility or transmitter/antenna site leases or in leasing additional space or sites if required. The Company owns substantially all of 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. All of the property owned by the Company secures the Company's borrowings under the Credit Facility. The principal executive offices of the Company are located at 600 Congress Avenue, Suite 1400, Austin, Texas 78701. The telephone number of the Company at that address is (512) 340-7800. 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 The Companies did not submit any matters to a vote of their securityholders during the fourth quarter of the fiscal year ending December 31, 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of Capstar Partners and Capstar Radio has not been registered under the Securities Act of 1933 or the Securities Act of 1934, as amended, and is not listed on any national securities exchange. As of December 31, 1997, there was no established public trading market for the common stock of Capstar Partners or Capstar Radio. All of the common stock of Capstar Partners is held by Capstar Broadcasting, and all of the common stock of Capstar Radio is held by Capstar Partners. Cash dividends declared and paid by Capstar Partners and Capstar Radio on their common stock for 1997 and 1996 are presented in the following table.
CAPSTAR CAPSTAR PARTNERS RADIO -------- ------- (IN THOUSANDS) 1997........................................................ $765 $9,110 1996........................................................ -- --
Capstar Partners and Capstar Radio are holding companies with no significant assets other than the capital stock of their direct and indirect subsidiaries. Consequently, the sole source of cash for each of Capstar Partners and Capstar Radio from which to make dividend payments will be dividends distributed or other payments made to it by its operating subsidiaries. The right of each of Capstar Partners and Capstar Radio to participate in any distribution of earnings or assets of its subsidiaries is subject to the prior claims of creditors of the its subsidiaries. The Indentures, the Certificate of Designation, and the Capstar Credit Facility contain certain covenants that restrict or prohibit the Company's ability to pay dividends and make other distributions. 39 42 ITEM 6. SELECTED HISTORICAL FINANCIAL DATA CAPSTAR PARTNERS In July 1997, Capstar Broadcasting through a wholly owned subsidiary merged with GulfStar in a transaction between entities under common control which was accounted for in a manner similar to a pooling of interests. The table below presents only the financial data of GulfStar from January 1, 1993 through October 16, 1996, the date Capstar Broadcasting commenced operations. Subsequent to October 16, 1996, the historical financial data of Capstar Broadcasting and GulfStar have been combined. The operating and other data in the following table have been derived from the audited consolidated financial statements of Capstar Partners for the years ended December 31, 1995, 1996 and 1997, all of which are included elsewhere in this Annual Report on Form 10-K, and from the audited consolidated financial statements for the years ended December 31, 1993 and 1994. The selected balance sheet data in the following table have been derived from the audited consolidated financial statements of Capstar Partners as of December 31, 1996 and 1997 which are included elsewhere in this Annual Report on Form 10-K, and from the audited consolidated financial statements of Capstar Partners as of December 31, 1993, 1994 and 1995.
CAPSTAR PARTNERS --------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------- 1993 1994 1995 1996 1997 ------ ------- ------- --------- ---------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue............................. $4,002 $ 9,834 $15,797 $ 42,866 $ 175,445 Station operating expenses.............. 2,818 6,662 11,737 30,481 122,135 Depreciation and amortization........... 307 712 1,134 4,141 26,415 Corporate expenses...................... 158 339 513 2,523 14,221 Noncash compensation expense(1)......... -- -- -- 6,176 10,575 Operating income (loss)................. 719 2,121 2,413 (455) 2,099 Interest expense........................ 338 965 4,078 9,741 49,531 Net income (loss)....................... 319 645 1,570 (11,957) (39,661) OTHER DATA: Broadcast cash flow(2).................. $1,184 $ 3,172 $ 4,060 $ 12,385 $ 53,310 Broadcast cash flow margin.............. 29.6% 32.3% 25.7% 28.9% 30.4% EBITDA(3)............................... $1,026 $ 2,833 $ 3,547 $ 9,862 $ 39,089 Cash flows related to: Operating activities................. 411 1,833 1,259 (2,339) 6,699 Investing activities................. (324) (11,531) (19,648) (155,579) (487,002) Financing activities................. 180 10,325 17,696 167,519 540,541 Capital expenditures.................... 300 1,192 495 2,478 10,020 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents............... $ 286 $ 913 $ 220 $ 9,821 $ 70,059 Intangible and other assets, net........ 5,019 15,094 39,014 344,524 884,639 Total assets............................ 8,424 20,991 49,000 402,632 1,106,050 Long-term debt, including current portion.............................. 7,362 18,554 37,300 191,170 594,572 Redeemable preferred stock.............. -- -- 758 23,098 101,493 Total stockholders' equity.............. 323 970 2,563 93,736 215,869
- --------------- (1) Consists of noncash compensation charges resulting from the grant of warrants and stock subscriptions. (2) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and noncash 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. Nevertheless, it should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. 40 43 (3) EBITDA consists of operating income before depreciation, amortization and noncash compensation expense. Although EBITDA is not a measure of performance calculated in accordance with 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. Nevertheless, it should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. CAPSTAR RADIO In July 1997, Capstar Broadcasting through a wholly owned Subsidiary merged with GulfStar in a transaction between entities under common control which was accounted for in a manner similar to a pooling of interests. The table below presents only the financial data of GulfStar from January 1, 1993 through October 16, 1996, the date Capstar Broadcasting commenced operations. Subsequent to October 16, 1996, the historical financial data of Capstar Broadcasting and GulfStar have been combined. The operating and other data in the following table have been derived from the audited consolidated financial statements of Capstar Radio for the years ended December 31, 1995, 1996 and 1997, all of which are included elsewhere in this Annual Report on Form 10-K, and from the audited consolidated financial statements for the years ended December 31, 1993 and 1994. The selected balance sheet data in the following table have been derived from the audited consolidated financial statements of Capstar Radio as of December 31, 1996 and 1997 which are included elsewhere in this Annual Report on Form 10-K, and from the audited consolidated financial statements of Capstar Radio as of December 31, 1993, 1994 and 1995.
CAPSTAR RADIO --------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------- 1993 1994 1995 1996 1997 ------ ------- ------- --------- ---------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue............................... $4,002 $ 9,834 $15,797 $ 42,866 $ 175,445 Station operating expenses................ 2,818 6,662 11,737 30,481 122,135 Depreciation and amortization............. 307 712 1,134 4,137 26,285 Corporate expenses........................ 158 339 513 2,300 14,221 Noncash compensation expense(1)........... -- -- -- 6,176 10,575 Operating income (loss)................... 719 2,121 2,413 (228) 2,229 Interest expense.......................... 338 965 4,078 7,064 30,559 Net income (loss)......................... 319 645 1,570 (9,052) (28,007) OTHER DATA: Broadcast cash flow(2).................... $1,184 $ 3,172 $ 4,060 $ 12,385 $ 53,310 Broadcast cash flow margin................ 29.6% 32.3% 25.7% 28.9% 30.4% EBITDA(3)................................. $1,026 $ 2,833 $ 3,547 $ 10,086 $ 39,089 Cash flows related to: Operating activities................. 411 1,833 1,259 (1,390) 12,108 Investing activities................. (324) (11,531) (19,648) (153,467) (476,556) Financing activities................. 180 10,325 17,696 163,798 526,006 Capital expenditures...................... 300 1,192 495 2,115 9,051 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents................. $ 286 $ 913 $ 220 $ 9,161 $ 70,719 Intangible and other assets, net.......... 5,019 15,094 39,014 342,558 876,599 Total assets.............................. 8,424 20,991 49,000 399,642 1,096,872 Long-term debt, including current portion................................. 7,362 18,554 37,300 156,170 427,580 Redeemable preferred stock................ -- -- 758 23,098 -- Total stockholders' equity................ 323 970 2,563 127,920 461,315
41 44 - --------------- (1) Consists of noncash compensation charges resulting from the grant of warrants and stock subscriptions. (2) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and noncash 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. Nevertheless, it should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. (3) EBITDA consists of operating income before depreciation, amortization and noncash compensation expense. Although EBITDA is not a measure of performance calculated in accordance with 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. Nevertheless, it should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. COMMODORE MEDIA, INC. The operating and other data in the following table have been derived from the audited consolidated financial statements of operations and cash flows of Commodore Media, Inc. and Subsidiaries for the year ended December 31, 1995, and for the period from January 1, 1996 to October 16, 1996, all of which are included elsewhere in this Annual Report on Form 10-K, and from audited consolidated financial statements for the years ended December 31, 1992, 1993 and 1994. The selected balance sheet data in the following table have been derived from the audited consolidated financial statements of Commodore Media, Inc. as of December 31, 1992, 1993, 1994 and 1995.
COMMODORE MEDIA, INC. ----------------------------------------------------------------- YEAR ENDED DECEMBER 31, JANUARY 1, 1996 -- ------------------------------------------- OCTOBER 16, 1992 1993 1994 1995 1996(1) -------- ------- -------- -------- ------------------ (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue................... $ 17,961 $19,798 $ 26,225 $ 30,795 $ 31,957 Station operating expenses.... 12,713 13,509 16,483 19,033 21,291 Depreciation and amortization............... 1,676 1,129 2,145 1,926 2,158 Corporate expenses............ 1,602 2,531 2,110 2,051 1,757 Other expense(2).............. -- 1,496 2,180 2,007 13,834 Operating income (loss)....... 1,970 1,133 3,307 5,778 (7,083) Interest expense.............. 4,614 4,366 3,152 7,806 8,861 Net loss...................... (2,580) (3,782) (527) (2,240) (17,836) OTHER DATA: Broadcast cash flow(3)........ $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 Broadcast cash flow margin(3).................. 29.2% 31.8% 37.1% 38.2% 33.4% EBITDA(4)..................... $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 Cash flows related to: Operating activities....... (406) 477 4,061 1,245 1,990 Investing activities....... (458) (10,013) (50) (4,408) (34,358) Financing activities....... 951 9,377 (2,855) 12,013 26,724 Capital expenditures.......... 371 333 623 321 449 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents..... $ 1,045 $ 887 $ 2,042 $ 10,891 Intangible and other assets, net........................ 13,819 22,419 21,096 27,422 Total assets.................. 27,508 36,192 36,283 52,811 Long-term debt, including current portion............ 51,934 41,773 36,962 66,261 Redeemable preferred stock.... 5,800 10 8,414 -- Total stockholders' deficit... (28,766) (8,097) (18,038) (18,555)
42 45 - --------------- (1) Represents the results of operations of Commodore Media, Inc. for the period from January 1, 1996 through the date of the Commodore Acquisition, October 16, 1996. (2) In 1996, other expense consists of merger-related compensation charges in connection with Capstar Partners' acquisition of Capstar Radio (formerly known as Commodore Media, Inc.). Such expenses are not expected to recur. In 1993 through 1995 other operating expenses consist of non-cash compensation charges resulting from the grant of employee options, warrants, and stock subscriptions. (3) Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and noncash 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. Nevertheless, it should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. (4) EBITDA consists of operating income before depreciation, amortization and non-cash compensation expense. Although EBITDA is not a measure of performance calculated in accordance with 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. Nevertheless, it should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this Prospectus. 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 the general economy; competitive factors; changes in interest rates; the failure or inability to renew one or more of the Company's broadcasting licenses; and the factors described in "Risk Factors." A radio broadcast company's revenues are derived 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 resulting ratings). Advertising rates tend to be based upon demand for a station's advertising 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 advertising 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. The Company's results of operations from period to period have not historically been comparable because of the impact of the various acquisitions and dispositions that the Company has completed. For a description of the transactions completed by the Company, see "Capstar Broadcasting Partners, Inc. and Subsidiaries -- Notes to Consolidated Financial Statements -- Acquisitions and Dispositions of Broadcasting Properties" set forth in Part II. In the Pending Transactions, the Company has agreed to purchase 33 radio stations serving 14 mid-sized markets and to sell 16 radio stations serving five mid-sized markets. In the SFX Acquisition, the Company may acquire a portion or all of the outstanding stock of SFX. The Company anticipates that it will consummate the Pending Transactions and possibly the SFX Acquisition; however, the closing of each such acquisition or disposition is subject to various conditions, including FCC and other governmental approvals, which are beyond the Company's control, and the availability of financing to the Company on acceptable 43 46 terms. No assurances can be given that regulatory approval will be received, that the Indentures, the Certificates of Designation, the Capstar Credit Facility, the Chancellor Note or any other loan agreements to which the Company will be a party will permit additional financing for the Pending Transactions or the SFX Acquisition or that such financing will be available to the Company on acceptable terms. See "Risk Factors -- Risks of Acquisition Strategy." In the following analysis, management discusses broadcast cash flow, earnings before interest, taxes, depreciation, amortization ("EBITDA"). Broadcast cash flow consists of operating income before depreciation, amortization, corporate expenses and noncash compensation expense. EBITDA consists of operating income before depreciation, amortization and noncash 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 they are useful to an investor in evaluating the Company because they are measures widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow and EBITDA should not be considered in isolation or as substitutes for operating 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. Results of Operations The following table presents summary historical financial data of the Company and should be read in conjunction with the consolidated financial statements of the Company and, in each case, the related notes included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1995 % 1996 % 1997 % ------- ------ -------- ------ -------- ------ (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue................ $15,797 100.0% $ 42,866 100.0% $175,445 100.0% Station operating expenses................ 11,737 74.3% 30,481 71.1% 122,135 69.6% Depreciation and amortization............ 1,134 7.2% 4,141 9.7% 26,415 15.1% Corporate expenses......... 513 3.2% 2,523 5.9% 14,221 8.1% Non-cash compensation expense................. -- -- 6,176 14.4% 10,575 6.0% Operating income (loss).... 2,413 15.3% (455) (1.1%) 2,099 1.2% Interest expense........... 4,078 25.8% 9,741 22.7% 49,531 28.2% Net income (loss).......... 1,570 9.9% (11,957) (27.9%) (39,661) (22.6%) OTHER DATA: Broadcast cash flow........ $ 4,060 25.7% $ 12,385 28.9% $ 53,310 30.4% EBITDA..................... 3,547 22.5% 9,862 23.0% 39,089 22.3%
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net Revenue. Net revenue increased $132.5 million or 309.3% to $175.4 million in the year ended December 31, 1997 from $42.9 million in the year ended December 31, 1996. This increase was attributable to the acquisition of radio stations and revenue generated from JSAs and LMAs entered into during the years ended December 31, 1996 and 1997. On a same station basis, for stations owned or operated as of December 31, 1997, net revenue increased $10.6 million or 5.0% to $221.4 million from $210.8 million in the year ended December 31, 1996. This increase was primarily attributable to growth in the sale of time to local and national advertisers. Station Operating Expenses. Station operating expenses increased $91.6 million or 300.7% to $121.1 million in the year ended December 31, 1997 from $30.5 million in the year ended December 31, 1996. The increase was primarily attributable to the station operating expenses of the radio station acquisitions and the JSAs and the LMAs entered into during the years ended December 31, 1997 and 1996. On a same station 44 47 basis, for stations owned or operated as of December 31, 1997, operating expenses decreased $1.0 million or 0.7% to $154.7 million from $155.7 million in the year ended December 31, 1996. As a percent of revenue, historical operating expenses declined from 71.1% in 1996 to 69.6% in 1997 as a result of (i) cost savings measures implemented by the Company in connection with its acquisitions and (ii) the spreading of fixed costs over a larger revenue base. Corporate Expenses. Corporate expenses increased $11.7 million or 463.6% during 1997 to $14.2 million from $2.5 million in 1996 as a result of higher salary expense for additional staffing. Other Operating Expenses. Depreciation and amortization increased $22.3 million or 537.9% to $26.4 million in 1997 from $4.1 million in 1996 primarily due to radio station acquisitions consummated in 1997 and 1996. Noncash compensation expense increased $4.4 million or 71.2% to $10.6 million in the year ended December 31, 1997 from approximately $6.2 million in the year ended December 31, 1996 due to compensation charges in connection with warrants issued to the Company's Chief Executive Officer and certain stock subscriptions. Other Expenses (Income). Interest expense, net, increased $39.8 million or 408.5% to $49.5 million in the year ended December 31, 1997 from $9.7 million during the same period in 1996 primarily due to indebtedness incurred in connection with the Company's acquisitions. At Capstar Radio, interest expense increased $23.5 million or 332.6% to $30.6 million in the year ended December 31, 1997 from $7.1 million during the same period in 1996, primarily due to indebtedness incurred in connection with the Company's acquisitions. However, this increase was not as large as the increase at Capstar Partners since the 12 3/4% Capstar Notes were issued by Capstar Partners in connection with its acquisition of Osborn Communications, Inc. in February 1997. Other expense, net, increased $3.8 million to $4.7 million in expense in the year ended December 31, 1997 from $0.9 million in other income in the same period in 1996. The increase in other expense was primarily due to $3.5 million in transaction costs incurred as a result of the GulfStar Acquisition. An extraordinary loss of $2.4 million on extinguishment of debt was recorded in 1997, related to the write-off of deferred financing fees associated with the GulfStar credit facility, which was refinanced during the period. Net Loss. As a result of the factors described above, net loss increased $27.7 million in the year ended December 31, 1997 to a net loss of $39.6 from a net loss of $11.9 million in the year ended December 31, 1996. As a result of the difference in interest expense described above, the net loss of Capstar Radio was less than that of Capstar Partners. The net loss of Capstar Radio increased $18.9 million or 209.4% to $28.0 million in the year ended December 31, 1997 from $9.1 million in the year ended December 31, 1996. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased $40.9 million or 330.4% to $53.3 million in the year ended December 31, 1997 from $12.4 million in the year ended December 31, 1996. The broadcast cash flow margin was 30.4% in the year ended December 31, 1997 as compared to 28.9% in the same period in 1996. The inclusion of broadcast cash flow from acquisitions and the JSAs and the LMAs accounted for $40.1 million of the increase. On a same station basis, for stations owned or operated as of December 31, 1997, broadcast cash flows increased $11.6 million or 21.0% to $66.7 million from $55.1 million in year ended December 31, 1996. EBITDA. As a result of the factors described above, EBITDA increased $29.2 million or 296.4% to $39.1 million in the year ended December 31, 1997 from $9.9 million in the year ended December 31, 1996. The EBITDA margin decreased to 22.3% in 1997 from 23.0% in 1996 as a result of higher corporate expenses as described above. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net Revenue. Net revenue increased $27.1 million or 171.4% to $42.9 million in the year ended December 31, 1996 from $15.8 million in the year ended December 31, 1995. This increase was attributable to the acquisitions of radio stations and revenue generated from JSAs and LMAs entered into during the years ended December 31, 1996 and 1995. On a same station basis, for stations owned or operated as of December 31, 1996, net revenue increased $13.3 million or 17.7% to $88.8 million from $75.5 million in the 45 48 year ended December 31, 1995. The increase was primarily attributable to growth in the sale of time to local and national advertisers. Station Operating Expenses. Station operating expenses increased $18.8 million or 159.7% to $30.5 million in the year ended December 31, 1996 from $11.7 million in the year ended December 31, 1995. The increase was attributable to the station operating expenses of the radio station acquisitions and the JSAs and the LMAs entered into during the years ended December 31, 1996 and 1995, which contributed $20.8 million to the increase. On a same station basis, for stations owned or operated as of December 31, 1996, operating expenses increased $21.0 million or 49.8% to $63.4 million from $42.4 million in the year ended December 31, 1995. As a percent of revenue, historical operating expenses have declined from 74.3% in 1995 to 71.1% in 1996 as a result of (i) cost savings measures implemented by the Company in connection with its acquisitions and (ii) the spreading of fixed costs over a larger revenue base. Corporate Expenses. Corporate expenses increased $2.0 million or 391.8% to $2.5 million in the year ended December 31, 1996 from $0.5 million in the same period during 1995 as a result of higher salary expense for additional staffing. Other Operating Expenses. Depreciation and amortization increased $3.0 million for 265.2% to $4.1 million in the year ended December 31, 1996 from $1.1 million in the same period in 1995 primarily due to radio station acquisitions consummated in 1996 and 1995. The Company incurred noncash compensation expense of $6.2 million in the year ended December 31, 1996 as a result of certain warrants issued to the Company's Chief Executive Officer and stock subscriptions. Other Expenses (Income). Interest expense increased $5.6 million or 138.9% to $9.7 million in the year ended December 31, 1996 from $4.1 million in the same period in 1995 primarily due to the interest expense associated with indebtedness incurred in connection with the Company's acquisitions. At Capstar Radio, interest increased $3.0 million or 73.2% to $7.1 million in the year ended December 31, 1996 from $4.1 million during the same period in 1995, primarily due to indebtedness incurred in connection with the Company's acquisitions. However, this increase was not as large as the increase at Capstar Partners since its former term loan facility was entered into by Capstar Partners in connection with its acquisition of Commodore in October 1996. Other expense, net, increased approximately $0.8 million to $0.9 million in the year ended December 31, 1996 from $0.1 million in income in the same period in 1995. An extraordinary loss of $1.2 million on extinguishment of debt was recorded in 1996, related to the write-off of deferred financing fees associated with the GulfStar credit facility which was refinanced during the period. Net Income (Loss). As a result of the factors described above, net income decreased $13.6 million to a $12.0 million net loss in the year ended December 31, 1996 from net income of $1.6 million in the year ended December 31, 1995. As a result of the difference in interest expense described above, the net loss of Capstar Radio was less than that of Capstar Partners. The net loss of Capstar Radio increased $10.7 million or 576.6% to $9.1 million in the year ended December 31, 1996 from net income of $1.6 million in the year ended December 31, 1995. Broadcast Cash Flow. As a result of the factors described above, broadcast cash flow increased $8.3 million or 205% to $12.4 million in the year ended December 31, 1996 from $4.1 million in the year ended December 31, 1995. The broadcast cash flow margin was 28.9% in the year ended December 31, 1996 as compared to 25.7% in the same period in 1995. The inclusion of broadcast cash flow from acquisitions and LMAs accounted for $7.4 million of the increase. On a same station basis, for stations owned or operated as of December 31, 1996, broadcast cash flow decreased $7.7 million or 23.4% to $25.4 million from $33.1 million in year ended December 31, 1995. EBITDA. As a result of the factors described above, EBITDA increased $6.4 million or 178.0% to $9.9 million in the year ended December 31, 1996 from $3.5 million in the year ended December 31, 1995. The EBITDA margin increased to 23.0% in 1996 from 22.5% in 1995. 46 49 LIQUIDITY AND CAPITAL RESOURCES The Company's acquisition strategy has required a significant portion of the Company's capital resources. The Completed Transactions were funded from one or a combination of the following sources: (i) equity investments in the Company from Hicks Muse and its affiliates and management of the Company; (ii) assumption of indebtedness of acquired companies, including the 13 1/4% Senior Subordinated Notes due 2003 of Commodore (the "13 1/4% Capstar Notes"); (iii) net proceeds from the issuance of the 12 3/4% Senior Discount Notes due 2009 of Capstar Partners (the "12 3/4% Capstar Notes") in February 1997; (iv) net proceeds from the issuance of the 12% Capstar Preferred Stock in June 1997; (v) net proceeds from the issuance of the 9 1/4% Senior Subordinated Notes due 2007 of Capstar Radio (the "9 1/4% Capstar Notes") in June 1997; (vi) borrowings under the Capstar Credit Facility and other bank indebtedness of the Company; and (vii) net proceeds from the dispositions of certain assets of the Company. In October 1996, the Company assumed the 13 1/4% Capstar Notes in connection with the financing of the Commodore Acquisition. The 13 1/4% Capstar Notes are limited in aggregate principal amount to $76.8 million and bear interest at a rate of 13 1/4% per annum, of which only 7 1/2% is payable in cash up to May 1, 1998. Beginning on May 1, 1998, the 13 1/4% Capstar Notes will bear cash interest at a rate of 13 1/4% per annum until maturity. The 13 1/4% Capstar Notes require semi-annual cash interest payments on each May 1 and November 1 of $2.9 million through May 1, 1998, and $5.2 million from November 1, 1998, until maturity on May 1, 2003. In connection with the financing of the Osborn Acquisition in February 1997, Capstar Partners issued the 12 3/4% Capstar Notes at a substantial discount from their aggregate principal amount at maturity of $277.0 million, generating gross proceeds to the Company of approximately $150.3 million. The 12 3/4% Capstar Notes pay no cash interest until August 1, 2002. Accordingly, the carrying value will increase through accretion until August 1, 2002. Thereafter interest will be payable semi-annually on February 1 and August 1 of each year until maturity on February 1, 2009. In June 1997, Capstar Radio issued the 9 1/4% Capstar Notes in connection with certain Completed Transactions that were completed during the third quarter of 1997. Interest on the 9 1/4% Capstar Notes is payable semi-annually on January 1 and July 1 of each year until maturity on July 1, 2007. In June 1997, Capstar Partners issued 1,000,000 shares of the 12% Capstar Preferred Stock in connection with the financing of the GulfStar Acquisition. Dividends on the 12% Capstar Preferred Stock accumulate from the date of issuance and are payable semi-annually on January 1 of each year at a rate per annum of 12% of the $100.00 per share liquidation preference. Dividends may be paid, at Capstar Partners' option, on any dividend payment date occurring on or before July 1, 2002, either in cash or in additional shares of 12% Capstar Preferred Stock. Capstar Partners paid the required dividend on January 1, 1998 by issuing an additional 64,667 shares of 12% Capstar Preferred Stock and intends to pay in kind dividends, rather than cash, through July 1, 2002. The Capstar Credit Facility was amended and restated in August 1997 and consists of a $200.0 million revolving loan facility, $75.0 million of which is available to the Company for the issuance of letters of credit for its account or the account of its subsidiaries. The Capstar Credit Facility also provides that under certain circumstances, the Company may request additional revolving loan commitments in $50.0 million increments, the aggregate not to exceed $150.0 million. The availability of such additional commitments under the Capstar Credit Facility is subject to the sole discretion of the banks then party to the Capstar Credit Facility. The Company may not request term loan commitments after December 31, 1998. All loans outstanding under the Capstar Credit Facility will mature August 1, 2004. Borrowings under the Capstar Credit Facility bear interest at floating rates and require interest payments on varying dates depending on the interest rate option selected by the Company. As of March 24, 1998, no principal balance was outstanding under the Capstar Credit Facility, approximately $171.3 million would have been available for borrowings thereunder and borrowings under the Capstar Credit Facility had a weighted average effective interest rate of 9.7% per annum. In the first quarter of 1998, Capstar Broadcasting received proceeds in the amount of $550.0 million from equity investments of Hicks Muse and its affiliates and contributed such amount to the Company, of which 47 50 $225.5 million was used to consummate the Patterson Acquisition, $137.5 million was used to repay indebtedness under the Capstar Credit Facility, and the remaining $187.0 million is expected to be used to consummate Pending Acquisitions and for general corporate purposes. In addition, an affiliate of Hicks Muse has committed to invest an additional $50.0 million in Capstar Broadcasting during the second quarter of 1998, which amount the Company expects to receive as an equity contribution. In addition to debt service and, possibly, the partial financing of the SFX Transactions, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures estimated at $18.0 million for fiscal year 1998, to consummate Pending Transactions and, as appropriate opportunities arise, to acquire additional radio stations or complementary broadcast-related businesses. Management believes that the disposition of certain assets of the Company, cash from operating activities and the $50.0 million investment by an affiliate of Hicks Muse, together with available revolving credit borrowings under the Capstar Credit Facility, should be sufficient to permit the Company to meet its obligations under the agreements governing its existing indebtedness, to fund its operations, and to consummate the Pending Transactions. The Company may require financing, either in the form of additional debt or equity securities, for additional future acquisitions, if any, and there can be no assurance that it would be able to obtain such financing on terms considered to be favorable by management. Management evaluates potential acquisition opportunities on an on-going basis and has had, and continues to have, preliminary discussions concerning the purchase of additional stations. The Company expects that in connection with the financing of future acquisitions, it may consider disposing of stations in its markets. The Company has no current arrangements or intentions to dispose of any of its stations other than as described in "Item 1. Business -- The Transactions." If the SFX Acquisition is consummated and SFX becomes a subsidiary of the Company, then the Company anticipates that it will receive approximately $49.4 million in fees pursuant to the LMAs under which Chancellor Media would provide services to ten SFX stations, with corresponding decreases in such amount as the ten SFX stations, which have been valued at $500.0 million in the Chancellor Exchange Agreement, are exchanged with Chancellor Media. No assurances can be given that the SFX Acquisition will be consummated with SFX as a subsidiary of the Company. Net cash provided by operating activities was $6.7 million and $1.3 million for the years ended December 31, 1997 and 1995, respectively, and net cash used by operating activities was $2.3 million for the year ended December 31, 1996. Changes in the Company's net cash provided by operating activities are primarily the result of the Company's completed acquisitions and station operating agreements entered into during the periods and their effects on income from operations and working capital requirements. Net cash used in investing activities was $487.0 million, $155.6 million, and $19.6 million for the years ended December 31, 1997, 1996 and 1995, respectively. Net cash provided by financing activities was $540.5 million, $167.5 million, and $17.7 million for the years ended December 31, 1997, 1996 and 1995, respectively. These cash flows primarily reflect the borrowings, capital contributions and expenditures for station acquisitions and dispositions. RECENT PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. 48 51 In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which significantly changes current financial statement disclosure requirements form those that were required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does not change the existing measurement or recognition provision of SFAS Nos. 87, 88 or 106. These pronouncements are effective for fiscal years beginning after December 31, 1997. Management does not believe the implementation of these accounting pronouncements will have a material effect on its consolidated financial statements. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is whether the Company's computer systems will properly recognize date sensitive information when the year changes to 2000, or "00." Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company uses purchased software programs for a variety of functions, including general ledger, accounts payable and accounts receivable accounting packages. Responsibility for Year 2000 compliance has been analyzed and testing is currently ongoing for many of the financial applications, individual work stations, and broadcasting systems. Preliminary tests on applications have proven them to be compliant, but further testing is warranted. The Company believes that the Year 2000 Issue will not pose significant operational problems for the Company's computer systems and, therefore, will not have a material impact on the financial position or the operations of the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information called for by this Item is not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this item is included on pages F-1 through F-70 of this annual report on Form 10-K. 49 52 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS The directors and executive officers of Capstar Partners and Capstar Radio are listed below. Except as indicated below, each person holds the positions set forth opposite his or her name for both Capstar Partners and Capstar Radio. Each director will hold office until the next annual meeting of stockholders or until his successor has been duly elected and qualified. Executive officers are generally appointed annually by the board of directors of Capstar Radio and Capstar Partners to serve, subject to the discretion of the sole director, until their successors are appointed.
NAME AGE POSITION ---- --- -------- R. Steven Hicks(1)........... 48 Chief Executive Officer William S. Banowsky, Jr...... 36 Executive Vice President, General Counsel and Secretary Paul D. Stone................ 37 Executive Vice President, Chief Financial Officer and Assistant Secretary James T. Shea, Jr............ 44 President and Chief Executive Officer of Atlantic Star (Northeast Region) John D. Cullen............... 44 Interim Chief Operating Officer; President and Chief Executive Officer of GulfStar (Southwest Region) Dex Allen.................... 55 President and Chief Executive Officer of Pacific Star (West Region) Mary K. Quass................ 48 President and Chief Executive Officer of Central Star (Midwest Region) Rick Peters.................. 45 President and Chief Executive Officer of Southern Star (Southeast Region) Eric C. Neuman............... 53 Director Lawrence D. Stuart, Jr....... 53 Director of Capstar Partners Thomas O. Hicks.............. 52 Director of Capstar Partners
- --------------- (1) Mr. R. Steven Hicks also serves as the Chairman of the Board and a Director of Capstar Partners. R. Steven Hicks has served as the Chief Executive Officer of the Companies since October 1996. In addition, Mr. Hicks has served in several other positions with the Companies, including Chairman of the Board, President and director. Since May 1997, Mr. Hicks has held various positions with Capstar Broadcasting, including Chairman of the Board, President, Chief Executive Officer and director. Mr. Hicks has also served as Chairman of the Board and Chief Executive Officer of GulfStar from January 1987 to July 1997. From November 1993 to May 1996, he was President and Chief Executive Officer of SFX. Mr. Hicks is a 30-year veteran of the radio broadcasting industry, including 18 years as a station owner. Mr. Hicks is the brother of Thomas O. Hicks. William S. Banowsky, Jr. has served as Executive Vice President, General Counsel and Secretary of the Companies since February 1997. Mr. Banowsky has served as an Executive Vice President and the General Counsel of Capstar Broadcasting since May 1997. Mr. Banowsky was an attorney with Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years before joining the Companies. Prior to that time, he was an attorney for Johnson & Gibbs, P.C., Dallas, Texas, for four years. 50 53 Paul D. Stone has served as Chief Financial Officer, Executive Vice President and Assistant Secretary of the Companies since February 1997. Mr. Stone has served as an Executive Vice President and the Chief Financial Officer of Capstar Broadcasting since May 1997. Mr. Stone was an Executive Vice President and the Chief Financial Officer of GulfStar from April 1996 until January 1997. Prior to January 1997, Mr. Stone was Vice President and Controller of Hicks Muse for six years. He is a Certified Public Accountant. James T. Shea, Jr. is the President and Chief Executive Officer of Atlantic Star and has served in such position since June 1997. He previously served as President of Capstar Radio from October 1996 to June 1997. Prior to serving as President of Capstar Radio, Mr. Shea served as Chief Operating Officer of Capstar Radio's predecessor, Commodore, from January 1995 to October 1996. Mr. Shea joined Commodore as the President of its MidAtlantic Region in March 1992. He joined Wilks-Schwartz in 1980 and served in various positions, including Executive Vice President, General Manager and Partner, until 1992. John D. Cullen has served as the interim Chief Operating Officer of the Companies since March 1998 and has served as the President and Chief Operating Officer of GulfStar since March 1996. From 1992 to February 1996, Mr. Cullen served as a regional manager of SFX's radio stations in the Greenville- Spartanburg, Raleigh-Durham, Charlotte and Greensboro-Winston-Salem markets. Mr. Cullen is a 16-year veteran of the radio broadcasting industry. Dex Allen has served as the President and Chief Executive Officer of Pacific Star since January 1997. From 1984 until January 1997, Mr. Allen served as the managing member of Commonwealth. Prior to 1984, Mr. Allen was Vice President/General Manager of KOGO-AM and KPRI-FM in San Diego, California and the Sales Manager of KCBQ-AM in San Diego, California. Mr. Allen is a 29-year veteran of the radio broadcasting industry, including 12 years as a station owner. Mary K. Quass has served as the President and Chief Executive Officer of Central Star since January 1998. She previously served as the President and Chief Executive Officer of Quass from 1988 to January 1998. From 1982 to 1988, Ms. Quass served as Vice President/General Manager of stations KHAK-AM and KHAK-FM in Cedar Rapids, Iowa. Ms. Quass is a 19-year veteran of the radio broadcasting industry, including nine years as a station owner. Rick Peters has served as President and Chief Executive Officer of Southern Star since November 1997. From February 1986 to November 1997, Mr. Peters served as president of Peters Communications, Inc., a programming consultancy affiliated with radio stations in various mid-sized and large markets. Prior to February 1986, Mr. Peters was Vice President -- Programming for TK Communications and Sconnix Broadcasting. Mr. Peters has over 25 years of experience in the radio industry. Eric C. Neuman has served as a director of the Companies since October 1996. Mr. Neuman served as a Vice President of Capstar Radio from October 1996 to May 1997 and as an Executive Vice President of Capstar Partners from October 1996 to June 1997. Mr. Neuman has served as a director of Capstar Broadcasting since May 1997. Mr. Neuman has served as an officer of Hicks Muse since 1993 and as a Senior Vice President thereof since 1996. Before joining Hicks Muse, Mr. Neuman served for eight years as Managing General Partner of Communications Partners, Ltd., a Dallas-based private investment firm. Mr. Neuman is a director of Chancellor Media. Thomas O. Hicks has been a director of Capstar Partners since October 1996 and served as a director of Capstar Radio from October 1996 to August 1997. Mr. Hicks has been Chairman and Chief Executive Officer of Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse, Mr. Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its Co-Chairman and Co-Chief Executive Officer through 1989. Mr. Hicks also serves as a director of Chancellor Media Corporation, Berg Electronics Corp., Syborn International Corporation, International Home Foods, Inc., CorpGroup Limited and Group MVS, S.A. de C.V. Lawrence D. Stuart, Jr. has been a director of Capstar Partners since January 1997 and served as a director of Capstar Radio from February to August 1997. Mr. Stuart has been a Managing Director and Principal of Hicks Muse since 1995. Prior to joining Hicks Muse, Mr. Stuart served for over 20 years as the principal outside legal counsel for the investment firms and portfolio companies led by Thomas O. Hicks. 51 54 From 1989 to 1995, Mr. Stuart was the Managing Partner of the Dallas office of Weil, Gotshal & Manges LLP. Mr. Stuart is a director of Chancellor Media. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Neither Capstar Partners nor Capstar Radio has a class of equity securities registered pursuant to Section 12 of the Exchange Act. Therefore, no reporting persons have filed or been required to file reports required by Section 16(a) of the Exchange Act during the year ended December 31, 1997. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation paid to or earned in 1997, 1996, and 1995 by the Chief Executive Officer of the Company and the other highly compensated executive officers of the Company for services rendered during the three fiscal years ended December 31, 1997 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARD ------------------------ SECURITIES ANNUAL COMPENSATION UNDERLYING PAYOUTS NAME AND --------------------- OPTIONS/ LTIP ALL OTHER PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) PAYOUTS($) COMPENSATION($) ------------------ ---- --------- -------- ---------- ---------- --------------- R. Steven Hicks...................... 1997 500,000 750,000 7,484,385(1) -- -- Chief Executive Officer 1996 135,400 -- 9,300,000(1) -- -- 1995 -- -- -- -- -- William S. Banowsky, Jr.............. 1997 200,000 300,000 1,700,000 -- -- Executive Vice President, General 1996 -- -- -- -- -- Counsel and Secretary 1995 -- -- -- -- -- Paul D. Stone........................ 1997 200,000 300,000 1,700,000 -- -- Executive Vice President, Chief 1996 -- -- -- -- -- Financial Officer and 1995 -- -- -- -- -- Assistant Secretary James T. Shea, Jr.................... 1997 282,692 150,000 -- -- -- President and Chief Executive Officer 1996 262,500 -- 720,880 170,000 3,412,495 of Atlantic Star 1995 242,361 144,500 -- 183,000 -- John D. Cullen....................... 1997 204,575 70,000 500,000 -- -- Interim Chief Operating Officer; President and Chief Executive Officer 1996 112,500 35,000 -- -- -- of GulfStar 1995 -- -- -- -- -- Frank D. Osborn...................... 1997 375,000 250,000 1,500,000 -- 3,511,327(2) Former President and Chief Executive 1996 387,000 300,000 -- -- 1,778,375 Officer of Southern Star(3) 1995 378,490 300,000 35,000 -- 16,000
- --------------- (1) Represents warrants in 1996 and options and warrants in 1997. See "Item 13. Certain Relationships and Related Transactions -- Warrants." (2) Represents (i) $3,220,000 received by Mr. Osborn pursuant to his employment agreement with Osborn prior to the Osborn Acquisition to which Mr. Osborn was entitled upon the occurrence of a change of control, (ii) $276,375 received by Mr. Osborn in connection with the Osborn Acquisition in settlement of his outstanding options to purchase shares of common stock of Osborn and (iii) $14,952 for tax preparation expenses paid on behalf of Mr. Osborn pursuant to the terms of his previous employment agreement with Osborn. (3) Mr. Osborn served as President of Southern Star from February 1997 to November 1997. 52 55 The following table sets forth certain information concerning stock option grants during the year ended December 31, 1997, to the Named Executive Officers pursuant to the Stock Option Plan (as defined). OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE --------------------------------------------------- VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK SECURITIES OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(1) OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------- NAME GRANTED(#) IN 1997 SHARE DATE 5%($) 10%($) ---- ---------- ---------- --------- ---------- ---------- --------- R. Steven Hicks........................ 2,553,182(2) 44.14% $1.10 2-20-07 (1,476,290) 1,233,485 3,231,203(2) 55.86% 1.33 7-08-07 (2,273,378) 1,873,056 850,000 6.04% 1.10 2-20-03 317,989 721,410 850,000 6.04% 1.33 9-10-03 384,478 872,250 William S. Banowsky, Jr ............... 850,000 6.04% 1.10 2-20-03 317,989 721,410 850,000 6.04% 1.33 9-10-03 384,478 872,250 Paul D. Stone.......................... 850,000 6.04% 1.10 2-20-03 317,989 721,410 850,000 6.04% 1.33 9-10-03 384,478 872,250 James T. Shea, Jr ..................... -- -- -- -- -- -- John D. Cullen......................... 500,000 3.55% 1.33 9-10-03 226,164 513,088 Frank D. Osborn........................ 1,500,000 10.66% 1.10 2-20-03 561,158 1,273,076
- --------------- (1) See "Item 13. Certain Relationships and Related Transactions -- Warrants." The following table provides information about the number of shares issued upon option exercises under the Stock Option Plan by the Named Executive Officers during 1997, and the value realized by such Named Executive Officers. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997(1) -------------------------------- ---------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($) ---- ------------- --------------- -------------- ---------------- R. Steven Hicks................... 7,440,000(2) 1,860,000(2) 1,860,000 465,000 2,042,546(2) 510,636(2) 379,914 94,978 987,970(2) 2,243,233(2) -- -- -- 1,700,000 -- 195,500 William S. Banowsky, Jr. ......... -- 1,700,000 -- 195,500 Paul D. Stone..................... -- 1,700,000 -- 195,500 James T. Shea, Jr................. 240,293 480,587 72,297 158,594 John D. Cullen.................... -- 500,000 -- -- Frank D. Osborn................... -- 1,500,000 -- 345,000
- --------------- (1) Based upon an assumed fair market price of $1.33 per share. (2) See "Item 13. Certain Relationships and Related Transactions -- Warrants." DIRECTORS COMPENSATION The directors of the Companies do not receive compensation for their services as directors. Each director of the Companies, however, is entitled to reimbursement of his reasonable out-of-pocket expenses in connection with his services. 53 56 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company does not currently have a compensation committee. During 1997, the Compensation Committee of Capstar Broadcasting established the compensation of the Company's executive officers. From January to July 1997, the Compensation Committee of Capstar Broadcasting consisted of Thomas O. Hicks, Lawrence D. Stuart, Jr. and R. Steven Hicks, the Chief Executive Officer of each of the Companies. Mr. R. Gerald Turner replaced R. Steven Hicks as a member of the Compensation Committee in July 1997. The Compensation Committee is currently comprised of Thomas O. Hicks, Lawrence D. Stuart, Jr. and R. Gerald Turner. EMPLOYMENT AGREEMENTS R. Steven Hicks Employment Agreement. Capstar Broadcasting has entered into an employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves as President and Chief Executive Officer of Capstar Broadcasting. Mr. Hicks' employment agreement terminates on December 31, 2001, and will be automatically renewed for successive one-year terms unless Mr. Hicks or Capstar Broadcasting gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but no more than 12 months prior to such expiration date). Mr. Hicks' annual base salary for 1998 is $550,000 per year and is subject to annual increases at least equal to five percent of the then current base salary. He is also entitled to receive such annual performance bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr. Hicks is eligible to receive stock options to purchase shares of Class A Common Stock. If Capstar Broadcasting terminates Mr. Hicks' employment for cause or Mr. Hicks terminates his employment for other than good reason, Capstar Broadcasting must pay Mr. Hicks all accrued obligations and other benefits earned prior to the date of termination. If Capstar Broadcasting terminates Mr. Hicks' employment agreement other than for cause or Mr. Hicks terminates his employment agreement for good reason, Mr. Hicks' employment agreement provides for (A) a lump sum payment of (x) two times Mr. Hicks' then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of Capstar Broadcasting determines that Mr. Hicks has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Hicks and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Hicks' termination. William S. Banowsky, Jr. Employment Agreement. Capstar Broadcasting has entered into an employment agreement with William S. Banowsky, Jr. pursuant to which Mr. Banowsky serves as an Executive Vice President and the General Counsel of Capstar Broadcasting. Mr. Banowsky's employment agreement terminates on December 31, 2001, and will be renewed automatically for successive one-year terms unless Mr. Banowsky or Capstar Broadcasting gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but not more than 12 months prior to such expiration date). Mr. Banowsky's annual base salary for 1998 is $275,000, subject to annual increases at least equal to five percent of the then current base salary. Mr. Banowsky is also eligible to receive such annual bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr. Banowsky is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar Broadcasting terminates Mr. Banowsky's employment for cause or Mr. Banowsky terminates his employment for other than good reason, Capstar Broadcasting must pay Mr. Banowsky all accrued obligations and other benefits earned prior to the date of termination. If Capstar Broadcasting terminates Mr. Banowsky's employment agreement other than for cause or Mr. Banowsky terminates his employment agreement for good reason, Mr. Banowsky's employment agreement provides for (A) a lump sum payment of (x) two times Mr. Banowsky's then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of Capstar Broadcasting determines that Mr. Banowsky has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Banowsky and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Banowsky's termination. 54 57 Paul D. Stone Employment Agreement. Capstar Broadcasting has entered into an employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as an Executive Vice President and the Chief Financial Officer of Capstar Broadcasting. Mr. Stone's employment agreement terminates on December 31, 2001, and will be renewed automatically for successive one year terms unless Mr. Stone or Capstar Broadcasting gives the other party written notice of his or its intention not to renew the employment agreement at least six months prior to the date the employment agreement would otherwise expire (but no more than 12 months prior to such expiration date). Mr. Stone's annual base salary for 1998 is $275,000, subject to annual increases at least equal to five percent of the then current base salary. Mr. Stone is also eligible to receive such annual bonuses as Capstar Broadcasting's Board of Directors may determine. Further, Mr. Stone is entitled to receive stock options to purchase shares of Class A Common Stock. If Capstar Broadcasting terminates Mr. Stone's employment for cause or Mr. Stone terminates his employment for other than good reason, Capstar Broadcasting must pay Mr. Stone all accrued obligations and other benefits earned prior to the date of termination. If Capstar Broadcasting terminates Mr. Stone's employment agreement other than for cause or Mr. Stone terminates his employment agreement for good reason, Mr. Stone's employment agreement provides for (A) a lump sum payment of (x) two times Mr. Stone's then current annual salary and (y) any accrued obligations and other benefits earned prior to the date of termination and (B) unless the Board of Directors of Capstar Broadcasting determines that Mr. Stone has not satisfactorily performed his obligations and duties under the agreement, the immediate vesting of all stock options between Capstar Broadcasting and Mr. Stone and the right to exercise those options until the earlier of (x) the expiration date of those options or (y) the 90th day after Mr. Stone's termination. James T. Shea, Jr. Employment Agreement. The Companies have entered into an employment agreement with James T. Shea, Jr. Mr. Shea's employment agreement terminates on April 30, 1999. Mr. Shea's annual base salary for 1998 is $288,750, which increases at the beginning of each calendar year by an amount not less than five percent of his then current base salary. Mr. Shea is also entitled to receive annual bonuses as the Board of Directors of Capstar Radio may determine, provided that the bonus shall not be less than $150,000. In addition, the employment agreement provides for an automobile allowance, participation in the retirement, savings, and welfare benefit plans of Capstar Radio and a life insurance policy of $650,000. If the Company terminates Mr. Shea's employment for cause, the Company is obligated to pay Mr. Shea's then accrued base salary, reimbursable expenses, and any other compensation then due and owing. In addition, the Company must continue to fund Mr. Shea's life insurance policy. If the employment agreement is terminated due to death or disability, without cause or by Mr. Shea for good reason, Mr. Shea will be entitled to (i) the continuation of his annual base salary, as then in effect, for a period equal to (A) if the termination date occurs after April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the termination date or (B) if the termination date occurs on or prior to April 21, 1998, the lesser of (x) a 24-month period commencing on the termination date and (y) the period starting on the termination date and ending on April 30, 1999, (ii) a pro rata amount of his annual bonus, (iii) any annual base salary and annual bonus then accrued but not yet paid, (iv) the continuation of his welfare benefits for a period equal to (A) if the termination date occurs after April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the termination date or (B) if the termination date occurs on or prior to April 21, 1998, the lesser of (x) a 24-month period commencing on the termination date and (y) the period starting on the termination date and ending on April 30, 1999, (v) the continuation of his life insurance policy, (vi) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, (vii) reimbursement for certain expenses incurred as of the termination date but not yet paid as of the date of termination and (viii) any other rights afforded to him under other written agreements between Mr. Shea and the Company. John D. Cullen Employment Agreement. GulfStar has entered into an employment agreement with John D. Cullen pursuant to which Mr. Cullen serves as the President and Chief Executive Officer of GulfStar. Mr. Cullen's employment agreement terminates on March 31, 2001 unless sooner terminated in accordance with the terms of the employment agreement. Mr. Cullen's annual base salary for 1998 is $225,000 subject to annual increases as determined by the Board of Directors of GulfStar. Mr. Cullen is also entitled to receive annual bonuses of at least $35,000 if GulfStar achieves certain annual broadcast cash flow projections established by the board of directors of GulfStar. If GulfStar terminates Mr. Cullen's employment for cause 55 58 (as defined in the employment agreement) or Mr. Cullen resigns (and GulfStar has not breached the employment agreement), GulfStar must pay Mr. Cullen all accrued obligations and other benefits earned prior to the date of termination. If GulfStar terminates Mr. Cullen's employment without cause or Mr. Cullen terminates his employment due to a material breach of the employment agreement by GulfStar (which breach is not cured within 30 days after receipt of notice of breach), then GulfStar must pay Mr. Cullen his current salary (in equal monthly installments) for a one year period, plus a pro rata portion of any bonuses that would otherwise have been payable to Mr. Cullen. Frank D. Osborn Consulting Agreement. Southern Star has entered into a consulting, non-compete and separation agreement with Frank D. Osborn pursuant to which Mr. Osborn serves as a consultant to Southern Star. The agreement provides that (i) Mr. Osborn's resign as an officer of Southern Star, (ii) Mr. Osborn will not compete with Southern Star and its subsidiaries until after February 28, 2002 and (iii) Mr. Osborn will serve as a consultant to Southern Star until February 28, 2001. Mr. Osborn receives $100,000 per year for his consulting services and $375,000 per year for his agreement not to compete with Southern Star. Upon execution of the agreement, Mr. Osborn also received a lump sum payment of $730,000, and Mr. Osborn's 1,500,000 options to purchase Class A common stock, par value $0.01 per share, of Capstar Broadcasting ("Class A Common Stock") under the Stock Option Plan immediately vested. The stock options may be exercised until the earlier to occur of (i) February 28, 2001 or (ii) the 90th day after the termination of the agreement. BENEFIT PLANS Capstar Broadcasting Stock Option Plan Capstar Broadcasting's 1997 Stock Option Plan (the "Stock Option Plan") gives certain individuals and key employees of Capstar Broadcasting and any parent corporation or subsidiary corporation thereof (such parent and subsidiary corporations are referred to as "Related Entities") who are responsible for the continued growth of Capstar Broadcasting an opportunity to acquire a proprietary interest in Capstar Broadcasting, and thus to create in such persons an increased interest in and a greater concern for the welfare of Capstar Broadcasting and any Related Entities. The Stock Option Plan provides for the grant of options to acquire up to 22,000,000 shares of Class A Common Stock. As of December 31, 1997, grants of stock options with respect to 16,739,021 shares of Class A Common Stock have been made under the Stock Option Plan. The Stock Option Plan is administered by Capstar Broadcasting's Compensation Committee, which is currently comprised of Thomas O. Hicks, Lawrence D. Stuart, Jr. and R. Gerald Turner, a director of Capstar Broadcasting. The Compensation Committee has authority, subject to the terms of the Stock Option Plan (including the formula grant provisions and the provisions relating to incentive stock options contained therein), to determine when and to whom to make grants or awards under the Stock Option Plan, the number of shares to be covered by the grants or awards, the types and terms of the grants and awards, and in the case of grants of stock options, the exercise price of stock options. Moreover, the Compensation Committee has the authority, subject to the provisions of the Stock Option Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Stock Option Plan and to make such determinations and interpretations and to take such action in connection with the Stock Option Plan and any grants and awards thereunder as it deems necessary or advisable. The Compensation Committee's determinations and interpretations under the Stock Option Plan are final, binding and conclusive on all participants and need not be uniform and may be made by the Compensation Committee selectively among persons who receive, or are eligible to receive, grants and awards under the Stock Option Plan. Grants of "incentive stock options" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified stock options (options which do not qualify under section 422 of the Code) may be made under the Stock Option Plan to key employees. Grants of non-qualified stock options may be made to eligible nonemployees (as defined in the Stock Option Plan). No incentive stock option may be granted pursuant to the Stock Option Plan after October 16, 2006. The exercise price per share of the Class A Common Stock, under each option is fixed by the Compensation Committee at the time of grant and must equal at least 100% of the fair market value (as 56 59 defined in the Stock Option Plan) of a share of Class A Common Stock on the date of grant; provided, however, that the exercise price of an incentive stock option granted to a person who, at the time of grant, owns shares of Capstar Broadcasting or any Related Entity which possess more than 10% of the total combined voting power of all classes of stock of Capstar Broadcasting or of any Related Entity may not be less than 110% of the fair market value of a share of Class A Common Stock on the date of grant. No option is exercisable after the expiration of ten years from the date of grant, unless, as to any non-qualified stock option, otherwise expressly provided in the option agreement; provided, however, that no incentive stock option granted to a person who, at the time of grant, owns stock of Capstar Broadcasting, or any Related Entity, possessing more than 10% of the total combined voting power of all classes of stock of Capstar Broadcasting, or any Related Entity, is exercisable after the expiration of five years from the date of grant. In the event of a change of control or sale of Capstar Broadcasting, all outstanding stock options may, subject to the sole discretion of the Compensation Committee, become exercisable in full at such time or times as the Compensation Committee may determine. Each stock option accelerated by the Compensation Committee would terminate on such date (not later than the stated exercise date) as the Compensation Committee determines. Unless an option or other agreement provides otherwise, upon the date of death of an optionee (or upon the termination of an optionee because of such optionee's disability), the person who acquires the right to exercise the option of such optionee (or the optionee in the case of disability) must exercise such option within 180 days after the date of death (or termination in the case of disability), unless a longer period is expressly provided in such incentive stock option or a shorter period is established by the Compensation Committee, but in no event after the expiration date of such option. Following an optionee's termination of employment for cause, all stock options held by such optionee will immediately be canceled as of the date of termination of employment. Following an optionee's termination of employment for other than cause, such optionee must exercise his stock option within 30 days after the date of such termination, unless a longer period is expressly provided in such stock option or a shorter period is established by the Compensation Committee, provided that no incentive stock option shall be exercisable more than three months after such termination. The option exercise price may be paid in cash or, in the discretion of the Compensation Committee, by the delivery of shares of Class A Common Stock then owned by the participant, or by a combination of these methods. Also, in the discretion of the Compensation Committee, payment may also be made by delivering a properly executed exercise notice to Capstar Broadcasting together with a copy of irrevocable instructions to a broker to deliver promptly to Capstar Broadcasting the amount of sale or loan proceeds to pay the exercise price. Except as otherwise expressly provided in any non-qualified stock option, stock options may be transferred by a participant only by will or by the laws of descent and distribution and may be exercised only by the participant during his lifetime. If an optionee's employment is terminated for any reason or a change of control occurs, Capstar Broadcasting, or its designee, may purchase the remaining options and/or shares of Class A Common Stock held by such optionee at a price per share equal to fair market value. Prior to the transfer by an optionee of any shares of Class A Common Stock issued to such optionee upon exercise of a stock option, Capstar Broadcasting or its designee has the right to acquire such shares of Class A Common Stock on the same terms and conditions as the proposed transfer. Capstar Broadcasting Stock Purchase Plan Capstar Broadcasting's 1997 Stock Purchase Plan (the "Stock Purchase Plan") gives certain key employees of Capstar Broadcasting and any Related Entities who are expected to contribute materially to the success of Capstar Broadcasting and any Related Entities an opportunity to acquire a proprietary interest in Capstar Broadcasting, and thus to retain such persons and create in such persons an increased interest in and a greater concern for the welfare of Capstar Broadcasting and any Related Entities. The Stock Purchase Plan provides for the grant of stock purchase rights to acquire up to 3,000,000 shares of Class A Common Stock. To 57 60 date, grants of stock purchase rights with respect to 630,000 shares of Class A Common Stock have been made under the Stock Purchase Plan, all of which have been exercised. LIMITATIONS ON DIRECTORS AND OFFICERS LIABILITY Each of Capstar Radio's and Capstar Partner's Certificates of Incorporation provides that, to the fullest extent permitted by law, no director shall be personally liable to Capstar Radio or Capstar Partners or its stockholders, as applicable, for monetary damages for breach of his fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to Capstar Radio or Capstar Partners or its stockholders, as applicable, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemption's or purchases or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of Capstar Radio or Capstar Partners and its stockholders, as applicable, (through stockholders' derivative suits on behalf of the Capstar Radio or Capstar Partners, as applicable) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. Each of the companies' directors have entered into indemnification agreements with Capstar Broadcasting. The indemnification agreements provide that Capstar Broadcasting will indemnify the director to the fullest extent permitted by law and to advance certain expenses to such director. The Companies believe that these provisions and agreements will assist the Companies in attracting and retaining qualified individuals to serve as directors and officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Capstar Partners is a subsidiary of Capstar Broadcasting, and Capstar Radio is a wholly-owned subsidiary of Capstar Partners. As of March 23, 1998, Capstar Broadcasting owned 279,632,180 shares of the Class A common stock, par value $0.01 per share, of Capstar Partners, which represented all of the outstanding common stock of Capstar Partners. As of March 23, 1998, Capstar Partners owned 1,051,394,410 shares of the common stock, par value $0.01 per share, of Capstar Radio, which represents all of the outstanding common stock of Capstar Radio. 58 61 The following table sets forth certain information regarding (i) the beneficial ownership of each class of the common stock of Capstar Broadcasting as of March 23, 1998 (a) each person or group beneficially owning five percent or more of any class of the Common Stock of Capstar Broadcasting, (b) each director of the Companies, (c) each Named Executive Officer, and (d) all directors and executive officers of the Companies as a group and (ii) the combined percentage of all classes of the capital stock of Capstar Broadcasting that is beneficially owned by each of such person or group of persons. Except as noted below and pursuant to applicable community property laws, the Companies believe that 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.
CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK(1) COMMON STOCK(2) -------------------- -------------------- --------------------- NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT OF PERCENTAGE OF OF OF OF OF OF ECONOMIC OF VOTING NAME OF BENEFICIAL OWNER SHARES(3) CLASS SHARES(3) CLASS SHARES(3) CLASS INTEREST POWER ------------------------ ---------- ------- ---------- ------- ----------- ------- ---------- ---------- Hicks Muse Parties(4)............. 2,727,272 10.72% 32,144,223 59.79% 581,031,144 92.17% 86.80% 91.85% 200 Crescent Court, Suite 1600 Dallas, Texas 75201 Thomas O. Hicks(4)(5)............. 26,306,750 100.0% 53,764,859 100.0% 630,374,109 100.0% 6.53% 100.0% 200 Crescent Court, Suite 1600 Dallas, Texas 75201 BT Capital Partners, Inc.......... -- -- 9,619,995 17.89% -- -- 1.36% -- 130 Liberty Street, 25th Floor New York, New York 10006 John D. Cullen.................... 3,292,989 12.95% -- -- -- -- * * 600 Congress Avenue, Suite 1400 Austin, Texas 78701 D. Geoff Armstrong................ 2,969,867 11.68% -- -- -- -- * * 600 Congress Avenue, Suite 1270 Austin, Texas 78701 Frank D. Osborn(6)................ 3,136,361 11.65% -- -- -- -- * * 130 S. Mason Street Greenwich, Connecticut 06830 Eric C. Neuman(7)................. 2,613,410 10.28% -- -- -- -- * * 200 Crescent Court, Suite 1600 Dallas, Texas 75201 William R. Hicks.................. 2,580,220 10.15% -- -- -- -- * * 2700 Bypass, Suite 5000 College Station, Texas 77845 Paul D. Stone(8).................. 2,483,855 9.69% -- -- -- -- * * 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Joseph Mathias.................... 1,615,385 6.35% -- -- -- -- * * 600 Congress Avenue, Suite 1400 Austin, Texas 78701 R. Steven Hicks(9)................ 212,500 * -- -- 25,444,986 3.97% 3.54% 3.96% William S. Banowsky, Jr.(10)...... 712,500 2.78% -- -- -- -- * * Lawrence D. Stuart, Jr............ 637,928 2.51% -- -- -- -- * * James T. Shea, Jr.(11)............ 590,293 2.30% -- -- -- -- * * All directors and executive officers as a group (12 persons)(12).................... 26,306,750 100.0% 53,764,859 100.0% 630,374,109 100.0% 11.60% 100.0%
- --------------- * Less than one percent. (1) The holders of shares of Class B common stock, par value $0.01 per share, of Capstar Broadcasting ("Class B Common Stock") are not entitled to vote, except as required by law. The shares of Class B Common Stock are convertible in whole but not in part, at the option of the holder or holders thereof, into the same number of shares of Class A Common Stock, subject to certain conditions. (2) The holders of the Class C common stock, par value $0.01 per share, of Capstar Broadcasting ("Class C Common Stock" and together with the Class A Common Stock and the Class B Common Stock, the "Common Stock") are entitled to vote with the holders of the Class A Common Stock on all matters submitted to a vote of stockholders of Capstar Broadcasting, except with respect to the election of the Class A directors of Capstar Broadcasting, certain "going private" transactions and as otherwise required by law. Each share of Class C Common Stock is entitled to ten votes per share on all matters submitted to a vote of stockholders of Capstar Broadcasting. The shares of Class C Common Stock are convertible in whole but not in part, at the option of the holder or holders thereof, into the same number of shares of Class A Common Stock, subject to certain conditions. (3) Shares beneficially owned and percentage ownership are based on 25,429,757 shares of Class A Common Stock outstanding, 53,746,859 shares of Class B Common Stock outstanding, and 630,374,109 shares of Class C Common Stock outstanding. 59 62 (4) Includes (i) 2,727,272 shares of Class A Common Stock owned of record by Capstar Boston Partners, L.L.C., a limited liability company of which the manager is a limited partnership whose ultimate general partner is Hicks, Muse Fund III Incorporated ("Fund III Inc."); (ii) 32,144,223 shares of Class B Common Stock owned of record by Capstar BT Partners, L.P., a limited partnership of which the ultimate general partner is Fund III Inc.; and (iii) 581,031,144 shares of Class C Common Stock owned of record by Capstar Broadcasting Partners, L.P. ("Capstar L.P."), a limited partnership of which the ultimate general partner is HM3/Capstar, Inc. ("HM3/Capstar"). Thomas O. Hicks is a controlling stockholder and serves as Chief Executive Officer, Chief Operating Officer, President and Chairman of the Boards of Directors of Fund III Inc. and HM3/Capstar. Accordingly, Thomas O. Hicks may be deemed to be the beneficial owner of the Common Stock held by Capstar L.P., Capstar BT Partners, L.P., and Capstar Boston Partners, L.L.C. Mr. Thomas O. Hicks disclaims beneficial ownership of the shares of Common Stock not owned of record by him. (5) Includes 12,000,641 shares of Class B Common Stock and 34,368,495 shares of Class C Common Stock owned of record by Thomas O. Hicks. In addition, the number of shares of Class A Common Stock includes 6,530,789 shares that are subject to a voting agreement in the Management Stockholders Agreement, 2,732,272 shares that are subject to a voting agreement in the Affiliate Stockholders Agreement and 16,166,696 shares that are subject to a voting agreement in the GulfStar Stockholders Agreement. The number of Class A Common Stock also includes 792,794 shares issuable upon the exercise of stock options that are currently vested and 84,199 shares subject to stock options that are exercisable within 60 days, which shares would be subject to the Affiliate Stockholders Agreement. In addition, the number of shares of Class B Common Stock includes 32,144,223 shares that are subject to a voting agreement in the Affiliate Stockholders Agreement and 9,619,995 shares that are subject to a voting agreement in the GulfStar Stockholders Agreement. The number of shares of Class C Common Stock also includes 596,005,614 shares that are subject to a voting agreement in the Affiliate Stockholders Agreement. Hicks Muse is a party to the Affiliate Stockholders Agreement, the Management Stockholders Agreement and the GulfStar Stockholders Agreement, which agreements require the parties to such agreements to vote their shares (i) in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters as the holders of a majority of the voting power of the outstanding shares of Common Stock vote on such matters. Thomas O. Hicks is the controlling stockholder of Hicks Muse and serves as its Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Secretary. Accordingly, Thomas O. Hicks may be deemed to be the beneficial owners of all of the Common Stock subject to the Affiliate Stockholders Agreement, the Management Stockholders Agreement and the GulfStar Stockholders Agreement. Thomas O. Hicks disclaims beneficial ownership of the shares of Common Stock not owned by him of record. (6) The number of shares of Class A Common Stock includes (i) 1,561,176 shares owned of record by Mr. Osborn, (ii) 1,500,000 shares of issuable upon the exercise of stock options that are currently vested, and (iii) 75,185 shares owned of record by Frank D. Osborn's children. (7) Includes (i) 112,782 shares owned of record by Mr. Neuman and (ii) 2,500,628 shares owned of record by the Eric C. Neuman Special Trust. (8) Includes (i) 184,167 shares issuable upon the exercise of stock options that are currently vested and (ii) 28,333 shares subject to stock options that are exercisable within 60 days. (9) The number of shares of Class A Common Stock includes (i) 184,167 shares issuable upon the exercise of stock options that are currently vested and (ii) 28,333 shares subject to stock options that are exercisable within 60 days. The number of shares of Class C Common Stock includes (i) 100,000 shares owned of record by R. Steven Hicks' children and (ii) 10,470,516 shares purchasable by R. Steven Hicks pursuant to the terms of the Warrants. See "Item 13. Certain Relationships and Related Transactions -- Warrants." R. Steven Hicks has voting rights to the shares owned by his children under the terms of the Affiliate Stockholders Agreement. R. Steven Hicks disclaims beneficial ownership of the shares of Common Stock not owned by him of record. The shares owned of record by R. Steven Hicks and his children are subject to a voting agreement as described in the Affiliate Stockholders Agreement. See "Item 13. Certain Relationships and Related Transactions -- Stockholders Agreements -- Affiliate Stockholders Agreement." (10) Includes (i) 184,167 shares issuable upon the exercise of stock options that are currently vested and (ii) 28,333 shares subject to stock options that are exercisable within 60 days. (11) Includes 240,293 shares issuable upon the exercise of stock options that are currently vested. (12) Includes 792,794 shares of Class A Common Stock issuable upon the exercise of stock options that are currently vested and (ii) 84,999 shares subject to stock options that are exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MONITORING AND OVERSIGHT AGREEMENT Capstar Partners has entered into a monitoring and oversight agreement (the "Capstar Partners Monitoring and Oversight Agreement") with Hicks Muse Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, Capstar Partners has agreed to pay to Hicks Muse Partners an annual fee for ongoing financial oversight and monitoring services. The annual fee is adjustable upward or downward at the end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net sales of Capstar Partners for the then-current fiscal year; provided, that such fee shall at no time be less than $100,000 per year. Capstar Partners paid approximately $256,000 in 1997 and has paid approximately $122,000 in 1998 to Hicks Muse under the Capstar Partners Monitoring and Oversight Agreement. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Capstar Partners Monitoring and Oversight Agreement. In addition, Capstar Partners has agreed to indemnify 60 63 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 Capstar Partners Monitoring and Oversight Agreement. Hicks Muse Partners has reserved the right to seek an increase in the amount of its annual fee based on the increased scope of Capstar Partner's operations. Any such increase will be subject to the approval of the Board of Directors of Capstar Partners, including a majority of the disinterested directors, based on the exercise of their independent judgment. The Capstar Partners 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 Capstar Partners without the addition of personnel or the engagement of outside professional advisors. The Capstar Partners Monitoring and Oversight Agreement expires on the earlier to occur of (i) October 16, 2006 or (ii) the date on which HM Fund III and its affiliates cease to own beneficially, directly or indirectly, any securities of Capstar Partners or its successors. FINANCIAL ADVISORY AGREEMENT Capstar Partners is a party to a financial advisory agreement (the "Capstar Partners Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the Capstar Partners Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee equal to 1.5% of the transaction value (as defined in the Capstar Partners Financial Advisory Agreement) for each add-on transaction (as defined) in which Capstar Partners or any of its subsidiaries is involved. Hicks Muse Partners is also entitled to reimbursement for any out-of-pocket expenses incurred by it in connection with rendering services under the Capstar Partners 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 Capstar Partners 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 Capstar Partners or any of its subsidiaries and any other person or entity. In addition, Capstar Partners has agreed to indemnify Hicks Muse Partners, its affiliates and partners, 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 Capstar Partners Financial Advisory Agreement. Pursuant to the Capstar Partners Financial Advisory Agreement, Hicks Muse Partners provides investment banking, financial advisory and other similar services with respect to the add-on transactions in which Capstar Partners is involved. Such transactions require additional attention beyond that required to monitor and advise Capstar Partners on an ongoing basis and accordingly Capstar Partners pays separate Capstar Partners advisory fees with respect to such matters in addition to those paid in connection with the Capstar Partners Monitoring and Oversight Agreement. The services that have been and will continue to be provided by Hicks Muse Partners could not otherwise be obtained by Capstar Partners without the addition of personnel or the engagement of outside professional advisors. The Capstar Partners Financial Advisory Agreement will terminate concurrently with the termination of the Capstar Partners Monitoring and Oversight Agreement. Capstar Partners paid Hicks Muse Partners financial advisory fees of approximately $10.9 million in 1997 and approximately $4.6 million in 1998. STOCKHOLDERS AGREEMENTS Affiliate Stockholders Agreement. R. Steven Hicks, five of his children, Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C. and Capstar L.P. (the "Affiliate Stockholders") have entered into the Affiliate Stockholders Agreement with Capstar Broadcasting and Hicks Muse which provides, among other 61 64 things, that the Affiliate Stockholders may require Capstar Broadcasting, subject to certain registration volume limitations, to effect up to three demand registrations of their Common Stock under the Securities Act at any time after consummation of a qualified IPO (as defined in the Affiliate Stockholders Agreement). The Affiliate Stockholders Agreement also provides that in the event Capstar Broadcasting proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the Affiliate Stockholders will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Affiliate Stockholders Agreement also requires the Affiliate Stockholders, subject to certain conditions, to vote their shares (i) in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters so as to give effect to the agreements contained in the Affiliate Stockholders Agreement. If certain conditions are met, including Mr. Hicks serving as the President and Chief Executive Officer of Capstar Broadcasting or holding not less than 3% of the fully-diluted Common Stock of Capstar Broadcasting, the Affiliate Stockholders Agreement provides that Mr. Hicks shall be one of such designees to serve on Capstar Broadcasting's Board of Directors. The Affiliate Stockholders Agreement provides that, in connection with any transfer of Capstar Broadcasting's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the Affiliate Stockholders to also transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the Affiliate Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transfer. If R. Steven Hicks is no longer an officer, director or employee of Capstar Broadcasting or any of its subsidiaries or a change of control (as defined in the Affiliate Stockholders Agreement) occurs, Capstar Broadcasting has the option to purchase all or any portion of Capstar Broadcasting's securities held by Mr. Hicks and his children. The Affiliate Stockholders Agreement provides that (i) R. Steven Hicks shall retain the voting rights of any securities (subject to such agreement) which he transfers, conveys, assigns or hypothecates to an affiliate or any of his family members and (ii) Mr. Hicks may not transfer, convey, assign or hypothecate any of his securities (subject to the Affiliate Stockholders Agreement) to an affiliate or any family member of Mr. Hicks unless such affiliate or family member joins in the Affiliate Stockholders Agreement. Subject to certain exceptions, if Capstar Broadcasting proposes to issue or sell any shares of Common Stock to Hicks Muse or any of its affiliates, Mr. Hicks has the right to purchase a pro rata share of such shares of Common Stock. Mr. Hicks is entitled to receive, for no additional consideration, a warrant to acquire additional shares of Class C Common Stock (determined as provided in the Affiliate Stockholders Agreement) if Hicks Muse or any of its affiliates otherwise acquires additional shares of Common Stock. See "-- Warrants" and "-- Management and Affiliate Equity Investments." Management Stockholders Agreement. Certain stockholders of Capstar Broadcasting have entered into the Management Stockholders Agreement (the "Management Stockholders Agreement") with Capstar Broadcasting and Hicks Muse that provides, among other things, that in the event Capstar Broadcasting 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 Management Stockholders Agreement will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The Management Stockholders Agreement also requires the parties thereto to vote their shares in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates. The Management Stockholders Agreement provides that, in connection with any transfer of Capstar Broadcasting's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50% of the shares of Common Stock then held by 62 65 Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the stockholders subject to the Management Stockholders Agreement also to transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the Management Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transferee. If at any time a stockholder subject to the Management Stockholders Agreement is no longer an officer, director or employee of Capstar Broadcasting or any of its subsidiaries or a change of control (as defined in the Management Stockholders Agreement) of Capstar Broadcasting occurs, Capstar Broadcasting has the option to purchase all or any portion of Capstar Broadcasting's securities held by such stockholder. GulfStar Stockholders Agreement. Certain stockholders of Capstar Broadcasting have entered into the GulfStar Stockholders Agreement with Capstar Broadcasting and Hicks Muse that provides, among other things, that such persons may require Capstar Broadcasting, subject to certain registration volume limitations, to effect up to three demand registrations of their Common Stock under the Securities Act one year following the consummation of a Qualified IPO (as defined in the GulfStar Stockholders Agreement). The GulfStar Stockholders Agreement also provides that in the event Capstar Broadcasting proposes to register any shares of its Common Stock under the Securities Act, whether or not for its own account, the parties will be entitled, with certain exceptions, to include their shares of Common Stock in such registration. The GulfStar Stockholders Agreement also requires the parties, subject to certain conditions, to vote their shares (i) in favor of the election to Capstar Broadcasting's Board of Directors of such individuals as may be designated by Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other matters so as to give effect to the agreements contained in the GulfStar Stockholders Agreement. The GulfStar Stockholders Agreement provides that, in connection with any transfer of Capstar Broadcasting's securities held by Hicks Muse and its affiliates (which would constitute a "sale" thereof within the meaning of the Securities Act) representing more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to require the GulfStar Stockholders to also transfer a portion of their shares of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of more than 50% of the shares of Common Stock then held by Hicks Muse and its affiliates, such stockholders may "tag along" and sell a portion of their shares of Common Stock on the same terms. Prior to the transfer of any securities subject to the GulfStar Stockholders Agreement by any stockholder other than an affiliate of Hicks Muse, Hicks Muse has the right to acquire such securities on the same terms and conditions as the proposed transferee. The GulfStar Stockholders Agreement provides that (i) a party shall retain the voting rights of any securities (subject to such agreement) which he transfers, conveys, assigns or hypothecates to an affiliate or any of his family members and (ii) a party may not transfer, convey, assign or hypothecate any of his securities (subject to the GulfStar Stockholders Agreement) to an affiliate or any family member of such party unless such affiliate or family member joins in the GulfStar Stockholders Agreement. REGISTRATION RIGHTS AGREEMENT Frank D. Osborn is a party to a registration rights agreement with Capstar Broadcasting which provides, among other things, that Mr. Osborn may require Capstar Broadcasting to effect a demand registration of his Common Stock under the Securities Act at any time within 30 days after the tenth anniversary of the date of the registration rights agreement. Mr. Osborn's right to demand a registration will terminate upon the first to occur of a qualified IPO or a change of control (both as defined in the registration rights agreement). After receipt of a demand for registration of Common Stock by Mr. Osborn pursuant to the registration rights agreement, Capstar Broadcasting has the option to purchase all of the shares of Common Stock, then held by Mr. Osborn for a 30-day period, at appraised value (as defined in the registration rights agreement). 63 66 WARRANTS Under the terms of the Affiliate Stockholders Agreement, Capstar Broadcasting has issued three warrants (each of the warrants a "Regular Warrant" and collectively, the "Regular Warrants") to R. Steven Hicks. Pursuant to the terms of the Regular Warrants, Mr. Hicks is entitled to purchase 7,440,000, 2,042,546 and 987,970 shares, respectively, of Class C Common Stock at any time or from time to time and, upon the fulfillment of certain triggering events (which are based on the achievement of a 30% internal rate of return on the respective investments in Capstar Broadcasting of Hicks Muse and its affiliates), Mr. Hicks may purchase an additional 1,860,000, 510,636, and 2,243,333 shares, respectively, of Class C Common Stock. See "-- Management and Affiliate Equity Investments." The exercise price of the Regular Warrants is equal to $1.00, $1.10, and $1.33 per share, respectively. The exercise prices of each Regular Warrant will increase by an annual rate of interest equal to 8% per year commencing on the date of grant of the Regular Warrant. The Regular Warrants terminate 10 years from the date of grant. The Regular Warrants and the shares of Class C Common Stock issuable thereunder are subject to the Affiliate Stockholders Agreement. See "-- Affiliate Stockholders Agreement." MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS Hicks Muse and its affiliates (excluding Capstar BT Partners, L.P. and Capstar Boston Partners, L.L.C.) have invested $749.8 million in Common Stock, including $90.0 million for 90,000,000 shares of Class C Common Stock in connection with the Commodore Acquisition, $34.8 million for 31,634,527 shares of Class C Common Stock in connection with the Osborn Acquisition, $75.0 million for 56,390,977 shares of Class C Common Stock in connection with the GulfStar Acquisition, $250.0 million for 187,969,925 shares of Class C Common Stock in connection with the Patterson Acquisition and $300.0 million for 212,285,714 shares of Class C Common Stock in connection with the repayment of indebtedness under the Capstar Credit Facility, to consummate the Pending Acquisitions and for general corporate purposes. In addition, an affiliate of Hicks Muse has committed to invest an additional $50.0 million in Capstar Broadcasting during the second quarter of 1998, which the Company expects to receive as an equity contribution. Capstar BT Partners, L.P., an entity controlled by Hicks Muse, has invested $20.0 million for 18,181,818 shares of Class B Common Stock in connection with the Osborn Acquisition, $11.1 million for 8,377,443 shares of Class B Common Stock in connection with the GulfStar Acquisition and $7.4 million for 5,584,962 shares of Class B Common Stock in connection with the Patterson Acquisition. Capstar Boston Partners, L.L.C., an entity controlled by Hicks Muse, has invested $3.0 million for 2,727,272 shares of Class A Common Stock. In January 1997, William S. Banowsky, Jr. purchased 500,000 shares of Class A Common Stock for $500,000 and R. Steven Hicks purchased 100,000 shares of Class A Common Stock for $100,000. In February 1997, Dex Allen, president of Pacific Star, purchased 363,636 shares Class A Common Stock for $400,000. In June 1997, Mary K. Quass, president of Central Star, purchased 909,091 shares of Class A Common Stock for $1.0 million. INDEBTEDNESS OF MANAGEMENT Dex Allen, the president and chief executive officer of Pacific Star, purchased 363,636 shares of common stock of Capstar Partners, which were subsequently exchanged for the same number of shares of Class A Common Stock, in exchange for $200,000 in cash and a promissory note payable to Capstar Partners in the principal amount of $200,000. Mr. Allen repaid the promissory note in February 1998. Mary K. Quass, the president and chief executive officer of Central Star, purchased 909,091 shares of common stock of Capstar Partners, which were subsequently exchanged for the same number of shares of Class A Common Stock, in exchange for cash in the amount of $9,091 and a promissory note payable to Capstar Partners in the principal amount of $990,909. Ms. Quass repaid the promissory note in January 1998. Each of the Eric C. Neuman Special Trust, Paul D. Stone, and John D. Cullen acquired shares of common stock of GulfStar in exchange for non-recourse promissory notes payable and recourse promissory notes payable to GulfStar in aggregate principal amounts of approximately $147,000, $497,000, and $921,000, respectively. Before the GulfStar Acquisition, the notes were secured by the common stock of GulfStar. In 64 67 connection with the GulfStar Acquisition, the common stock of GulfStar was exchanged for Common Stock. The Common Stock held of record by each of the Eric C. Neuman Special Trust, Paul D. Stone and John D. Cullen now secures such person's obligation under the notes. Two notes of Paul D. Stone (with an aggregate principal balance of $36,777) and the note of the Eric C. Neuman Special Trust bear interest at a rate of 9% per annum, and Paul D. Stone's other notes and John D. Cullen's note bear interest at 7.6% per annum, each with principal and interest payments payable annually in arrears. Each of the notes matures 10 years after the date of the note. GULFSTAR TRANSACTION In September 1997, William R. Hicks, the brother of Thomas O. Hicks, sold 1,059,649 shares of Class A Common Stock to Capstar Broadcasting for $682,380. In connection with the sale and pursuant to the GulfStar Stockholders Agreement, Hicks Muse waived its right of first refusal to purchase William R. Hicks' Class A Common Stock. Concurrently with the sale of William R. Hick's Class A Common Stock, GulfStar Communications Holdings, Inc., an indirect subsidiary of Capstar Broadcasting, sold all of the outstanding stock of Bryan Broadcasting Operating Company, Inc. ("BBOC") to Mr. Hicks and another purchaser for a purchase price of $580,000. In connection with the sale, Capstar Broadcasting entered into a Right of First Refusal Agreement with William R. Hicks that provides Capstar Broadcasting the right of first refusal, subject to certain permitted transfers, to repurchase the stock of BBOC if William R. Hicks attempts to sell the radio stations operated by BBOC. GULFSTAR ACQUISITION On July 8, 1997, GulfStar Communications, Inc. merged with and into a wholly-owned subsidiary of Capstar Broadcasting (the "GulfStar Acquisition"). In the merger, all of the outstanding common stock of GulfStar was exchanged for Common Stock having a deemed value of approximately $113.0 million. Concurrently with the merger, the Company redeemed all outstanding preferred stock of GulfStar for approximately $29.4 million and repaid in full the outstanding indebtedness of GulfStar of approximately $90.7 million. The conversion ratio used to determine the amount of Common Stock received by the stockholders of GulfStar was calculated by the parties based on the relative value of Capstar Broadcasting and GulfStar principally determined by utilizing projected broadcast cash flows for the year ending December 31, 1998. Thomas O. Hicks beneficially owned 87.3% of the voting power of GulfStar before the GulfStar Acquisition. In addition, Thomas O. Hicks and R. Steven Hicks served as two of the four directors of GulfStar, and R. Steven Hicks was the Chief Executive Officer of GulfStar. Pursuant to the GulfStar Acquisition, R. Steven Hicks received 11,879,470 shares of Class C Common Stock; Thomas O. Hicks received 12,000,641 shares and 34,368,495 shares of Class B Common Stock and Class C Common Stock, respectively; and Eric C. Neuman, Paul D. Stone, Lawrence D. Stuart, Jr. and John D. Cullen received 2,500,628 shares, 2,271,355 shares, 637,928 shares, and 3,292,989 shares, respectively, of Class A Common Stock. CHANCELLOR MEDIA TRANSACTIONS The Company has retained Katz Media Group, Inc. ("Katz") as its media representative to sell national spot advertising air time. Katz is a wholly-owned subsidiary of Chancellor Media, and Thomas O. Hicks serves as Chairman of the Board of Chancellor Media. In addition, Eric C. Neuman and Lawrence D. Stuart, Jr. serve on the board of Chancellor Media. In 1997 and year to date in 1998, the Company has paid Katz $1,403,000 and $597,000, respectively, for media representation services. The Company broadcasts advertising over the Company's portfolio of stations from The AMFM Radio Network (the "Network"). The Network is owned and operated by Chancellor Media. Thus far in 1998, the Company has paid Chancellor Media $70,000 for the use of the Network. 65 68 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2) Consolidated Financial Statements The financial statements and schedules are listed under Item 8 herein and are hereby incorporated herein by reference. (a)(3) Exhibits:
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1.1 -- Agreement and Plan of Merger, dated June 21, 1996, by and among CMI Acquisition Company, Inc., Commodore Media, Inc. ("Commodore") and the stockholders and other signatories thereto.(1) 2.1.2 -- First Amendment to Agreement and Plan of Merger, dated September 3, 1996.(2) 2.1.3 -- Second Amendment to Agreement and Plan of Merger, dated October 16, 1996.(2) 3.1.1 -- Certificate of Incorporation of Capstar Partners.(3) 3.1.2 -- Certificate of Amendment to Certificate of Incorporation of Capstar Partners, dated June 17, 1997.(4) 3.2 -- Amended and Restated By-Laws of Capstar Partners.* 3.3.1 -- Amended and Restated Certificate of Incorporation of Capstar Radio.(6) 3.3.2 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated April 29, 1996.(18) 3.3.3 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated February 17, 1997.(19) 3.3.4 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated February 20, 1997.(19) 3.3.5 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated April 30, 1997.(19) 3.3.6 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated June 26, 1997.(19) 3.4.1 -- By-Laws of Capstar Radio.(20) 3.4.2 -- Certificate of Amendment to By-Laws of Capstar Radio.(18) 4.2.1 -- Indenture, dated February 20, 1997, between Capstar Partners and U.S. Trust Company of Texas, governing Capstar Partners' outstanding 12 3/4% Senior Discount Notes due 2009 (the "12 3/4% Capstar Indenture"). 4.2.2 -- First Supplemental to 12 3/4% Capstar Indenture*. 4.3.1 -- Indenture, dated as of April 21, 1995, among Capstar Radio, IBJ Schroder Bank & Trust Company, as trustee, and the guarantors named therein, governing Capstar Radio's 13 1/4% Senior Subordinated Notes (the "13 1/4% Capstar Indenture").(6) 4.3.2 -- Amendment No. 1 to 13 1/4% Capstar Indenture.(6) 4.3.3 -- Amendment No. 2 to 13 1/4% Capstar Indenture.(7) 4.3.4 -- Amendment No. 3 to 13 1/4% Capstar Indenture.(7) 4.3.5 -- Amendment No. 4 to 13 1/4% Capstar Indenture.(8) 4.3.6 -- Amendment No. 5 to 13 1/4% Capstar Indenture.(9) 4.3.7 -- Amendment No. 6 to 13 1/4% Capstar Indenture.(5) 4.3.8 -- Amendment No. 7 to 13 1/4% Capstar Indenture.(12)
66 69
EXHIBIT NO. DESCRIPTION ------- ----------- 4.3.9 -- Amendment No. 8 to 13 1/4% Capstar Indenture.(4) 4.3.10 -- Amendment No. 9 to 13 1/4% Capstar Indenture.(11) 4.3.11 -- Amendment No. 10 to 13 1/4% Capstar Indenture.(12) 4.3.12 -- Amendment No. 11 to 13 1/4% Capstar Indenture.(13) 4.3.13 -- Amendment No. 12 to 13 1/4% Capstar Indenture.* 4.3.14 -- Amendment No. 13 to 13 1/4% Capstar Indenture.* 4.3.15 -- Amendment No. 14 to 13 1/4% Capstar Indenture.* 4.3.16 -- Amendment No. 15 to 13 1/4% Capstar Indenture.* 4.4 -- Indenture, dated June 17, 1997, between Capstar Radio and U.S. Trust Company of Texas, N.A governing Capstar Radio's outstanding 9 1/4% Senior Subordinated Notes due 2007.(4) 4.5 -- Indenture, dated June 17, 1997, between Capstar Partners and U.S. Trust Company of Texas, N.A governing Capstar Partners's 12% Subordinated Exchange Debentures due 2009.(4) 4.6 -- Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 12% Senior Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Capstar Partners, dated June 17, 1997.(4) 10.1.1 -- Amended and Restated Credit Agreement, dated February 20, 1997 and amended and restated August 12, 1997 (the "Credit Agreement"), among Capstar Broadcasting, Capstar Partners, Capstar Radio, and various banks signatory thereto.(14) 10.1.2 -- First Amendment to the Credit Agreement, dated August 21, 1997.(14) 10.1.3 -- Second Amendment to the Credit Agreement, dated September 26, 1997.(14) 10.1.4 -- Third Amendment to the Credit Agreement, dated January 28, 1998.* 10.1.5 -- Fourth Amendment to the Credit Agreement, dated February 6, 1998.* 10.2.1 -- Financial Advisory Agreement, dated as of October 16, 1996, between Capstar Partners and Hicks, Muse & Co. Partners, L.P. ("HMCo").(5) 10.3.1 -- Monitoring and Oversight Agreement, dated as of October 16, 1996, between Capstar Partners and HMCo.(5) 10.4 -- Form of Indemnification Agreement between Capstar Broadcasting and each of its directors and officers.(4) 10.5.1 -- Employment Agreement, dated February 14, 1997, between Capstar Partners and R. Steven Hicks.(5)+ 10.5.2 -- First Amendment to Employment Agreement, effective July 1, 1997, between R. Steven Hicks, Capstar Partners, and Capstar Broadcasting.(13)+ 10.6 -- Employment Agreement, dated July 1, 1997, between Capstar Broadcasting and Paul D. Stone.(4)+ 10.7 -- Employment Agreement dated July 1, 1997, between Capstar Broadcasting and William S. Banowsky, Jr.(4)+ 10.8 -- Amended and Restated Employment Agreement, dated October 16, 1996, between Commodore, Capstar Partners and James T. Shea, Jr.(5)+ 10.9 -- Employment Agreement, dated January 27, 1997, between Pacific Star and Claude C. Turner (also known as Dex Allen).(5)+
67 70
EXHIBIT NO. DESCRIPTION ------- ----------- 10.10.1 -- Employment Agreement between GulfStar Communications, Inc. and John D. Cullen.(11)+ 10.10.2 -- First Amendment to Employment Agreement between GulfStar Communications and John D. Cullen.*+ 10.11 -- Employment Agreement, dated January 16, 1998, among Central Star Communications, Inc., Capstar Broadcasting, and Mary K. Quass.*+ 10.13 -- Not used. 10.14 -- Employment Agreement, dated September 22, 1997, between Capstar Partners and Eric W. Neumann.(13)+ 10.15 -- Consulting, Non-Compete and Separation Agreement, dated March 1, 1998, between Southern Star and Frank D. Osborn.*+ 10.16 -- 1997 Stock Option Plan of Capstar Broadcasting.(4)+ 10.17.1 -- Form of Incentive Stock Option Agreement.(4)+ 10.17.2 -- Form of Non-Qualified Stock Option Agreement for Employees.(4)+ 10.17.3 -- Form of Non-Qualified Stock Option Agreement for Non-Employees.(11)+ 10.18 -- 1997 Stock Purchase Plan of Capstar Broadcasting.(4)+ 10.19.1 -- Affiliate Stockholders Agreement, dated October 16, 1996, among Capstar Partners, Hicks Muse, R. Steven Hicks and the security holders listed therein.(5) 10.19.2 -- First Amendment and Supplement to Affiliate Stockholders Agreement, dated January 27, 1997, by and among Capstar Partners, the securityholders listed therein and Hicks Muse.(5) 10.19.3 -- Second Amendment to Affiliate Stockholders Agreement, dated February 20, 1997, by and among Capstar Partners, the security holders listed therein and Hicks Muse.(3) 10.19.4 -- Third Amendment to Affiliate Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, Capstar Partners, the security holders listed therein and Hicks Muse.(4) 10.20.1 -- Management Stockholders Agreement, dated November 26, 1996, among Capstar Partners, the securityholders listed therein and Hicks Muse.(5) 10.20.2 -- First Amendment to Management Stockholders Agreement, dated January 27, 1997, by and among Capstar Partners and the securityholders listed therein.(5) 10.20.3 -- Second Amendment to Management Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, Capstar Partners, the security holders listed therein and Hicks Muse.(4) 10.21 -- GulfStar Stockholders Agreement, dated July 8, 1997, by and among Capstar Broadcasting, the security holders listed therein, and Hicks Muse.(11) 10.22.1 -- Registration Rights Agreement, dated February 20, 1997, between Capstar Partners and Frank D. Osborn.(5) 10.22.2 -- First Amendment to Registration Rights Agreement, dated July 1, 1997, between Capstar Partners, Capstar Broadcasting, and Frank D. Osborn.(4) 10.23 -- Warrant, dated October 16, 1996, issued to R. Steven Hicks.(5) 10.24 -- Warrant, dated February 20, 1997, issued to R. Steven Hicks.(5) 10.25 -- Warrant, dated July 8, 1997, issued to R. Steven Hicks.(11)
68 71
EXHIBIT NO. DESCRIPTION ------- ----------- 10.26.1 -- Stock Purchase Agreement, dated June 12, 1997, by and among Capstar Acquisition Company, Inc., Capstar Partners, Patterson Broadcasting, Inc. and the selling stockholders named therein (the "Patterson Stock Purchase Agreement").(4) 10.26.2 -- First Amendment to Patterson Stock Purchase Agreement.(11) 10.26.3 -- Second Amendment to Patterson Stock Purchase Agreement.(15) 10.26.4 -- Third Amendment to Patterson Stock Purchase Agreement.(15) 10.26.5 -- Fourth Amendment to Patterson Stock Purchase Agreement.(15) 10.27 -- Agreement and Plan of Merger, dated June 16, 1997, by and among GulfStar Communications, Inc., Capstar Broadcasting, CBC-GulfStar Merger Sub, Inc. and the stockholders listed therein.(4) 10.28.1 -- Agreement and Plan of Merger, dated July 23, 1997, by and among OCC Acquisition Corporation, Osborn Communications Corporation, and OCC Holding Corporation (the "Osborn Merger Agreement").(16) 10.28.2 -- First Amendment to Osborn Merger Agreement.(16) 10.29.1 -- Agreement and Plan of Merger, dated as of December 9, 1996, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., Benchmark Radio Acquisition Fund I Limited Partnership, Benchmark Radio Acquisition Fund IV Limited Partnership, Benchmark Radio Acquisition Fund VII Limited Partnership, Benchmark Radio Acquisition Fund VIII Limited Partnership, Joe L. Mathis IV, Bruce R. Spector, Capstar Partners and BCR Holding, Inc. ("Benchmark Merger Agreement").(3) 10.29.2 -- Letter Agreement Amending Benchmark Merger Agreement.(3) 10.29.3 -- Letter Agreement amending Benchmark Merger Agreement.(3) 10.29.4 -- Letter Agreement amending Benchmark Merger Agreement.(3) 10.29.5 -- First Amendment to the Benchmark Merger Agreement.(17) 10.29.6 -- Second Amendment to the Benchmark Merger Agreement.(17) 10.30.1 -- Agreement and Plan of Merger, dated August 24, 1997, by and among SBI Holding Corporation, SBI Radio Acquisition Corporation and SFX Broadcasting, Inc. (the "SFX Merger Agreement")(21) 10.30.2 -- Amendment No. 1 to SFX Merger Agreement.(22) 10.30.3 -- Amendment No. 2 to the SFX Merger Agreement.(23) 21.1 -- List of Subsidiaries.* 27.1 -- Financial Data Schedule.*
- --------------- * Filed herewith. + Management contract or compensatory plan or arrangement. (1) Incorporated by reference to Commodore Media, Inc.'s ("Commodore") Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 33-92732. (2) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 33-92732. (3) Incorporated by reference to Capstar Partners's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 333-25638. (4) Incorporated by reference to Capstar Partners's Amendment No. 1 to Registration Statement on Form S-4, dated July 8, 1997, File No. 333-25638. 69 72 (5) Incorporated by reference to Capstar Partners's Registration Statement on Form S-1, dated April 16, 1997, File No. 333-25263. (6) Incorporated by reference to Commodore's Registration Statement on Form S-4, dated July 26, 1995, File No. 33-92732. (7) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-92732. (8) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 33-92732. (9) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-92732. (10) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 33-92732. (11) Incorporated by reference to Capstar Partners's Amendment No. 2 to Registration Statement on Form S-4, dated August 5, 1997, File No. 333-25638. (12) Incorporated by reference to Capstar Radio's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 33-92732. (13) Incorporated by reference to Capstar Partners's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, File No. 333-25638. (14) Incorporated by reference to Capstar Radio's Current Report on Form 8-K, dated November 26, 1997, File No. 33-92732. (15) Incorporated by reference to Capstar Radio's Current Report on Form 8-K, dated February 13, 1998, File No. 333-25683. (16) Incorporated by reference to Commodore's Current Report on Form 8-K, dated March 6, 1997, File No. 33-92732. (17) Incorporated by reference to Capstar Radio's Current Report on Form 8-K, dated August 6, 1997, File No. 33-92732. (18) Incorporated by reference to Capstar Radio's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-02732. (19) Incorporated by reference to Capstar Radio's Registration Statement on Form S-4, dated August 6, 1997, File No. 33-02732. (20) Incorporated by reference to Commodore's Registration Statement on Form S-4, dated July 26, 1995, File No. 33-02732. (21) Incorporated by reference to SFX's Current Report on Form 8-K, dated August 26, 1997, File No. 000-22486. (22) Incorporated by reference to SFX's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 000-22486. (23) Incorporated by reference to SFX's Current Report on Form 8-K, dated February 17, 1998, File No. 000-22486. 70 73 (b) Reports on Form 8-K The following report on Form 8-K was filed by Capstar Partners during the last quarter of the period covered by this Annual Report on Form 10-K: Current Report on Form 8-K, dated November 26, 1997, relating to the Credit Agreement. Item 7 was reported. The following report on Form 8-K was filed by Capstar Radio during the last quarter of the period covered by this Annual Report on Form 10-K: Current Report on Form 8-K, dated November 26, 1997, relating to the Credit Agreement. Item 7 was reported. 71 74 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Capstar Radio Broadcasting Partners, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPSTAR RADIO BROADCASTING PARTNERS, INC. By: /s/ PAUL D. STONE ----------------------------------- Paul D. Stone Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Capstar Radio Broadcasting Partners, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ R. STEVEN HICKS Chief Executive Officer March 27, 1998 - ----------------------------------------------------- (Principal Executive R. Steven Hicks Officer) /s/ PAUL D. STONE Executive Vice President March 27, 1998 - ----------------------------------------------------- and Chief Financial Paul D. Stone Officer (Principal Financial and Accounting Officer) /s/ ERIC C. NEUMAN Director March 27, 1998 - ----------------------------------------------------- Eric C. Neuman
72 75 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Capstar Broadcasting Partners, Inc. duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ PAUL D. STONE ----------------------------------- Paul D. Stone Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Capstar Broadcasting Partners, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE PAGE --------- ----- ---- /s/ R. STEVEN HICKS Chief Executive Officer March 27, 1998 - ----------------------------------------------------- and Director R. Steven Hicks (Principal Executive Officer) /s/ PAUL D. STONE Executive Vice President March 27, 1998 - ----------------------------------------------------- and Chief Financial Paul D. Stone Officer (Principal Financial and Accounting Officer) /s/ ERIC C. NEUMAN Director March 27, 1998 - ----------------------------------------------------- Eric C. Neuman /s/ THOMAS O. HICKS Director March 27, 1998 - ----------------------------------------------------- Thomas O. Hicks /s/ LAWRENCE D. STUART, JR. Director March 27, 1998 - ----------------------------------------------------- Lawrence D. Stuart, Jr.
73 76 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (ITEM 14(A) 1) CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
PAGE ---- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1997...................................................... F-3 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997............... F-4 Consolidated Statements of Stockholder's Equity for each of the three years in the period ended December 31, 1997..... F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997............... F-6 Notes to Consolidated Financial Statements.................. F-7 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES Report of Independent Accountants........................... F-29 Consolidated Balance Sheets as of December 31, 1996 and 1997...................................................... F-30 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997............... F-31 Consolidated Statements of Stockholder's Equity for each of the three years in the period ended December 31, 1997..... F-32 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997............... F-33 Notes to Consolidated Financial Statements.................. F-34 COMMODORE MEDIA, INC. AND SUBSIDIARIES Report of Independent Auditors.............................. F-53 Consolidated Statements of Operations for the year ended December 31, 1995 and the period from January 1, 1996 to October 16, 1996.......................................... F-54 Consolidated Statements of Cash Flows for the year ended December 31, 1995 and the period from January 1, 1996 to October 16, 1996.......................................... F-55 Notes to Consolidated Statements of Operations and Cash Flows..................................................... F-56 INDEX TO FINANCIAL STATEMENT SCHEDULES (ITEM 14(A) 2) CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES Report of Independent Accountants........................... F-63 Schedule I: Parent Company Condensed Balance Sheets as of December 31, 1996 and 1997.......................................... F-64 Parent Company Condensed Statements of Operations for the period from inception through December 31, 1996 and the year ended December 31, 1997........................... F-65 Parent Company Condensed Statements of Cash Flows for the period from inception through December 31, 1996 and the year ended December 31, 1997........................... F-66 Notes to Parent Company Condensed Financial Statements.... F-67 Schedule II - Valuation and Qualifying Accounts............. F-68 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES Report of Independent Accountants........................... F-69 Schedule II - Valuation and Qualifying Accounts............. F-70
F-1 77 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Capstar Broadcasting Partners, Inc. We have audited the accompanying consolidated balance sheets of Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As described in Note 1, in July 1997, the Company's parent was merged with GulfStar Communications, Inc. The exchange of shares between these entities under common control has been accounted for in a manner similar to a pooling-of-interests. The accompanying consolidated financial statements of the Company have been restated for all periods presented to give retroactive effect to the merger. COOPERS & LYBRAND L.L.P. Austin, Texas March 26, 1998 F-2 78 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
DECEMBER 31, ----------------------- 1996 1997 ---------- ---------- (RESTATED) Current assets: Cash and cash equivalents................................. $ 9,821 $ 70,059 Accounts receivable, net of allowance for doubtful accounts of $1,167 and $2,889, respectively............ 17,249 40,350 Refundable income taxes................................... 1,112 -- Prepaid expenses and other current assets................. 600 4,285 -------- ---------- Total current assets.............................. 28,782 114,694 Property and equipment, net............................... 29,326 106,717 Intangibles and other, net................................ 341,076 881,545 Other non-current assets.................................. 3,448 3,094 -------- ---------- Total assets...................................... $402,632 $1,106,050 ======== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of long-term debt......................... $ 3,936 $ 1,388 Accounts payable.......................................... 5,474 13,641 Accrued liabilities....................................... 5,546 16,826 Income taxes payable...................................... -- 2,417 -------- ---------- Total current liabilities......................... 14,956 34,272 Long-term debt, net of current portion.................... 187,234 593,184 Due to parent............................................. -- 1,082 Deferred income taxes..................................... 83,608 160,150 -------- ---------- Total liabilities................................. 285,798 788,688 Commitments and contingencies (Note 12) Redeemable preferred stock: Capstar Broadcasting Partners, Inc., $.01 par value, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding, aggregate liquidation preference of $106,560............................................... -- 101,493 Gulfstar Communications, Inc., $.01 par value, 507,500 shares authorized, issued and outstanding, aggregate liquidation preference of $27,053...................... 23,098 -- Stockholder's equity: CAPSTAR BROADCASTING PARTNERS, INC.: Common stock, Class A, voting $.01 par value, 200,000,000 and 300,000,000 shares authorized; 94,155,000 and 279,632,180 shares issued and outstanding, respectively............................. 942 2,796 Common stock, Class B, nonvoting, $.01 par value, 50,000,000 shares authorized, none issued............. -- -- Additional paid-in capital............................. 93,957 262,161 GULFSTAR COMMUNICATIONS, INC.: Common stock, voting, $.01 par value, 100,000 and 2,000,000 shares authorized, 10,986 shares issued and outstanding in 1996................................... 1 -- Common stock, Class A, nonvoting, $.01 par value, 60,000 and 600,000 shares authorized, 49,033 shares issued and outstanding in 1996........................ 1 -- Common stock, Class B, nonvoting, $.01 par value, 10,000 shares authorized, no shares issued and outstanding........................................... -- -- Common stock, Class C, voting, $.01 par value, 100,000 shares authorized, 3,172 shares issued and outstanding in 1996............................................... 1 -- Additional paid-in capital............................. 11,869 -- Stock subscriptions receivable......................... (2,090) -- Unearned compensation.................................. (1,518) -- ACCUMULATED DEFICIT....................................... (9,427) (49,088) -------- ---------- Total stockholder's equity........................ 93,736 215,869 -------- ---------- Total liabilities and stockholder's equity........ $402,632 $1,106,050 ======== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-3 79 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ------- -------- -------- (RESTATED) Gross broadcast revenue..................................... $17,322 $ 47,200 $189,820 Less: agency commissions.................................... (1,525) (4,334) (14,375) ------- -------- -------- Net broadcast revenue..................................... 15,797 42,866 175,445 ------- -------- -------- Operating expenses: Programming, technical and news........................... 2,874 9,313 43,073 Sales and promotion....................................... 4,638 12,808 48,156 General and administrative................................ 4,225 8,360 30,906 Corporate expenses.......................................... 513 2,523 14,221 Corporate expenses -- noncash compensation.................. -- 6,176 10,575 Depreciation and amortization............................... 1,134 4,141 26,415 ------- -------- -------- Operating income (loss)..................................... 2,413 (455) 2,099 Other income (expense): Interest expense.......................................... (4,078) (9,741) (49,531) Interest income........................................... 1,932 34 3,819 Gain (loss) on sale of broadcasting property.............. 2,389 -- (908) Other..................................................... (54) (929) (4,729) ------- -------- -------- Income (loss) before provision (benefit) for income taxes and extraordinary item.................................... 2,602 (11,091) (49,250) Provision (benefit) for income taxes........................ 1,032 (322) (11,992) ------- -------- -------- Income (loss) before extraordinary item..................... 1,570 (10,769) (37,258) Extraordinary loss on early extinguishment of debt, net of tax benefit of $707 and $1,473, respectively.............. -- (1,188) (2,403) ------- -------- -------- Net income (loss)........................................... 1,570 (11,957) (39,661) Dividends, accretion and redemption of preferred stocks..... (8) (1,350) (13,631) ------- -------- -------- Net income (loss) attributable to common stock.............. $ 1,562 $(13,307) $(53,292) ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-4 80 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
GULFSTAR COMMUNICATIONS, INC. --------------------------------------------------------------------------------- CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK ------------------ ------------------ ------------------ ------------------ NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE --------- ------ --------- ------ --------- ------ --------- ------ GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated)........ 10,000 $ 1 40,000 $ 1 -- $ -- -- $ -- Shares of Class A Common stock contributed to the company by a stockholder........... -- -- (2,500) -- -- -- -- -- Issuance of voting Common stock............. 151..... -- -- -- -- -- -- -- Issuance of Class B Common stock............ -- -- -- -- 6,081 -- -- -- Accrued interest on Stock subscriptions receivable................................ -- ..... -- -- -- -- -- -- -- Dividends on Redeemable preferred stock..... -- -- -- -- -- -- -- -- Net income.................................. -- -- -- -- -- -- -- -- ------- ------ ------- ------ ------ ------ ------- ------ Balance at December 31, 1995................. 10,151 1 37,500 1 6,081 -- -- -- Issuance of Common stock.................... 4,504 -- -- -- -- -- -- -- Issuance of Class A Common stock............ -- -- 1,626 -- -- -- -- -- Issuance of Class B Common stock............ -- -- -- -- 157 -- -- -- Issuance of Class C Common stock............ -- -- -- -- -- -- 3,172 1 Conversion of Common stock to Class A Common stock..................................... (10,151) -- 10,151 -- -- -- -- -- Conversion of Class A and B Common stock to Common stock.............................. 6,482 -- (244) -- (6,238) -- -- -- Issuance of warrants........................ -- ..... -- -- -- -- -- -- -- Accrued interest on Stock subscriptions receivable................................ -- -- -- -- -- -- -- -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- -- -- -- -- -- Unearned compensation-stock issued for nonrecourse notes......................... -- -- -- -- -- -- -- -- CAPSTAR BROADCASTING PARTNERS, INC.: Issuance of common stock.................... -- -- -- -- -- -- -- -- Issuance of warrants........................ -- -- -- -- -- -- -- -- Net loss.................................... -- -- -- -- -- -- -- -- ------- ------ ------- ------ ------ ------ ------- ------ Balance at December 31, 1996................. 10,986 1 49,033 1 -- -- 3,172 1 GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock.................... 356 -- -- -- -- -- -- -- Conversion of Class A Common stock to Class C Common stock............................ -- -- (39,033) -- -- -- 39,033 -- Conversion of Class C Common stock to Class A Common stock............................ -- -- 10,102 -- -- -- (10,102) -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- -- -- -- -- -- Accrued interest on Stock subscriptions receivable................................ -- -- -- -- -- -- -- -- Payments received on Stock subscriptions receivable................................ -- -- -- -- -- -- -- -- Compensation expense........................ -- -- -- -- -- -- -- -- CAPSTAR BROADCASTING PARTNERS, INC.: Issuances of Common stock................... -- -- -- -- -- -- -- -- Repurchase of Common stock.................. -- -- -- -- -- -- -- -- Conversion of Class B Common stock to Class A Common stock............................ -- -- -- -- -- -- -- -- Compensation expense........................ -- -- -- -- -- -- -- -- Issuance of shares in connection with merger.................................... (11,342) (1) (20,102) (1) -- -- (32,103) (1) Redemption of Redeemable preferred stock by Parent.................................... -- -- -- -- -- -- -- -- Equity contribution from parent............. -- -- -- -- -- -- -- -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- -- -- -- -- -- Payments on stock subscriptions receivable................................ -- -- -- -- -- -- -- -- Transfer of Stock subscriptions receivable to parent................................. -- -- -- -- -- -- -- -- Dividends................................... -- -- -- -- -- -- -- -- Net loss.................................... -- -- -- -- -- -- -- -- ------- ------ ------- ------ ------ ------ ------- ------ Balance at December 31, 1997................. -- $ -- -- $ -- -- $ -- -- $ -- ======= ====== ======= ====== ====== ====== ======= ====== GULFSTAR COMMUNICATIONS, INC. ----------------------------------------- ADDITIONAL STOCK PAID-IN SUBSCRIPTIONS UNEARNED CAPITAL RECEIVABLE COMPENSATION ---------- ------------- ------------ GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated)........ $ -- $ -- $ -- Shares of Class A Common stock contributed to the company by a stockholder........... -- -- -- Issuance of voting Common stock............. 9 (4) -- Issuance of Class B Common stock............ 331 (304) -- Accrued interest on Stock subscriptions receivable................................ 25 (25) -- Dividends on Redeemable preferred stock..... -- -- -- Net income.................................. -- -- -- -------- ------- ------- Balance at December 31, 1995................. 365 (333) -- Issuance of Common stock.................... 1,378 (1,390) -- Issuance of Class A Common stock............ 184 -- -- Issuance of Class B Common stock............ 31 -- -- Issuance of Class C Common stock............ 358 (298) -- Conversion of Common stock to Class A Common stock..................................... -- -- -- Conversion of Class A and B Common stock to Common stock.............................. -- -- -- Issuance of warrants........................ 3,884 -- -- Accrued interest on Stock subscriptions receivable................................ 69 (69) -- Dividends and accretion on Redeemable preferred stock........................... (1,350) -- -- Unearned compensation-stock issued for nonrecourse notes......................... 6,950 -- (1,518) CAPSTAR BROADCASTING PARTNERS, INC.: Issuance of common stock.................... -- -- -- Issuance of warrants........................ -- -- -- Net loss.................................... -- -- -- -------- ------- ------- Balance at December 31, 1996................. 11,869 (2,090) (1,518) GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock.................... 300 (300) -- Conversion of Class A Common stock to Class C Common stock............................ -- -- -- Conversion of Class C Common stock to Class A Common stock............................ -- -- -- Dividends and accretion on Redeemable preferred stock........................... (1,693) -- -- Accrued interest on Stock subscriptions receivable................................ 131 (131) -- Payments received on Stock subscriptions receivable................................ -- 36 -- Compensation expense........................ 7,232 -- 1,518 CAPSTAR BROADCASTING PARTNERS, INC.: Issuances of Common stock................... -- -- -- Repurchase of Common stock.................. -- -- -- Conversion of Class B Common stock to Class A Common stock............................ -- -- -- Compensation expense........................ -- -- -- Issuance of shares in connection with merger.................................... (12,461) 2,485 -- Redemption of Redeemable preferred stock by Parent.................................... (5,378) -- -- Equity contribution from parent............. -- -- -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- Payments on stock subscriptions receivable................................ -- -- -- Transfer of Stock subscriptions receivable to parent................................. -- -- -- Dividends................................... -- -- -- Net loss.................................... -- -- -- -------- ------- ------- Balance at December 31, 1997................. $ -- $ -- $ -- ======== ======= ======= CAPSTAR BROADCASTING PARTNERS, INC. ------------------------------------------------------------------------ CLASS A CLASS B COMMON STOCK COMMON STOCK -------------------- -------------------- ADDITIONAL STOCK NUMBER OF PAR NUMBER OF PAR PAID-IN SUBSCRIPTIONS SHARES VALUE SHARES VALUE CAPITAL RECEIVABLE ----------- ------ ----------- ------ ---------- ------------- GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated)........ -- $ -- -- $ -- $ -- $ -- Shares of Class A Common stock contributed to the company by a stockholder........... -- -- -- -- -- -- Issuance of voting Common stock............. -- -- -- -- -- -- Issuance of Class B Common stock............ -- -- -- -- -- -- Accrued interest on Stock subscriptions receivable................................ -- -- -- -- -- -- Dividends on Redeemable preferred stock..... -- -- -- -- -- -- Net income.................................. -- -- -- -- -- -- ----------- ------ ----------- ------ -------- ------ Balance at December 31, 1995................. -- -- -- -- -- -- Issuance of Common stock.................... -- -- -- -- -- -- Issuance of Class A Common stock............ -- -- -- -- -- -- Issuance of Class B Common stock............ -- -- -- -- -- -- Issuance of Class C Common stock............ -- -- -- -- -- -- Conversion of Common stock to Class A Common stock..................................... -- -- -- Conversion of Class A and B Common stock to Common stock.............................. -- -- -- -- -- -- Issuance of warrants........................ -- -- -- Accrued interest on Stock subscriptions receivable................................ -- -- -- -- -- -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- -- -- -- Unearned compensation-stock issued for nonrecourse notes......................... -- -- -- -- -- -- CAPSTAR BROADCASTING PARTNERS, INC.: Issuance of common stock.................... 94,155,000 942 -- -- 93,213 -- Issuance of warrants........................ -- -- -- -- 744 -- Net loss.................................... -- -- -- -- -- -- ----------- ------ ----------- ------ -------- ------ Balance at December 31, 1996................. 94,155,000 942 -- -- 93,957 -- GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock.................... -- -- -- -- -- -- Conversion of Class A Common stock to Class C Common stock............................ -- -- -- -- -- -- Conversion of Class C Common stock to Class A Common stock............................ -- -- -- -- -- -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- -- -- -- Accrued interest on Stock subscriptions receivable................................ -- -- -- -- -- -- Payments received on Stock subscriptions receivable................................ -- -- -- -- -- -- Compensation expense........................ -- -- -- -- -- -- CAPSTAR BROADCASTING PARTNERS, INC.: Issuances of Common stock................... 82,507,956 825 18,181,818 181 119,875 (1,596) Repurchase of Common stock.................. (175,000) (2) -- -- (173) -- Conversion of Class B Common stock to Class A Common stock............................ 18,181,818 181 (18,181,818) (181) -- -- Compensation expense........................ -- -- -- -- 1,825 -- Issuance of shares in connection with merger.................................... 84,962,406 850 -- -- 40,572 -- Redemption of Redeemable preferred stock by Parent.................................... -- -- -- -- -- -- Equity contribution from parent............. -- -- -- -- 29,358 -- Dividends and accretion on Redeemable preferred stock........................... -- -- -- -- (6,560) -- Payments on stock subscriptions receivable................................ -- -- -- -- -- 405 Transfer of Stock subscriptions receivable to parent................................. -- -- -- -- (1,191) 1,191 Dividends................................... -- -- -- -- (15,502) -- Net loss.................................... -- -- -- -- -- -- ----------- ------ ----------- ------ -------- ------ Balance at December 31, 1997................. 279,632,180 $2,796 -- -- $262,161 -- =========== ====== =========== ====== ======== ====== RETAINED EARNINGS TOTAL (ACCUMULATED STOCKHOLDER'S DEFICIT) EQUITY ------------ ------------- GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated)........ $ 968 $ 970 Shares of Class A Common stock contributed to the company by a stockholder........... -- -- Issuance of voting Common stock............. -- 5 Issuance of Class B Common stock............ -- 27 Accrued interest on Stock subscriptions receivable................................ -- -- Dividends on Redeemable preferred stock..... (8) (8) Net income.................................. 1,570 1,570 -------- -------- Balance at December 31, 1995................. 2,530 2,564 Issuance of Common stock.................... -- (12) Issuance of Class A Common stock............ -- 184 Issuance of Class B Common stock............ -- 31 Issuance of Class C Common stock............ -- 61 Conversion of Common stock to Class A Common stock..................................... -- -- Conversion of Class A and B Common stock to Common stock.............................. -- -- Issuance of warrants........................ -- 3,884 Accrued interest on Stock subscriptions receivable................................ -- -- Dividends and accretion on Redeemable preferred stock........................... -- (1,350) Unearned compensation-stock issued for nonrecourse notes......................... -- 5,432 CAPSTAR BROADCASTING PARTNERS, INC.: Issuance of common stock.................... -- 94,155 Issuance of warrants........................ -- 744 Net loss.................................... (11,957) (11,957) -------- -------- Balance at December 31, 1996................. (9,427) 93,736 GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock.................... -- -- Conversion of Class A Common stock to Class C Common stock............................ -- -- Conversion of Class C Common stock to Class A Common stock............................ -- -- Dividends and accretion on Redeemable preferred stock........................... -- (1,693) Accrued interest on Stock subscriptions receivable................................ -- -- Payments received on Stock subscriptions receivable................................ -- 36 Compensation expense........................ -- 8,750 CAPSTAR BROADCASTING PARTNERS, INC.: Issuances of Common stock................... -- 119,285 Repurchase of Common stock.................. -- (175) Conversion of Class B Common stock to Class A Common stock............................ -- -- Compensation expense........................ -- 1,825 Issuance of shares in connection with merger.................................... -- 31,443 Redemption of Redeemable preferred stock by Parent.................................... -- (5,378) Equity contribution from parent............. -- 29,358 Dividends and accretion on Redeemable preferred stock........................... -- (6,560) Payments on stock subscriptions receivable................................ -- 405 Transfer of Stock subscriptions receivable to parent................................. -- -- Dividends................................... -- (15,502) Net loss.................................... (39,661) (39,661) -------- -------- Balance at December 31, 1997................. $(49,088) $215,869 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 81 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1996 1997 -------- --------- --------- (RESTATED) Cash flows from operating activities: Net income (loss)....................................... $ 1,570 $ (11,957) $ (39,661) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on early extinguishment of debt................. -- 1,188 2,403 Depreciation and amortization........................ 1,134 4,141 26,415 Noncash interest..................................... 323 2,626 24,047 Deferred income taxes................................ -- 547 (12,470) Noncash compensation expense......................... -- 6,176 10,575 Write-off of pending acquisition costs............... -- 105 -- Provision for uncollectible accounts receivable...... 195 661 2,044 (Gain) loss on sale of broadcasting property......... (2,389) -- 908 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable................................ (1,690) (5,331) (12,029) Prepaid expenses and other current assets.......... 159 (1,002) 250 Accounts payable and accrued expenses.............. 2,021 507 1,800 Income taxes payable............................... (64) -- 2,417 -------- --------- --------- Net cash provided by (used in) operating activities.................................... 1,259 (2,339) 6,699 -------- --------- --------- Cash flows from investing activities: Proceeds from sale of broadcasting property............. 3,650 -- 35,932 Purchase of property and equipment...................... (495) (2,478) (10,020) Payments for acquisitions, net of cash acquired......... (20,227) (149,612) (505,375) Payments for pending acquisitions....................... (1,968) (3,342) (6,895) Other investing activities, net......................... (608) (147) (644) -------- --------- --------- Net cash used in investing activities........... (19,648) (155,579) (487,002) -------- --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt................ -- -- 349,496 Proceeds from credit facilities......................... 36,146 64,647 207,406 Repayment of long-term debt............................. (17,584) (13,210) (200,249) Payments of financing related costs..................... (897) (2,936) (25,169) Net proceeds from issuance of common stock.............. 31 94,155 115,737 Net proceeds from issuance of preferred stock........... -- 20,979 95,071 Net proceeds from issuance of warrants.................. -- 3,884 -- Redemption of preferred stock........................... -- -- (811) Purchase of common stock................................ -- -- (175) Dividends paid.......................................... -- -- (765) -------- --------- --------- Net cash provided by financing activities....... 17,696 167,519 540,541 -------- --------- --------- Net increase (decrease) in cash and cash equivalents...... (693) 9,601 60,238 Cash and cash equivalents at beginning of period.......... 913 220 9,821 -------- --------- --------- Cash and cash equivalents at end of period................ $ 220 $ 9,821 $ 70,059 ======== ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-6 82 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. ORGANIZATION AND BUSINESS: Capstar Broadcasting Partners, Inc. ("Capstar Partners"), a holding company controlled by Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund III"), and its direct and indirect wholly owned subsidiaries operate in a single industry segment, which segment encompasses the ownership and management of radio broadcast stations located primarily in mid-sized markets throughout the United States. At December 31, 1997, Capstar Partners owned and operated, provided programming to or sold advertising on behalf of 124 FM stations and 59 AM stations. On October 16, 1996, Capstar Partners acquired Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio") and its wholly owned subsidiaries pursuant to a merger agreement dated June 21, 1996. In June 1997, Capstar Broadcasting Corporation ("Capstar Broadcasting"), a holding company controlled by HM Fund III, acquired, on a share-for-share basis, all of the issued and outstanding common stock of Capstar Partners in exchange for shares of its common stock. In July 1997, Capstar Broadcasting, through a wholly owned subsidiary, was merged with GulfStar Communications, Inc. ("Former GulfStar"), a company controlled by the general partner of HM Fund III. The acquisition was effected through a merger of Former GulfStar with and into a newly formed wholly owned subsidiary of Capstar Broadcasting, with this subsidiary designated as the surviving corporation. Pursuant to the merger agreement, each share of Former GulfStar's common stock was converted into the right to receive shares of Capstar Broadcasting, subject to a conversion ratio calculated based on the relative value of Capstar Broadcasting and Former GulfStar, principally determined by utilizing projected broadcast cash flows for the year ending December 31, 1998. Concurrently with the merger: (i) the surviving corporation was renamed GulfStar Communications, Inc. ("GulfStar"), (ii) Capstar Broadcasting exchanged its shares of GulfStar for additional shares of Capstar Partners (iii) Capstar Partners exchanged its shares of GulfStar for additional shares of Capstar Radio. As a result of the merger and its related transactions, GulfStar became a wholly owned indirect subsidiary of Capstar Broadcasting. Due to the fact that Capstar Broadcasting and GulfStar were under common control, the transfer of the assets and liabilities of GulfStar has been accounted for at historical cost in a manner similar to a pooling-of-interests except that the acquisition by Capstar Broadcasting of the minority interest of Former GulfStar has been accounted for by the purchase method. The accompanying consolidated financial statements have been restated for all periods presented to give retroactive effect to the merger and present the financial statements of Former Gulfstar as the historical consolidated financial statements of Capstar Radio for the periods prior to Capstar Partners' acquisition of Capstar Radio on October 16, 1996, and the combined consolidated results of operations for the periods that Capstar Broadcasting and its direct and indirect wholly owned subsidiaries and GulfStar (collectively, the "Company") were under common control. The restated consolidated financial statements also reflect the application of "Push Down" accounting for the new basis of the purchased assets and assumed liabilities in connection with Capstar Partners' acquisition of Capstar Radio on October 16, 1996. F-7 83 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Separate results of operations of the combining entities to the date of the merger are as follows:
YEAR ENDED DECEMBER 31, SIX MONTHS ----------------------- ENDED JUNE 30, 1995 1996 1997 --------- ---------- -------------- (UNAUDITED) Net broadcast revenue: Capstar Partners............................... $ -- $ 10,303 $ 41,862 GulfStar....................................... 15,797 32,563 23,294 ------- -------- -------- $15,797 $ 42,866 $ 65,156 ======= ======== ======== Extraordinary item: Capstar Partners............................... $ -- $ -- $ 851 GulfStar....................................... -- 1,188 -- ------- -------- -------- $ -- $ 1,188 $ 851 ======= ======== ======== Net income (loss): Capstar Partners............................... $ -- $ (3,757) $(12,503) GulfStar....................................... 1,570 (8,200) (8,842) ------- -------- -------- $ 1,570 $(11,957) $(21,345) ======= ======== ========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents For purposes of the accompanying consolidated statement of cash flows, the Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Equipment under capital lease obligations is recorded at the lower of cost or fair market value at the inception of the lease. The costs of assets retired or otherwise disposed of and the related accumulated depreciation and amortization balances are removed from the accounts and any resulting gain or loss is included in income. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Amortization of assets recorded under capital leases is included in depreciation expense. Intangible Assets FCC licenses and goodwill represent the excess of cost over the fair values of the identifiable tangible and other intangible net assets acquired. Other intangible assets comprise costs incurred for pending acquisitions, noncompete agreements, organization costs incurred in the incorporation of the Company, deferred financing costs and costs related to favorable tower and facility leases. Pending acquisition costs are deferred and capitalized as part of completed acquisitions or expensed in the period in which the pending acquisition is terminated. Approximately $897, $2,936 and $25,169 of new financing costs were incurred for the years ended December 31, 1995, 1996 and 1997, respectively. Accumulated amortization related to deferred financing costs at December 31, 1996 and 1997 was approximately $13 and $1,209, respectively. F-8 84 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The Company periodically 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 impact. At this time, in the opinion of management, no impairment has occurred. 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 period-end based on enacted tax laws and statutory tax rates applicable to the period 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. Stock Subscriptions Receivable Stock subscriptions receivable represent promissory notes issued in connection with the purchase of capital stock. Capital stock issued in connection with such promissory notes is reported as issued and outstanding and included in capital stock and additional paid-in capital in the accompanying consolidated financial statements in the amount of the related promissory note plus accrued interest. The promissory notes and related accrued interest receivable are classified as stock subscriptions receivable and included as a reduction of consolidated stockholder's equity. 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. Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. These are expensed as incurred and totaled approximately $575, $2,668 and $5,731 for the years ended December 31, 1995, 1996 and 1997, respectively. Local Marketing Agreements ("LMA")/Joint Sales Agreements ("JSA") From time to time, the Company enters into LMAs and JSAs, with respect to radio stations owned by third parties including radio stations that it intends to acquire. Terms of the agreements generally require the Company to pay a monthly fee in exchange for the right to provide station programming and sell related advertising time in the case of an LMA or sell advertising in the case of a JSA. The agreements terminate upon the acquisition of the property. The fees are expensed as incurred. The Company classifies the LMA fees as interest expense to the extent interest is imputed based on the purchase price of the broadcast property. The Company accounts for payments received pursuant to LMAs of owned stations as net revenue to the extent that the payment received represents a reimbursement of the Company's ownership costs. F-9 85 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Barter Transactions The Company barters unsold advertising time for products and services. Such transactions are recorded at the estimated fair value of the products or services received. Barter revenue is recorded when commercials are broadcast and related expenses are recorded when the bartered product or service is used. Concentration of Credit Risk It is the Company's policy to place its cash with high credit quality financial institutions, which, at times, may exceed federally insured limits. Management believes that credit risk in these deposits is minimal and has not experienced any losses in such accounts. The Company's revenue and accounts receivable primarily relates 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 accounts receivables are maintained. Uncertainties and Use of Estimates and Assumptions The radio broadcasting industry is subject to federal regulation by the Federal Communications Commission. These governmental regulations and policies could change over time and there can be no assurance that such changes would not have a material impact upon the Company. The Company's 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 under the Communications Act of 1934, as amended. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," which significantly changes current financial statement disclosure requirements from those that were required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does not change the existing measurement or recognition provision of SFAS Nos. 87, 88 or 106. F-10 86 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) These pronouncements are effective for financial statements issued for periods beginning after December 15, 1997. Management does not believe the implementation of these accounting pronouncements will have a material effect on its consolidated financial statements. Reclassifications Certain amounts in 1995 and 1996 have been reclassified to conform to the 1997 presentation. 3. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES: During the years ended December 31, 1995, 1996 and 1997, the Company acquired numerous radio stations and related broadcasting property and equipment, all of which have been accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets and liabilities acquired based upon their fair values at the date of acquisition. The excess of purchase price over the fair value of net tangible assets acquired is allocated to intangible assets, primarily FCC licenses. The results of operations associated with the acquired radio stations have been included in the accompanying consolidated financial statements from the dates of acquisition. The acquisition activity was funded primarily through equity infusions by the Company's parent and long-term borrowings. F-11 87 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Acquisition activity during the periods is as follows:
STATIONS ACQUIRED DATE OF ACQUISITION PURCHASE OF COST ----------------- ------------------- ----------- -------- 1995: 1 AM and 1 FM................................. November Common stock $ 8,025 1 AM and 1 FM................................. November Assets 11,908 1 FM.......................................... November Assets 1,586 -------- $ 21,519 ======== 1996: 2 AM and 6 FM................................. April Common stock $ 1,065 1 AM and 1 FM................................. July Assets 4,038 1 AM and 2 FM................................. July Assets 6,305 1 FM.......................................... July Assets 315 1 FM.......................................... August Assets 728 1 FM.......................................... August Assets 2,061 1 FM.......................................... September Assets 1,551 1 FM.......................................... September Assets 1,812 12 AM and 18 FM............................... October Common stock 122,016 3 AM and 4 FM................................. October Assets 12,600 1 AM and 1 FM................................. November Assets 4,172 1 FM.......................................... December Assets 6,385 -------- $163,048 ======== 1997: 1 FM.......................................... January Assets $ 2,490 1 AM and 1 FM................................. February Assets 3,166 1 AM and 3 FM................................. February Assets 6,292 6 AM and 12 FM................................ February Common stock 102,923 2 FM.......................................... March Assets 11,471 2 AM and 3 FM................................. April Assets 12,038 1 AM and 1 FM................................. April Assets 1,308 1 AM and 1 FM................................. May Assets 3,456 2 FM.......................................... May Common stock 4,967 2 AM and 1 FM................................. May Common stock 23,442 1 AM and 4 FM................................. July Assets 8,267 5 AM and 6 FM................................. July Assets 35,907 1 FM.......................................... July Common stock 2,647 1 AM and 1 FM................................. August Assets 7,968 10 AM and 20 FM............................... August Assets 192,128 1 FM.......................................... August Assets 10,024 2 AM and 4 FM................................. August Assets 41,662 1 FM.......................................... September Assets 1,648 1 FM.......................................... September Assets 3,374 1 FM.......................................... October Assets 3,409 3 FM.......................................... October Assets 5,789 2 FM.......................................... October Assets 2,539 1 AM and 2 FM................................. October Assets 32,606 1 FM.......................................... October Assets 1,986 2 AM and 4 FM................................. November Assets 7,160 -------- 528,667 Acquisition of GulfStar minority interest..... July Stock 31,443 -------- $560,110 ========
F-12 88 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The acquisitions are summarized in the aggregate by period as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ------- -------- -------- Consideration: Cash and notes..................................... $19,629 $153,050 $493,353 Common stock (2,325 Former GulfStar shares and 26,721,805 shares in 1996 and 1997, respectively)................................... -- 276 35,343 Preferred stock (7,500 Former GulfStar shares)..... 750 -- -- Acquisition costs.................................. 1,140 9,251 31,414 Exchange of assets................................. -- 471 -- ------- -------- -------- Total...................................... $21,519 $163,048 $560,110 ======= ======== ======== Assets acquired and liabilities assumed: Cash............................................... $ -- $ 6,120 $ 12,297 Accounts receivable................................ 29 9,020 14,657 Prepaid expenses and other......................... 152 590 2,853 Property and equipment............................. 3,353 23,471 76,050 Intangible assets.................................. 21,087 290,243 577,885 Other assets....................................... -- 704 1,051 Accounts payable................................... -- (5,811) (7,843) Accrued liabilities................................ (250) (882) (5,242) Long-term debt..................................... -- (82,706) (20,711) Capital lease obligations.......................... (44) (127) (465) Deferred income taxes.............................. (2,808) (77,574) (90,422) ------- -------- -------- Total...................................... $21,519 $163,048 $560,110 ======= ======== ========
During the years ended December 31, 1995 and 1997, the Company sold or otherwise disposed of radio stations and related broadcasting property and equipment as follows:
STATIONS DISPOSED DATE OF DISPOSITION SALE OF SALES PRICE ----------------- ------------------- ------- ----------- 1995: 1 FM.................................. June Assets $ 3,650 1997: 1 AM and 2 FM......................... April Assets 11,000 1 AM and 1 FM......................... September Common stock 600 1 FM.................................. September Assets 40,000 1 AM.................................. November Assets 135
The following unaudited pro forma summary presents the consolidated results of operations for the years ended December 31, 1996 and 1997 as if the acquisitions and dispositions completed as of December 31, 1997 had occurred at the beginning of 1996. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions and dispositions been made as of that date or of results which may occur in the future. F-13 89 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA YEAR ENDED DECEMBER 31 ---------------------- 1996 1997 --------- --------- (UNAUDITED) Net broadcast revenue....................................... $210,809 $221,189 Loss before extraordinary loss.............................. (55,837) (43,529) Net loss.................................................... (57,025) (45,932) Net loss attributable to common stock....................... (58,375) (59,563)
Subsequent to December 31, 1997, the Company acquired 20 AM and 35 FM radio stations and related broadcast equipment through several acquisitions for aggregate consideration of approximately $299,141. The acquisitions were funded primarily through equity infusions by the Company's parent. The Company previously operated 2 of these stations under either LMA's or JSA's. In addition to the matter discussed in Note 16, the Company has entered into numerous agreements to acquire additional radio stations (9 AM and 24 FM) and related broadcast equipment for aggregate consideration of approximately $157,000. The Company currently operates 13 of the stations under either LMA's or JSA's. Subsequent to December 31, 1997, the Company disposed of 3 AM and 4 FM radio stations and related broadcast equipment through several dispositions for aggregate consideration of approximately $52,100. The carrying value of net assets to be sold related to these stations approximated the contract sales price. The Company has also entered into agreements for the disposition of 5 AM and 11 FM stations for aggregate consideration of approximately $97,000. The carrying value of net assets to be sold related to these stations approximated the contract sales price. 4. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DEPRECIABLE DECEMBER 31, DEPRECIATION LIFE ------------------ METHOD (YEARS) 1996 1997 ------------- ----------- ------- -------- Buildings and improvements.................. Straight-line 5-20 $ 4,991 $ 17,006 Broadcasting and other equipment............ Straight-line 3-20 23,723 85,481 Equipment under capital lease obligations... Straight-line 3-5 463 1,356 ------- -------- 29,177 103,843 Accumulated depreciation and amortization... (3,426) (10,336) ------- -------- 25,751 93,507 Land........................................ 3,575 13,210 ------- -------- $29,326 $106,717 ======= ========
Depreciation and amortization expense for the years ended December 31, 1995, 1996 and 1997 was approximately $580, $1,535 and $8,137, respectively. F-14 90 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5. INTANGIBLES: Intangibles consists of the following:
AMORTIZABLE DECEMBER 31, AMORTIZATION LIFE -------------------- METHOD (YEARS) 1996 1997 --------------- ----------- -------- -------- FCC licenses and goodwill......... Straight-line 40 $337,479 $864,286 Noncompete agreements............. Straight-line 1-3 1,422 6,115 Organization costs................ Straight-line 5 361 3,040 Deferred financing costs.......... Interest Method -- 2,030 21,358 Other............................. Straight-line 3-5 1,081 6,700 -------- -------- 342,373 901,499 Less accumulated amortization..... (3,961) (25,888) -------- -------- 338,412 875,611 Pending acquisition costs......... 2,664 5,934 -------- -------- $341,076 $881,545 ======== ========
Amortization expense of intangible assets for the years ended December 31, 1995, 1996 and 1997 was approximately $554, $2,606 and $18,278, respectively. 6. ACCRUED LIABILITIES: Accrued liabilities consists of the following:
DECEMBER 31, ------------------ 1996 1997 ------- ------- Accrued compensation........................................ $ 642 $ 4,252 Accrued acquisition costs................................... 954 5,284 Accrued interest............................................ 1,847 960 Accrued commissions......................................... 873 2,403 Other....................................................... 1,230 3,927 ------- ------- $ 5,546 $16,826 ======= =======
F-15 91 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 7. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, -------------------- 1996 1997 -------- -------- Credit Facility............................................. $ -- $141,700 1997 Capstar Partners Notes, $277,000 principal, including unamortized discount of $110,009, due 2009................ -- 166,991 1997 Capstar Radio Notes, $200,000 principal, including unamortized discount of $762, due 2007.................... -- 199,238 1995 Capstar Radio Notes, $76,808 principal, including unamortized discount of $3,008 at December 31, 1997, due 2003...................................................... 76,672 79,816 Former Credit Facility, bearing interest at 3.5% over LIBOR..................................................... 24,700 -- Reducing revolver loans, bearing variable interest (8.7% at December 31, 1996)........................................ 53,794 -- Former Term Loan Facility................................... 35,000 -- Capital lease obligations and other notes payable at various interest rates............................................ 1,004 6,827 -------- -------- 191,170 594,572 Less current portion........................................ (3,936) (1,388) -------- -------- $187,234 $593,184 ======== ========
Credit Facility Capstar Radio entered into an amended and restated credit agreement with various banks in August 1997 (the "Credit Facility"). The Credit Facility consists of a $200 million revolving loan facility (the "Revolving Loans") and an additional $150 million of multiple advancing term loans (the "Term Loans"). The Credit Facility matures seven years from the initial borrowing date with the Revolving Loans then outstanding to be repaid in full on such date. Up to $75 million of the Revolving Loan commitment is available to Capstar Radio for the issuance of letters of credit. At any time on or after August 12, 1998 (the "Effective Date") and prior to December 31, 1998, Capstar Radio may request one or more of the banks to make Term Loans under the Credit Facility, up to an aggregate amount equal to $150 million in up to two advances with a minimum of $50 million for each such advance. The Term Loans are subject to scheduled annual principal repayments, payable in equal quarterly installments. The Term Loans mature on the seventh anniversary of the Effective Date of the Credit Facility. Term loans may not be reborrowed after payment. The Revolving Loans and the Term Loans bear interest at a rate based, at the option of Capstar Radio, on (i) a base rate defined as the higher of 1/2 of 1% in excess of the federal reserve reported certificate of deposit rate or the administrative agent bank's prime lending rate, plus an incremental rate or (ii) the Eurodollar rate, plus an incremental rate. The weighted-average interest rates on Revolving Loans outstanding at December 31, 1996 (Former Credit Facility) and December 31, 1997 were 10.2% and 9.7%, based on prime rates, respectively. Capstar Radio pays fees ranging from 0.375% to 0.50% per annum on the aggregate unused portion of the loan commitment based on the leverage ratio for the most recent quarter end. In addition, Capstar Radio is required to pay letter of credit fees. The Credit Facility contains customary restrictive covenants, which, among other things and with certain exceptions, limit the ability of Capstar Radio to incur additional indebtedness and liens in connection therewith, enter into certain transactions with affiliates, pay dividends, consolidate, merge or effect certain asset sales, issue additional stock, make capital expenditures and enter new lines of business. The Credit F-16 92 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Facility limits Capstar Radio and its subsidiaries ability to make additional acquisitions in excess of $100 million on an individual basis without the prior consent of a majority of the banks. Substantially all the assets of Capstar Radio and its subsidiaries are restricted. Under the Credit Facility, Capstar Radio is also required to satisfy certain financial covenants, which require Capstar Radio and its subsidiaries to maintain specified financial ratios and to comply with certain financial tests, such as maximum leverage ratio, minimum consolidated EBITDA and minimum consolidated EBITDA to consolidated net cash interest expense. Capstar Radio has collateralized the Credit Facility by granting a first priority perfected pledge of Capstar Radio's assets, including, without limitation, the capital stock of its subsidiaries. Capstar Partners, Capstar Broadcasting and all of the direct and indirect subsidiaries of Capstar Partners (other than the Capstar Radio) have guaranteed the Credit Facility and have collateralized their guarantees by granting a first priority perfected pledge of substantially all of their assets. 1997 Capstar Partners Notes On February 20, 1997, Capstar Partners issued $277.0 million in aggregate principal amount at maturity of its 12 3/4% Senior Discount Notes due 2009. The 1997 Capstar Partners Notes were issued at a substantial discount from their aggregate principal amount at maturity, generating gross proceeds to Capstar Partners of approximately $150.3 million. On September 12, 1997, Capstar Partners exchanged its 12 3/4% Senior Discount Notes due 2009 (the "1997 Capstar Partners Notes"), which were registered under the Securities Act of 1933, for all of the outstanding 12 3/4% Senior Discount Notes due 2009 previously issued on February 20, 1997. The terms of the 1997 Capstar Partners Notes are identical in all material respects to the discount notes issued on February 20, 1997. The 1997 Capstar Partners Notes are unsecured, senior obligations of Capstar Partners and are limited to $277.0 million aggregate principal amount at maturity and will mature on February 1, 2009. No interest will accrue on the 1997 Capstar Partners Notes prior to February 1, 2002. Thereafter, interest on the 1997 Capstar Partners Notes will accrue at the rate of 12 3/4% and will be payable in cash semiannually on February 1 and August 1 commencing on August 1, 2002. The yield to maturity of the 1997 Capstar Partners Notes is 12 3/4% (computed on a semi-annual bond equivalent basis), calculated from February 20, 1997. The 1997 Capstar Partners Notes may be redeemed at any time on or after February 1, 2002, in whole or in part, at the option of Capstar Partners at prices ranging from 106.375% at February 1, 2002 and declining to 100% on February 1, 2007 (expressed as a percentage of the accreted value in the redemption date), plus in each case accrued and unpaid interest. In addition, prior to February 1, 2001, Capstar Partners may, at its option, redeem up to 25% of the principal amount at maturity of the 1997 Capstar Partners Notes at a redemption price of 112.75% of the accreted value, out of the proceeds of one or more public equity offering or major asset sales. Upon the occurrence of a change in control (as defined in the 1997 Capstar Partners Note Indenture), the holders of the Capstar Partners Notes have the right to require Capstar Partners to purchase all or a portion of the 1997 Capstar Partners Notes at a purchase price equal to (i) 101% of the accreted value if the change in control occurs before February 1, 2002 or (ii) 101% of the principal amount at maturity, plus accrued and unpaid interest, if the change in control occurs after February 1, 2002. The 1997 Capstar Partners indenture contains limitations on incurrence of additional indebtedness, issuance of preferred stock of subsidiaries and restricted payments, as well as other restrictive covenants. 1997 Capstar Radio Notes On June 17, 1997, Capstar Radio issued $200.0 million in aggregate principal amount of its 9 1/4% Senior Subordinated Notes due July 1, 2007. On September 16, 1997, Capstar Radio exchanged its 9 1/4% Senior Subordinated Notes due 2007 (the "1997 Capstar Radio Notes"), which were registered under the Securities Act, for all of the outstanding notes issued on June 17, 1997. The 1997 Capstar Radio Notes are general unsecured obligations of Capstar Radio and are subordinated to all senior indebtedness of Capstar Radio. The F-17 93 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 Capstar Radio Notes may be redeemed at anytime on or after July 1, 2002, in whole or in part, at the option of Capstar Radio at prices ranging from 104.625% at July 1, 2002 and declining to 100% on or after July 1, 2005, plus in each case accrued and unpaid interest. In addition, prior to July 1, 2001, Capstar Radio may redeem up to 25% of the original aggregate principal amount of the 1997 Capstar Radio Notes at a redemption price of 109.25% plus accrued and unpaid interest with net proceeds of one or more public equity offerings or major asset sales. Upon the occurrence of a change of control (as defined in the 1997 Capstar Radio Notes indenture), the holders of the 1997 Capstar Radio Notes have the right to require Capstar Radio to purchase all or a portion of the 1997 Capstar Radio Notes at a price equal to 101% plus accrued and unpaid interest. The 1997 Capstar Radio Notes indenture contains limitations on incurrence of additional indebtedness, issuance of preferred stock of subsidiaries and restricted payments, as well as other restrictive covenants. 1995 Capstar Radio Notes The 1995 Capstar Radio Notes in the aggregate principal amount of $76,808 bear interest at a rate of 7 1/2% per annum through May 1, 1998 and 13 1/4% per annum through maturity on May 1, 2003, resulting in an effective interest rate of approximately 12.1% per annum. The 1995 Capstar Radio Notes are general unsecured obligations of Capstar Radio, subordinated to all senior indebtedness of Capstar Radio, and are guaranteed on a senior subordinated basis, jointly and severally, by all of Capstar Radio's subsidiaries. The subsidiary guarantors are wholly owned subsidiaries of Capstar Radio. Capstar Radio may redeem the 1995 Capstar Radio Notes, in whole or in part, at any time on or after May 1, 1999 at prices ranging from 107.5% at May 1, 1999 and declining to 100% after May 1, 2002, plus in each case accrued and unpaid interest. In addition, prior to May 1, 1998, Capstar Radio may redeem in the aggregate up to one third of the original principal amount of the 1995 Capstar Radio Notes at a price equal to 108% of the accreted value, plus accrued and unpaid interest, out of the proceeds of one or more public equity offerings. Upon the occurrence of a change in control (as defined in the 1995 Capstar Radio Notes indenture), Capstar Radio will be required to make an offer to purchase the outstanding 1995 Capstar Radio Notes at a price equal to 101% of their accreted value, plus accrued and unpaid interest. The 1995 Capstar Radio Notes indenture contains limitations of additional indebtedness and restricted payments, as well as other restrictive covenants. During 1996, Capstar Radio significantly modified the terms of its existing reducing revolver loans and accelerated the maturity date from March 31, 2003 to December 31, 1996. In connection with this modification, Capstar Radio recognized an extraordinary charge in the accompanying consolidated statement of operations for 1996 relating to the write off of approximately $1,895 ($1,188, net of income tax benefit) of unamortized deferred financing costs. The scheduled maturities of the Company's outstanding long-term debt at December 31, 1997 for each of the next five years and thereafter are as follows:
1998.............................................. $ 1,388 1999.............................................. 2,658 2000.............................................. 819 2001.............................................. 400 2002.............................................. 1,215 Thereafter........................................ 588,092 -------- $594,572 ========
8. REDEEMABLE PREFERRED STOCK: On June 17, 1997, the Company issued 1,000,000 shares of its cumulative (after July 1, 2002) par value $.01 per share 12% Senior Exchangeable Preferred Stock (the "Preferred Stock Offering"). All of the F-18 94 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) proceeds from the Preferred Stock Offering were used to finance the GulfStar merger. On September 12, 1997, the Company exchanged its 12% Senior Exchangeable Preferred Stock (the "Senior Exchangeable Preferred Stock"), which was registered under the Securities Act, for all of the outstanding 12% Senior Exchangeable Preferred Stock previously issued on June 17, 1997. The Company has authorized 10,000,000 shares of the Senior Exchangeable Preferred Stock. Dividends on the Senior Exchangeable Preferred Stock accumulate from the date of issuance and are payable semi-annually, commencing January 1, 1998, 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 July 1, 2002 either in cash or in additional shares of the Senior Exchangeable Preferred Stock. The liquidation preference of the Senior Exchangeable Preferred Stock is $100.00 per share. The Senior Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after July 1, 2002, at prices ranging from 106% at July 1, 2002 and declining to 100% after July 1, 2007, plus, without duplication, accumulated and unpaid dividends to the date of redemption. In addition, subject to certain exceptions, prior to July 1, 2001, the Company may, at its option, redeem up to 25% of the Senior Exchangeable Preferred Stock with the net cash proceeds from one or more Public Equity or Major Asset Sales (both as defined in the Certificate of Designation governing the Senior Exchangeable Preferred Stock), at the redemption prices set forth in the Certificate of Designation, plus, without duplication, accumulated and unpaid dividends to the redemption date. The Senior Exchangeable Preferred Stock is subject to mandatory redemption in whole on July 1, 2009 at a price equal to 100% of the liquidation preference thereof, plus all accrued and unpaid dividends. The Senior Exchangeable Preferred Stock was recorded at the amount of the net proceeds of approximately $95 million. The carrying amount is accreted, using the interest method, to equal the mandatory redemption amount at the mandatory redemption date. The dividend due January 1, 1998 was declared and paid in the form of issuance of 64,667 additional shares of the Senior Exchangeable Preferred Stock. The Company may, at its option, subject to certain conditions, on any scheduled dividend payment date, exchange the Senior Exchangeable Preferred Stock, in whole but not in part, for 12% Capstar Exchange Debentures. Holders of the Senior Exchangeable Preferred Stock will be entitled to receive $1.00 principal amount of 12% Capstar Exchange Debentures for each $1.00 in liquidation preference of Senior Exchangeable Preferred Stock. The Certificate of Designation provides that, upon the occurrence of a change of control (as defined in the Capstar Certificate of Designation), each holder has the right to require the Company to repurchase all or a portion of such holder's Senior Exchangeable Preferred Stock in cash at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the date of repurchase. In addition, the Certificate of Designation provides that, prior to July 1, 2002, upon the occurrence of a change of control, the Company has the option to redeem the Senior Exchangeable Preferred Stock in whole but not in part (a "Change of Control Redemption") at a redemption price equal to 100% of the liquidation preference thereof, plus the applicable premium (as defined in the Certificate of Designation). The Certificate of Designation contains restrictive provisions that, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, or merge or consolidate with or sell all or substantially all of their assets to any other person. The Senior Exchangeable Preferred Stock, with respect to dividend rights and rights on liquidation, winding-up and dissolution, ranks (a) senior to all classes of common stock of the Company and to each other series of preferred stock established after June 17, 1997 (the "Preferred Stock Issuance Date") by the Board F-19 95 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) of Directors of the Company the terms of which expressly provide that such class or series will rank junior to the Senior Exchangeable Preferred Stock (the "Junior Stock"), subject to certain conditions, (b) on a parity with each other class of preferred stock established after the Preferred Stock Issuance Date by the Board of Directors of the Company the terms of which expressly provide that such class or series will rank on a parity with the Senior Exchangeable Preferred Stock and (c) subject to certain conditions, junior to each class of Preferred Stock established after the Preferred Stock Issuance Date by the Board of Directors of the Company the terms of which expressly provide that such class will rank senior to the Senior Exchangeable Preferred Stock. GulfStar Preferred In connection with issuance of its 12% redeemable preferred shares, Former GulfStar granted, to the holders of the preferred shares, warrants for the purchase of 8,098 shares of Former GulfStar's common stock at a rate of $.01 per share. Of the proceeds received from issuance of the preferred shares, $3,884 was assigned to the warrants and credited to additional paid-in capital in the accompanying consolidated financial statements. Such value is being accreted to redeemable preferred stock using the interest method over the period from issuance to mandatory redemption. These warrants were exercised in 1997 in connection with the GulfStar merger. In conjunction with the merger of GulfStar into a direct subsidiary of Capstar Broadcasting in July 1997, Capstar Radio redeemed all of the outstanding shares of redeemable preferred stock of GulfStar. The liquidation value as of the date of redemption was approximately $29 million, which included $2,817 in accumulated dividends. The redemption resulted in a charge to additional paid-in capital of $5,378, for the amount that the liquidation value exceeded the carrying value. 9. NONCASH COMPENSATION EXPENSE: Warrants During 1996 and 1997, the Company issued warrants (which were assumed by Capstar Broadcasting) and Capstar Broadcasting issued warrants to the Company's Chief Executive Officer pursuant to the terms of a stockholder's agreement executed on October 16, 1996 between the Company (assumed by Capstar Broadcasting), the Company's Chief Executive Officer and Capstar Broadcasting's principal stockholder. Under the terms of the agreement, upon the sale of additional shares of Capstar Broadcasting common stock to its principal stockholder, the Company's Chief Executive Officer is entitled to receive, for no additional consideration, warrants entitling him to purchase additional shares of Capstar Broadcasting common stock (Class C). The warrants were issued at an exercise price equal to the fair market value of the underlying stock at the date of issue, increased at an annual rate of 8% per year. The warrants expire ten years from the date of issue. Certain of the warrants can be exercised at any time prior to the expiration date. The remaining warrants cannot be exercised prior to the date upon which distributions (cash or marketable securities) have been made to Capstar Broadcasting's principal stockholder equal to an internal rate of return of at least 30% on each F-20 96 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) investment (the "Triggering Event"). Following is a summary of the warrants issued in connection with this agreement.
NUMBER OF SHARES ------------------------------ EXERCISE PRICE EXERCISABLE PRINCIPAL PER SHARE UPON TRIGGERING STOCKHOLDER DATE ISSUED (EXCLUDING INTEREST) EXERCISABLE EVENT INVESTMENT ----------- -------------------- ----------- --------------- ----------- October 16, 1996............ $1.00 7,444 1,860 $90,000 February 20, 1997........... 1.10 2,042 511 34,800 July 8, 1997................ 1.33 988 2,243 75,000 ------ ----- 10,474 4,614 ====== =====
Capstar Broadcasting has accounted for these warrants as variable in accordance with Accounting Principles Board ("APB") Opinion No. 25 and recognized noncash compensation expense of approximately $744 and $1,825 in 1996 and 1997, respectively. The expense has been allocated to the Company and recorded as a charge to expense and payable to the parent. During 1998, Capstar Broadcasting's principal shareholder contributed additional equity totaling $550,000. At this time, Capstar Broadcasting has not issued additional warrants for this contribution. Stock Subscriptions Former GulfStar issued 1,101 and 7,134 shares of common stock in 1995 and 1996, respectively, for prices ranging from $28 to $309 per share. In each case, Former GulfStar received recourse and non-recourse notes for 25% and 75% of the purchase price, respectively. Former GulfStar applied APB Opinion No. 25 in accounting for the stock issued for non-recourse notes. The compensation cost charged against income was approximately $5,432 and $8,750 in 1996 and 1997, respectively. For certain of the sales to employees during 1996, compensation expense is considered unearned until Former GulfStar's rights to repurchase the shares expire in accordance with the terms of underlying securities purchase agreement. Such rights expired during 1997 upon the merger of Former GulfStar and the Company. In conjunction with the acquisition of Former GulfStar by Capstar Broadcasting in July 1997, all of Former GulfStar's then outstanding common stock and stock subscriptions were exchanged for Capstar Broadcasting common stock and stock subscriptions. 10. STOCK OPTIONS: In June 1997, Capstar Broadcasting adopted the 1997 Stock Option Plan (the "Plan") providing for the granting of options to purchase shares of Capstar Broadcasting's common stock to the Company's key employees and eligible non-employees, as defined by the Plan and determined by Capstar Broadcasting's Board Directors. The Plan replaced the prior stock option plan. Capstar Broadcasting applies APB Opinion No. 25 and related interpretations in accounting for the Plan. In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which, if adopted by Capstar Broadcasting, would change the methods Capstar Broadcasting applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of SFAS No. 123 is optional and Capstar Broadcasting has decided not to elect these provisions of SFAS No. 123. However, pro forma disclosures as if Capstar Broadcasting adopted the cost recognition provisions of SFAS No. 123 in 1995 are required by SFAS No. 123 and are presented below. As of December 31, 1997, an aggregate of 22,000,000 shares was approved for issuance under the Plan. The Plan provides for the issuance of both Incentive Stock Options ("ISOs") as well as options not qualifying F-21 97 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) as ISOs within the meaning of the Internal Revenue Code of 1986, as amended. At the time of the grant, Capstar Broadcasting's Board of Directors determines the exercise price and vesting schedules. Under the terms of the Plan, the option price per share of ISOs to a person who, at the time such ISO is granted, owns shares of Capstar Broadcasting or any Related Entity, which possess more than 10% of the total combined voting power of all classes of shares of Capstar Broadcasting or of any related entity, the option exercise price shall not be less than 110% of the fair market value per share of common stock at the date the option is granted. Options may not be granted with a term beyond June 2007. Generally, 20% of each option is exercisable one year after the grant and an additional 1/60th becomes exercisable each month thereafter. A summary of the status of Capstar Broadcasting's option activity under the Plan and related information follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1997 ---------------------- ----------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE ---------- --------- ----------- --------- Outstanding at beginning of year........ -- $ -- 3,737,430 $1.00 Granted................................. 3,737,430 1.00 14,073,839 1.24 Exercised............................... -- -- -- -- Expired................................. -- -- 1,072,248 1.03 ---------- ----- ----------- ----- Outstanding at end of year.............. 3,737,430 $1.00 16,739,021 $1.20 ========== =========== Options exercisable at end of year...... -- 922,043 ========== =========== Weighted-average grant-date fair value of options granted.................... $ .16 $ .34 ========== ===========
As required by SFAS No. 123, pro forma information regarding net loss has been determined as if Capstar Broadcasting had accounted for its stock options under the fair value method. The fair value for these options was estimated as of the date of grant using a minimum value option pricing model with the following weighted-average assumptions for 1996 and 1997, respectively; risk free interest rates of 5.84% and 6.16%; no dividend; and weighted-average expected lives of the options of three and five years. The minimum value option valuation model with a near zero volatility results in an option value similar to the option value that would result from using the Black-Scholes option valuation model with a near zero volatility. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and which are fully transferable. In addition, option valuation models, in general, require the input of highly subjective assumptions, including the expected stock price volatility. Because Capstar Broadcasting's stock options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The impact on the pro forma results which follow may not be representative of compensation expense in future years when the effect of the amortization of multiple awards may be reflected in the amounts. Had Capstar Broadcasting adopted the cost provision of SFAS No. 123 and allocated these F-22 98 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) costs to the Company, the Company's net loss for 1996 and 1997 would approximate the pro forma amounts below:
YEAR ENDED DECEMBER 31, ------------------------ 1996 1997 ---------- ---------- Net loss: As reported.................................. $ 11,957 $ 39,661 Pro forma.................................... 12,158 40,893
The following table summarizes information about Capstar Broadcasting's options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------------------- ------------------------ WEIGHTED- NUMBER NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED RANGE OF OUTSTANDING AT REMAINING AVERAGE AT AVERAGE EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE ----------- -------------- ----------- -------- ------------ -------- $ .71-$ .71.............. 465,675(1) 4.2 $ .71 -- $ -- 1.00- 1.00.............. 2,793,500 8.9 1.00 922,043 1.00 1.10- 1.10.............. 4,435,360 5.1 1.10 -- -- 1.33- 1.33.............. 9,044,486 5.7 1.33 -- -- ---------- --- ----- ------- ----- 16,739,021 6.0 $1.20 922,043 $1.00 ========== =======
- --------------- (1) These options were assumed by Capstar Broadcasting as part of the merger with Former GulfStar and were accounted for as a portion of the acquisition of minority interest. 11. INCOME TAXES: All of the Company's revenues were generated in the United States. The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------ ------- -------- Current: Federal............................................. $ 999 $(1,112) $ 162 State............................................... 98 243 316 Deferred: Federal............................................. (59) 503 (11,440) State............................................... (6) 44 (1,030) ------ ------- -------- Total provision (benefit)............................. $1,032 $ (322) $(11,992) ====== ======= ========
Approximately $707 and $1,473 of benefit for income taxes was allocated to an extraordinary loss on early extinguishment of debt in the accompanying consolidated statements of operations for the years ended December 31, 1996 and 1997, respectively. For purposes of the foregoing components of provision (benefit) for income taxes, such intra-period allocation is treated to have affected the deferred components. F-23 99 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 35% to income (loss) before income taxes and extraordinary items for the following reasons:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------ ------- -------- U.S. federal income tax at statutory rate............. $ 911 $(3,882) $(17,237) State income taxes, net of federal benefit............ 61 189 (1,478) Nondeductible compensation expense.................... -- 1,847 3,325 Other items, primarily nondeductible expenses and deferred tax adjustments............................ 60 1,524 3,398 ------ ------- -------- $1,032 $ (322) $(11,992) ====== ======= ========
The net deferred tax liability consists of the following:
DECEMBER 31, -------------------- 1996 1997 -------- -------- Deferred tax liabilities: Property and equipment and intangible asset basis differences and related depreciation and amortization........................................... $106,132 $197,753 Deferred tax assets: Miscellaneous............................................. 1,055 4,307 Unamortized discount on long-term debt.................... 54 8,150 Net operating loss carryforwards.......................... 22,974 32,351 -------- -------- Total deferred tax assets......................... 24,083 44,808 Valuation allowance for deferred tax assets............... (1,559) (7,205) -------- -------- Net deferred tax asset............................ 22,524 37,603 -------- -------- Net deferred tax liability........................ $ 83,608 $160,150 ======== ========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. The Company expects the majority of deferred tax assets at December 31, 1997 to be realized as a result of the reversal during the carryforward period of existing taxable temporary differences giving rise to deferred tax liabilities and the generation of taxable income in the carryforward period. At December 31, 1997, the Company had net operating loss carryforwards of approximately $82,000, including approximately $69,500 acquired in connection with the acquisition of certain subsidiaries. The acquired net operating losses are SRLY to the acquired subsidiaries that generated the losses. If not previously utilized, net operating loss carryforwards expire at various dates from 1999 through 2012. Management considers that it is more likely than not that a portion of these loss carryforwards will not ultimately be realized, and has recorded a related valuation allowance as of December 31, 1997. 12. COMMITMENTS AND CONTINGENCIES: Employee Benefit Plan During 1997, the Company established a 401(k) Plan for the benefit of all eligible employees. Eligible participants under this plan are defined as all full-time employees with three months of service. All eligible F-24 100 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) participants may elect to contribute a portion of their compensation to the plan subject to Internal Revenue Service limitations. The Company makes matching contributions to the plan at a rate of 25%, to an annual maximum of 6% of each participant's annual salary. Contribution expense under the plan was $300 for the year ended December 31, 1997. Leases The Company leases real property, office space, broadcasting and office equipment under various noncancelable operating leases. Certain of the Company's operating leases contain escalation clauses, renewal options and/or purchase options. Rent expense was approximately $290, $913 and $2,490 for the years ended December 31, 1995, 1996 and 1997, respectively. Future minimum payments under noncancelable operating lease are as follows:
OPERATING LEASES --------- 1998............................................. $ 3,186 1999............................................. 2,745 2000............................................. 2,276 2001............................................. 1,819 2002............................................. 1,520 Thereafter....................................... 4,544 --------- Total minimum lease payments........... $ 16,090 =========
Employment Agreements The Company has employment agreements with its executive officers and certain members of management, the terms of which expire at various times through December 2002. Such agreements provide for minimum salary levels, which may be adjusted from time to time, as well as for incentive bonuses which are payable if specified management goals are attained. The aggregate commitment for future salaries at December 31, 1997, excluding bonuses, was approximately $5,870. Legal The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material impact on the consolidated financial position or results of operations or cash flows of the Company. Impact of the Year 2000 Issue The Year 2000 Issue is whether the Company's computer systems will properly recognize date sensitive information when the year changes to 2000, or "00." Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company uses purchased software programs for a variety of functions, including general ledger, accounts payable and accounts receivable accounting packages. Responsibility for Year 2000 compliance has been analyzed and testing is currently ongoing for many of the financial applications, individual work stations, and broadcasting systems. Preliminary tests on applications have proven them to be compliant, but further testing is warranted. The Company believes that the Year 2000 Issue will not pose significant operational problems for the Company's computer systems and, therefore, will not have a material impact on the financial position or the operations of the Company. F-25 101 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Other The Company is partially self-insured for employee medical insurance risks, subject to specific retention levels. Self-insurance costs are accrued based upon the aggregate of the estimated liability for reported claims and estimated liabilities for claims incurred but not reported. The Company has recorded approximately $183, $516 and $2,658 for self-insurance costs for the years ended December 31, 1995, 1996 and 1997, respectively. 13. RELATED PARTY TRANSACTIONS: Monitoring and Oversight Agreement The Company has entered into a monitoring and oversight agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to Hicks Muse Partners an annual fee for ongoing financial oversight and monitoring services. The annual fee is adjustable upward or downward at the end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net sales of the Company for the then-current fiscal year; provided, that such fee shall at no time be less that $100 per year. The 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 the Company without the addition of personnel or the engagement of outside professional advisors. Financial Advisory Agreement The Company is a party to a financial advisory agreement (the "Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee equal to 1.5% of the transaction value (as defined in the Financial Advisory Agreement) for each add-on transaction (as defined) in which the Company or any of its subsidiaries is involved. Pursuant to the Financial Advisory Agreement, Hicks Muse Partners 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 the Monitoring and Oversight Agreement. The services that have been and will continue to be provided by Hicks Muse Partners could not have otherwise been obtained by the Company without the addition of personnel or the engagement of outside professional advisors. The Company paid or accrued a financial advisory fee to Hicks Muse Partners in the amount of approximately $3,475 and $10,947 for the years ended December 31, 1996 and 1997, respectively. Former GulfStar On April 16, 1996, Former GulfStar acquired all of the outstanding capital stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of Former GulfStar's Class C common stock, 1,626 shares of Former GulfStar's Class A common stock and approximately $619 of cash. Total consideration for the acquisition, including acquisition costs, was approximately $1,065. The primary assets of Sonance were broadcasting properties. Liabilities of Sonance assumed by Former GulfStar in connection with the acquisition were approximately $7,627. The controlling stockholder of Former GulfStar is a family member of the controlling stockholder of Sonance. The majority stockholder of Former GulfStar, who is a family member of both the controlling stockholder of Former GulfStar and the controlling stockholder of Sonance, was also the majority stockholder of Sonance. F-26 102 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Former GulfStar recorded a charge of approximately $771 during 1996 in connection with the write-off of a receivable from an entity owned by a family member of the controlling stockholder of Former GulfStar. The charge is included in other expense in the accompanying consolidated statement of operations. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments for which the estimated fair value of the instrument differs significantly from its carrying amount at December 31, 1996 and 1997. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1997 -------------------- ---------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- -------- --------- --------- Long-term debt -- 1997 Capstar Partners, and 1997 and 1995 Capstar Radio Notes........... $(76,672) $(76,672) $(446,044) $(494,596) Interest rate swap............................ -- -- -- (320) Redeemable preferred stock.................... -- -- (101,493) (116,000)
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and short-term debt, and accounts receivable and payable: the carrying amount approximates fair value because of the short maturity of these instruments. Long-term debt: The fair value of the Company's 1997 Capstar Partners and 1997 and 1995 Capstar Radio Notes are based on quoted market prices. As amounts outstanding under the Company's Credit Facility agreements bear interest at current market rates, their carrying amounts approximate fair market value. Interest rate swaps: The fair value of the interest rate swap is estimated by obtaining quotations from brokers. The fair value is an estimate of the amounts that the Company would receive (pay) at the reporting date if the contracts were transferred to other parties or canceled by the broker. Redeemable preferred stock of Former GulfStar: The fair value is estimated based on quoted market prices. 15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ------ ------ ------- Cash paid during the period for: Interest.................................................. $1,394 $8,392 $25,388 Income taxes.............................................. 200 999 230 Noncash investing and financing activities: Financed property and equipment purchases................. -- 89 2,537 Book value of assets exchanged in connection with broadcast property acquisition......................... -- 471 -- Dividends and accretion on preferred stock................ 8 1,350 7,071 Notes receivable and accrued interest taken in connection with subscribed stock.................................. 333 1,757 1,896 Redemption of preferred stock by Company's parent......... -- -- 29,358 Noncash dividends on common stock......................... -- -- 14,501 Financed or accrued acquisition costs..................... 542 6,569 7,095
F-27 103 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 16. SUBSEQUENT EVENT: Pursuant to a merger agreement, dated August 24, 1997, between certain affiliates of Capstar Partners' parent and SFX Broadcasting, Inc. ("SFX"), Capstar Broadcasting may acquire SFX for a total cash cost to Capstar Broadcasting of the merger, related repayment of SFX's existing indebtedness and redemption of SFX's preferred stock of approximately $2.1 billion, if completed by May 31, 1998. Upon consummation of the merger, SFX and its subsidiaries will own and operate or provide services to or have the right to acquire 85 radio stations (65 FM and 20 AM) in 28 markets. F-28 104 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Capstar Radio Broadcasting Partners, Inc. We have audited the accompanying consolidated balance sheets of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 Capstar Radio Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As described in Note 1, in July 1997, the Company's parent was merged with GulfStar Communications, Inc. The exchange of shares between these entities under common control has been accounted for in a manner similar to a pooling-of-interests. The accompanying consolidated financial statements of the Company have been restated for all periods presented to give retroactive effect to the merger and to reflect the application of "push-down" accounting for the new basis of the purchased assets and assumed liabilities in connection with Capstar Broadcasting Partners' acquisition of Capstar Radio Broadcasting Partners on October 16, 1996. COOPERS & LYBRAND L.L.P. Austin, Texas March 26, 1998 F-29 105 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
DECEMBER 31, ----------------------- 1996 1997 ---------- ---------- (RESTATED) Current assets: Cash and cash equivalents................................. $ 9,161 $ 70,719 Accounts receivable, net of allowance for doubtful accounts of $1,167 and $2,889, respectively................................... 17,249 40,350 Refundable income taxes................................... 1,112 -- Prepaid expenses and other current assets................. 600 3,699 -------- ---------- Total current assets.............................. 28,122 114,768 Property and equipment, net............................... 28,962 105,505 Intangibles and other, net................................ 339,276 873,544 Other non-current assets.................................. 3,282 3,055 -------- ---------- Total assets...................................... $399,642 $1,096,872 ======== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of long-term debt......................... $ 3,936 $ 1,388 Accounts payable.......................................... 4,688 10,770 Accrued liabilities....................................... 4,158 15,977 Income taxes payable...................................... -- 2,417 -------- ---------- Total current liabilities.............................. 12,782 30,552 Long-term debt, net of current portion.................... 152,234 426,192 Due to parent............................................. -- 11,580 Deferred income taxes..................................... 83,608 167,233 -------- ---------- Total liabilities................................. 248,624 635,557 -------- ---------- Commitments and contingencies (Note 12) Redeemable preferred stock, $.01 par value, 507,500 shares authorized, issued and outstanding, aggregate liquidation preference of $27,053 in 1996............................. 23,098 -- Stockholder's equity: CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Common Stock, $.01 par value, 350,000,000 and 500,000,000 shares authorized; 106,757,000 and 475,874,792 shares issued and outstanding, respectively.......................................... 1,068 4,759 Additional paid-in capital............................. 125,110 491,085 GULFSTAR COMMUNICATIONS, INC.: Common stock, voting, $.01 par value, 100,000 shares authorized, 10,986 shares issued and outstanding in 1996.................................................. 1 -- Common stock, Class A, nonvoting, $.01 par value, 60,000 shares authorized, 49,033 shares issued and outstanding in 1996................................... 1 -- Common stock, Class B, nonvoting, $.01 par value, 10,000 shares authorized, no shares issued and outstanding........................................... -- -- Common stock, Class C, voting, $.01 par value, 100,000 shares authorized, 3,172 shares issued and outstanding in 1996............................................... 1 -- Additional paid-in capital............................. 11,869 -- Stock subscriptions receivable......................... (2,090) -- Unearned compensation.................................. (1,518) -- ACCUMULATED DEFICIT....................................... (6,522) (34,529) -------- ---------- Total stockholder's equity........................ 127,920 461,315 -------- ---------- Total liabilities and stockholder's equity........ $399,642 $1,096,872 ======== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-30 106 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------- -------- -------- (RESTATED) Gross broadcast revenue..................................... $17,322 $ 47,200 $189,820 Less: agency commissions.................................... (1,525) (4,334) (14,375) ------- -------- -------- Net broadcast revenue..................................... 15,797 42,866 175,445 ------- -------- -------- Operating expenses: Programming, technical and news........................... 2,874 9,313 43,073 Sales and promotion....................................... 4,638 12,808 48,156 General and administrative................................ 4,225 8,360 30,906 Corporate expenses........................................ 513 2,300 14,221 Corporate expenses -- noncash compensation................ -- 6,176 10,575 Depreciation and amortization............................. 1,134 4,137 26,285 ------- -------- -------- Operating income (loss)................................... 2,413 (228) 2,229 Other income (expense): Interest expense.......................................... (4,078) (7,064) (30,559) Interest income........................................... 1,932 34 3,453 Gain (loss) on sale of broadcasting property.............. 2,389 -- (908) Other..................................................... (54) (929) (4,729) ------- -------- -------- Income (loss) before provision (benefit) for income taxes and extraordinary item.................................... 2,602 (8,187) (30,514) Provision (benefit) for income taxes........................ 1,032 (323) (4,910) ------- -------- -------- Income (loss) before extraordinary item..................... 1,570 (7,864) (25,604) Extraordinary loss on early extinguishment of debt, net of income tax benefit of $707 and $1,473, respectively....... -- (1,188) (2,403) ------- -------- -------- Net income (loss)......................................... 1,570 (9,052) (28,007) Dividends, accretion and redemption of preferred stocks..... (8) (1,350) (7,071) ------- -------- -------- Net income (loss) attributable to common stock............ $ 1,562 $(10,402) $(35,078) ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-31 107 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
GULFSTAR COMMUNICATIONS, INC. --------------------------------------------------------------------------- CLASS A CLASS B CLASS C COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK ------------------- ------------------- ------------------- --------- NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR NUMBER OF SHARES VALUE SHARES VALUE SHARES VALUE SHARES --------- ------- --------- ------- --------- ------- --------- GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated).......... 10,000 1 40,000 $ 1 -- $ -- -- Shares of Class A Common stock contributed to the company by a stockholder................ -- -- (2,500) -- -- -- -- Issuance of voting Common stock............... 151..... -- -- -- -- -- -- Issuance of Class B Common stock.............. -- -- -- -- 6,081 -- -- Accrued interest on Stock subscriptions receivable.................................. -- ..... -- -- -- -- -- -- Dividends on Redeemable preferred stock....... -- -- -- -- -- -- -- Net income.................................... -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Balance at December 31, 1995................... 10,151 1 37,500 1 6,081 -- -- Issuance of Common stock...................... 4,504 -- -- -- -- -- -- Issuance of Class A Common stock.............. -- -- 1,626 -- -- -- -- Issuance of Class B Common stock.............. -- -- -- -- 157 -- -- Issuance of Class C Common stock.............. -- -- -- -- -- -- 3,172 Conversion of Common stock to Class A Common stock....................................... (10,151) -- 10,151 -- -- -- -- Conversion of Class A and B Common stock to Common stock................................ 6,482 -- (244) -- (6,238) -- -- Issuance of warrants.......................... -- ..... -- -- -- -- -- -- Accrued interest on Stock subscriptions receivable.................................. -- -- -- -- -- -- -- Dividends and accretion on Redeemable preferred stock............................. -- -- -- -- -- -- -- Unearned compensation-stock issued for nonrecourse notes........................... -- -- -- -- -- -- -- CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Balance at October 17, 1996.................... -- -- -- -- -- -- -- Net loss...................................... -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Balance at December 31, 1996................... 10,986 1 49,033 1 -- -- 3,172 GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock...................... 356 -- -- -- -- -- -- Conversion of Class A Common stock to Class C Common stock................................ -- -- (39,033) -- -- -- 39,033 Conversion of Class C Common stock to Class A Common stock................................ -- -- 10,102 -- -- -- (10,102) Dividends and accretion on Redeemable preferred stock............................. -- -- -- -- -- -- -- Accrued interest on Stock subscriptions receivable.................................. -- -- -- -- -- -- -- Payments received on Stock subscriptions receivable.................................. -- -- -- -- -- -- -- Compensation expense.......................... -- -- -- -- -- -- -- CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Issuances of Common stock..................... -- -- -- -- -- -- -- Equity contribution from Parent............... -- -- -- -- -- -- -- Compensation expense.......................... -- -- -- -- -- -- -- Issuance of shares in connection with merger...................................... (11,342) (1) (20,102) (1) -- -- (32,103) Redemption of Redeemable preferred stock by Parent...................................... -- -- -- -- -- -- -- Dividends..................................... -- -- -- -- -- -- -- Net loss...................................... -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Balance at December 31, 1997................... -- $ -- -- $ -- -- $ -- -- ======= ======= ======= ======= ======= ======= ======= GULFSTAR COMMUNICATIONS, INC. ------------------------------------------------------ CLASS C COMMON STOCK ------------ ADDITIONAL STOCK PAR PAID-IN SUBSCRIPTIONS UNEARNED VALUE CAPITAL RECEIVABLE COMPENSATION ------- ---------- ------------- ------------ GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated).......... $ -- $ -- $ -- $ -- Shares of Class A Common stock contributed to the company by a stockholder................ -- -- -- -- Issuance of voting Common stock............... -- 9 (4) -- Issuance of Class B Common stock.............. -- 331 (304) -- Accrued interest on Stock subscriptions receivable.................................. -- 25 (25) -- Dividends on Redeemable preferred stock....... -- -- -- -- Net income.................................... -- -- -- -- ------- ------- ------- ------- Balance at December 31, 1995................... -- 365 (333) -- Issuance of Common stock...................... -- 1,378 (1,390) -- Issuance of Class A Common stock.............. -- 184 -- -- Issuance of Class B Common stock.............. -- 31 -- -- Issuance of Class C Common stock.............. 1 358 (298) -- Conversion of Common stock to Class A Common stock....................................... -- -- -- -- Conversion of Class A and B Common stock to Common stock................................ -- -- -- -- Issuance of warrants.......................... -- 3,884 -- -- Accrued interest on Stock subscriptions receivable.................................. -- 69 (69) -- Dividends and accretion on Redeemable preferred stock............................. -- (1,350) -- -- Unearned compensation-stock issued for nonrecourse notes........................... -- 6,950 -- (1,518) CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Balance at October 17, 1996.................... -- -- -- -- Net loss...................................... -- -- -- -- ------- ------- ------- ------- Balance at December 31, 1996................... 1 11,869 (2,090) (1,518) GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock...................... -- 300 (300) -- Conversion of Class A Common stock to Class C Common stock................................ -- -- -- -- Conversion of Class C Common stock to Class A Common stock................................ -- -- -- -- Dividends and accretion on Redeemable preferred stock............................. -- (1,693) -- -- Accrued interest on Stock subscriptions receivable.................................. -- 131 (131) -- Payments received on Stock subscriptions receivable.................................. -- -- 36 -- Compensation expense.......................... -- 7,232 -- 1,518 CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Issuances of Common stock..................... -- -- -- -- Equity contribution from Parent............... -- -- -- -- Compensation expense.......................... -- -- -- -- Issuance of shares in connection with merger...................................... (1) (12,461) 2,485 -- Redemption of Redeemable preferred stock by Parent...................................... -- (5,378) -- -- Dividends..................................... -- -- -- -- Net loss...................................... -- -- -- -- ------- ------- ------- ------- Balance at December 31, 1997................... $ -- $ -- $ -- $ -- ======= ======= ======= ======= CAPSTAR RADIO BROADCASTING PARTNERS, INC. ---------------------------------- COMMON STOCK ---------------------------------- RETAINED ADDITIONAL EARNINGS TOTAL NUMBER OF PAR PAID-IN (ACCUMULATED STOCKHOLDER'S SHARES VALUE CAPITAL DEFICIT) EQUITY ----------- ------- ---------- ------------ ------------- GULFSTAR COMMUNICATIONS, INC.: Balance at January 1, 1995 (Restated).......... -- -- -- $ 968 $ 970 Shares of Class A Common stock contributed to the company by a stockholder................ -- -- -- -- -- Issuance of voting Common stock............... -- -- -- -- 5 Issuance of Class B Common stock.............. -- -- -- -- 27 Accrued interest on Stock subscriptions receivable.................................. -- -- -- -- -- Dividends on Redeemable preferred stock....... -- -- -- (8) (8) Net income.................................... -- -- -- 1,570 1,570 ----------- ------- -------- -------- -------- Balance at December 31, 1995................... -- -- -- 2,530 2,564 Issuance of Common stock...................... -- -- -- -- (12) Issuance of Class A Common stock.............. -- -- -- -- 184 Issuance of Class B Common stock.............. -- -- -- -- 31 Issuance of Class C Common stock.............. -- -- -- -- 61 Conversion of Common stock to Class A Common stock....................................... -- -- -- -- -- Conversion of Class A and B Common stock to Common stock................................ -- -- -- -- -- Issuance of warrants.......................... -- -- -- -- 3,884 Accrued interest on Stock subscriptions receivable.................................. -- -- -- -- -- Dividends and accretion on Redeemable preferred stock............................. -- -- -- -- (1,350) Unearned compensation-stock issued for nonrecourse notes........................... -- -- -- -- 5,432 CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Balance at October 17, 1996.................... 106,757,000 1,068 125,110 -- 126,178 Net loss...................................... -- -- -- (9,052) (9,052) ----------- ------- -------- -------- -------- Balance at December 31, 1996................... 106,757,000 1,068 125,110 (6,522) 127,920 GULFSTAR COMMUNICATIONS, INC.: Issuance of Common stock...................... -- -- -- -- -- Conversion of Class A Common stock to Class C Common stock................................ -- -- -- -- -- Conversion of Class C Common stock to Class A Common stock................................ -- -- -- -- -- Dividends and accretion on Redeemable preferred stock............................. -- -- -- -- (1,693) Accrued interest on Stock subscriptions receivable.................................. -- -- -- -- -- Payments received on Stock subscriptions receivable.................................. -- -- -- -- 36 Compensation expense.......................... -- -- -- -- 8,750 CAPSTAR RADIO BROADCASTING PARTNERS, INC.: Issuances of Common stock..................... 284,155,386 2,841 342,173 -- 345,014 Equity contribution from Parent............... -- -- 39,233 -- 39,233 Compensation expense.......................... -- -- 1,825 -- 1,825 Issuance of shares in connection with merger...................................... 84,962,406 850 40,572 -- 31,443 Redemption of Redeemable preferred stock by Parent...................................... -- -- -- -- (5,378) Dividends..................................... -- -- (57,828) -- (57,828) Net loss...................................... -- -- -- (28,007) (28,007) ----------- ------- -------- -------- -------- Balance at December 31, 1997................... 475,874,792 $ 4,759 $491,085 $(34,529) $461,315 =========== ======= ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-32 108 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1996 1997 -------- --------- --------- (RESTATED) Cash flows from operating activities: Net income (loss)...................................... $ 1,570 $ (9,052) $ (28,007) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on early extinguishment of debt................ -- 1,188 2,403 Depreciation and amortization....................... 1,134 4,137 26,285 Noncash interest.................................... 323 2,626 4,735 Deferred income taxes............................... (65) 546 (5,388) Noncash compensation expense........................ -- 6,176 10,575 Allocated expenses from parent...................... -- -- 7,075 Write-off of pending acquisition costs.............. -- 105 -- Provision for uncollectible accounts receivable..... 195 661 2,044 (Gain) loss on sale of broadcasting property........ (2,389) -- 908 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable............................... (1,690) (5,331) (12,029) Prepaid expenses and other current assets......... 159 (784) 837 Accounts payable and accrued liabilities.......... 2,021 (1,662) 253 Income taxes payable.............................. 1 -- 2,417 -------- --------- --------- Net cash provided by (used in) operating activities................................... 1,259 (1,390) 12,108 -------- --------- --------- Cash flows from investing activities: Proceeds from sale of broadcasting property ........... 3,650 -- 35,932 Purchase of property and equipment..................... (495) (2,115) (9,051) Payments for acquisitions, net of cash acquired........ (20,227) (149,612) (495,775) Payments for pending acquisitions...................... (1,968) (1,542) (6,840) Other investing activities, net........................ (608) (198) (822) -------- --------- --------- Net cash used in investing activities.......... (19,648) (153,467) (476,556) -------- --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt............... -- -- 199,212 Proceeds from credit facilities........................ 36,146 29,647 207,406 Net proceeds from issuance of common stock............. 31 125,434 308,934 Net proceeds from issuance of preferred stock.......... -- 20,979 -- Net proceeds from issuance of warrants................. -- 3,884 -- Redemption of preferred stock.......................... -- -- (811) Repayment of long-term debt............................ (17,584) (13,210) (165,249) Payments of financing related costs.................... (897) (2,936) (16,614) Advances from parent................................... -- -- 2,238 Dividends paid......................................... -- -- (9,110) -------- --------- --------- Net cash provided by financing activities.............. 17,696 163,798 526,006 -------- --------- --------- Net increase (decrease) in cash and cash equivalents..... (693) 8,941 61,558 Cash and cash equivalents at beginning of period......... 913 220 9,161 -------- --------- --------- Cash and cash equivalents at end of period............... $ 220 $ 9,161 $ 70,719 ======== ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-33 109 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. ORGANIZATION AND BUSINESS: On October 16, 1996, Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio") was acquired pursuant to a merger agreement dated June 21, 1996 with Capstar Broadcasting Partners, Inc. ("Capstar Partners"), a holding company controlled by Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund III"). In June 1997, Capstar Broadcasting Corporation ("Capstar Broadcasting"), a holding company controlled by HM Fund III, acquired all of the issued and outstanding common stock of Capstar Partners in exchange for shares of its common stock. In July 1997, Capstar Broadcasting, through a wholly owned subsidiary, was merged with GulfStar Communications, Inc. ("Former GulfStar"), a company controlled by the general partner of HM Fund III. The acquisition was effected through a merger of Former GulfStar with and into a newly formed wholly owned subsidiary of Capstar Broadcasting, with this subsidiary designated as the surviving corporation. Pursuant to the merger agreement, each share of Former GulfStar's common stock was converted into the right to receive shares of Capstar Broadcasting, subject to a conversion ratio calculated based on the relative value of Capstar Broadcasting and Former GulfStar, principally determined by utilizing projected broadcast cash flows for the year ending December 31, 1998. Concurrently with the merger: (i) the surviving corporation was renamed GulfStar Communications, Inc. ("GulfStar"), (ii) Capstar Broadcasting exchanged its shares of GulfStar for additional shares of Capstar Partners (iii) Capstar Partners exchanged its shares of GulfStar for additional shares of Capstar Radio. As a result of the merger and its related transactions, GulfStar became a wholly owned indirect subsidiary of Capstar Broadcasting. Due to the fact that Capstar Broadcasting and GulfStar were under common control, the transfer of the assets and liabilities of GulfStar has been accounted for at historical cost in a manner similar to a pooling-of-interests except that the acquisition by Capstar Broadcasting of the minority interest of Former GulfStar has been accounted for by the purchase method. The accompanying consolidated financial statements have been restated for all periods presented to give retroactive effect to the merger and present the combined consolidated results of operations for the periods that Capstar Radio and its wholly owned subsidiaries and Former GulfStar were under common control. The accompanying restated consolidated financial statements are comprised of the combined historical consolidated financial statements of Former GulfStar, for all periods presented, and Capstar Radio and its wholly-owned subsidiaries, from the date of its acquisition by Capstar Partners on October 16, 1996 through December 31, 1997, (collectively, the "Company"). F-34 110 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Separate results of operations of the combining entities to the date of the merger are as follows:
YEAR ENDED DECEMBER 31, SIX MONTHS ----------------------- ENDED JUNE 30, 1995 1996 1997 --------- ---------- -------------- (UNAUDITED) Net broadcast revenue: Capstar Radio.................................. $ -- $ 10,303 $ 41,862 GulfStar....................................... 15,797 32,563 23,294 ------- -------- -------- $15,797 $ 42,866 $ 65,156 ======= ======== ======== Extraordinary item: Capstar Radio.................................. $ -- $ -- $ 851 GulfStar....................................... -- 1,188 -- ------- -------- -------- $ -- $ 1,188 $ 851 ======= ======== ======== Net income (loss): Capstar Radio.................................. $ -- $ (852) $ (6,981) GulfStar....................................... 1,570 (8,200) (8,842) ------- -------- -------- $ 1,570 $ (9,052) $(15,823) ======= ======== ========
The Company operates in a single industry segment, which segment encompasses the ownership and management of radio broadcast stations located in mid-sized markets throughout the United States. The Company generally defines mid-sized markets as those Metropolitan Statistical Areas ranked between 30 and 250. At December 31, 1997, the Company owned and operated, provided programming to or sold advertising on behalf of 124 FM stations and 59 AM stations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Separate financial statements of the Company's wholly owned subsidiaries have been omitted since all of such subsidiaries guarantee of the Company's 1995 Capstar Radio Notes and Credit Facility is on a full, unconditional and joint and several basis. (see Note 7) Recapitalization Transaction On February 20, 1997, Capstar Radio amended its Certificate of Incorporation to reflect a new capital structure consisting of 350,000,000 authorized shares of common stock, par value $.01 per share. Immediately upon the filing of the amendment, each previously issued share of Class A common stock, par value $.01 per share, and Class B common stock, par value $.01 per share, of Capstar Radio was converted into 106,757,000 shares of common stock. The accompanying consolidated financial statements have been adjusted retroactively for all periods presented. In June 1997, the Company amended its Certificate of Incorporation to increase its authorized shares to 500,000,000. Cash Equivalents For purposes of the accompanying consolidated statement of cash flows, the Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. F-35 111 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Equipment under capital lease obligations is recorded at the lower of cost or fair market value at the inception of the lease. The costs of assets retired or otherwise disposed of and the related accumulated depreciation and amortization balances are removed from the accounts and any resulting gain or loss is included in income. Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases. Amortization of assets recorded under capital leases is included in depreciation expense. Intangible Assets FCC licenses and goodwill represent the excess of cost over the fair values of the identifiable tangible and other intangible net assets acquired. Other intangible assets comprise costs incurred for pending acquisitions, noncompete agreements, organization costs incurred in the incorporation of the Company, deferred financing costs and costs related to favorable tower and facility leases. Pending acquisition costs are deferred and capitalized as part of completed acquisitions or expensed in the period in which the pending acquisition is terminated. Approximately $897, $2,936 and $16,614 of new financing costs were incurred for the years ended December 31, 1995, 1996 and 1997, respectively. Accumulated amortization related to deferred financing costs at December 31, 1996 and 1997 was approximately $13 and $569, respectively. The Company periodically 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 impact. At this time, in the opinion of management, no impairment has occurred. 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 period-end based on enacted tax laws and statutory tax rates applicable to the period 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. Stock Subscriptions Receivable Stock subscriptions receivable represent promissory notes issued in connection with the purchase of capital stock. Capital stock issued in connection with such promissory notes is reported as issued and outstanding and included in capital stock and additional paid-in capital in the accompanying consolidated financial statements in the amount of the related promissory note plus accrued interest. The promissory notes and related accrued interest receivable are classified as stock subscriptions receivable and included as a reduction of consolidated stockholder's equity. 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. F-36 112 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Advertising Costs The Company incurs various marketing and promotional costs to add and maintain listenership. These are expensed as incurred and totaled approximately $575, $2,668 and $5,731 for the years ended December 31, 1995, 1996 and 1997, respectively. Local Marketing Agreements ("LMA")/Joint Sales Agreements ("JSA") From time to time, the Company enters into LMAs and JSAs, with respect to radio stations owned by third parties including radio stations that it intends to acquire. Terms of the agreements generally require the Company to pay a monthly fee in exchange for the right to provide station programming and sell related advertising time in the case of an LMA or sell advertising in the case of a JSA. The agreements terminate upon the acquisition of the property. The fees are expensed as incurred. The Company classifies the LMA fees as interest expense to the extent interest is imputed based on the purchase price of the broadcast property. The Company accounts for payments received pursuant to LMAs of owned stations as net revenue to the extent that the payment received represents a reimbursement of the Company's ownership costs. Barter Transactions The Company barters unsold advertising time for products and services. Such transactions are recorded at the estimated fair value of the products or services received. Barter revenue is recorded when commercials are broadcast and related expenses are recorded when the bartered product or service is used. Concentration of Credit Risk It is the Company's policy to place its cash with high credit quality financial institutions, which, at times, may exceed federally insured limits. Management believes that credit risk in these deposits is minimal and has not experienced any losses in such accounts. The Company's revenue and accounts receivable primarily relates 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 accounts receivables are maintained. Uncertainties and Use of Estimates and Assumptions The radio broadcasting industry is subject to federal regulation by the Federal Communications Commission. These governmental regulations and policies could change over time and there can be no assurance that such changes would not have a material impact upon the Company. The Company's 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards F-37 113 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," which significantly changes current financial statement disclosure requirements from those that were required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does not change the existing measurement or recognition provision of SFAS Nos. 87, 88 or 106. These pronouncements are effective for financial statements issued for periods beginning after December 15, 1997. Management does not believe the implementation of these accounting pronouncements will have a material effect on its consolidated financial statements. Reclassifications Certain amounts in 1995 and 1996 have been reclassified to conform to the 1997 presentation. 3. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES: During the years ended December 31, 1995, 1996 and 1997, the Company acquired numerous radio stations and related broadcasting property and equipment, all of which have been accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets and liabilities acquired based upon their fair values at the date of acquisition. The excess of purchase price over the fair value of net tangible assets acquired is allocated to intangible assets, primarily FCC licenses. The results of operations associated with the acquired radio stations have been included in the accompanying consolidated financial statements from the dates of acquisition. The acquisition activity was funded primarily through equity infusions by the Company's parent and long-term borrowings. F-38 114 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Acquisition activity during the periods is as follows:
STATIONS ACQUIRED DATE OF ACQUISITION PURCHASE OF COST ----------------- ------------------- ----------- -------- 1995: 1 AM and 1 FM................................. November Common stock $ 8,025 1 AM and 1 FM................................. November Assets 11,908 1 FM.......................................... November Assets 1,586 -------- $ 21,519 ======== 1996: 2 AM and 6 FM................................. April Common stock $ 1,065 1 AM and 1 FM................................. July Assets 4,038 1 AM and 2 FM................................. July Assets 6,305 1 FM.......................................... July Assets 315 1 FM.......................................... August Assets 728 1 FM.......................................... August Assets 2,061 1 FM.......................................... September Assets 1,551 1 FM.......................................... September Assets 1,812 12 AM and 18 FM............................... October Common stock 122,016 3 AM and 4 FM................................. October Assets 12,600 1 AM and 1 FM................................. November Assets 4,172 1 FM.......................................... December Assets 6,385 -------- $163,048 ======== 1997: 1 FM.......................................... January Assets $ 2,490 1 AM and 1 FM................................. February Assets 3,166 1 AM and 3 FM................................. February Assets 6,292 6 AM and 12 FM................................ February Common stock 102,923 2 FM.......................................... March Assets 11,471 2 AM and 3 FM................................. April Assets 12,038 1 AM and 1 FM................................. April Assets 1,308 1 AM and 1 FM................................. May Assets 3,456 2 FM.......................................... May Common stock 4,967 2 AM and 1 FM................................. May Common stock 23,442 1 AM and 4 FM................................. July Assets 8,267 5 AM and 6 FM................................. July Assets 35,907 1 FM.......................................... July Common stock 2,647 1 AM and 1 FM................................. August Assets 7,968 10 AM and 20 FM............................... August Assets 192,128 1 FM.......................................... August Assets 10,024 2 AM and 4 FM................................. August Assets 41,662 1 FM.......................................... September Assets 1,648 1 FM.......................................... September Assets 3,374 1 FM.......................................... October Assets 3,409 3 FM.......................................... October Assets 5,789 2 FM.......................................... October Assets 2,539 1 AM and 2 FM................................. October Assets 32,606 1 FM.......................................... October Assets 1,986 2 AM and 4 FM................................. November Assets 7,160 -------- 528,667 Acquisition of GulfStar minority interest..... July Stock 31,443 -------- $560,110 ========
F-39 115 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The acquisitions are summarized in the aggregate by period as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ------- -------- -------- Consideration: Cash and notes..................................... $19,629 $153,050 $493,353 Common stock (2,325 Former GulfStar shares and 26,721,805 shares in 1996 and 1997, respectively)................................... -- 276 35,343 Preferred stock (7,500 Former GulfStar shares)..... 750 -- -- Acquisition costs.................................. 1,140 9,251 31,414 Exchange of assets................................. -- 471 -- ------- -------- -------- Total...................................... $21,519 $163,048 $560,110 ======= ======== ======== Assets acquired and liabilities assumed: Cash............................................... $ -- $ 6,120 $ 12,297 Accounts receivable................................ 29 9,020 14,657 Prepaid expenses and other......................... 152 590 2,853 Property and equipment............................. 3,353 23,471 76,050 Intangible assets.................................. 21,087 290,243 577,885 Other assets....................................... -- 704 1,051 Accounts payable................................... -- (5,811) (7,843) Accrued liabilities................................ (250) (882) (5,242) Long-term debt..................................... -- (82,706) (20,711) Capital lease obligations.......................... (44) (127) (465) Deferred income taxes.............................. (2,808) (77,574) (90,422) ------- -------- -------- Total...................................... $21,519 $163,048 $560,110 ======= ======== ========
During the years ended December 31, 1995 and 1997, the Company sold or otherwise disposed of radio stations and related broadcasting property and equipment as follows:
STATIONS DISPOSED DATE OF DISPOSITION SALE OF SALES PRICE ----------------- ------------------- ------- ----------- 1995: 1 FM.................................. June Assets $ 3,650 1997: 1 AM and 2 FM......................... April Assets 11,000 1 AM and 1 FM......................... September Common stock 600 1 FM.................................. September Assets 40,000 1 AM.................................. November Assets 135
The following unaudited pro forma summary presents the consolidated results of operations for the years ended December 31, 1996 and 1997 as if the acquisitions and dispositions completed as of December 31, 1997 had occurred at the beginning of 1996. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions and dispositions been made as of that date or of results which may occur in the future. F-40 116 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA YEAR ENDED DECEMBER 31 ---------------------- 1996 1997 --------- --------- (UNAUDITED) Net broadcast revenue....................................... $210,809 $221,189 Loss before extraordinary loss.............................. (33,572) (28,936) Net loss.................................................... (34,760) (31,339) Net loss attributable to common stock....................... (36,110) (38,410)
Subsequent to December 31, 1997, the Company acquired 20 AM and 35 FM radio stations and related broadcast equipment through several acquisitions for aggregate consideration of approximately $299,141. The acquisitions were funded primarily through equity infusions by the Company's parent. The Company previously operated 2 of these stations under either LMA's or JSA's. In addition to the matter discussed in Note 16, the Company has entered into numerous agreements to acquire additional radio stations (9 AM and 24 FM) and related broadcast equipment for aggregate consideration of approximately $157,000. The Company currently operates 13 of the stations under either LMA's or JSA's. Subsequent to December 31, 1997, the Company disposed of 3 AM and 4 FM radio stations and related broadcast equipment through several dispositions for aggregate consideration of approximately $52,100. The carrying value of net assets to be sold related to these stations approximated the contract sales price. The Company has also entered into agreements for the disposition of 5 AM and 11 FM stations for aggregate consideration of approximately $96,900. The carrying value of net assets to be sold related to these stations approximated the contract sales price. 4. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DEPRECIABLE DECEMBER 31, DEPRECIATION LIFE ------------------ METHOD (YEARS) 1996 1997 ------------- ----------- ------- -------- Buildings and improvements.................. Straight-line 5-20 $ 4,810 $ 16,819 Broadcasting and other equipment............ Straight-line 3-20 23,535 84,331 Equipment under capital lease obligations... Straight-line 3-5 463 1,356 ------- -------- 28,808 102,506 Accumulated depreciation and amortization... (3,421) (10,211) ------- -------- 25,387 92,295 Land........................................ 3,575 13,210 ------- -------- $28,962 $105,505 ======= ========
Depreciation and amortization expense for the years ended December 31, 1995, 1996 and 1997 was approximately $580, $1,531 and $8,017, respectively. F-41 117 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5. INTANGIBLES: Intangibles consists of the following:
AMORTIZABLE DECEMBER 31, AMORTIZATION LIFE -------------------- METHOD (YEARS) 1996 1997 --------------- ----------- -------- -------- FCC licenses and goodwill......... Straight-line 40 $337,479 $864,091 Noncompete agreements............. Straight-line 1-3 1,422 6,115 Organization costs................ Straight-line 5 361 3,040 Deferred financing costs.......... Interest Method -- 230 12,967 Other............................. Straight-line 3-5 1,081 6,700 -------- -------- 340,573 892,913 Less accumulated amortization..... (3,961) (25,248) -------- -------- 336,612 867,665 Pending acquisition costs......... 2,664 5,879 -------- -------- $339,276 $873,544 ======== ========
Amortization expense of intangible assets for the years ended December 31, 1995, 1996 and 1997 was approximately $554, $2,606 and $18,268, respectively. 6. ACCRUED LIABILITIES: Accrued liabilities consists of the following:
DECEMBER 31, ------------------ 1996 1997 ------- ------- Accrued compensation........................................ $ 642 $ 4,221 Accrued acquisition costs................................... 954 5,284 Accrued interest............................................ 997 960 Accrued commissions......................................... 873 2,403 Other....................................................... 692 3,109 ------- ------- $ 4,158 $15,977 ======= =======
7. LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, -------------------- 1996 1997 -------- -------- Credit Facility............................................. $ -- $141,700 1997 Capstar Radio Notes, $200,000 principal, including unamortized discount of $762, due 2007.................... -- 199,238 1995 Capstar Radio Notes, $76,808 principal, including unamortized discount of $3,008 at December 31, 1997, due 2003...................................................... 76,672 79,816 Former Credit Facility, bearing interest at 3.5% over LIBOR..................................................... 24,700 -- Reducing revolver loans, bearing variable interest (8.7% at December 31, 1996)........................................ 53,794 -- Capital lease obligations and other notes payable at various interest rates............................................ 1,004 6,826 -------- -------- 156,170 427,580 Less current portion........................................ (3,936) (1,388) -------- -------- $152,234 $426,192 ======== ========
F-42 118 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Credit Facility The Company entered into an amended and restated credit agreement with various banks in August 1997 (the "Credit Facility"). The Credit Facility consists of a $200 million revolving loan facility (the "Revolving Loans") and an additional $150 million of multiple advancing term loans (the "Term Loans"). The Credit Facility matures seven years from the initial borrowing date with the Revolving Loans then outstanding to be repaid in full on such date. Up to $75 million of the Revolving Loan commitment is available to the Company for the issuance of letters of credit. At any time on or after August 12, 1998 (the "Effective Date") and prior to December 31, 1998, the Company many request one or more of the banks to make Term Loans under the Credit Facility, up to an aggregate amount equal to $150 million in up to two advances with a minimum of $50 million for each such advance. The Term Loans are subject to scheduled annual principal repayments, payable in equal quarterly installments. The Term Loans mature on the seventh anniversary of the Effective Date of the Credit Facility. Term loans may not be reborrowed after payment. The Revolving Loans and the Term Loans bear interest at a rate based, at the option of the Company, on (i) a base rate defined as the higher of 1/2 of 1% in excess of the federal reserve reported certificate of deposit rate or the administrative agent bank's prime lending rate, plus an incremental rate or (ii) the Eurodollar rate, plus an incremental rate. The weighted-average interest rates on Revolving Loans outstanding at December 31, 1996 (Former Credit Facility) and December 31, 1997 were 10.2% and 9.7%, based on prime rates, respectively. The company pays fees ranging from 0.375% to 0.50% per annum on the aggregate unused portion of the loan commitment based on the leverage ratio for the most recent quarter end. In addition, the Company is required to pay letter of credit fees. The Credit Facility contains customary restrictive covenants, which, among other things and with certain exceptions, limit the ability of the Company to incur additional indebtedness and liens in connection therewith, enter into certain transactions with affiliates, pay dividends, consolidate, merge or effect certain asset sales, issue additional stock, make capital expenditures and enter new lines of business. The credit Facility limits the Company's ability to make additional acquisitions in excess of $100 million on an individual basis without the prior consent of a majority of the banks. Under the Credit Facility, the Company is also required to satisfy certain financial covenants, which require the Company to maintain specified financial ratios and to comply with certain financial tests, such as maximum leverage ratio, minimum consolidated EBITDA and minimum consolidated EBITDA to consolidated net cash interest expense. The Company has collateralized the Credit Facility by granting a first priority perfected pledge of the Company's assets, including, without limitation, the capital stock of its subsidiaries. Capstar Partners, Capstar Broadcasting and all of the direct and indirect subsidiaries of Capstar Partners (other than the Company) have guaranteed the Credit Facility and have collateralized their guarantees by granting a first priority perfected pledge of substantially all of their assets. 1997 Capstar Radio Notes On June 17, 1997, the Company issued $200 million in aggregate principal amount of its 9 1/4% Senior Subordinated Notes due July 1, 2007. On September 16, 1997, the Company exchanged its 9 1/4% Senior Subordinated Notes due 2007 (the "1997 Capstar Radio Notes"), which were registered under the Securities Act, for all of the outstanding notes issued on June 17, 1997. The 1997 Capstar Radio Notes are general unsecured obligations of the Company and are subordinated to all senior indebtedness of the Company. The 1997 Capstar Radio Notes may be redeemed at anytime on or after July 1, 2002, in whole or in part, at the option of the Company at prices ranging from 104.625% at July 1, 2002 and declining to 100% on or after July 1, 2005, plus in each case accrued and unpaid interest. In addition, prior to July 1, 2001, the Company F-43 119 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) may redeem up to 25% of the original aggregate principal amount of the 1997 Capstar Radio Notes at a redemption price of 109.25% plus accrued and unpaid interest with net proceeds of one or more public equity offerings or major asset sales. Upon the occurrence of a change of control (as defined in the 1997 Capstar Radio Notes indenture), the holders of the 1997 Capstar Radio Notes have the right to require the Company to purchase all or a portion of the 1997 Capstar Radio Notes at a price equal to 101% plus accrued and unpaid interest. The 1997 Capstar Radio Notes indenture contains limitations on incurrence of additional indebtedness, issuance of preferred stock of subsidiaries and restricted payments, as well as other restrictive covenants. 1995 Capstar Radio Notes The 1995 Capstar Radio Notes in the aggregate principal amount of $76,808 bear interest at a rate of 7 1/2% per annum through May 1, 1998 and 13 1/4% per annum through maturity on May 1, 2003, resulting in an effective interest rate of approximately 12.1% per annum. The 1995 Capstar Radio Notes are general unsecured obligations of the Company, subordinated to all senior indebtedness of the Company, and are guaranteed on a senior subordinated basis, jointly and severally, by all of the Company's subsidiaries. The subsidiary guarantors are wholly owned subsidiaries of the Company. The Company may redeem the 1995 Capstar Radio Notes, in whole or in part, at any time on or after May 1, 1999 at prices ranging from 107.5% at May 1, 1999 and declining to 100% after May 1, 2002, plus in each case accrued and unpaid interest. In addition, prior to May 1, 1998, the company may redeem in the aggregate up to one third of the original principal amount of the 1995 Capstar Radio Notes at a price equal to 108% of the accreted value, plus accrued and unpaid interest, out of the proceeds of one or more public equity offerings. Upon the occurrence of a change in control (as defined in the 1995 Capstar Radio Notes indenture), the Company will be required to make an offer to purchase the outstanding 1995 Capstar Radio Notes at a price equal to 101% of their accreted value, plus accrued and unpaid interest. The 1995 Capstar Radio Notes indenture contains limitations of additional indebtedness and restricted payments, as well as other restrictive covenants. During 1996, the Company significantly modified the terms of its existing reducing revolver loans and accelerated the maturity date from March 31, 2003 to December 31, 1996. In connection with this modification, the Company recognized an extraordinary charge in the accompanying consolidated statement of operations for 1996 relating to the write off of approximately $1,895 ($1,188, net of income tax benefit) of unamortized deferred financing costs. The scheduled maturities of the Company's outstanding long-term debt at December 31, 1997 for each of the next five years and thereafter are as follows:
1998.............................................. $ 1,388 1999.............................................. 2,658 2000.............................................. 819 2001.............................................. 400 2002.............................................. 1,215 Thereafter........................................ 421,100 -------- $427,580 ========
8. REDEEMABLE PREFERRED STOCK-GULFSTAR: In connection with issuance of its 12% redeemable preferred shares, Former GulfStar granted, to the holders of the preferred shares, warrants for the purchase of 8,098 shares of Former GulfStar's common stock at a rate of $.01 per share. F-44 120 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Of the proceeds received from issuance of the preferred shares, $3,884 was assigned to the warrants and credited to additional paid-in capital in the accompanying consolidated financial statements. Such value is being accreted to redeemable preferred stock using the interest method over the period from issuance to mandatory redemption. These warrants were exercised in 1997 in connection with the GulfStar merger. In conjunction with the merger of GulfStar into a direct subsidiary of Capstar Broadcasting in July 1997, the Company redeemed all of the outstanding shares of redeemable preferred stock of GulfStar. The liquidation value as of the date of redemption was approximately $29 million, which included $2,817 in accumulated dividends. The redemption resulted in a charge to additional paid-in capital of $5,378, for the amount that the liquidation value exceeded the carrying value. 9. NONCASH COMPENSATION EXPENSE: Warrants During 1996 and 1997, Capstar Partners issued warrants (which were assumed by Capstar Broadcasting) and Capstar Broadcasting issued warrants to the Company's Chief Executive Officer pursuant to the terms of a stockholder's agreement executed on October 16, 1996 between Capstar Partners (assumed by Capstar Broadcasting), the Company's Chief Executive Officer and Capstar Broadcasting's principal stockholder. Under the terms of the agreement, upon the sale of additional shares of Capstar Broadcasting common stock to its principal stockholder, the Company's Chief Executive Officer is entitled to receive, for no additional consideration, warrants entitling him to purchase additional shares of Capstar Broadcasting common stock (Class C). The warrants were issued at an exercise price equal to the fair market value of the underlying stock at the date of issue, increased at an annual rate of 8% per year. The warrants expire ten years from the date of issue. Certain of the warrants can be exercised at any time prior to the expiration date. The remaining warrants cannot be exercised prior to the date upon which distributions (cash or marketable securities) have been made to Capstar Broadcasting's principal stockholder equal to an internal rate of return of at least 30 percent on each investment (the "Triggering Event"). Following is a summary of the warrants issued in connection with this agreement.
NUMBER OF SHARES ------------------------------ EXERCISE PRICE EXERCISABLE PRINCIPAL PER SHARE UPON TRIGGERING STOCKHOLDER DATE ISSUED (EXCLUDING INTEREST) EXERCISABLE EVENT INVESTMENT ----------- -------------------- ----------- --------------- ----------- October 16, 1996............ $1.00 7,444 1,860 $90,000 February 20, 1997........... 1.10 2,042 511 34,800 July 8, 1997................ 1.33 988 2,243 75,000 ------ ----- 10,474 4,614 ====== =====
Capstar Broadcasting has accounted for these warrants as variable in accordance with Accounting Principles Board ("APB") Opinion No. 25 and recognized noncash compensation expense of approximately $744 and $1,825 in 1996 and 1997, respectively. The expense has been allocated to the Company and recorded as a charge to expense and payable to the parent. During 1998 Capstar Broadcasting's principal shareholder contributed additional equity totaling $550,000. At this time, Capstar Broadcasting has not issued additional warrants for this contribution. F-45 121 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Stock Subscriptions Former GulfStar has issued 1,101 and 7,134 shares of common stock in 1995 and 1996, respectively, for prices ranging from $28 to $309 per share. In each case, Former GulfStar received recourse and non-recourse notes for 25% and 75% of the purchase price, respectively. Former GulfStar has applied APB Opinion No. 25 in accounting for the stock issued for non-recourse notes. The compensation cost charged against income was approximately $5,432 and $8,750 in 1996 and 1997, respectively. For certain of the sales to employees during 1996, compensation expense is considered unearned until Former GulfStar's rights to repurchase the shares expire in accordance with the terms of underlying securities purchase agreement. Such rights expired during 1997 upon the merger of Former GulfStar and the Company. In conjunction with the acquisition of Former GulfStar by Capstar Broadcasting in July 1997, all of Former GulfStar's then outstanding common stock and stock subscriptions were exchanged for Capstar Broadcasting common stock and stock subscriptions. 10. STOCK OPTIONS: In June 1997, Capstar Broadcasting adopted the 1997 Stock Option Plan (the "Plan") providing for the granting of options to purchase shares of Capstar Broadcasting's common stock to the Company's key employees and eligible non-employees, as defined by the Plan and determined by Capstar Broadcasting's Board Directors. The Plan replaced the prior stock option plan. Capstar Broadcasting applies APB Opinion No. 25 and related interpretations in accounting for the Plan. In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which, if adopted by Capstar Broadcasting, would change the methods Capstar Broadcasting applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of SFAS No. 123 is optional and Capstar Broadcasting has decided not to elect these provisions of SFAS No. 123. However, pro forma disclosures as if Capstar Broadcasting adopted the cost recognition provisions of SFAS No. 123 in 1995 are required by SFAS No. 123 and are presented below. As of December 31, 1997, an aggregate of 22,000,000 shares was approved for issuance under the Plan. The Plan provides for the issuance of both Incentive Stock Options ("ISOs") as well as options not qualifying as ISOs within the meaning of the Internal Revenue Code of 1986, as amended. At the time of the grant, Capstar Broadcasting's Board of Directors determines the exercise price and vesting schedules. Under the terms of the Plan, the option price per share of ISOs to a person who, at the time such ISO is granted, owns shares of the Company or any Related Entity, which possess more than 10% of the total combined voting power of all classes of shares of Capstar Broadcasting or of any related entity, the option exercise price shall not be less than 110% of the fair market value per share of common stock at the date the option is granted. Options may not be granted with a term beyond June 2007. Generally, 20% of each option is exercisable one year after the grant and an additional 1/60th becomes exercisable each month thereafter. F-46 122 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) A summary of the status of Capstar Broadcasting's option activity under the Plan and related information follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1997 ---------------------- ----------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE ---------- --------- ----------- --------- Outstanding at beginning of year........ -- $ -- 3,737,430 $1.00 Granted................................. 3,737,430 1.00 14,073,839 1.24 Exercised............................... -- -- -- -- Expired................................. -- -- 1,072,248 1.03 ---------- ----- ----------- ----- Outstanding at end of year.............. 3,737,430 $1.00 16,739,021 $1.20 ========== =========== Options exercisable at end of year...... -- 922,043 ========== =========== Weighted-average grant-date fair value of options granted.................... $ .16 $ .34 ========== ===========
As required by SFAS No. 123, pro forma information regarding net loss has been determined as if Capstar Broadcasting had accounted for its stock options under the fair value method. The fair value for these options was estimated as of the date of grant using a minimum value option pricing model with the following weighted-average assumptions for 1996 and 1997, respectively; risk free interest rates of 5.84% and 6.16%; no dividend; and weighted-average expected lives of the options of three and five years. The minimum value option valuation model with a near zero volatility results in an option value similar to the option value that would result from using the Black-Scholes option valuation model with a near zero volatility. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and which are fully transferable. In addition, option valuation models, in general, require the input of highly subjective assumptions, including the expected stock price volatility. Because Capstar Broadcasting's stock options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The impact on the pro forma results which follow may not be representative of compensation expense in future years when the effect of the amortization of multiple awards may be reflected in the amounts. Had Capstar Broadcasting adopted the cost provision of SFAS No. 123, and allocated these costs to the Company, the Company's net loss for 1996 and 1997 would approximate the pro forma amounts below:
YEAR ENDED DECEMBER 31, ----------------------- 1996 1997 --------- ---------- Net loss: As reported................................... $(9,052) $(28,007) Pro forma..................................... (9,253) (29,239)
F-47 123 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes information about Capstar Broadcasting's options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------------------- ------------------------ WEIGHTED- NUMBER NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED RANGE OF OUTSTANDING AT REMAINING AVERAGE AT AVERAGE EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE ----------- -------------- ----------- -------- ------------ -------- $ .71-$ .71.............. 465,675(1) 4.2 $ .71 -- $ -- 1.00- 1.00.............. 2,793,500 8.9 1.00 922,043 1.00 1.10- 1.10.............. 4,435,360 5.1 1.10 -- -- 1.33- 1.33.............. 9,044,486 5.7 1.33 -- -- ---------- --- ----- ------- ----- 16,739,021 6.0 $1.20 922,043 $1.00 ========== =======
- --------------- (1) These options were assumed by Capstar Broadcasting as part of the merger with Former GulfStar and were accounted for as a portion of the acquisition of minority interest. 11. INCOME TAXES: All of the Company's revenues were generated in the United States. The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1996 1997 ------ ------- ------- Current: Federal.............................................. $ 999 $(1,112) $ 162 State................................................ 98 243 316 Deferred: Federal.............................................. (59) 503 (4,942) State................................................ (6) 43 (446) ------ ------- ------- Total provision (benefit).............................. $1,032 $ (323) $(4,910) ====== ======= =======
Approximately $707 and $1,473 of benefit for income taxes was allocated to an extraordinary loss on early extinguishment of debt in the accompanying consolidated statements of operations for the years ended December 31, 1996 and 1997, respectively. For purposes of the foregoing components of provision (benefit) for income taxes, such intra-period allocation is treated to have affected the deferred components. Income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 35% to income (loss) before income taxes and extraordinary items for the following reasons:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1996 1997 ------ ------- -------- U.S. federal income tax at statutory rate............. $ 911 $(2,865) $(10,680) State income taxes, net of federal benefit............ 61 189 (915) Nondeductible compensation expense.................... -- 1,847 3,325 Other items, primarily nondeductible expenses and deferred tax adjustments............................ 60 506 3,360 ------ ------- -------- $1,032 $ (323) $ (4,910) ====== ======= ========
F-48 124 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The net deferred tax liability consists of the following:
DECEMBER 31, -------------------- 1996 1997 -------- -------- Deferred tax liabilities: Property and equipment and intangible asset basis differences and related depreciation and amortization........................................... $106,132 $197,712 Deferred tax assets: Miscellaneous............................................. 1,055 4,193 Unamortized discount on long-term debt.................... 54 1,582 Net operating loss carryforwards.......................... 22,974 30,800 -------- -------- Total deferred tax assets......................... 24,083 36,575 Valuation allowance for deferred tax assets............... (1,559) (6,096) -------- -------- Net deferred tax asset............................ 22,524 30,479 -------- -------- Net deferred tax liability........................ $ 83,608 $167,233 ======== ========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. The Company expects the majority of deferred tax assets at December 31, 1997 to be realized as a result of the reversal during the carryforward period of existing taxable temporary differences giving rise to deferred tax liabilities and the generation of taxable income in the carryforward period. At December 31, 1997, the Company had net operating loss carryforwards of approximately $78,500, including approximately $69,500 acquired in connection with the acquisition of certain subsidiaries. The acquired net operating losses are SRLY to the acquired subsidiaries that generated the losses. If not previously utilized, net operating loss carryforwards expire at various dates from 1999 through 2012. Management considers that it is more likely than not that a portion of these loss carryforwards will not ultimately be realized, and has recorded a related valuation allowance as of December 31, 1997. 12. COMMITMENTS AND CONTINGENCIES: Employee Benefit Plan During 1997, the Company established a 401(k) Plan for the benefit of all eligible employees. Eligible participants under this plan are defined as all full-time employees with three months of service. All eligible participants may elect to contribute a portion of their compensation to the plan subject to Internal Revenue Service limitations. The Company makes matching contributions to the plan at a rate of 25%, to an annual maximum of 6% of each participant's annual salary. Contribution expense under the plan was $300 for the year ended December 31, 1997. Leases The Company leases real property, office space, broadcasting and office equipment under various noncancelable operating leases. Certain of the Company's operating leases contain escalation clauses, renewal options and/or purchase options. Rent expense was approximately $290, $913 and $2,490 for the years ended December 31, 1995, 1996 and 1997, respectively. F-49 125 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Future minimum payments under noncancelable operating lease are as follows:
OPERATING LEASES --------- 1998............................................. $ 3,186 1999............................................. 2,745 2000............................................. 2,276 2001............................................. 1,819 2002............................................. 1,520 Thereafter....................................... 4,544 --------- Total minimum lease payments........... $ 16,090 =========
Employment Agreements The Company has employment agreements with its executive officers and certain members of management, the terms of which expire at various times through December 2002. Such agreements provide for minimum salary levels, which may be adjusted from time to time, as well as for incentive bonuses which are payable if specified management goals are attained. The aggregate commitment for future salaries at December 31, 1997, excluding bonuses, was approximately $5,870. Legal The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material impact on the consolidated financial position or results of operations or cash flows of the Company. Impact of the Year 2000 Issue The Year 2000 Issue is whether the Company's computer systems will properly recognize date sensitive information when the year changes to 2000, or "00." Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company uses purchased software programs for a variety of functions, including general ledger, accounts payable and accounts receivable accounting packages. Responsibility for Year 2000 compliance has been analyzed and testing is currently ongoing for many of the financial applications, individual work stations, and broadcasting systems. Preliminary tests on applications have proven them to be compliant, but further testing is warranted. The Company believes that the Year 2000 Issue will not pose significant operational problems for the Company's computer systems and, therefore, will not have a material impact on the financial position or the operations of the Company. Other The Company is partially self-insured for employee medical insurance risks, subject to specific retention levels. Self-insurance costs are accrued based upon the aggregate of the estimated liability for reported claims and estimated liabilities for claims incurred but not reported. The Company has recorded approximately $183, $516 and $2,658 for self-insurance costs for the years ended December 31, 1995, 1996 and 1997, respectively. F-50 126 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 13. RELATED PARTY TRANSACTIONS: Allocated Expenses All expenses, excluding interest expense, incurred by Capstar Partners and Capstar Broadcasting are allocated to the Company. These costs totaled approximately $8,900 in 1997, of which $1,825 represented noncash compensation and $744 in 1996, all of which represented noncash compensation. GulfStar On April 16, 1996, Former GulfStar acquired all of the outstanding capital stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of Former GulfStar's Class C common stock, 1,626 shares of Former GulfStar's Class A common stock and approximately $619 of cash. Total consideration for the acquisition, including acquisition costs, was approximately $1,065. The primary assets of Sonance were broadcasting properties. Liabilities of Sonance assumed by Former GulfStar in connection with the acquisition were approximately $7,627. The controlling stockholder of Former GulfStar is a family member of the controlling stockholder of Sonance. The majority stockholder of Former GulfStar, who is a family member of both the controlling stockholder of Former GulfStar and the controlling stockholder of Sonance, was also the majority stockholder of Sonance. Former GulfStar recorded a charge of approximately $771 during 1996 in connection with the write-off of a receivable from an entity owned by a family member of the controlling stockholder of Former GulfStar. The charge is included in other expense in the accompanying consolidated statement of operations. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following table presents the carrying amounts and estimated fair values of the Company's financial instruments for which the estimated fair value of the instrument differs significantly from its carrying amount at December 31, 1996 and 1997. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1997 ------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- ----- --------- ----- Long-term debt -- 1997 and 1995 Capstar Radio Notes......................................... $(76,672) $(76,672) $(279,054) $(295,098) Interest rate swap.............................. -- -- -- (320)
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and short-term debt, and accounts receivable and payable: the carrying amount approximates fair value because of the short maturity of these instruments. Long-term debt: The fair value of the 1997 and 1995 Capstar Radio Notes are based on quoted market prices. As amounts outstanding under the company's credit facility agreements bear interest at current market rates, their carrying amounts approximate fair market value. Interest rate swaps: The fair value of the interest rate swap is estimated by obtaining quotations from brokers. The fair value is an estimate of the amounts that the Company would receive (pay) at the reporting date if the contracts were transferred to other parties or canceled by the broker. Redeemable preferred stock is not traded in the open market, and as such, a market price is not readily available. F-51 127 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 ------ ------ ------- Cash paid during the period for: Interest.................................................. $1,394 $8,392 $23,932 Income taxes.............................................. 200 999 230 Noncash investing and financing activities: Financed property and equipment purchases................. -- 89 2,537 Book value of assets exchanged in connection with broadcast property acquisition......................... -- 471 -- Dividends and accretion on preferred stock................ 8 1,350 7,071 Notes receivable and accrued interest taken in connection with subscribed stock.................................. 333 1,757 431 Redemption of preferred stock by Company's parent......... -- -- 29,358 Noncash dividends on common stock......................... -- -- 14,501 Dividend of broadcasting property to the Company's parent................................................. -- -- 34,982 Contribution of broadcasting property by the Company's parent................................................. -- -- 34,982 Financed or accrued acquisition costs..................... 542 6,569 16,695
16. SUBSEQUENT EVENT: Pursuant to a merger agreement, dated August 24, 1997, between certain affiliates of Capstar Radio's indirect parent and SFX Broadcasting, Inc. ("SFX"), Capstar Broadcasting may acquire SFX for a total cash cost to Capstar Broadcasting of the merger, related repayment of SFX's existing indebtedness and redemption of SFX's preferred stock of approximately $2.1 billion, if completed by May 31, 1998. Upon consummation of the merger, SFX and its subsidiaries will own and operate or provide services to or have the right to acquire 85 radio stations (65 FM and 20 AM) in 28 markets. F-52 128 REPORT OF INDEPENDENT AUDITORS To the Board of Directors Commodore Media, Inc. We have audited the accompanying consolidated statements of operations and cash flows of Commodore Media, Inc. and Subsidiaries for the period from January 1, 1996 to October 16, 1996 and for the year ended December 31, 1995. These consolidated statements of operations and cash flows are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated statements of operations and cash flows 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 consolidated statements of operations and cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated statement of operations and cash flows. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated statement of operations and cash flows presentation. We believe that our audits of the consolidated statements of operations and cash flows provide a reasonable basis for our opinion. In our opinion, the consolidated statements of operations and cash flows referred to above present fairly, in all material respects the consolidated statements of operations and cash flows of Commodore Media, Inc. and Subsidiaries for the period from January 1, 1996 to October 16, 1996 and for the year ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York February 10, 1997 F-53 129 COMMODORE MEDIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1996 TO OCTOBER 16, YEAR ENDED 1996 DECEMBER 31, 1995 --------------- ----------------- Total revenue............................................... $ 34,826,060 $33,652,677 Less agency commissions..................................... (2,869,014) (2,857,912) ------------ ----------- Net revenue................................................. 31,957,046 30,794,765 Operating expenses: Programming, technical and news........................... 5,906,967 5,365,686 Sales and promotion....................................... 9,303,914 8,796,481 General and administrative................................ 6,081,262 4,870,463 Corporate expenses.......................................... 1,756,797 2,051,181 Depreciation and amortization............................... 2,157,750 1,926,250 Other expense............................................... 13,833,728 2,006,550 ------------ ----------- Operating (loss) income..................................... (7,083,372) 5,778,154 Interest expense............................................ 8,860,958 7,805,525 Interest income............................................. 221,806 420,659 Other expenses, net......................................... 1,980,908 48,796 ------------ ----------- Loss before provision for income taxes and extraordinary loss...................................................... (17,703,432) (1,655,508) Provision for income taxes.................................. 133,000 140,634 ------------ ----------- Loss before extraordinary loss.............................. (17,836,432) (1,796,142) Extraordinary loss on extinguishment of debt................ -- (443,521) ------------ ----------- Net loss.................................................... $(17,836,432) $(2,239,663) ============ ===========
See accompanying notes. F-54 130 COMMODORE MEDIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM YEAR ENDED JANUARY 1, 1996 TO DECEMBER 31, OCTOBER 16, 1996 1995 ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................... $(17,836,432) $ (2,239,663) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on extinguishment of debt............................ -- 443,521 Depreciation and amortization............................. 2,157,750 1,926,250 Noncash interest.......................................... 3,315,669 2,673,829 Long-term incentive compensation.......................... 1,066,893 79,000 Non-cash compensation..................................... 12,731,587 -- Provision for uncollectible accounts and notes receivable.............................................. 488,320 556,137 Loss on disposition of assets............................. -- 9,819 Net barter income......................................... (222,645) (184,300) Initial public offering and pending merger expenses....... 1,909,648 -- Changes in assets and liabilities, net of amounts acquired: Increase in accounts receivable......................... (2,351,753) (1,847,015) Increase in prepaid expenses and other current assets... (208,462) (88,787) Decrease in accounts payable and accrued expenses....... (337,896) (158,855) Decrease in accrued compensation........................ (496,177) (230,645) Increase in accrued interest............................ 1,752,172 582,525 Increase (decrease) in accrued income taxes............. 20,952 (277,135) ------------ ------------ Total adjustments.................................. 19,826,058 3,484,344 ------------ ------------ Net cash provided by operating activities................... 1,989,626 1,244,681 CASH FLOWS FROM INVESTING ACTIVITIES Repayment of loan by stockholder............................ 250,375 182,988 Purchase of property, plant and equipment................... (448,677) (320,980) Payments for acquisitions................................... (31,900,000) (3,100,000) Deferred acquisition costs incurred......................... (1,326,673) (417,020) Deposits on pending acquisitions............................ (745,000) (525,000) Loans to employees.......................................... -- (315,863) Other investing activities, net............................. (187,528) 87,528 ------------ ------------ Net cash used in investing activities....................... (34,357,503) (4,408,347) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of Senior Notes and warrants......... -- 64,956,422 Proceeds from Existing Credit Facility...................... 18,700,000 -- Net proceeds from issuance of preferred stock............... 9,822,520 -- Proceeds from issuance of common stock...................... -- 100 Payment of initial public offering and merger expenses...... (1,007,297) -- Repayment of amounts borrowed............................... -- (39,014,833) Payment of financing related costs.......................... (781,170) (4,226,762) Redemption of preferred stock............................... -- (8,665,835) Purchase of redeemable warrant.............................. -- (1,000,000) Repurchase of common stock.................................. -- (25,000) Principal payments on capital leases........................ (9,812) (11,186) ------------ ------------ Net cash provided by financing activities................... 26,724,241 12,012,906 ------------ ------------ Net (decrease) increase in cash and short-term cash investments............................................... (5,643,636) 8,849,240 Cash and short-term cash investments at beginning of period.................................................... 10,891,489 2,042,249 ------------ ------------ Cash and short-term cash investments at end of period....... $ 5,247,853 $ 10,891,489 ============ ============ SUPPLEMENTARY CASH FLOW INFORMATION Cash paid for interest...................................... $ 3,793,117 $ 4,474,789 Cash paid for income taxes.................................. $ 112,049 $ 417,769 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Asset acquisitions recorded in connection with barter transactions.............................................. $ 189,982 $ 112,636
See accompanying notes. F-55 131 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND MERGER AGREEMENT Organization and Nature of Business Commodore Media, Inc. and Subsidiaries (the "Company") is comprised of radio stations that derive their revenue from local, regional and national advertisers. The radio stations are located in the following markets: Wilmington, Delaware; Hartsdale, Brewster, Patterson, Mt. Kisco, New York; Huntington, West Virginia -- Ashland, Kentucky; Allentown -- Bethlehem, Pennsylvania; Fort Pierce -- Stuart -- Vero Beach, Florida; and Fairfield County, Connecticut. The Company extends credit to its customers in the normal course of business. MERGER AGREEMENT On October 16, 1996, the Company was acquired pursuant to a merger agreement dated June 21, 1996 with Capstar Broadcasting Partners, Inc. ("Capstar") (the "Merger"), which is an indirect subsidiary of Hicks, Muse, Tate & Furst Equity Fund III, L.P. The holders of Class A Common Stock and Class B Common Stock, the holders of employee stock options and the holders of warrants received $140 per share as consideration for the merger less, in the case of option and warrant holders, the exercise price per share. In addition, the Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per share was redeemed, including all accrued and unpaid dividends. The Company recognized as other expense approximately $12.7 million in stock option compensation expense, and approximately $1.4 million of merger related fees and expenses during the period ended October 16, 1996 in connection with the Merger. As a result of the Merger and the change of control effected thereby, the Company was obligated to satisfy the existing deferred compensation and employment agreements with its then President and Chief Executive Officer and its deferred compensation agreement with its then Chief Operating Officer resulting in a charge to other expense of approximately $1.1 million during the period ended October 16, 1996. Furthermore, the Company was required to make an offer to purchase the outstanding 13 1/4% Senior Subordinated Notes due 2003 at a purchase price equal to 101% of their accreted value, plus any accrued and unpaid interest. No requests for repurchase were made by the note holders. As a result of the Merger, the Company did not proceed with its previously announced intention to undertake an initial public equity offering and has, therefore, withdrawn its registration statement filed on Form S-1 on May 17, 1996 with the Securities and Exchange Commission. Included in other expenses during the period ended October 16, 1996 are approximately $525,000 in various fees and expenses incurred in connection with this filing. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all subsidiaries, after elimination of intercompany accounts and transactions. Short-Term Cash Investments The Company considers investments which have a remaining maturity of three months or less at the time of purchase to be short-term cash investments. Income Taxes The Company accounts for income taxes in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are provided for differences between the book and tax bases of assets and liabilities. F-56 132 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS -- (CONTINUED) Risks and Uncertainties The preparation of consolidated statements of operations and cash flows in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's revenue is principally derived from local broadcast advertisers who are impacted by the local economy. The Company routinely assesses the financial strength of its customers. Credit losses are provided for in the consolidated statements of operations and cash flows in the form of an allowance for doubtful accounts. Accounting Periods The Company maintains its interim consolidated statements of operations and cash flows based upon the broadcast month end which always ends on the last Sunday of the calendar month or quarter. The Company's fiscal year end and fourth quarter ends on December 31. Property, Plant and Equipment Depreciation is provided for property, plant and equipment on the straight-line method based on the following estimated useful lives:
ESTIMATED LIFE CLASSIFICATION (YEARS) -------------- -------------- Land improvements........................................... 20 Buildings................................................... 20 Furniture, fixtures and equipment........................... 7-10 Broadcasting and technical equipment........................ 7-10 Towers and antennas......................................... 20 Music library............................................... 7 Leasehold improvements...................................... 10-20 Vehicles.................................................... 3
Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation as a charge to income amounted to approximately $730,000 for the period ended October 16, 1996, and approximately $832,000 for the year ended December 31, 1995. Property Held Under Capital Leases The Company is the lessee of office equipment under capital leases expiring in various years through 2004. The capital leases are depreciated over their estimated productive lives of seven to ten years. Total rent expense was approximately $383,000 for the period ended October 16, 1996 and approximately $332,000 for the year ended December 31, 1995. Revenue Recognition The Company recognizes revenue upon the airing of advertisements. F-57 133 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS -- (CONTINUED) Intangible Assets Intangible assets are being amortized by the straight-line method over the following estimated useful lives:
ESTIMATED LIFE CLASSIFICATION (YEARS) -------------- -------------- FCC licenses and goodwill................................... 40 Organization expenses....................................... 5 Network affiliation agreement............................... 5 Covenant not to compete..................................... 5 Tower site lease............................................ 3 Contract rights............................................. 3 Software.................................................... 3 Pre-sold advertising contracts.............................. 1
Amortization of the aforementioned intangible assets included as a charge to income amounted to approximately $592,000 for the period ended October 16, 1996, and approximately $506,000 for the year ended December 31, 1995. Amortization of FCC licenses and goodwill amounted to approximately $501,000 for the period ended October 16, 1996, and approximately $588,000 for the year ended December 31, 1995. Deferred Charges Legal fees, bank loan closing costs and other expenses associated with debt financing are being amortized using the effective interest rate method. Amortization of debt expense charged to operations and included in interest expense amounted to approximately $450,000 for the period ended October 16, 1996 and approximately $385,000) for the year ended December 31, 1995. Advertising Costs The Company expenses advertising costs related to its radio station operations as incurred. Advertising expense amounted to approximately $557,000 for the period ended October 16, 1996 and approximately $754,000 for the year ended December 31, 1995. Barter Transactions The fair value of barter and trade-out transactions is included in broadcast revenue and sales and promotion expense. Barter revenue is recorded when advertisements are broadcast and barter expense is recorded when merchandise or services are received. Barter transactions charged to operations were as follows:
PERIOD FROM JANUARY 1, 1996 TO YEAR ENDED OCTOBER 16, DECEMBER 31, 1996 1995 ----------- ------------ Trade sales................................................. $ 3,204,468 $ 3,238,111 Trade expense............................................... (2,981,823) (3,053,811) ----------- ----------- Net barter transactions..................................... $ 222,645 $ 184,300 =========== ===========
F-58 134 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS -- (CONTINUED) 2. LONG-TERM DEBT AT&T Senior Credit Facility On March 13, 1996, the Company entered into a Senior Credit Facility with AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make available to the Company senior secured (i) revolving loans in an amount up to $30.0 million and (ii) accounts receivable loans in an amount which shall be the lesser of (a) $5.0 million or (b) 85% of the net book value of the accounts receivable of the Company (the "AT&T Senior Credit Facility"). The indebtedness to AT&T is collateralized by the tangible and intangible assets and the capital stock of all the Company's subsidiaries. Interest is payable monthly at a rate of 3.5% over LIBOR (8.94% at October 16, 1996) and principal amortization of the revolving loans and accounts receivable loans begins June 1, 1998 and November 30, 1997, respectively. The Company pays a commitment fee of .25% every six months on the unused commitment. Senior Subordinated Notes The Senior Subordinated Notes bear cash interest at a rate of 7 1/2% per annum on the principal amount until May 1, 1998 then at a rate of 13 1/4% per annum until maturity, with interest payment dates on May 1 and November 1. In 1995, the Company wrote off the balance of the unamortized deferred financing costs on its retired debt of $443,521. Inasmuch as the Company had no current federal taxable income and had fully reserved for its net deferred tax assets, there was no tax effect attributable to this extraordinary item. 3. PREFERRED STOCK SENIOR EXCHANGEABLE REDEEMABLE PREFERRED STOCK On May 1, 1996, the Company entered into a Securities Purchase Agreement with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to which the CIBC Merchant Fund agreed to purchase from the Company, if and when requested by the Company, up to an aggregate liquidation value of $12,500,000 of Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per share, of the Company in such amounts as the Company requested (the "Preferred Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996 and the Florida Acquisition on May 31, 1996 (see Note 4), the Company issued 5,700 shares and 4,300 shares, respectively, of Preferred Stock for an aggregate purchase price of $10,000,000. The Preferred Stock accrued cash dividends at the rate of 8% per annum and was redeemed, including accrued dividends, in connection with the Merger on October 16, 1996. In connection with the Preferred Stock Facility, the Company issued to the CIBC Merchant Fund a warrant to purchase 7,550 shares of the Company's Class A Common Stock, at an exercise price of $.01 per warrant, which were valued in the aggregate at the date of issue at $981,500. This warrant was redeemed in connection with the Merger for $140 per share less the exercise price. 4. CONSUMMATED ACQUISITIONS On October 16, 1996, the Company purchased certain defined assets of radio stations WKEE-FM and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton, West Virginia, WBVB-FM in Coal Grove, Ohio and WIRO-AM in Ironton, Ohio from Adventure Communications, Inc. for approximately $7.7 million and certain defined assets of WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio for approximately $4.3 million. The transactions were funded with borrowings from the AT&T Senior Credit Facility and with funds provided from Capstar. The Company provided programming to these stations under Local Marketing Agreement ("LMA") effective April 1996 until the purchase date. In addition, the F-59 135 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS -- (CONTINUED) Company has an option to purchase WHRD-AM in Huntington, West Virginia and provides programming services to the station under an LMA arrangement. On May 31, 1996, the Company purchased certain defined assets of radio stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort Pierce-Stuart-Vero Beach, Florida market from Media VI for $8.0 million (the "Florida Acquisition"). The transaction was funded with borrowings from the AT&T Senior Credit Facility and funds from the Preferred Stock Facility. The Company sold advertising time on these stations under a Joint Service Agreement from February 1996 until the purchase date. On May 30, 1996, the Company purchased certain defined assets of radio stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc. for $9.5 million (the "Stamford Acquisition"). The transaction was financed with borrowings from the AT&T Senior Credit Facility and funds from the Preferred Stock Facility. On March 27, 1996, the Company purchased (i) certain defined assets of radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $5.0 million and (ii) all of the issued and outstanding common stock of Danbury Broadcasting, Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut, plus certain real property for $10.0 million. The transaction was financed with the Company's existing cash and borrowings under the AT&T Senior Credit Facility. The Company provided programming to these stations under LMAs from October 1995 until the purchase date. On June 27, 1995, the Company purchased the assets (excluding cash and accounts receivable) and broadcasting license of radio broadcast station WQOL-FM in Vero Beach, Florida for a total purchase price of approximately $3.0 million. Unaudited pro forma results of operations for the Company as if the aforementioned acquisitions had been consummated on January 1, 1995 are as follows (in thousands):
PERIOD FROM JANUARY 1, 1996 TO YEAR ENDED OCTOBER 16, DECEMBER 31, 1996 1995 ----------- ------------ Net revenue................................................. $ 31,505 $ 38,483 Net loss before extraordinary loss.......................... (4,037) (3,673) Net loss.................................................... (4,037) (4,117)
5. INCOME TAXES The Company has recorded a provision for income taxes as follows:
PERIOD FROM JANUARY 1, 1996 TO YEAR ENDED OCTOBER 16, DECEMBER 31, 1996 1995 ----------- ------------ Current: Federal................................................... $ -- $ -- State and local........................................... 133,000 140,634 Deferred: Federal................................................... -- -- State and local........................................... -- -- -------- -------- Total............................................. $$133,000 $140,634 ======== ========
F-60 136 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS -- (CONTINUED) The Company did not record a federal tax benefit on the taxable loss for the period ended October 16, 1996 or for the year ended December 31, 1995 since it was not assured that they could realize a benefit for such losses in the future. The Company received Internal Revenue Service approval and changed its tax method of accounting for Federal Communications Commission ("the FCC") licenses for the tax year ended December 31, 1995. The aggregate amount of cumulative amortization that will be deductible ratably over six taxable years for the Company and for tax purposes is approximately $12.1 million. The reconciliation of income tax computed at the U.S. federal statutory rates to effective income tax expense is as follows:
PERIOD FROM JANUARY 1, 1996 TO YEAR ENDED OCTOBER 16, DECEMBER 31, 1996 1995 ----------- ------------ Provision at statutory rate............................... $(1,184,000) $ (734,695) State and local taxes..................................... 133,000 140,634 Nondeductible expense..................................... 33,800 8,286 Increase in valuation allowance, net of rate changes...... 1,150,200 726,409 Alternative minimum tax................................... -- -- ----------- ----------- Total..................................................... $ 133,000 $ 140,634 =========== ===========
6. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with several executives of the Company including its President and Chief Executive Officer, its Executive Vice President and Chief Financial Officer and its Executive Vice President and General Counsel. The agreements generally provide for terms of employment, annual salaries, bonuses, eligibility for option awards and severance benefits. Effective January 1, 1994, the Company entered into an agreement with its then President and Chief Executive Officer under which he would be employed in that capacity through 1996 and provided for annual salary requirements and bonuses, and a Long-Term Incentive Payment ("LTIP"). In lieu of the LTIP, the Company paid the then President $1.5 million in cash, issued $1.3 million principal ($1.1 million net of discount) of Senior Subordinated Notes to a trust for his benefit and agreed to provide $1.5 million in deferred compensation which accrues interest at a rate of 7% and is payable in 2003. The Company recorded the deferred compensation on April 21, 1995 at its calculated net present value of $921,000. The aggregate effect of the employment agreement restructuring was to charge $1.8 million to long-term incentive compensation expense during 1995. In addition, the then President's amended employment agreement extended his date of employment through April 30, 1998, granted stock options to him to acquire 28,313 shares of Class A Common Stock at an exercise price of $45 per share and provided for annual bonuses based upon specific operating results of Capstar Radio. The Company also amended its then existing employment agreement with its then Chief Operating Officer on April 21, 1995. The prior employment agreement provided for a long-term incentive based upon the increase in certain station values. The amended employment agreement provided for a cash payment of $400,000 on April 21, 1995 and deferred compensation of $346,000 which accrues interest at a rate of 7% and is payable in 2003. The Company recorded the deferred compensation on April 21, 1995 at its calculated net present value of $213,000. The aggregate effect of the employment agreement restructuring was to charge $188,800 to long-term incentive compensation expense during 1995. In addition, the amended employment agreement extended his date of employment through April 30, 1999, granted stock options to acquire F-61 137 COMMODORE MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS -- (CONTINUED) 28,313 shares of Class A Common Stock at an exercise price of $45 per share and provides for annual bonuses based upon specific operating results of the Company. As a result of the Merger and the change of control effected thereby, the Company was obligated to satisfy the existing deferred compensation and employment agreements with its then President and Chief Executive Officer and its deferred compensation agreement with its then Chief Operating Officer, resulting in an additional charge to operations of approximately $1.1 million which was recorded in the period ended October 16, 1996. Furthermore, all stock options for the aforementioned officers, as well as for all holders, were redeemed at $140 per share, less the exercise price of $45 per share at the time of the Merger. The Company's then President and Chief Executive Officer resigned his position effective October 16, 1996 as required by the Merger Agreement. 7. RELATED PARTY TRANSACTIONS During the period ended October 16, 1996 and the year ended December 31, 1995, the Company paid the majority stockholder a salary of approximately $185,000 and $175,000, respectively. F-62 138 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Capstar Broadcasting Partners, Inc. Our report on the consolidated financial statements of Capstar Broadcasting Partners, Inc. and Subsidiaries is included in this Form 10-K. In connection with our audits of such consolidated financial statements, we have also audited the related financial statement schedules of Capstar Broadcasting Partners, Inc. and Subsidiaries herein. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Austin, Texas March 26, 1998 F-63 139 CAPSTAR BROADCASTING PARTNERS, INC. SCHEDULE I PARENT COMPANY CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
DECEMBER 31, -------------------- 1996 1997 -------- -------- Cash and cash equivalents................................... $ 660 $ -- -------- -------- Total current assets.............................. 660 -- Investment in subsidiaries, at equity....................... 127,920 461,315 Due from subsidiaries....................................... -- 7,785 Property and equipment, net................................. 351 1,212 Intangible assets, net...................................... 1,800 8,001 Deferred income taxes....................................... -- 7,084 Other assets................................................ 179 37 -------- -------- Total assets...................................... $130,910 $485,434 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Accrued interest payable.................................... $ 850 $ -- -------- -------- Total current liabilities......................... 850 -- Due to subsidiaries......................................... 1,324 -- Due to parent company....................................... -- 1,081 Long-term debt.............................................. 35,000 166,991 -------- -------- Total liabilities................................. 37,174 168,072 -------- -------- Redeemable preferred stock.................................. -- 101,493 Stockholder's equity: CAPSTAR BROADCASTING PARTNERS, INC.: Common Stock, Class A, voting.......................... 942 2,796 Additional paid-in capital............................. 93,957 262,161 GULFSTAR COMMUNICATIONS, INC.: Common stock, voting................................... 1 -- Common stock, Class A.................................. 1 -- Common stock, Class B.................................. -- -- Common stock, Class C.................................. 1 -- Additional paid-in capital................................ 11,869 -- Stock subscriptions receivable............................ (2,090) -- Unearned compensation..................................... (1,518) -- ACCUMULATED DEFICIT....................................... (9,427) (49,088) -------- -------- Total stockholder's equity........................ 93,736 215,869 -------- -------- Total liabilities and stockholder's equity........ $130,910 $485,434 ======== ========
The accompanying notes are an integral part of the condensed financial statements. F-64 140 CAPSTAR BROADCASTING PARTNERS, INC. SCHEDULE I PARENT COMPANY CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM INCEPTION (OCTOBER 11, 1996) THROUGH YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 --------------------- ----------------- Equity in losses of consolidated subsidiaries.............. $(6,710) $(28,007) Interest expense, net...................................... (2,421) (18,607) Depreciation and amortization.............................. (296) (131) ------- -------- Loss before benefit for income taxes............. (9,427) (46,745) Benefit for income taxes................................... -- 7,084 ------- -------- Net Loss......................................... $(9,427) $(39,661) ======= ========
The accompanying notes are an integral part of the condensed financial statements. F-65 141 CAPSTAR BROADCASTING PARTNERS, INC. SCHEDULE I PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM INCEPTION (OCTOBER 11, 1996) THROUGH YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 ------------------- ----------------- Net cash provided by (used in) operating activities....... $ 3,085 $ (363) --------- --------- Cash flows from investing activities: Investment in subsidiaries.............................. -- (317,279) Acquisition of subsidiary............................... (128,339) -- Purchase of property and equipment...................... (535) (719) --------- --------- Net cash used in investing activities........... (128,874) (317,998) --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt................ 35,000 150,284 Repayment of long-term debt............................. -- (35,000) Proceeds from issuance of preferred stock............... -- 95,071 Proceeds from issuance of common stock.................. 94,155 115,737 Payment of financing related costs...................... (2,706) (8,391) --------- --------- Net cash provided by financing activities....... 126,449 317,701 --------- --------- Net increase (decrease) in cash and cash equivalents...... 660 (660) Cash and cash equivalents at beginning of period.......... -- 660 --------- --------- Cash and cash equivalents at end of period................ $ 660 $ -- ========= =========
The accompanying notes are an integral part of the condensed financial statements. F-66 142 CAPSTAR BROADCASTING PARTNERS, INC. SCHEDULE I NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. GENERAL The accompanying condensed financial statements of Capstar Broadcasting Partners, Inc. (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 of its subsidiary Capstar Radio Broadcasting Partners, Inc. 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 7 to consolidated financial statements regarding these obligations. 3. OTHER See Notes 7 and 8, respectively, to consolidated financial statements for a description of the long-term debt and redeemable preferred stock of the Company. F-67 143 CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ADDITIONS DEDUCTIONS BALANCE --------------------- ---------- AT CHARGED TO BALANCE BEGINNING COSTS AND AMOUNTS DIRECT AT END DESCRIPTION OF PERIOD EXPENSES ACQUIRED WRITE-OFFS OF PERIOD ----------- --------- ---------- -------- ---------- --------- Allowance for doubtful accounts 12/31/95... $ 65 $ 195 $ -- $ 124 $ 136 Allowance for doubtful accounts 12/31/96... 136 661 733 363 1,167 Allowance for doubtful accounts 12/31/97... 1,167 2,044 1,355 1,677 2,889
F-68 144 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Capstar Radio Broadcasting Partners, Inc. Our report on the consolidated financial statements of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries is included in this Form 10-K. In connection with our audits of such consolidated financial statements, we have also audited the related financial statement schedule of Capstar Radio Broadcasting Partners, Inc. and Subsidiaries herein. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Austin, Texas March 26, 1998 F-69 145 CAPSTAR RADIO BROADCASTING PARTNERS, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ADDITIONS DEDUCTIONS BALANCE --------------------- ---------- AT CHARGED TO BALANCE BEGINNING COSTS AND AMOUNTS DIRECT AT END DESCRIPTION OF PERIOD EXPENSES ACQUIRED WRITE-OFFS OF PERIOD ----------- --------- ---------- -------- ---------- --------- Allowance for doubtful accounts 12/31/95... $ 65 $ 195 $ -- $ 124 $ 136 Allowance for doubtful accounts 12/31/96... 136 661 733 363 1,167 Allowance for doubtful accounts 12/31/97... 1,167 2,044 1,355 1,677 2,889
F-70 146 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1.1 -- Agreement and Plan of Merger, dated June 21, 1996, by and among CMI Acquisition Company, Inc., Commodore Media, Inc. ("Commodore") and the stockholders and other signatories thereto.(1) 2.1.2 -- First Amendment to Agreement and Plan of Merger, dated September 3, 1996.(2) 2.1.3 -- Second Amendment to Agreement and Plan of Merger, dated October 16, 1996.(2) 3.1.1 -- Certificate of Incorporation of Capstar Partners.(3) 3.1.2 -- Certificate of Amendment to Certificate of Incorporation of Capstar Partners, dated June 17, 1997.(4) 3.2 -- Amended and Restated By-Laws of Capstar Partners.* 3.3.1 -- Amended and Restated Certificate of Incorporation of Capstar Radio.(6) 3.3.2 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated April 29, 1996.(18) 3.3.3 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated February 17, 1997.(19) 3.3.4 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated February 20, 1997.(19) 3.3.5 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated April 30, 1997.(19) 3.3.6 -- Certificate of Amendment to Amended and Restated Certificate of Incorporation of Capstar Radio dated June 26, 1997.(19) 3.4.1 -- By-Laws of Capstar Radio.(20) 3.4.2 -- Certificate of Amendment to By-Laws of Capstar Radio.(18) 4.2.1 -- Indenture, dated February 20, 1997, between Capstar Partners and U.S. Trust Company of Texas, governing Capstar Partners' outstanding 12 3/4% Senior Discount Notes due 2009 (the "12 3/4% Capstar Indenture"). 4.2.2 -- First Supplemental to 12 3/4% Capstar Indenture*. 4.3.1 -- Indenture, dated as of April 21, 1995, among Capstar Radio, IBJ Schroder Bank & Trust Company, as trustee, and the guarantors named therein, governing Capstar Radio's 13 1/4% Senior Subordinated Notes (the "13 1/4% Capstar Indenture").(6) 4.3.2 -- Amendment No. 1 to 13 1/4% Capstar Indenture.(6) 4.3.3 -- Amendment No. 2 to 13 1/4% Capstar Indenture.(7) 4.3.4 -- Amendment No. 3 to 13 1/4% Capstar Indenture.(7) 4.3.5 -- Amendment No. 4 to 13 1/4% Capstar Indenture.(8) 4.3.6 -- Amendment No. 5 to 13 1/4% Capstar Indenture.(9) 4.3.7 -- Amendment No. 6 to 13 1/4% Capstar Indenture.(5) 4.3.8 -- Amendment No. 7 to 13 1/4% Capstar Indenture.(12) 4.3.9 -- Amendment No. 8 to 13 1/4% Capstar Indenture.(4) 4.3.10 -- Amendment No. 9 to 13 1/4% Capstar Indenture.(11) 4.3.11 -- Amendment No. 10 to 13 1/4% Capstar Indenture.(12) 4.3.12 -- Amendment No. 11 to 13 1/4% Capstar Indenture.(13) 4.3.13 -- Amendment No. 12 to 13 1/4% Capstar Indenture.*
147
EXHIBIT NO. DESCRIPTION ------- ----------- 4.3.14 -- Amendment No. 13 to 13 1/4% Capstar Indenture.* 4.3.15 -- Amendment No. 14 to 13 1/4% Capstar Indenture.* 4.3.16 -- Amendment No. 15 to 13 1/4% Capstar Indenture.* 4.4 -- Indenture, dated June 17, 1997, between Capstar Radio and U.S. Trust Company of Texas, N.A governing Capstar Radio's outstanding 9 1/4% Senior Subordinated Notes due 2007.(4) 4.5 -- Indenture, dated June 17, 1997, between Capstar Partners and U.S. Trust Company of Texas, N.A governing Capstar Partners's 12% Subordinated Exchange Debentures due 2009.(4) 4.6 -- Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of 12% Senior Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Capstar Partners, dated June 17, 1997.(4) 10.1.1 -- Amended and Restated Credit Agreement, dated February 20, 1997 and amended and restated August 12, 1997 (the "Credit Agreement"), among Capstar Broadcasting, Capstar Partners, Capstar Radio, and various banks signatory thereto.(14) 10.1.2 -- First Amendment to the Credit Agreement, dated August 21, 1997.(14) 10.1.3 -- Second Amendment to the Credit Agreement, dated September 26, 1997.(14) 10.1.4 -- Third Amendment to the Credit Agreement, dated January 28, 1998.* 10.1.5 -- Fourth Amendment to the Credit Agreement, dated February 6, 1998.* 10.2.1 -- Financial Advisory Agreement, dated as of October 16, 1996, between Capstar Partners and Hicks, Muse & Co. Partners, L.P. ("HMCo").(5) 10.3.1 -- Monitoring and Oversight Agreement, dated as of October 16, 1996, between Capstar Partners and HMCo.(5) 10.4 -- Form of Indemnification Agreement between Capstar Broadcasting and each of its directors and officers.(4) 10.5.1 -- Employment Agreement, dated February 14, 1997, between Capstar Partners and R. Steven Hicks.(5)+ 10.5.2 -- First Amendment to Employment Agreement, effective July 1, 1997, between R. Steven Hicks, Capstar Partners, and Capstar Broadcasting.(13)+ 10.6 -- Employment Agreement, dated July 1, 1997, between Capstar Broadcasting and Paul D. Stone.(4)+ 10.7 -- Employment Agreement dated July 1, 1997, between Capstar Broadcasting and William S. Banowsky, Jr.(4)+ 10.8 -- Amended and Restated Employment Agreement, dated October 16, 1996, between Commodore, Capstar Partners and James T. Shea, Jr.(5)+ 10.9 -- Employment Agreement, dated January 27, 1997, between Pacific Star and Claude C. Turner (also known as Dex Allen).(5)+ 10.10.1 -- Employment Agreement between GulfStar Communications, Inc. and John D. Cullen.(11)+ 10.10.2 -- First Amendment to Employment Agreement between GulfStar Communications and John D. Cullen.*+ 10.11 -- Employment Agreement, dated January 16, 1998, among Central Star Communications, Inc., Capstar Broadcasting, and Mary K. Quass.*+
148
EXHIBIT NO. DESCRIPTION ------- ----------- 10.13 -- Not used. 10.14 -- Employment Agreement, dated September 22, 1997, between Capstar Partners and Eric W. Neumann.(13)+ 10.15 -- Consulting, Non-Compete and Separation Agreement, dated March 1, 1998, between Southern Star and Frank D. Osborn.*+ 10.16 -- 1997 Stock Option Plan of Capstar Broadcasting.(4)+ 10.17.1 -- Form of Incentive Stock Option Agreement.(4)+ 10.17.2 -- Form of Non-Qualified Stock Option Agreement for Employees.(4)+ 10.17.3 -- Form of Non-Qualified Stock Option Agreement for Non-Employees.(11)+ 10.18 -- 1997 Stock Purchase Plan of Capstar Broadcasting.(4)+ 10.19.1 -- Affiliate Stockholders Agreement, dated October 16, 1996, among Capstar Partners, Hicks Muse, R. Steven Hicks and the security holders listed therein.(5) 10.19.2 -- First Amendment and Supplement to Affiliate Stockholders Agreement, dated January 27, 1997, by and among Capstar Partners, the securityholders listed therein and Hicks Muse.(5) 10.19.3 -- Second Amendment to Affiliate Stockholders Agreement, dated February 20, 1997, by and among Capstar Partners, the security holders listed therein and Hicks Muse.(3) 10.19.4 -- Third Amendment to Affiliate Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, Capstar Partners, the security holders listed therein and Hicks Muse.(4) 10.20.1 -- Management Stockholders Agreement, dated November 26, 1996, among Capstar Partners, the securityholders listed therein and Hicks Muse.(5) 10.20.2 -- First Amendment to Management Stockholders Agreement, dated January 27, 1997, by and among Capstar Partners and the securityholders listed therein.(5) 10.20.3 -- Second Amendment to Management Stockholders Agreement, dated June 20, 1997, by and among Capstar Broadcasting, Capstar Partners, the security holders listed therein and Hicks Muse.(4) 10.21 -- GulfStar Stockholders Agreement, dated July 8, 1997, by and among Capstar Broadcasting, the security holders listed therein, and Hicks Muse.(11) 10.22.1 -- Registration Rights Agreement, dated February 20, 1997, between Capstar Partners and Frank D. Osborn.(5) 10.22.2 -- First Amendment to Registration Rights Agreement, dated July 1, 1997, between Capstar Partners, Capstar Broadcasting, and Frank D. Osborn.(4) 10.23 -- Warrant, dated October 16, 1996, issued to R. Steven Hicks.(5) 10.24 -- Warrant, dated February 20, 1997, issued to R. Steven Hicks.(5) 10.25 -- Warrant, dated July 8, 1997, issued to R. Steven Hicks.(11) 10.26.1 -- Stock Purchase Agreement, dated June 12, 1997, by and among Capstar Acquisition Company, Inc., Capstar Partners, Patterson Broadcasting, Inc. and the selling stockholders named therein (the "Patterson Stock Purchase Agreement").(4) 10.26.2 -- First Amendment to Patterson Stock Purchase Agreement.(11) 10.26.3 -- Second Amendment to Patterson Stock Purchase Agreement.(15) 10.26.4 -- Third Amendment to Patterson Stock Purchase Agreement.(15) 10.26.5 -- Fourth Amendment to Patterson Stock Purchase Agreement.(15)
149
EXHIBIT NO. DESCRIPTION ------- ----------- 10.27 -- Agreement and Plan of Merger, dated June 16, 1997, by and among GulfStar Communications, Inc., Capstar Broadcasting, CBC-GulfStar Merger Sub, Inc. and the stockholders listed therein.(4) 10.28.1 -- Agreement and Plan of Merger, dated July 23, 1997, by and among OCC Acquisition Corporation, Osborn Communications Corporation, and OCC Holding Corporation (the "Osborn Merger Agreement").(16) 10.28.2 -- First Amendment to Osborn Merger Agreement.(16) 10.29.1 -- Agreement and Plan of Merger, dated as of December 9, 1996, by and among Benchmark Communications Radio Limited Partnership, Benchmark Acquisition, Inc., Benchmark Radio Acquisition Fund I Limited Partnership, Benchmark Radio Acquisition Fund IV Limited Partnership, Benchmark Radio Acquisition Fund VII Limited Partnership, Benchmark Radio Acquisition Fund VIII Limited Partnership, Joe L. Mathis IV, Bruce R. Spector, Capstar Partners and BCR Holding, Inc. ("Benchmark Merger Agreement").(3) 10.29.2 -- Letter Agreement Amending Benchmark Merger Agreement.(3) 10.29.3 -- Letter Agreement amending Benchmark Merger Agreement.(3) 10.29.4 -- Letter Agreement amending Benchmark Merger Agreement.(3) 10.29.5 -- First Amendment to the Benchmark Merger Agreement.(17) 10.29.6 -- Second Amendment to the Benchmark Merger Agreement.(17) 10.30.1 -- Agreement and Plan of Merger, dated August 24, 1997, by and among SBI Holding Corporation, SBI Radio Acquisition Corporation and SFX Broadcasting, Inc. (the "SFX Merger Agreement")(21) 10.30.2 -- Amendment No. 1 to SFX Merger Agreement.(22) 10.30.3 -- Amendment No. 2 to the SFX Merger Agreement.(23) 21.1 -- List of Subsidiaries.* 27.1 -- Financial Data Schedule.*
- --------------- * Filed herewith. + Management contract or compensatory plan or arrangement. (1) Incorporated by reference to Commodore Media, Inc.'s ("Commodore") Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, File No. 33-92732. (2) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 33-92732. (3) Incorporated by reference to Capstar Partners's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 333-25638. (4) Incorporated by reference to Capstar Partners's Amendment No. 1 to Registration Statement on Form S-4, dated July 8, 1997, File No. 333-25638. (5) Incorporated by reference to Capstar Partners's Registration Statement on Form S-1, dated April 16, 1997, File No. 333-25263. (6) Incorporated by reference to Commodore's Registration Statement on Form S-4, dated July 26, 1995, File No. 33-92732. (7) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-92732. (8) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 33-92732. 150 (9) Incorporated by reference to Commodore's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-92732. (10) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 33-92732. (11) Incorporated by reference to Capstar Partners's Amendment No. 2 to Registration Statement on Form S-4, dated August 5, 1997, File No. 333-25638. (12) Incorporated by reference to Capstar Radio's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 33-92732. (13) Incorporated by reference to Capstar Partners's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, File No. 333-25638. (14) Incorporated by reference to Capstar Radio's Current Report on Form 8-K, dated November 26, 1997, File No. 33-92732. (15) Incorporated by reference to Capstar Radio's Current Report on Form 8-K, dated February 13, 1998, File No. 333-25683. (16) Incorporated by reference to Commodore's Current Report on Form 8-K, dated March 6, 1997, File No. 33-92732. (17) Incorporated by reference to Capstar Radio's Current Report on Form 8-K, dated August 6, 1997, File No. 33-92732. (18) Incorporated by reference to Capstar Radio's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 33-02732. (19) Incorporated by reference to Capstar Radio's Registration Statement on Form S-4, dated August 6, 1997, File No. 33-02732. (20) Incorporated by reference to Commodore's Registration Statement on Form S-4, dated July 26, 1995, File No. 33-02732. (21) Incorporated by reference to SFX's Current Report on Form 8-K, dated August 26, 1997, File No. 000-22486. (22) Incorporated by reference to SFX's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 000-22486. (23) Incorporated by reference to SFX's Current Report on Form 8-K, dated February 17, 1998, File No. 000-22486. EX-3.2 2 AMENDED & RESTATED BY-LAWS OF CAPSTAR PARTNERS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF CAPSTAR BROADCASTING PARTNERS, INC. 2 TABLE OF CONTENTS
Page ---- ARTICLE I: OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II: STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Quorum; Adjournment of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 3. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 6. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 7. Stock List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 8. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 9. Voting; Elections; Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 10. Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 11. Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 12. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III: BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 1. Power; Number; Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 3. Place of Meetings; Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4. First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 7. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 8. Vacancies; Increases in the Number of Directors . . . . . . . . . . . . . . . . . . . . . . . 6 Section 9. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 10. Action Without a Meeting; Telephone Conference Meeting . . . . . . . . . . . . . . . . . . . 7 Section 11. Approval or Ratification of Acts or Contracts by Stockholders . . . . . . . . . . . . . . . . 7 ARTICLE IV: COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 1. Designation; Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2. Procedure; Meetings; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3. Substitution of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE V: OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 1. Number, Titles and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
i 3 Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5. Powers and Duties of the Chief Executive Officer 9 Section 6. Powers and Duties of the Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . 9 Section 7. Powers and Duties of the President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 9. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 10. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 11. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 12. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 13. Action with Respect to Securities of Other Corporations . . . . . . . . . . . . . . . . . . 10 ARTICLE VI: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1. Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2. Indemnification of Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3. Right of Claimant to Bring Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4. Nonexclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6. Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 7. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VII: CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 1. Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3. Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4. Regulations Regarding Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 5. Lost or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE VIII: MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3. Notice and Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5. Facsimile Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6. Reliance upon Books, Reports and Records . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IX: AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii 4 AMENDED AND RESTATED BYLAWS OF CAPSTAR BROADCASTING PARTNERS, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation required by the General Corporation Law of the State of Delaware to be maintained in the State of Delaware, shall be the registered office named in the original Certificate of Incorporation of the Corporation (as the same may be amended and restated from time to time, the "Certificate of Incorporation"), or such other office as may be designated from time to time by the Board of Directors in the manner provided by law. Should the Corporation maintain a principal office within the State of Delaware such registered office need not be identical to such principal office of the Corporation. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders shall be held at the principal office of the Corporation, or at such other place within or without the State of Delaware as shall be specified or fixed in the notices or waivers of notice thereof. Section 2. Quorum; Adjournment of Meetings. Unless otherwise required by law or provided in the Certificate of Incorporation or these bylaws, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business and the act of a majority of such stock so represented at any meeting of stockholders at which a quorum is present shall constitute the act of the meeting of stockholders. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 1 5 Notwithstanding the other provisions of the Certificate of Incorporation or these bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting; provided, however, if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At any such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called. Section 3. Annual Meetings. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, within or without the State of Delaware, on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 4. Special Meetings. Unless otherwise provided in the Certificate of Incorporation, special meetings of the stockholders for any purpose or purposes may be called at any time by the Chairman of the Board (if any), by the President or by a majority of the Board of Directors, or by a majority of the executive committee (if any), and shall be called by the Chairman of the Board (if any), by the President or the Secretary upon the written request therefor, stating the purpose or purposes of the meeting, delivered to such officer, signed by the holder(s) of at least ten percent (l0%) of the issued and outstanding stock entitled to vote at such meeting. Section 5. Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors of the Corporation may fix, in advance, a date as the record date for any such determination of stockholders, which date shall not be more than sixty (60) days nor less than ten (l0) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not fix a record date for any meeting of the stockholders, the record date for determining stockholders entitled to notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice is given, or, if in accordance with Article VIII, Section 3 of these bylaws notice is waived, at the close of business on the day next preceding the day on which the meeting is held. If, in accordance with Section 12 of this Article II, corporate action without a meeting of stockholders is to be taken, the record date for determining stockholders entitled to express consent to such corporate action in writing, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 2 6 A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Notice of Meetings. Written notice of the place, date and hour of all meetings, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or at the direction of the Chairman of the Board (if any) or the President, the Secretary or the other person(s) calling the meeting to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice may be delivered either personally or by mail. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 7. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 8. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions. No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power. Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of the same portion of the shares as he is of the proxies representing such shares. 3 7 Section 9. Voting; Elections; Inspectors. Unless otherwise required by law or provided in the Certificate of Incorporation, each stockholder shall have one vote for each share of stock entitled to vote which is registered in his name on the record date for the meeting. Shares registered in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaw (or comparable instrument) of such corporation may prescribe, or in the absence of such provision, as the Board of Directors (or comparable body) of such corporation may determine. Shares registered in the name of a deceased person may be voted by his executor or administrator, either in person or by proxy. All voting, except as required by the Certificate of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of directors shall be by ballot, unless otherwise provided in the Certificate of Incorporation. At any meeting at which a vote is taken by ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. Such inspector shall receive the ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector. Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited. Section 10. Conduct of Meetings. The meetings of the stockholders shall be presided over by the Chairman of the Board (if any), or if he is not present, by the President, or if neither the Chairman of the Board (if any), nor President is present, by a chairman elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings, or if he is not present, an Assistant Secretary shall so act; if neither the Secretary nor an Assistant Secretary is present, then a secretary shall be appointed by the chairman of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order. Unless the chairman of the meeting of stockholders shall otherwise determine, the order of business shall be as follows: (a) Calling of meeting to order. (b) Election of a chairman and the appointment of a secretary if necessary. (c) Presentation of proof of the due calling of the meeting. (d) Presentation and examination of proxies and determination of a quorum. (e) Reading and settlement of the minutes of the previous meeting. (f) Reports of officers and committees. (g) The election of directors if an annual meeting, or a meeting called for that purpose. 4 8 (h) Unfinished business. (i) New business. (j) Adjournment. Section 11. Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it and such shares shall not be counted for quorum purposes. Section 12. Action Without Meeting. Unless otherwise provided in the Certificate of Incorporation, any action permitted or required by law, the Certificate of Incorporation or these bylaws to be taken at a meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than a unanimous written consent shall be given by the Secretary to those stockholders who have not consented in writing. ARTICLE III BOARD OF DIRECTORS Section 1. Power; Number; Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and subject to the restrictions imposed by law or the Certificate of Incorporation, they may exercise all the powers of the Corporation. Unless otherwise provided in the Certificate of Incorporation, the number of directors that shall constitute the entire Board of Directors shall be determined from time to time by resolution of the Board of Directors (provided that no decrease in the number of directors that would have the effect of shortening the term of an incumbent director may be made by the Board of Directors). If the Board of Directors makes no such determination, the number of directors shall be the number set forth in the Certificate of Incorporation as the number of directors constituting the initial Board of Directors. Each director shall hold office for the term for which he is elected and thereafter until his successor shall have been elected and qualified, or until his earlier death, resignation or removal. Unless otherwise provided in the Certificate of Incorporation, directors need not be stockholders nor residents of the State of Delaware. Section 2. Quorum. Unless otherwise provided in the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum for the transaction of business of the Board of Directors and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 5 9 Section 3. Place of Meetings; Order of Business. The directors may hold their meetings and may have an office and keep the books of the Corporation, except as otherwise provided by law, in such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine by resolution. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the Chairman of the Board (if any), or in his absence by the President, or by resolution of the Board of Directors. Section 4. First Meeting. Each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders. Notice of such meeting shall not be required. At the first meeting of the Board of Directors in each year at which a quorum shall be present, held next after the annual meeting of stockholders, the Board of Directors shall proceed to the election of the officers of the Corporation. Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by resolution of the Board of Directors. Notice of such regular meetings shall not be required. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board (if any), the President or, on the written request of any two directors, by the Secretary, in each case on at least twenty-four (24) hours personal, written, telegraphic, cable or wireless notice to each director. Such notice, or any waiver thereof pursuant to Article VIII, Section 3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for in the Certificate of Incorporation or these bylaws. Section 7. Removal. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided that, unless the Certificate of Incorporation otherwise provides, if the Board of Directors is classified, then the stockholders may effect such removal only for cause; and provided further that, if the Certificate of Incorporation expressly grants to stockholders the right to cumulate votes for the election of directors and if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors, or, if there be classes of directors, at an election of the class of directors of which such director is a part. Section 8. Vacancies; Increases in the Number of Directors. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or a sole remaining director; and any director so chosen shall hold office until the next annual election and until his successor shall be duly elected and shall qualify, unless sooner displaced. If the directors of the Corporation are divided into classes, any directors elected to fill vacancies or newly created directorships shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be duly elected and shall qualify. 6 10 Section 9. Compensation. Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. Section 10. Action Without a Meeting; Telephone Conference Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee designated by the Board of Directors, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State of Delaware. Unless otherwise restricted by the Certificate of Incorporation, subject to the requirement for notice of meetings, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in a meeting of such Board of Directors or committee, as the case may be, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 11. Approval or Ratification of Acts or Contracts by Stockholders. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the stockholders, or at any special meeting of the stockholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the stockholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present), shall be as valid and as binding upon the Corporation and upon all the stockholders as if it has been approved or ratified by every stockholder of the Corporation. In addition, any such act or contract may be approved or ratified by the written consent of stockholders holding a majority of the issued and outstanding shares of capital stock of the Corporation entitled to vote and such consent shall be as valid and as binding upon the Corporation and upon all the stockholders as if it had been approved or ratified by every stockholder of the Corporation. ARTICLE IV COMMITTEES Section 1. Designation; Powers. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, including, if they shall so determine, an executive committee, each such committee to consist of one or more of the directors of the Corporation. Any such designated committee shall have and may exercise such of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except that no such committee shall have the power or authority 7 11 of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution of the Corporation, or amending, altering or repealing the bylaws or adopting new bylaws for the Corporation and, unless such resolution or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Any such designated committee may authorize the seal of the Corporation to be affixed to all papers which may require it. In addition to the above such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by resolution adopted by the Board of Directors. Section 2. Procedure; Meetings; Quorum. Any committee designated pursuant to Section 1 of this Article shall choose its own chairman, shall keep regular minutes of its proceedings and report the same to the Board of Directors when requested, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by resolution of such committee or resolution of the Board of Directors. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. Section 3. Substitution of Members. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. ARTICLE V OFFICERS Section 1. Number, Titles and Term of Office. The officers of the Corporation shall be a President, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President, Senior Vice President or such other descriptive title, if any, as the Board of Directors shall determine), a Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of the Board and such other officers as the Board of Directors may from time to time elect or appoint. Each officer shall hold office until his successor shall be duly elected and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any number of offices may be held by the same person, unless the Certificate of Incorporation provides otherwise. Except for the Chairman of the Board, if any, no officer need be a director. Section 2. Salaries. The salaries or other compensation of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors. 8 12 Section 3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed, either with or without cause, by the vote of a majority of the whole Board of Directors at a special meeting called for the purpose, or at any regular meeting of the Board of Directors, provided the notice for such meeting shall specify that the matter of any such proposed removal will be considered at the meeting but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. Vacancies. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors. Section 5. Powers and Duties of the Chief Executive Officer. The President shall be the chief executive officer of the Corporation unless the Board of Directors elects or appoints a chief executive officer or designates the Chairman of the Board as chief executive officer. Subject to the control of the Board of Directors and the executive committee (if any), the chief executive officer shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; he may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; unless the Board of Directors otherwise determines, the chief executive officer shall, in the absence of the Chairman of the Board or if there be no Chairman of the Board, preside at all meetings of the stockholders and (should he be a director) of the Board of Directors; and shall have such other powers and duties as designated in accordance with these bylaws and as from time to time may be assigned to him by the Board of Directors. Section 6. Powers and Duties of the Chairman of the Board. If elected, the Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors; and he shall have such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the Board of Directors. Section 7. Powers and Duties of the President. Unless the Board of Directors otherwise determines, the President shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and, unless the Board of Directors otherwise determines, he shall, in the absence of the chief executive officer and Chairman of the Board or if there be no chief executive officer or Chairman of the Board, preside at all meetings of the stockholders and (should he be a director) of the Board of Directors; and he shall have such other powers and duties as designated in accordance with these bylaws and as from time to time may be assigned to him by the Board of Directors. Section 8. Vice Presidents. In the absence of the President, or in the event of his inability or refusal to act, a Vice President designated by the Board of Directors shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. In the absence of a designation by the Board of Directors of a Vice President to perform the duties of the President, or in the event of his absence or inability or refusal to act, the Vice President who is present and who is senior in terms of time as a Vice President of the Corporation shall 9 13 so act. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 9. Treasurer. The Treasurer shall have responsibility for the custody and control of all the funds and securities of the Corporation, and he shall have such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the Board of Directors. He shall perform all acts incident to the position of Treasurer, subject to the control of the chief executive officer and the Board of Directors; and he shall, if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form as the Board of Directors may require. Section 10. Assistant Treasurers. Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer's absence or inability or refusal to act. Section 11. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, committees of directors and the stockholders, in books provided for that purpose; he shall attend to the giving and serving of all notices; he may in the name of the Corporation affix the seal of the Corporation to all contracts of the Corporation and attest the affixation of the seal of the Corporation thereto; he may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; he shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; he shall have such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the Board of Directors; and he shall in general perform all acts incident to the office of Secretary, subject to the control of the chief executive officer and the Board of Directors. Section 12. Assistant Secretaries. Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors. The Assistant Secretaries shall exercise the powers of the Secretary during that officer's absence or inability or refusal to act. Section 13. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the chief executive officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. 10 14 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was or has agreed to become a director or officer of the Corporation or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving or having agreed to serve as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expense, liability and loss (including without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity hereunder and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof), other than a proceeding (or part thereof) brought under Section 3 of this Article VI, initiated by such person or his or her heirs, executors and administrators only if such proceeding (or part thereof) was authorized by the board of directors of the Corporation. The right to indemnification conferred in this Article VI shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a current, former or proposed director or officer in his or her capacity as a director or officer or proposed director or officer (and not in any other capacity in which service was or is or has been agreed to be rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnified person, to repay all amounts so advanced if it shall ultimately be determined that such indemnified person is not entitled to be indemnified under this Section or otherwise. Section 2. Indemnification of Employees and Agents. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation, individually or as a group, with the same scope and effect as the indemnification of directors and officers provided for in this Article. Section 3. Right of Claimant to Bring Suit. If a written claim received by the Corporation from or on behalf of an indemnified party under this Article VI is not paid in full by the Corporation 11 15 within ninety days after such receipt, 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 be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 4. Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any law (common or statutory), provision of the Certificate of Incorporation of the Corporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 5. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any person who is or was serving as a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 6. Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director and officer of the Corporation, as to costs, charges and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law. Section 7. Definitions. For purposes of this Article, reference to the "Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger prior to (or, in the case of an entity specifically designated in a resolution of the Board of Directors, after) the adoption hereof and which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or 12 16 other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VII CAPITAL STOCK Section 1. Certificates of Stock. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the Certificate of Incorporation, as shall be approved by the Board of Directors. The Chairman of the Board (if any), President or a Vice President shall cause to be issued to each stockholder one or more certificates, under the seal of the Corporation or a facsimile thereof if the Board of Directors shall have provided for such seal, and signed by the Chairman of the Board (if any), President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the number of shares (and, if the stock of the Corporation shall be divided into classes or series, the class and series of such shares) owned by such stockholder in the Corporation; provided, however, that any of or all the signatures on the certificate may be facsimile. The stock record books and the blank stock certificate books shall be kept by the Secretary, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time by resolution determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder's name and number of shares. Section 2. Transfer of Shares. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. Ownership of Shares. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. Section 4. Regulations Regarding Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning 13 17 the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation. Section 5. Lost or Destroyed Certificates. The Board of Directors may determine the conditions upon which a new certificate of stock may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in their discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety, to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed. ARTICLE VIII MISCELLANEOUS PROVISIONS Section 1. Fiscal Year. The fiscal year of the Corporation shall be such as established from time to time by the Board of Directors. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation. The Secretary shall have charge of the seal (if any). If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by the Assistant Secretary or Assistant Treasurer. Section 3. Notice and Waiver of Notice. Whenever any notice is required to be given by law, the Certificate of Incorporation or under the provisions of these bylaws, said notice shall be deemed to be sufficient if given (i) by telegraphic, cable or wireless transmission or (ii) by deposit of the same in a post office box in a sealed prepaid wrapper addressed to the person entitled thereto at his post office address, as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing, as the case may be. Whenever notice is required to be given by law, the Certificate of Incorporation or under any of the provisions of these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or the bylaws. Section 4. Resignations. Any director, member of a committee or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time be specified, at the time of its receipt by the chief executive officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. 14 18 Section 5. Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors. Section 6. Reliance upon Books, Reports and Records. Each director and each member of any committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IX AMENDMENTS If provided in the Certificate of Incorporation of the Corporation, the Board of Directors shall have the power to adopt, amend and repeal from time to time bylaws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to amend or repeal such bylaws as adopted or amended by the Board of Directors. CERTIFICATION The undersigned, being the duly elected and acting Secretary of Capstar Broadcasting Partners, Inc. (the "Corporation"), hereby certifies that the Bylaws of the Corporation have been repealed and the Amended and Restated Bylaws of the Corporation have been duly adopted, effective as of September 22, 1997, by the Board of Directors. Dated: September 29, 1997 /s/ WILLIAM S. BANOWSKY, JR. ------------------------------ William S. Banowsky, Jr. 15 EX-4.2.2 3 1ST SUPPLEMENT INDENTURE DATED 9/15/97 1 EXHIBIT 4.2.2 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE, dated as of September 15, 1997, is between CAPSTAR BROADCASTING PARTNERS, INC., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and U.S. TRUST COMPANY OF TEXAS, N.A., acting as Trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company duly authorized the execution and delivery of an indenture dated as of February 20, 1997 (the "Indenture") to provide for the issuance of its 12 3/4% Senior Discount Notes due 2009 (the "Securities") in the principal amount at maturity of $277,000,000; WHEREAS, the Company has duly authorized the execution and delivery of this Supplemental Indenture amending certain covenants so as to cure certain ambiguities, defects and/or inconsistencies within the Indenture; WHEREAS, Section 9.01 of the Indenture authorizes the Company and the Trustee, in accordance with the terms thereof, to enter into a supplement to the Indenture without the consent of the holders of the Securities; WHEREAS, the Company has requested the Trustee, and the Trustee has agreed, to join in the execution of this First Supplemental Indenture pursuant to Section 9.01 of the Indenture on the terms and subject to the conditions set forth below; and WHEREAS, all acts and things necessary to make this First Supplemental Indenture a valid agreement of the Company according to its terms have been done and performed, and the execution and delivery of this First Supplemental Indenture have in all respects been duly authorized. In consideration of the premises, of the purchase and acceptance of the Securities by the holders thereof and of the sum of one dollar duly paid to it by the Trustee at the execution and delivery of these presents, the receipt whereof is hereby acknowledged, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Securities or of any series thereof, as follows: 1. Amendment to Definition of Leverage Ratio. The first paragraph of the definition of "Leverage Ratio" in Section 1.01 of the Indenture is hereby amended and restated to read as follows: 2 " "Leverage Ratio" shall mean the ratio of (i) the aggregate outstanding amount of Indebtedness of the Company and its Subsidiaries as of the date of calculation on a consolidated basis in accordance with GAAP plus the aggregate liquidation preference of all outstanding Preferred Stock of the Company's Subsidiaries (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company) on such date less the Accreted Value of the Securities on such date to (ii) the Consolidated EBITDA of the Company for the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of determination." 2. Amendment to Add Definition of Acquired Preferred Stock. Section 1.01 of the Indenture is hereby amended to add the following definition between the definitions of "Acquired Indebtedness" and "Affiliate": " "Acquired Preferred Stock" means Preferred Stock of any Person at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries and not issued by such Person in connection with, or in anticipation or contemplation of, such acquisition, merger or consolidation." 3. Amendment to Section 4.12 of the Indenture. Section 4.12 of the Indenture is hereby amended and restated to read as follows: "The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (other than Permitted Indebtedness) and the Company's Subsidiaries will not issue any Preferred Stock (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company); provided, however, that the Company and its Subsidiaries may incur Indebtedness and the Company's Subsidiaries may issue shares of Preferred Stock if, in either case, the Company's Leverage Ratio at the time of incurrence of such Indebtedness or the issuance of such Preferred Stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7.0 to 1." 4. Amendment to Section 4.13 of the Indenture. Clause (4) of Section 4.13 of the Indenture is hereby amended and restated to read as follows: "(4) any instrument governing Acquired Indebtedness or Acquired Preferred Stock, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired," 2 3 5. Amendment to Section 4.13 of the Indenture. Clause (8) of Section 4.13 of the Indenture is hereby amended and restated to read as follows: "(8) any agreement or charter provision evidencing Indebtedness or Preferred Stock permitted under this Indenture; provided, however, that the provisions relating to such encumbrance or restriction contained in such agreement or charter provision are not less favorable to the Company in any material respect as determined in good faith by the Board of Directors of the Company than the provisions relating to such encumbrance or restriction contained in this Indenture, or" 3 4 IN WITNESS WHEREOF, Capstar Broadcasting Partners, Inc. has caused this Supplemental Indenture to be signed by one of its authorized officers, and U.S. Trust Company of Texas, N.A., as Trustee, has caused this First Supplemental Indenture to be signed by one of its authorized officers, as of the day and year first above written. CAPSTAR BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- Name: William S. Banowsky, Jr. ------------------------------ Title: Executive Vice President ------------------------------ U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: /s/ BILL BARBER ------------------------------------- Name: Bill Barber ------------------------------ Title: ------------------------------ 4 EX-4.3.13 4 AMENDMENT NO. 12 TO 1995 CAPSTAR RADIO INDENTURE 1 EXHIBIT 4.3.13 ================================================================================ CAPSTAR RADIO BROADCASTING PARTNERS, INC., AS ISSUER, THE PARTIES LISTED ON THE SIGNATURE PAGES HERETO AS GUARANTORS, AS GUARANTORS, AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE --------------------------- AMENDMENT NO. 12 DATED AS OF DECEMBER 15, 1997 TO THE INDENTURE DATED AS OF APRIL 21, 1995 --------------------------- $76,808,000 13 1/4% SENIOR SUBORDINATED NOTES DUE 2003 ================================================================================ 2 AMENDMENT NO. 12, dated as of December 15, 1997 ("Amendment No. 12"), to the INDENTURE, dated as of April 21, 1995, as amended (the "Indenture"), among CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation, as Issuer (the "Company"), the parties listed on the signature pages hereto as Guarantors (each individually, a "Guarantor" and collectively, the "Guarantors"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). Each party agrees for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 13 1/4% Senior Subordinated Notes due 2003 (the "Notes") to amend, pursuant to Section 8.01(4) of the Indenture, the Indenture as follows: 1. K-106, Inc., a Texas corporation ("K-106"), is a wholly-owned indirect subsidiary of the Company, and is a Restricted Subsidiary acquired or created pursuant to Section 4.14(ii) of the Indenture. K-106 delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 12 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, K-106 shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 12 and the defined term "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include K-106. 2. GulfStar Beaumont Broadcasting, Inc., a Texas corporation ("GulfStar Beaumont"), is a wholly-owned indirect subsidiary of the Company, and is a Restricted Subsidiary acquired or created pursuant to Section 4.14(ii) of the Indenture. GulfStar Beaumont delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 12 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, GulfStar Beaumont shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 12 and the defined term "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include GulfStar Beaumont. 3. This Amendment No. 12 supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect. 4. This Amendment No. 12 may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. 5. THIS AMENDMENT NO. 12 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). 6. The Trustee shall not be responsible for any recital herein as such recitals shall be taken as statements of the Company, or the validity of the execution by the Guarantor of the Amendment No. 12. The Trustee makes no representation as to the validity or sufficiency of this Amendment No. 12. -1- 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. 12 to the Indenture to be duly executed and attested as of the date and year first written above. CAPSTAR RADIO BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Executive Vice President ATTEST: - --------------------------- Kathy Archer Assistant Secretary GUARANTORS: AMERON BROADCASTING CORPORATION ASHEVILLE BROADCASTING CORP. ATLANTIC STAR COMMUNICATIONS, INC. ATLANTIC CITY BROADCASTING CORP. BATON ROUGE BROADCASTING COMPANY, INC. BC FUNDS HOLDINGS CO., INC. BEATRICE BROADCASTING CORP. BENCHMARK COMMUNICATIONS HOLDINGS, INC. BREADBASKET BROADCASTING CORPORATION CAPSTAR ACQUISITION COMPANY, INC. CENTRAL STAR COMMUNICATIONS, INC. COMMODORE MEDIA OF KENTUCKY, INC. COMMODORE MEDIA OF NORWALK, INC. COMMODORE MEDIA FLORIDA, INC. COMMODORE MEDIA OF WESTCHESTER, INC. COMMODORE MEDIA OF PENNSYLVANIA, INC. COMMODORE MEDIA OF DELAWARE, INC CONGAREE BROADCASTERS, INC. CORKSCREW BROADCASTING CORPORATION COUNTRY HEARTLINES, INC. CURREY BROADCASTING CORPORATION DANBURY BROADCASTING, INC DAYTONA BEACH BROADCASTING CORP. DIXIE BROADCASTING, INC. GREAT AMERICAN EAST, INC. GULFSTAR COMMUNICATIONS WACO LICENSEE, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI LICENSEE, INC. 4 GULFSTAR BEAUMONT BROADCASTING, INC. GULFSTAR COMMUNICATIONS BEAUMONT LICENSEE, INC. GULFSTAR COMMUNICATIONS LUFKIN LICENSEE, INC. GULFSTAR COMMUNICATIONS BATON ROUGE LICENSEE, INC. GULFSTAR COMMUNICATIONS VICTORIA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA, INC. GULFSTAR COMMUNICATIONS LUBBOCK LICENSEE, INC. GULFSTAR COMMUNICATIONS TYLER LICENSEE, INC. GULFSTAR COMMUNICATIONS KILLEEN LICENSEE, INC. GULFSTAR COMMUNICATIONS, INC. GULFSTAR COMMUNICATIONS HOLDINGS, INC. GULFSTAR COMMUNICATIONS MANAGEMENT, INC. GULFSTAR COMMUNICATIONS BEAUMONT, INC. GULFSTAR COMMUNICATIONS LUFKIN, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR, INC. GULFSTAR COMMUNICATIONS TEXARKANA, INC. GULFSTAR COMMUNICATIONS TYLER, INC. GULFSTAR COMMUNICATIONS VICTORIA, INC. GULFSTAR COMMUNICATIONS BATON ROUGE, INC. GULFSTAR COMMUNICATIONS NEW MEXICO LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI, INC. GULFSTAR COMMUNICATIONS WACO, INC. GULFSTAR COMMUNICATIONS ARKANSAS, INC. GULFSTAR COMMUNICATIONS NEW MEXICO, INC. GULFSTAR COMMUNICATIONS KILLEEN, INC. GULFSTAR COMMUNICATIONS LUBBOCK, INC. GULFSTAR COMMUNICATIONS ARKANSAS LICENSEE, INC. GULFSTAR COMMUNICATIONS TEXARKANA LICENSEE, INC. HOUNDSTOOTH BROADCASTING CORPORATION JAMBOREE IN THE HILLS, INC K-106, INC. LADNER COMMUNICATIONS HOLDING CORP. MOUNTAIN RADIO CORPORATION NELSON BROADCASTING CORPORATION O.C.C., INC. ORANGE COMMUNICATIONS, INC. OSBORN SOUND & COMMUNICATIONS CORP. OSBORN ENTERTAINMENT ENTERPRISES CORPORATION PACIFIC STAR COMMUNICATIONS, INC. RADIO WBHP, INC. RADIOCO I, INC. RADIOCO II, INC. RAINBOW BROADCASTING CORPORATION RKZ TELEVISION, INC. SHORT BROADCASTING CORPORATION 5 SNG HOLDINGS, INC. SONANCE WACO LICENSE SUBSIDIARY, INC. SONANCE WACO OPERATING COMPANY, INC. SOUTHEAST RADIO HOLDING CORP. SOUTHERN STAR COMMUNICATIONS, INC. WAITE BROADCASTING CORP. WNOK ACQUISITION COMPANY, INC. YELLOW BRICK RADIO CORPORATION By: /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - -------------------------------- Kathy Archer Assistant Secretary 6 MOUNTAIN LAKES BROADCASTING, L.L.C. By: Dixie Broadcasting, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary By: Radio WBHP, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ---------------------------------- Kathy Archer Assistant Secretary WILMINGTON WJBR-FM, L.L.C. By: Commodore Media of Delaware, Inc., its Manager By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ---------------------------------- Kathy Archer Assistant Secretary 7 MUSIC HALL CLUB, INC. By: /s/ LARRY ANDERSON ------------------------------------------ Larry Anderson President ATTEST: /s/ NANCY ANDERSON - ----------------------------------- Nancy Anderson Secretary and Treasurer 8 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ----------------------------------- Kathy Archer Assistant Secretary BENCHMARK JACKSON, L.L.C. By: Benchmark Communications Radio Limited Partnership, its Member By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ----------------------------------- Kathy Archer Assistant Secretary 9 BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IX LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND XI LIMITED PARTNERSHIP By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ----------------------------------- Kathy Archer Assistant Secretary 10 WDOV LICENSE LIMITED PARTNERSHIP WDSD LICENSE LIMITED PARTNERSHIP WSRV LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund I Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 11 BENCHMARK RADIO ACQUISITION FUND V LIMITED PARTNERSHIP WOSC LICENSE LIMITED PARTNERSHIP WKOC LICENSE LIMITED PARTNERSHIP WWFG LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ----------------------------------- Kathy Archer Assistant Secretary 12 WCOS (AM) LICENSE LIMITED PARTNERSHIP WCOS-FM LICENSE LIMITED PARTNERSHIP WHKZ LICENSE LIMITED PARTNERSHIP WVOC LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund V Limited Partnership, its General Partner By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ----------------------------------- Kathy Archer Assistant Secretary 13 WJMZ LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ----------------------------------- Kathy Archer Assistant Secretary BENCHMARK GREENVILLE, L.L.C. By: Benchmark Radio Acquisition Fund III Limited Partnership, its Manager By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ---------------------------------- Kathy Archer Assistant Secretary 14 WESC(AM) LICENSE LIMITED PARTNERSHIP WESC-FM LICENSE LIMITED PARTNERSHIP WFNQ LICENSE LIMITED PARTNERSHIP By: Benchmark Greenville, L.L.C., its General Partner By: Benchmark Radio Acquisition Fund VII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 15 WUSQ LICENSE LIMITED PARTNERSHIP WNTW LICENSE LIMITED PARTNERSHIP WYYD LICENSE LIMITED PARTNERSHIP WROV(AM) LICENSE LIMITED PARTNERSHIP WROV-FM LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ---------------------------------- Kathy Archer Assistant Secretary BENCHMARK RADIO ACQUISITION FUND VI, LC By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ---------------------------------- Kathy Archer Assistant Secretary 16 IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- ATTEST: - ---------------------------------------- Name: ----------------------------------- Title: ----------------------------------- 17 EXHIBIT A GUARANTEE The Guarantors (the "Guarantors," which term includes any successor Person under the Indenture, dated April 21, 1995, as amended, among Capstar Radio Broadcasting Partners, Inc. and its subsidiaries and IBJ Schroder Bank & Trust Company (the "Indenture")) have unconditionally guaranteed, on a senior subordinated basis, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. Terms used and not defined herein shall have the meaning set forth in the Indenture. GUARANTORS: K-106, INC. GULFSTAR BEAUMONT BROADCASTING, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President EX-4.3.14 5 AMENDMENT NO. 13 TO 1995 CAPSTAR RADIO INDENTURE 1 EXHIBIT 4.3.14 ================================================================================ CAPSTAR RADIO BROADCASTING PARTNERS, INC., AS ISSUER, THE PARTIES LISTED ON THE SIGNATURE PAGES HERETO AS GUARANTORS, AS GUARANTORS, AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE ---------------------- AMENDMENT NO. 13 DATED AS OF DECEMBER 29, 1997 TO THE INDENTURE DATED AS OF APRIL 21, 1995 ---------------------- $76,808,000 13 1/4% SENIOR SUBORDINATED NOTES DUE 2003 ================================================================================ 2 AMENDMENT NO. 13, dated as of December ___, 1997 ("Amendment No. 13"), to the INDENTURE, dated as of April 21, 1995, as amended (the "Indenture"), among CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation, as Issuer (the "Company"), the parties listed on the signature pages hereto as Guarantors (each individually, a "Guarantor" and collectively, the "Guarantors"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). Each party agrees for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 13 1/4% Senior Subordinated Notes due 2003 (the "Notes") to amend, pursuant to Section 8.01(4) of the Indenture, the Indenture as follows: 1. GCBR, Inc., a Delaware corporation ("GCBR"), is a wholly-owned indirect subsidiary of the Company, and is a Restricted Subsidiary acquired or created pursuant to Section 4.14(iii) of the Indenture. GCBR delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 13 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, GCBR shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 13 and the defined term "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include GCBR. 2. GCBR, L.P., a Delaware limited partnership, ("GCBR, L.P."), is a wholly-owned indirect subsidiary of the Company, and is a Restricted Subsidiary acquired or created pursuant to Section 4.14(iii) of the Indenture. GCBR, L.P. delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 13 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, GCBR, L.P. shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 13 and the defined term "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include GCBR, L.P. 3. This Amendment No. 13 supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect. 4. This Amendment No. 13 may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. 5. THIS AMENDMENT NO. 13 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). 6. The Trustee shall not be responsible for any recital herein as such recitals shall be taken as statements of the Company, or the validity of the execution by the Guarantor of the Amendment No. 13. The Trustee makes no representation as to the validity or sufficiency of this Amendment No. 13. -1- 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. 13 to the Indenture to be duly executed and attested as of the date and year first written above. CAPSTAR RADIO BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------------- William S. Banowsky, Jr. Executive Vice President ATTEST: /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary GUARANTORS: AMERON BROADCASTING CORPORATION ASHEVILLE BROADCASTING CORP. ATLANTIC STAR COMMUNICATIONS, INC. ATLANTIC CITY BROADCASTING CORP. BATON ROUGE BROADCASTING COMPANY, INC. BC FUNDS HOLDINGS CO., INC. BEATRICE BROADCASTING CORP. BENCHMARK COMMUNICATIONS HOLDINGS, INC. BREADBASKET BROADCASTING CORPORATION CAPSTAR ACQUISITION COMPANY, INC. CENTRAL STAR COMMUNICATIONS, INC. COMMODORE MEDIA OF KENTUCKY, INC. COMMODORE MEDIA OF NORWALK, INC. COMMODORE MEDIA FLORIDA, INC. COMMODORE MEDIA OF WESTCHESTER, INC. COMMODORE MEDIA OF PENNSYLVANIA, INC. COMMODORE MEDIA OF DELAWARE, INC CONGAREE BROADCASTERS, INC. CORKSCREW BROADCASTING CORPORATION COUNTRY HEARTLINES, INC. CURREY BROADCASTING CORPORATION DANBURY BROADCASTING, INC DAYTONA BEACH BROADCASTING CORP. DIXIE BROADCASTING, INC. GREAT AMERICAN EAST, INC. GULFSTAR COMMUNICATIONS WACO LICENSEE, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI LICENSEE, INC. 4 GULFSTAR BEAUMONT BROADCASTING, INC. GULFSTAR COMMUNICATIONS BEAUMONT LICENSEE, INC. GULFSTAR COMMUNICATIONS LUFKIN LICENSEE, INC. GULFSTAR COMMUNICATIONS VICTORIA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA, INC. GULFSTAR COMMUNICATIONS LUBBOCK LICENSEE, INC. GULFSTAR COMMUNICATIONS TYLER LICENSEE, INC. GULFSTAR COMMUNICATIONS KILLEEN LICENSEE, INC. GULFSTAR COMMUNICATIONS, INC. GULFSTAR COMMUNICATIONS HOLDINGS, INC. GULFSTAR COMMUNICATIONS MANAGEMENT, INC. GULFSTAR COMMUNICATIONS BEAUMONT, INC. GULFSTAR COMMUNICATIONS LUFKIN, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR, INC. GULFSTAR COMMUNICATIONS TEXARKANA, INC. GULFSTAR COMMUNICATIONS TYLER, INC. GULFSTAR COMMUNICATIONS VICTORIA, INC. GULFSTAR COMMUNICATIONS BATON ROUGE, INC. GULFSTAR COMMUNICATIONS NEW MEXICO LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI, INC. GULFSTAR COMMUNICATIONS WACO, INC. GULFSTAR COMMUNICATIONS ARKANSAS, INC. GULFSTAR COMMUNICATIONS NEW MEXICO, INC. GULFSTAR COMMUNICATIONS KILLEEN, INC. GULFSTAR COMMUNICATIONS LUBBOCK, INC. GULFSTAR COMMUNICATIONS ARKANSAS LICENSEE, INC. GULFSTAR COMMUNICATIONS TEXARKANA LICENSEE, INC. HOUNDSTOOTH BROADCASTING CORPORATION JAMBOREE IN THE HILLS, INC K-106, INC. LADNER COMMUNICATIONS HOLDING CORP. MOUNTAIN RADIO CORPORATION NELSON BROADCASTING CORPORATION O.C.C., INC. ORANGE COMMUNICATIONS, INC. OSBORN SOUND & COMMUNICATIONS CORP. OSBORN ENTERTAINMENT ENTERPRISES CORPORATION PACIFIC STAR COMMUNICATIONS, INC. RADIO WBHP, INC. RADIOCO I, INC. RADIOCO II, INC. RAINBOW BROADCASTING CORPORATION RKZ TELEVISION, INC. SHORT BROADCASTING CORPORATION SNG HOLDINGS, INC. SONANCE WACO LICENSE SUBSIDIARY, INC. SONANCE WACO OPERATING COMPANY, INC. 5 SOUTHEAST RADIO HOLDING CORP. SOUTHERN STAR COMMUNICATIONS, INC. WAITE BROADCASTING CORP. WNOK ACQUISITION COMPANY, INC. YELLOW BRICK RADIO CORPORATION By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 6 MOUNTAIN LAKES BROADCASTING, L.L.C. By: Dixie Broadcasting, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------- William S. Banowsky, Jr. Vice President ATTEST: - ------------------------------ Kathy Archer Assistant Secretary By: Radio WBHP, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------ Kathy Archer Assistant Secretary WILMINGTON WJBR-FM, L.L.C. By: Commodore Media of Delaware, Inc., its Manager By: /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------ Kathy Archer Assistant Secretary 7 MUSIC HALL CLUB, INC. By: /s/ LARRY ANDERSON ------------------------------------------- Larry Anderson President ATTEST: /s/ NANCY ANDERSON - --------------------------------- Nancy Anderson Secretary and Treasurer 8 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary BENCHMARK JACKSON, L.L.C. By: Benchmark Communications Radio Limited Partnership, its Member By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 9 BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IX LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND XI LIMITED PARTNERSHIP By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 10 WDOV LICENSE LIMITED PARTNERSHIP WDSD LICENSE LIMITED PARTNERSHIP WSRV LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund I Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 11 BENCHMARK RADIO ACQUISITION FUND V LIMITED PARTNERSHIP WOSC LICENSE LIMITED PARTNERSHIP WKOC LICENSE LIMITED PARTNERSHIP WWFG LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - -------------------------------- Kathy Archer Assistant Secretary 12 WCOS (AM) LICENSE LIMITED PARTNERSHIP WCOS-FM LICENSE LIMITED PARTNERSHIP WHKZ LICENSE LIMITED PARTNERSHIP WVOC LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund V Limited Partnership, its General Partner By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 13 WJMZ LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary BENCHMARK GREENVILLE, L.L.C. By: Benchmark Radio Acquisition Fund III Limited Partnership, its Manager By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 14 WESC(AM) LICENSE LIMITED PARTNERSHIP WESC-FM LICENSE LIMITED PARTNERSHIP WFNQ LICENSE LIMITED PARTNERSHIP By: Benchmark Greenville, L.L.C., its General Partner By: Benchmark Radio Acquisition Fund VII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------------- Kathy Archer Assistant Secretary 15 WUSQ LICENSE LIMITED PARTNERSHIP WNTW LICENSE LIMITED PARTNERSHIP WYYD LICENSE LIMITED PARTNERSHIP WROV(AM) LICENSE LIMITED PARTNERSHIP WROV-FM LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary BENCHMARK RADIO ACQUISITION FUND VI, LC By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - -------------------------------- Kathy Archer Assistant Secretary 16 GCBR, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------ Name: William S. Banowsky, Jr. ----------------------------------------- Title: Executive Vice President ---------------------------------------- ATTEST: /s/ KATHY ARCHER - ------------------------------- Name: Kathy Archer ------------------------ Title: Assistant Secretary ------------------------ GCBR, L.P. By: GulfStar Communications Baton Rouge, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 17 IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: -------------------------------- Name: -------------------------------- Title: -------------------------------- ATTEST: - --------------------------------- Name: -------------------------- Title: -------------------------- 18 EXHIBIT A GUARANTEE The Guarantors (the "Guarantors," which term includes any successor Person under the Indenture, dated April 21, 1995, as amended, among Capstar Radio Broadcasting Partners, Inc. and its subsidiaries and IBJ Schroder Bank & Trust Company (the "Indenture")) have unconditionally guaranteed, on a senior subordinated basis, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. Terms used and not defined herein shall have the meaning set forth in the Indenture. GUARANTORS: GCBR, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------------- Name: William S. Banowsky, Jr. --------------------------------------- Title: Executive Vice President -------------------------------------- GCBR, L.P. By: GulfStar Communications Baton Rouge, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------------- William S. Banowsky, Jr. Vice President EX-4.3.15 6 AMENDMENT NO. 14 TO 1995 CAPSTAR RADIO INDENTURE 1 EXHIBIT 4.3.15 ================================================================================ CAPSTAR RADIO BROADCASTING PARTNERS, INC., AS ISSUER, THE PARTIES LISTED ON THE SIGNATURE PAGES HERETO AS GUARANTORS, AS GUARANTORS, AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE ---------------------------------- AMENDMENT NO. 14 DATED AS OF JANUARY 26, 1998 TO THE INDENTURE DATED AS OF APRIL 21, 1995 ---------------------------------- $76,808,000 13 1/4% SENIOR SUBORDINATED NOTES DUE 2003 ================================================================================ 2 AMENDMENT NO. 14, dated as of January 26, 1998 ("Amendment No. 14"), to the INDENTURE, dated as of April 21, 1995, as amended (the "Indenture"), among CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation, as Issuer (the "Company"), the parties listed on the signature pages hereto as Guarantors (each individually, a "Guarantor" and collectively, the "Guarantors"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). Each party agrees for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 13 1/4% Senior Subordinated Notes due 2003 (the "Notes") to amend, pursuant to Section 8.01(4) of the Indenture, the Indenture as follows: 1. Quass Broadcasting Company, an Iowa corporation ("Quass"), is a wholly-owned indirect subsidiary of the Company, and is a Restricted Subsidiary acquired or created pursuant to Section 4.14(iii) of the Indenture. Quass delivers herewith the Guarantee attached as Exhibit A to this Amendment No. 14 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, Quass shall be deemed a party to the Indenture by virtue of its execution of this Amendment No. 14 and the defined term "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include Quass. 2. This Amendment No. 14 supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect. 3. This Amendment No. 14 may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. 4. THIS AMENDMENT NO. 14 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). 5. The Trustee shall not be responsible for any recital herein as such recitals shall be taken as statements of the Company, or the validity of the execution by the Guarantor of this Amendment No. 14. The Trustee makes no representation as to the validity or sufficiency of this Amendment No. 14. -1- 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. 14 to the Indenture to be duly executed and attested as of the date and year first written above. CAPSTAR RADIO BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ----------------------------------- William S. Banowsky, Jr. Executive Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------ Kathy Archer Assistant Secretary GUARANTORS: AMERON BROADCASTING CORPORATION ASHEVILLE BROADCASTING CORP. ATLANTIC STAR COMMUNICATIONS, INC. ATLANTIC CITY BROADCASTING CORP. BATON ROUGE BROADCASTING COMPANY, INC. BC FUNDS HOLDINGS CO., INC. BEATRICE BROADCASTING CORP. BENCHMARK COMMUNICATIONS HOLDINGS, INC. BREADBASKET BROADCASTING CORPORATION CAPSTAR ACQUISITION COMPANY, INC. CENTRAL STAR COMMUNICATIONS, INC. COMMODORE MEDIA OF KENTUCKY, INC. COMMODORE MEDIA OF NORWALK, INC. COMMODORE MEDIA FLORIDA, INC. COMMODORE MEDIA OF WESTCHESTER, INC. COMMODORE MEDIA OF PENNSYLVANIA, INC. COMMODORE MEDIA OF DELAWARE, INC CONGAREE BROADCASTERS, INC. CORKSCREW BROADCASTING CORPORATION COUNTRY HEARTLINES, INC. CURREY BROADCASTING CORPORATION DANBURY BROADCASTING, INC DAYTONA BEACH BROADCASTING CORP. DIXIE BROADCASTING, INC. GCBR, INC. GREAT AMERICAN EAST, INC. GULFSTAR COMMUNICATIONS WACO LICENSEE, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR LICENSEE, INC. 4 GULFSTAR COMMUNICATIONS CORPUS CHRISTI LICENSEE, INC. GULFSTAR BEAUMONT BROADCASTING, INC. GULFSTAR COMMUNICATIONS BEAUMONT LICENSEE, INC. GULFSTAR COMMUNICATIONS LUFKIN LICENSEE, INC. GULFSTAR COMMUNICATIONS VICTORIA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA, INC. GULFSTAR COMMUNICATIONS LUBBOCK LICENSEE, INC. GULFSTAR COMMUNICATIONS TYLER LICENSEE, INC. GULFSTAR COMMUNICATIONS KILLEEN LICENSEE, INC. GULFSTAR COMMUNICATIONS, INC. GULFSTAR COMMUNICATIONS HOLDINGS, INC. GULFSTAR COMMUNICATIONS MANAGEMENT, INC. GULFSTAR COMMUNICATIONS BEAUMONT, INC. GULFSTAR COMMUNICATIONS LUFKIN, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR, INC. GULFSTAR COMMUNICATIONS TEXARKANA, INC. GULFSTAR COMMUNICATIONS TYLER, INC. GULFSTAR COMMUNICATIONS VICTORIA, INC. GULFSTAR COMMUNICATIONS BATON ROUGE, INC. GULFSTAR COMMUNICATIONS NEW MEXICO LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI, INC. GULFSTAR COMMUNICATIONS WACO, INC. GULFSTAR COMMUNICATIONS ARKANSAS, INC. GULFSTAR COMMUNICATIONS NEW MEXICO, INC. GULFSTAR COMMUNICATIONS KILLEEN, INC. GULFSTAR COMMUNICATIONS LUBBOCK, INC. GULFSTAR COMMUNICATIONS ARKANSAS LICENSEE, INC. GULFSTAR COMMUNICATIONS TEXARKANA LICENSEE, INC. HOUNDSTOOTH BROADCASTING CORPORATION JAMBOREE IN THE HILLS, INC K-106, INC. LADNER COMMUNICATIONS HOLDING CORP. MOUNTAIN RADIO CORPORATION NELSON BROADCASTING CORPORATION O.C.C., INC. ORANGE COMMUNICATIONS, INC. OSBORN SOUND & COMMUNICATIONS CORP. OSBORN ENTERTAINMENT ENTERPRISES CORPORATION PACIFIC STAR COMMUNICATIONS, INC. RADIO WBHP, INC. RADIOCO I, INC. RADIOCO II, INC. RAINBOW BROADCASTING CORPORATION RKZ TELEVISION, INC. SHORT BROADCASTING CORPORATION 5 SNG HOLDINGS, INC. SONANCE WACO LICENSE SUBSIDIARY, INC. SONANCE WACO OPERATING COMPANY, INC. SOUTHEAST RADIO HOLDING CORP. SOUTHERN STAR COMMUNICATIONS, INC. WAITE BROADCASTING CORP. WNOK ACQUISITION COMPANY, INC. YELLOW BRICK RADIO CORPORATION By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 6 MOUNTAIN LAKES BROADCASTING, L.L.C. By: Dixie Broadcasting, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------ William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary By: Radio WBHP, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------ William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary WILMINGTON WJBR-FM, L.L.C. By: Commodore Media of Delaware, Inc., its Manager By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------ William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 7 MUSIC HALL CLUB, INC. By: /s/ LARRY ANDERSON ------------------------------- Larry Anderson President ATTEST: /s/ NANCY ANDERSON - ------------------------------- Nancy Anderson Secretary and Treasurer 8 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary BENCHMARK JACKSON, L.L.C. By: Benchmark Communications Radio Limited Partnership, its Member By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 9 BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IX LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND XI LIMITED PARTNERSHIP By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 10 WDOV LICENSE LIMITED PARTNERSHIP WDSD LICENSE LIMITED PARTNERSHIP WSRV LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund I Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 11 BENCHMARK RADIO ACQUISITION FUND V LIMITED PARTNERSHIP WOSC LICENSE LIMITED PARTNERSHIP WKOC LICENSE LIMITED PARTNERSHIP WWFG LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 12 WCOS (AM) LICENSE LIMITED PARTNERSHIP WCOS-FM LICENSE LIMITED PARTNERSHIP WHKZ LICENSE LIMITED PARTNERSHIP WVOC LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund V Limited Partnership, its General Partner By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 13 WJMZ LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary BENCHMARK GREENVILLE, L.L.C. By: Benchmark Radio Acquisition Fund III Limited Partnership, its Manager By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 14 WESC(AM) LICENSE LIMITED PARTNERSHIP WESC-FM LICENSE LIMITED PARTNERSHIP WFNQ LICENSE LIMITED PARTNERSHIP By: Benchmark Greenville, L.L.C., its General Partner By: Benchmark Radio Acquisition Fund VII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 15 WUSQ LICENSE LIMITED PARTNERSHIP WNTW LICENSE LIMITED PARTNERSHIP WYYD LICENSE LIMITED PARTNERSHIP WROV(AM) LICENSE LIMITED PARTNERSHIP WROV-FM LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary BENCHMARK RADIO ACQUISITION FUND VI, LC By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 16 GCBR, L.P. By: GulfStar Communications Baton Rouge, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 17 QUASS BROADCASTING COMPANY By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - ------------------------------- Kathy Archer Assistant Secretary 18 IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ------------------------------- Name: ----------------------------- Title: ---------------------------- ATTEST: - ------------------------------- Name: -------------------------- Title: ------------------------- 19 EXHIBIT A GUARANTEE The Guarantor (the "Guarantor," which term includes any successor Person under the Indenture, dated April 21, 1995, as amended, among Capstar Radio Broadcasting Partners, Inc. and its subsidiaries and IBJ Schroder Bank & Trust Company (the "Indenture")) has unconditionally guaranteed, on a senior subordinated basis, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. Terms used and not defined herein shall have the meaning set forth in the Indenture. GUARANTOR: QUASS BROADCASTING COMPANY By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------- William S. Banowsky, Jr. Vice President EX-4.3.16 7 AMENDMENT NO. 15 TO 1995 CAPSTAR RADIO INDENTURE 1 EXHIBIT 4.3.16 ================================================================================ CAPSTAR RADIO BROADCASTING PARTNERS, INC., AS ISSUER, THE PARTIES LISTED ON THE SIGNATURE PAGES HERETO AS GUARANTORS, AS GUARANTORS, AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE ------------------------------ AMENDMENT NO. 15 DATED AS OF JANUARY 29, 1998 TO THE INDENTURE DATED AS OF APRIL 21, 1995 ------------------------------ $76,808,000 13 1/4% SENIOR SUBORDINATED NOTES DUE 2003 ================================================================================ 2 AMENDMENT NO. 15, dated as of January 29, 1998 ("Amendment No. 15"), to the INDENTURE, dated as of April 21, 1995, as amended (the "Indenture"), among CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation, as Issuer (the "Company"), the parties listed on the signature pages hereto as Guarantors (each individually, a "Guarantor" and collectively, the "Guarantors"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). Each party agrees for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 13 1/4% Senior Subordinated Notes due 2003 (the "Notes") to amend, pursuant to Section 8.01(4) of the Indenture, the Indenture as follows: 1. Patterson Broadcasting, Inc. ("Patterson") is a wholly-owned direct subsidiary of the Company and the corporations listed on Exhibit A attached hereto (together with Patterson, the "Corporations") are wholly-owned indirect subsidiaries of the Company. The Corporations are Restricted Subsidiaries acquired or created pursuant to Section 4.14(iii) of the Indenture. The Corporations deliver herewith the Guarantee attached as Exhibit B to this Amendment No. 15 pursuant to the provisions set forth in Sections 4.14 and 10.04 of the Indenture guaranteeing the obligations of the Company under the Indenture. For all purposes of the Indenture, each of the Corporations shall be deemed parties to the Indenture by virtue of their execution of this Amendment No. 15 and the defined term "Guarantor" contained in Article 1.01 of the Indenture shall be deemed to include each of the Corporations. 2. This Amendment No. 15 supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect. 3. This Amendment No. 15 may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. 4. THIS AMENDMENT NO. 15 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). 5. The Trustee shall not be responsible for any recital herein as such recitals shall be taken as statements of the Company, or the validity of the execution by any Guarantor of this Amendment No. 15. The Trustee makes no representation as to the validity or sufficiency of this Amendment No. 15. -1- 3 IN WITNESS WHEREOF, the parties have caused this Amendment No. 15 to the Indenture to be duly executed and attested as of the date and year first written above. CAPSTAR RADIO BROADCASTING PARTNERS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Executive Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary GUARANTORS: AMERON BROADCASTING CORPORATION ASHEVILLE BROADCASTING CORP. ATLANTIC STAR COMMUNICATIONS, INC. ATLANTIC CITY BROADCASTING CORP. BATON ROUGE BROADCASTING COMPANY, INC. BC FUNDS HOLDINGS CO., INC. BEATRICE BROADCASTING CORP. BENCHMARK COMMUNICATIONS HOLDINGS, INC. BREADBASKET BROADCASTING CORPORATION CAPSTAR ACQUISITION COMPANY, INC. CENTRAL STAR COMMUNICATIONS, INC. COMMODORE MEDIA OF KENTUCKY, INC. COMMODORE MEDIA OF NORWALK, INC. COMMODORE MEDIA FLORIDA, INC. COMMODORE MEDIA OF WESTCHESTER, INC. COMMODORE MEDIA OF PENNSYLVANIA, INC. COMMODORE MEDIA OF DELAWARE, INC CONGAREE BROADCASTERS, INC. CORKSCREW BROADCASTING CORPORATION COUNTRY HEARTLINES, INC. CURREY BROADCASTING CORPORATION DANBURY BROADCASTING, INC DAYTONA BEACH BROADCASTING CORP. DIXIE BROADCASTING, INC. GCBR, INC. GREAT AMERICAN EAST, INC. GULFSTAR COMMUNICATIONS WACO LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI LICENSEE, INC. 4 GULFSTAR COMMUNICATIONS PORT ARTHUR LICENSEE, INC. GULFSTAR BEAUMONT BROADCASTING, INC. GULFSTAR COMMUNICATIONS BEAUMONT LICENSEE, INC. GULFSTAR COMMUNICATIONS LUFKIN LICENSEE, INC. GULFSTAR COMMUNICATIONS VICTORIA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA LICENSEE, INC. GULFSTAR COMMUNICATIONS OKLAHOMA, INC. GULFSTAR COMMUNICATIONS LUBBOCK LICENSEE, INC. GULFSTAR COMMUNICATIONS TYLER LICENSEE, INC. GULFSTAR COMMUNICATIONS KILLEEN LICENSEE, INC. GULFSTAR COMMUNICATIONS, INC. GULFSTAR COMMUNICATIONS HOLDINGS, INC. GULFSTAR COMMUNICATIONS MANAGEMENT, INC. GULFSTAR COMMUNICATIONS BEAUMONT, INC. GULFSTAR COMMUNICATIONS LUFKIN, INC. GULFSTAR COMMUNICATIONS PORT ARTHUR, INC. GULFSTAR COMMUNICATIONS TEXARKANA, INC. GULFSTAR COMMUNICATIONS TYLER, INC. GULFSTAR COMMUNICATIONS VICTORIA, INC. GULFSTAR COMMUNICATIONS BATON ROUGE, INC. GULFSTAR COMMUNICATIONS NEW MEXICO LICENSEE, INC. GULFSTAR COMMUNICATIONS CORPUS CHRISTI, INC. GULFSTAR COMMUNICATIONS WACO, INC. GULFSTAR COMMUNICATIONS ARKANSAS, INC. GULFSTAR COMMUNICATIONS NEW MEXICO, INC. GULFSTAR COMMUNICATIONS KILLEEN, INC. GULFSTAR COMMUNICATIONS LUBBOCK, INC. GULFSTAR COMMUNICATIONS ARKANSAS LICENSEE, INC. GULFSTAR COMMUNICATIONS TEXARKANA LICENSEE, INC. HOUNDSTOOTH BROADCASTING CORPORATION JAMBOREE IN THE HILLS, INC. JUNE BROADCASTING, INC. K-106, INC. LADNER COMMUNICATIONS HOLDING CORP. MOUNTAIN RADIO CORPORATION NELSON BROADCASTING CORPORATION O.C.C., INC. ORANGE COMMUNICATIONS, INC. OSBORN SOUND & COMMUNICATIONS CORP. OSBORN ENTERTAINMENT ENTERPRISES CORPORATION QUASS BROADCASTING COMPANY PACIFIC STAR COMMUNICATIONS, INC. RADIO WBHP, INC. RADIOCO I, INC. RADIOCO II, INC. RAINBOW BROADCASTING CORPORATION 5 RKZ TELEVISION, INC. SHORT BROADCASTING CORPORATION SNG HOLDINGS, INC. SONANCE WACO LICENSE SUBSIDIARY, INC. SONANCE WACO OPERATING COMPANY, INC. SOUTHEAST RADIO HOLDING CORP. SOUTHERN STAR COMMUNICATIONS, INC. WAITE BROADCASTING CORP. WNOK ACQUISITION COMPANY, INC. YELLOW BRICK RADIO CORPORATION By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary 6 MOUNTAIN LAKES BROADCASTING, L.L.C. By: Dixie Broadcasting, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary By: Radio WBHP, Inc., its Member By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary WILMINGTON WJBR-FM, L.L.C. By: Commodore Media of Delaware, Inc., its Manager By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary 7 MUSIC HALL CLUB, INC. By: /s/ LARRY ANDERSON ----------------------------- Larry Anderson President ATTEST: /s/ NANCY ANDERSON - --------------------------- Nancy Anderson Secretary and Treasurer 8 BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary BENCHMARK JACKSON, L.L.C. By: Benchmark Communications Radio Limited Partnership, its Member By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
9 BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND IX LIMITED PARTNERSHIP BENCHMARK RADIO ACQUISITION FUND XI LIMITED PARTNERSHIP By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President
ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary 10 WDOV LICENSE LIMITED PARTNERSHIP WDSD LICENSE LIMITED PARTNERSHIP WSRV LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund I Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
11 BENCHMARK RADIO ACQUISITION FUND V LIMITED PARTNERSHIP WOSC LICENSE LIMITED PARTNERSHIP WKOC LICENSE LIMITED PARTNERSHIP WWFG LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. ------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
12 WCOS (AM) LICENSE LIMITED PARTNERSHIP WCOS-FM LICENSE LIMITED PARTNERSHIP WHKZ LICENSE LIMITED PARTNERSHIP WVOC LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund V Limited Partnership, its General Partner By: Benchmark Radio Acquisition Fund IV Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
13 WJMZ LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary BENCHMARK GREENVILLE, L.L.C. By: Benchmark Radio Acquisition Fund III Limited Partnership, its Manager By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
14 WESC(AM) LICENSE LIMITED PARTNERSHIP WESC-FM LICENSE LIMITED PARTNERSHIP WFNQ LICENSE LIMITED PARTNERSHIP By: Benchmark Greenville, L.L.C., its General Partner By: Benchmark Radio Acquisition Fund VII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
15 WUSQ LICENSE LIMITED PARTNERSHIP WNTW LICENSE LIMITED PARTNERSHIP WYYD LICENSE LIMITED PARTNERSHIP WROV(AM) LICENSE LIMITED PARTNERSHIP WROV-FM LICENSE LIMITED PARTNERSHIP By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its General Partner By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary BENCHMARK RADIO ACQUISITION FUND VI, LC By: Benchmark Radio Acquisition Fund VIII Limited Partnership, its Member By: Benchmark Communications Radio Limited Partnership, its General Partner By: Benchmark Communications Holdings, Inc., its General Partner By: /s/ WILLIAM S. BANOWSKY, JR. -------------------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
16 GCBR, L.P. By: GulfStar Communications Baton Rouge, Inc., its General Partner /s/ WILLIAM S. BANOWSKY, JR. By: ----------------------------------- William S. Banowsky, Jr. Vice President ATTEST: /s/ KATHY ARCHER - --------------------------- Kathy Archer Assistant Secretary
17 JUNE BROADCASTING, INC. PATTERSON ALLENTOWN BROADCASTING CORP. PATTERSON ALLENTOWN LICENSEE CORP. PATTERSON BATTLE CREEK BROADCASTING CORP. PATTERSON BATTLE CREEK LICENSEE CORP. PATTERSON BATTLE CREEK BROADCASTING, INC. PATTERSON BROADCASTING, INC. PATTERSON FRESNO BROADCASTING CORP. PATTERSON FRESNO LICENSEE CORP. PATTERSON GRAND RAPIDS BROADCASTING CORP. PATTERSON GRAND RAPIDS LICENSEE CORP. PATTERSON HARRISBURG LICENSEE CORP. PATTERSON HONOLULU BROADCASTING CORP. PATTERSON HONOLULU LICENSEE CORP. PATTERSON PENSACOLA LICENSEE CORP. PATTERSON RENO BROADCASTING CORP. PATTERSON RENO LICENSEE CORP. PATTERSON SAVANNAH BROADCASTING CORP. PATTERSON SAVANNAH LICENSEE CORP. PATTERSON SPRINGFIELD BROADCASTING CORP. PATTERSON SPRINGFIELD LICENSEE CORP. RADIO DINUBA COMPANY By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------------------- William S. Banowsky, Jr. Vice President
18 IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ATTEST: - --------------------------- Name: ---------------------- Title: ---------------------
19 EXHIBIT A June Broadcasting, Inc. Patterson Allentown Broadcasting Corp. Patterson Allentown Licensee Corp. Patterson Battle Creek Broadcasting Corp. Patterson Battle Creek Licensee Corp. Patterson Fresno Broadcasting Corp. Patterson Fresno Licensee Corp. Patterson Grand Rapids Broadcasting Corp. Patterson Grand Rapids Licensee Corp. Patterson Harrisburg Licensee Corp. Patterson Honolulu Broadcasting Corp. Patterson Honolulu Licensee Corp. Patterson Pensacola Licensee Corp. Patterson Reno Broadcasting Corp. Patterson Reno Licensee Corp. Patterson Savannah Broadcasting Corp. Patterson Savannah Licensee Corp. Patterson Springfield Broadcasting Corp. Patterson Springfield Licensee Corp. Radio Dinuba Company 20 EXHIBIT B GUARANTEE The Guarantors (the "Guarantors," which term includes any successor Person under the Indenture, dated April 21, 1995, as amended, among Capstar Radio Broadcasting Partners, Inc. and its subsidiaries and IBJ Schroder Bank & Trust Company (the "Indenture")) have unconditionally guaranteed, on a senior subordinated basis, to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guarantee. Terms used and not defined herein shall have the meaning set forth in the Indenture. GUARANTORS: ---------- JUNE BROADCASTING, INC. PATTERSON ALLENTOWN BROADCASTING CORP. PATTERSON ALLENTOWN LICENSEE CORP. PATTERSON BATTLE CREEK BROADCASTING CORP. PATTERSON BATTLE CREEK LICENSEE CORP. PATTERSON BROADCASTING, INC. PATTERSON FRESNO BROADCASTING CORP. PATTERSON FRESNO LICENSEE CORP. PATTERSON GRAND RAPIDS BROADCASTING CORP. PATTERSON GRAND RAPIDS LICENSEE CORP. PATTERSON HARRISBURG LICENSEE CORP. PATTERSON HONOLULU BROADCASTING CORP. PATTERSON HONOLULU LICENSEE CORP. PATTERSON PENSACOLA LICENSEE CORP. PATTERSON RENO BROADCASTING CORP. PATTERSON RENO LICENSEE CORP. PATTERSON SAVANNAH BROADCASTING CORP. PATTERSON SAVANNAH LICENSEE CORP. PATTERSON SPRINGFIELD BROADCASTING CORP. PATTERSON SPRINGFIELD LICENSEE CORP. RADIO DINUBA COMPANY By: /s/ WILLIAM S. BANOWSKY, JR. --------------------------------------------- William S. Banowsky, Jr. Vice President
EX-10.1.4 8 3RD AMENDMENT TO CREDIT AGREEMENT DATED 1/98 1 EXHIBIT 10.1.4 THIRD AMENDMENT AND WAIVER THIRD AMENDMENT AND WAIVER (this "Amendment and Waiver"), dated as of January 28, 1998, among CAPSTAR BROADCASTING CORPORATION, a Delaware corporation ("Parent"), CAPSTAR BROADCASTING PARTNERS, INC., a Delaware corporation ("Holdings"), CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation (the "Borrower"), the lenders party to the Amended and Restated Credit Agreement referred to below (the "Banks"), BANKBOSTON, N.A., as Managing Agent (in such capacity, the "Managing Agent"), NATIONSBANK OF TEXAS, N.A., as Syndication Agent (in such capacity, the "Syndication Agent"), THE BANK OF NEW YORK, as Documentation Agent (in such capacity, the "Documentation Agent"), and BANKERS TRUST COMPANY, as Administrative Agent (in such capacity, the "Administrative Agent"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Amended and Restated Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, Parent, Holdings, the Borrower, the Banks, the Managing Agent, the Syndication Agent, the Documentation Agent and the Administrative Agent are parties to an Amended and Restated Credit Agreement, dated as of February 20, 1997 and amended and restated as of August 12, 1997 (as amended, modified or supplemented from time to time to the date hereof, the "Amended and Restated Credit Agreement"); WHEREAS, Capstar Acquisition Company, Inc. ("CAC"), a subsidiary of Holdings, has entered into (x) a Stock Purchase Agreement, dated as of June 12, 1997 (the "Patterson Agreement"), pursuant to which it has agreed to purchase (the "Patterson Acquisition") 100% of the issued and outstanding capital stock of Patterson Broadcasting, Inc. ("Patterson") and (y) an Asset Purchase Agreement, dated as of October 22, 1997 (the "Clear Channel Agreement"), pursuant to which it has agreed to sell subsequent to the consummation of the Patterson Acquisition all of the assets of two subsidiaries of Patterson, Patterson Allentown Broadcasting Corp. and Patterson Allentown License 2 Corp. (such subsidiaries, collectively, the "Patterson Allentown Subs") to Clear Channel Metroplex, Inc. for approximately $29,000,000 (the "Allentown Stations Disposition"); WHEREAS, CAC wishes to assign (x) all of its right, title and interest in the Patterson Agreement to Parent and (y) after the consummation of the Patterson Acquisition by Parent, all of its right, title and interest in the Clear Channel Agreement to the Patterson Allentown Subs; WHEREAS, pursuant to Sections 1.01 and 1.14 of the Amended and Restated Credit Agreement, the Borrower desires to incur Term Loans in an aggregate principal amount not to exceed $140,000,000 to finance, in part, the Patterson Acquisition (the "Patterson Term Loans"); WHEREAS, the holders of the issued and outstanding shares of capital stock of Parent have made a cash equity contribution to Parent (the "First Equity Contribution") in an amount equal to $107,428,000 to finance in part the Patterson Acquisition; WHEREAS, the Borrower wishes to pay a cash Dividend to Holdings in an amount equal to the sum of (x) the proceeds received by the Borrower from the incurrence of the Patterson Term Loans and (y) $107,428,000, and Holdings will promptly pay a cash Dividend to Parent in an amount equal to the sum of (x) the proceeds of the Patterson Term Loans and (y) 107,428,000 (the "Patterson Dividends"); WHEREAS, the holders of the issued and outstanding shares of capital stock of Parent intend to make a second cash equity contribution to Parent (the "Second Equity Contribution," and together with the First Equity Contribution, the "Parent Equity Contributions") in an amount equal to $150,000,000 to repay the Patterson Term Loans; and WHEREAS, in connection with the Patterson Acquisition, the Allentown Stations Disposition and the Parent Equity Contributions, (i) each of Parent, Holdings and the Borrower has requested the Banks, and the Banks hereby agree, to waive certain requirements contained in the Amended and Restated Credit Agreement and (ii) the parties hereto wish to amend certain provisions of this Amended and Restated Credit Agreement, in each case as provided herein; NOW, THEREFORE, it is agreed: -2- 3 I. Waivers to the Amended and Restated Credit Agreement 1. Notwithstanding anything to the contrary contained in Section 8.02 of the Amended and Restated Credit Agreement, the Banks hereby agree that (x) CAC may assign all of its right, title and interest in the Patterson Agreement to Parent, (y) after the consummation of the Patterson Acquisition by Parent, CAC may assign all of its right, title and interest in the Clear Channel Agreement to the Patterson Allentown Subs which in turn may assign all of such right, title and interest in the Clear Channel Agreement to a Qualified Intermediary (as defined below) and (z) the Patterson Allentown Subs may consummate the Allentown Stations Disposition so long as, in the case of clause (z) above, the Net Sale Proceeds received from the Allentown Stations Disposition are applied in accordance with the requirements of Section 4.02(e) of the Amended and Restated Credit Agreement. 2. Notwithstanding anything to the contrary contained in Sections 1.01(a) and 1.14 of the Amended and Restated Credit Agreement, the undersigned Banks hereby agree that the incurrence by the Borrower of the Patterson Term Loans shall not (i) reduce the number of Term Loan drawings available to the Borrower pursuant to Section 1.01(a) of the Amended and Restated Credit Agreement and (ii) be an increase in the Total Term Loan Commitment for purposes of clause (iii) of the proviso contained in Section 1.14 of the Amended and Restated Credit Agreement. 3. Notwithstanding anything to the contrary contained in Section 8.03 of the Amended and Restated Credit Agreement and so long as no Default or Event of Default then exists, the Banks hereby consent to the Borrower using the proceeds of the Patterson Term Loans and Revolving Loans to pay a cash Dividend in an aggregate amount not to exceed $247,428,000 to Holdings so long as Holdings promptly uses such proceeds to pay a cash Dividend to Parent to enable Parent to finance, in part, the Patterson Acquisition. 4. Notwithstanding anything to the contrary contained in Sections 4.02(e), 8.01 and 8.05 of the Amended and Restated Credit Agreement, the Banks hereby waive the requirement in Section 4.02(e) of the Amended and Restated Credit Agreement that, pending the reinvestment of such Net Sale Proceeds as permitted by Section 4.02(e) of the Amended and Restated Credit Agreement, the Total Revolving Loan Commitment be temporarily reduced by the amount of the Net Sale Proceeds received by the Patterson Allentown Subs from the Allentown Stations Disposition so long as such Net Sale Proceeds are placed in escrow with a "Qualified Intermediary" (as defined in Treasury Regulation $1.1031(k)-1(g)) pursuant to an escrow arrangement satisfactory (including, -3- 4 without limitation, as to the terms of such escrow arrangement granting a first priority security interest in such Net Sale Proceeds to the Collateral Agent for the benefit of the Secured Creditors) to the Administrative Agent. 5. Notwithstanding anything to the contrary contained in Sections 3.03 and 4.02 of the Amended and Restated Credit Agreement, the Banks hereby agree that the net cash proceeds received by Parent from the First Equity Contribution shall not be required to be applied to permanently reduce the Total Revolving Loan Commitment pursuant to Sections 3.03 and 4.02 of the Amended and Restated Credit Agreement so long as (x) no Default or Event of Default then exists, (y) a portion of such net cash proceeds equal to the then outstanding principal amount of Revolving Loans maintained as Base Rate Loans is immediately contributed to the capital of the Borrower and the Borrower promptly utilizes such proceeds to repay the then outstanding principal amount of Revolving Loans maintained as Base Rate Loans (without a corresponding commitment reduction) and (z) the excess, if any, of such net cash proceeds not used to repay outstanding Revolving Loans maintained as Base Rate Loans are promptly used by Parent to finance, in part, the Patterson Acquisition. 6. Notwithstanding anything to the contrary contained in Sections 3.03 and 4.02 of the Amended and Restated Credit Agreement, to the extent that the aggregate amount of net cash proceeds received by Parent in connection with the Second Equity Contribution exceeds the aggregate amount of Term Loans then outstanding, the Banks hereby waive the requirement that such excess cash proceeds be required to be applied to permanently reduce the Total Revolving Loan Commitment pursuant to Sections 3.03 and 4.02 of the Amended and Restated Credit Agreement so long as (x) no Default or Event of Default then exists and (y) such excess cash proceeds are immediately contributed to the capital of the Borrower and the Borrower promptly utilizes such proceeds to repay then outstanding Revolving Loans (without a corresponding reduction to the Total Revolving Loan Commitment then in effect). 7. Notwithstanding anything to the contrary contained in Section 6.21 of the Amended and Restated Credit Agreement, the Banks hereby agree that, for the period from the closing date of the Patterson Acquisition to and including the date occurring 30 days after such closing date, Parent may hold all the capital stock of Patterson (it being understood, however, that upon the expiration of such time period Parent shall immediately contribute all the capital stock of Patterson to Holdings which in turn shall contribute such capital stock to the Borrower). -4- 5 8. Notwithstanding anything to the contrary contained in Section 8.04 of the Amended and Restated Credit Agreement, the Banks hereby consent to the guaranty of CAC's obligations under the Clear Channel Agreement provided by Holdings. 9. Parent, Holdings, the Borrower and the Banks hereby agree that, notwithstanding anything to the contrary contained in the Amended and Restated Credit Agreement, if the Second Equity Contribution is not made on or prior to February 21, 1998 an Event of Default shall be deemed to have occurred on such date and the Banks shall at that time be entitled to exercise any and all rights and remedies available to them in accordance with Section 9 of the Amended and Restated Credit Agreement. II. Amendments to the Amended and Restated Credit Agreement 1. Section 4.02(k) of the Amended and Restated Credit Agreement is hereby amended and restated in its entirety as follows: "(k) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all Patterson Term Loans shall be repaid in full within thirty days after the incurrence thereof and (ii) all then outstanding Loans shall be repaid in full on the Final Maturity Date. 2. Section 10.01 of the Amended and Restated Credit Agreement is hereby amended by inserting the following new definition in the appropriate alphabetical order: "Patterson Term Loans" shall mean all Term Loans incurred by the Borrower to finance, in whole or in part, the Patterson Acquisition." III. Miscellaneous Provisions 1. In order to induce the Banks to enter into this Amendment and Waiver, each of Parent, Holdings and the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Amendment and Waiver Effective Date (as hereinafter defined), both before and after giving effect to this Amendment and Waiver; and -5- 6 (b) all of the representations and warranties contained in the Amended and Restated Credit Agreement and the other Credit Documents are true and correct in all material respects as of the Amendment and Waiver Effective Date, both before and after giving effect to this Amendment and Waiver, with the same effect as though such representations and warranties had been made on and as of the Amendment and Waiver Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment and Waiver is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Amended and Restated Credit Agreement or any other Credit Document. 3. This Amendment and Waiver may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. 4. THIS AMENDMENT AND WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 5. This Amendment and Waiver shall become effective on the date (the "Waiver Effective Date") when each of Parent, Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office. 6. From and after the Amendment and Waiver Effective Date, all references in the Amended and Restated Credit Agreement and each of the other Credit Documents to the Amended and Restated Credit Agreement shall be deemed to be references to the Amended and Restated Credit Agreement as modified hereby. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment and Waiver as of the date first above written. CAPSTAR BROADCASTING CORPORATION By -------------------------------- Title: CAPSTAR BROADCASTING PARTNERS, INC. By -------------------------------- Title: CAPSTAR RADIO BROADCASTING PARTNERS, INC. By -------------------------------- Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By -------------------------------- Title: 8 BANKBOSTON, N.A., Individually and as Managing Agent By -------------------------------- Title: NATIONSBANK OF TEXAS, N.A., Individually and as Syndication Agent By -------------------------------- Title: THE BANK OF NEW YORK, Individually and as Documentation Agent By -------------------------------- Title: DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By -------------------------------- Title: THE FUJI BANK, LIMITED NEW YORK BRANCH By -------------------------------- Title: 9 THE LONG-TERM CREDIT BANK OF JAPAN By -------------------------------- Title: SOCIETE GENERALE By -------------------------------- Title: UNION BANK By -------------------------------- Title: EX-10.1.5 9 4TH AMENDMENT TO THE CREDIT AGREEMENT - 2/10/98 1 EXHIBIT 10.1.5 FOURTH AMENDMENT AND CONSENT FOURTH AMENDMENT AND CONSENT (this "Amendment and Consent"), dated as of February 6, 1998, among CAPSTAR BROADCASTING CORPORATION, a Delaware corporation ("Parent"), CAPSTAR BROADCASTING PARTNERS, INC., a Delaware corporation ("Holdings"), CAPSTAR RADIO BROADCASTING PARTNERS, INC., a Delaware corporation (the "Borrower"), the lenders party to the Amended and Restated Credit Agreement referred to below (the "Banks"), BANKBOSTON, N.A., as Managing Agent (in such capacity, the "Managing Agent"), NATIONSBANK OF TEXAS, N.A., as Syndication Agent (in such capacity, the "Syndication Agent"), THE BANK OF NEW YORK, as Documentation Agent (in such capacity, the "Documentation Agent"), and BANKERS TRUST COMPANY, as Administrative Agent (in such capacity, the "Administrative Agent"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Amended and Restated Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, Parent, Holdings, the Borrower, the Banks, the Managing Agent, the Syndication Agent, the Documentation Agent and the Administrative Agent are parties to an Amended and Restated Credit Agreement, dated as of February 20, 1997 and amended and restated as of August 12, 1997 (as amended, modified or supplemented from time to time to the date hereof, the "Amended and Restated Credit Agreement"); WHEREAS, R. Steven Hicks ("Hicks") and Bankers Trust Company (in its individual capacity, "BTCo") wish to enter into a Letter of Credit Agreement, dated as of February 12, 1998 (the "Letter of Credit Agreement"), pursuant to which BTCo will issue a letter of credit in an amount not to exceed $10 million for the account of Hicks in support of Hicks' obligations under that certain Settlement Agreement, dated as of January 30, 1998, with Elinor Lewis Stephens, August Communications Group, Inc., and Grass Roots Radio, Inc. (each a "Beneficiary" and collectively, the "Beneficiaries"); 2 WHEREAS, to induce BTCo to enter into the Letter of Credit Agreement and to issue additional Letters of Credit in an aggregate amount not to exceed $1.5 million, the Borrower desires to enter into a Guaranty and Purchase Agreement, dated as of February 12, 1998 (the "Guaranty and Purchase Agreement") in favor of BTCo, pursuant to which the Borrower (x) will provide a guaranty to BTCo with respect to the prompt payment of all fees, indemnities and other amounts owing in respect of the Letter of Credit Agreement and such additional Letters of Credit and all reimbursement obligations of Hicks under the Letter of Credit Agreement and such additional letters of credit and (y) under certain circumstances will be required to purchase the rights and obligations of BTCo under the Letter of Credit Agreement, in each case in accordance with the provisions thereof; WHEREAS, in connection with the transactions described in the preceding paragraphs, (x) each of Parent, Holdings and the Borrower has requested the Banks to grant, and the Banks hereby wish to grant, the consent provided herein and (y) the parties hereto wish to further amend the Amended and Restated Credit Agreement as provided herein; NOW, THEREFORE, it is agreed: I. Consent to the Amended and Restated Credit Agreement 1. Notwithstanding anything to the contrary contained in Section 8.04 of the Amended and Restated Credit Agreement, the Banks hereby consent to the Borrower incurring the Indebtedness under the Guaranty and Purchase Agreement. II. Amendments to the Amended and Restated Credit Agreement 1. Section 10.01 of the Amended and Restated Credit Agreement is hereby amended by deleting the definition of "Blocked Commitment" appearing therein and inserting the following new definition of "Blocked Commitment" in lieu thereof: "Blocked Commitment" shall mean (i) for the period from and including the date of the sale of disposition of any asset or Recovery Event resulting in a temporary reduction of the Total Revolving Loan Commitment pursuant to Section 4.02(e) or (g) through but not including the date on which all or a part of the net sale proceeds or Reinvestment Amount, as applicable, for such asset are reinvested pursuant to such Section, as applicable, the amount of net sale proceeds or proceeds from a Recovery Event, as applicable, and (ii) for the period from and including February 6, 1998 through but not including the earlier of (x) the date upon which any payment is required to be made by the Borrower pursuant -2- 3 to the terms of the Guaranty and Purchase Agreement or (y) December 31, 1998, an amount equal to $10 million. 2. Section 10.01 of the Amended and Restated Credit Agreement is hereby further amended by inserting the following new definition of "Guaranty and Purchase Agreement" in the appropriate alphabetical order: "Guaranty and Purchase Agreement" shall mean the Guaranty and Purchase Agreement, dated as of February 12, 1998, made by the Borrower in favor of BTCo. III. Miscellaneous Provisions 1. In order to induce the Banks to enter into this Amendment and Consent, each of Parent, Holdings and the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Amendment and Consent Effective Date (as hereinafter defined), both before and after giving effect to this Amendment and Consent; and (b) all of the representations and warranties contained in the Amended and Restated Credit Agreement and the other Credit Documents are true and correct in all material respects as of the Amendment and Consent Effective Date, both before and after giving effect to this Amendment and Consent, with the same effect as though such representations and warranties had been made on and as of the Amendment and Consent Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment and Consent is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Amended and Restated Credit Agreement or any other Credit Document. 3. This Amendment and Consent may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. -3- 4 4. THIS AMENDMENT AND CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 5. This Amendment and Consent shall become effective on the date (the "Amendment and Consent Effective Date") when each of Parent, Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office. 6. From and after the Amendment and Consent Effective Date, all references in the Amended and Restated Credit Agreement and each of the other Credit Documents to the Amended and Restated Credit Agreement shall be deemed to be references to the Amended and Restated Credit Agreement as modified hereby. -4- 5 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment and Consent as of the date first above written. CAPSTAR BROADCASTING CORPORATION By ------------------------------------ Title: CAPSTAR BROADCASTING PARTNERS, INC. By ------------------------------------ Title: CAPSTAR RADIO BROADCASTING PARTNERS, INC. By ------------------------------------ Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By ------------------------------------ Title: 6 BANKBOSTON, N.A., Individually and as Managing Agent By ------------------------------------ Title: NATIONSBANK OF TEXAS, N.A., Individually and as Syndication Agent By ------------------------------------ Title: THE BANK OF NEW YORK, Individually and as Documentation Agent By ------------------------------------ Title: DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By ------------------------------------ Title: THE FUJI BANK, LIMITED NEW YORK BRANCH By ------------------------------------ Title: 7 THE LONG-TERM CREDIT BANK OF JAPAN By ------------------------------------ Title: SOCIETE GENERALE By ------------------------------------ Title: UNION BANK By ------------------------------------ Title: EX-10.10.2 10 1ST AMENDMENT TO EMPLOYMENT AGREEMENT-JOHN CULLEN 1 EXHIBIT 10.10.2 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT (the "First Amendment") to the Employment Agreement, dated as of April 1, 1996 (the "Employment Agreement"), between GulfStar Communications, Inc., a Delaware corporation (the "Company") and John D. Cullen ("Employee"), is entered into effective as of January 1, 1998, by and between the Company and Employee. RECITALS: WHEREAS, the parties hereto desire to amend the terms and provisions of the Employment Agreement as hereinafter set forth; and WHEREAS, any capitalized term used herein, and not otherwise defined herein, shall have the meaning set forth in the Employment Agreement. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing and the agreements herein contained, the parties hereto covenant and agree as follows: 1. The first paragraph of Section 3 of the Employment Agreement is amended and restated in its entirety to read as follows: 3. Compensation. (a) During the term of Employee's employment hereunder, Employee shall receive an annual base salary ("Annual Base Salary"), which shall be paid in accordance with the customary payroll practices of the Company, at least equal to $225,000. Commencing on January 1, 1999, and on each subsequent January 1 as long as the Executive remains an employee of the Company (each such January 1 being herein referred to as an "Adjustment Date"), the Annual Base Salary of the Executive may be increased by such amount as the Board in its discretion may determine appropriate. The result of such increase to the then current Annual Base Salary shall constitute the Executive's Annual Base Salary commencing on the Adjustment Date then at hand and continuing until the next Adjustment Date. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The term Annual Base Salary as utilized in this Section 3(a) shall refer to Annual Base Salary as so increased. 2. Except as herein specifically amended or supplemented, the Employment Agreement shall continue in full force and effect in accordance with its terms. 3. This First Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. [Remainder of page intentionally left blank] 2 IN WITNESS WHEREOF, the parties hereto have duly executed this First Amendment effective as of the date first written above. COMPANY: GULFSTAR COMMUNICATIONS, INC. By: --------------------------------------- William S. Banowsky, Jr. Executive Vice President EMPLOYEE: ------------------------------------------- John D. Cullen EX-10.11 11 EMPLOYMENT AGREEMENT - MARY K. QUASS 1 EXHIBIT 10.11 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), made and entered into as of January 16, 1998, by and among Capstar Broadcasting Corporation, a Delaware corporation (hereinafter, together with its successors, referred to as "Capstar"), Central Star Communications, Inc., a Delaware corporation and indirect subsidiary of Capstar (hereinafter, together with its successors, referred to as the "Company"), and Mary K. Quass (hereinafter referred to as the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its sole stockholder to employ the Executive on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Definitions. (a) "Accrued Obligations" means the sum of (i) the Executive's Annual Base Salary (as hereinafter defined) and bonus earned or accrued through the Date of Termination (as hereinafter defined) to the extent not theretofore paid, (ii) reimbursement for any and all monies advanced by Executive in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive through the Date of Termination, and (iii) any unpaid accrued vacation pay determined as of the Date of Termination. (b) "Board Determination" means a determination by the Board (which is evidenced by one or more written resolutions to such effect) (i) to terminate the Executive's employment during the Employment Period based upon the Board's dissatisfaction with the manner in which the Executive has performed her obligations and duties under Section 3 and (ii) that Cause does not exist as a basis for such termination. (c) "without Cause" means a termination by the Company of the Executive's employment during the Employment Period pursuant to a Board Determination or for any other reason other than a termination based upon Cause, death or Disability. (d) "Cause" means (i) a breach by the Executive of the Executive's obligations under Section 3 (other than as a result of physical or mental incapacity) which constitutes a continued material nonperformance by the Executive of her obligations and duties thereunder, as determined by the Board, and which is not cured within 30 days after receipt of written notice from the Company specifying such breach, (ii) commission by the Executive of an act of fraud upon the Company, as reasonably determined by a majority of the Board after a hearing by the Board following ten days' notice to the Executive of such hearing, (iii) willful misconduct involving an attempt to obtain personal gain, profit or enrichment at the expense of the Company or from any transaction in which the Executive has an interest which is adverse to the interest of the Company, 2 unless the Executive shall have obtained the prior written consent of the Board, (iv) the use by the Executive of any illegal drugs, (v) a material breach by the Executive of Section 7 or Section 9, (vi) the conviction of the Executive of any felony (or a plea of nolo contendere thereto), or (vii) the failure of the Executive to carry out, or comply with, in any material respect any directive of the Board consistent with the terms of this Agreement, which is not cured within 30 days after receipt of written notice from the Company specifying such failure. The Company may suspend the Executive's title and authority pending the hearing provided for in clause (ii) above, and such suspension shall not constitute "Good Reason," as defined below. (e) "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or without Cause (including because of Disability), or by the Executive for Good Reason or without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, and (ii) if the Executive's employment is terminated by reason of death, the date of death of the Executive. (f) "Disability" means the Executive's inability to perform her duties and obligations hereunder for a period of 180 consecutive days due to mental or physical incapacity as determined by a physician selected by the Company or its insurers and reasonably acceptable to the Executive. (g) "Good Reason" means (i) without the Executive's written consent, any reduction, approved by the Board, in the amount of the Executive's annual salary, (ii) any significant reduction, approved by the Board without the Executive's written consent, in the aggregate value of the Executive's benefits under Section 4 hereof (other than annual salary) as in effect from time to time (unless such reduction is pursuant to a general change in benefits applicable to all similarly situated employees of the Company), (iii) any material breach by the Company of this Agreement (other than a breach caused solely by the Executive), (iv) any significant reduction, approved by the Board without the Executive's written consent, in the Executive's title, duties or responsibilities. Notwithstanding the above, the occurrence of any of the events described above will not constitute Good Reason unless the Executive gives the Company written notice that such event constitutes Good Reason, and the Company thereafter fails to cure the event within 30 days after receipt of such notice or (v) without the Executive's written consent, any change in the location of the Company's headquarters from the Cedar Rapids, Iowa area. (h) "Person" means any "person," within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 or the rules or regulations promulgated thereunder, including a "group" as therein defined. (i) "Subsidiary" means, with respect to any Person, any other Person of which such first Person owns or has the power to vote, directly or indirectly, securities representing a majority of the votes ordinarily entitled to be cast for the election of directors or other governing Persons. 2. Term of Employment. Subject to the terms and provisions of this Agreement, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement, for the period 2 3 commencing on the closing date of the acquisition by the Company of all the outstanding stock of Quass Broadcasting Company (the "Effective Date") and ending on the fifth anniversary of the Effective Date (the "Employment Period"). 3. Position and Duties. (a) During the term of the Executive's employment, the Executive shall serve as President and Chief Executive Officer of the Company and, in so doing, shall report to the Chief Operating Officer of Capstar and the Board. Subject to and in accordance with the authority and direction of the Board, the Executive shall have supervision and control over, and responsibility for, such management and operational functions of the Company currently assigned to such position, and shall have such other powers and duties (including holding officer positions with one or more subsidiaries of the Company) as may from time to time be prescribed by the Board, so long as such powers and duties are reasonable and customary for the President and Chief Executive Officer of an enterprise comparable to the Company. (b) During the term of the Executive's employment, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full business time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully, effectively and efficiently such responsibilities. During the term of Executive's employment it shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures or fulfill speaking engagements and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (c) During the term of the Executive's employment, the Executive shall serve as a member of the Board. 4. Compensation. During the Employment Period, the Executive shall be compensated as follows: (a) During the period of the Executive's employment from the Effective Date until the first anniversary thereof, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid in accordance with the customary payroll practices of the Company, in an amount equal to $200,000. The Board in its discretion may at any time increase the amount of the Annual Base Salary to such greater amount as it may determine appropriate. However, the Company agrees that, at a minimum, the Annual Base Salary will be increased annually by an amount equal to the percentage increase, if any, in the Consumer Price Index (as published by the United States Department of Labor with respect to the Cedar Rapids, Iowa metropolitan area or, if the Consumer Price Index is not published for such area, then the Consumer Price Index for the metropolitan area in nearest proximity to Cedar Rapids, Iowa) during the preceding calendar year. The term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as such may be so increased. 3 4 (b) In addition to Annual Base Salary, the Executive shall be awarded during the term of the Executive's employment an annual performance bonus in such amount, if any, (which amount shall in no event exceed the amount of the Annual Base Salary) as shall be determined appropriate by the Board pursuant to the applicable annual performance bonus plan as adopted by the Board based upon the recommendation of the Chief Operating Officer of Capstar. Notwithstanding the immediately preceding sentence, if the revenues and net income for a fiscal year of the Company equal or exceed the targets for such revenues and net income as set forth in the budget, as evidenced by the audited income statement of the Company for such fiscal year, then, the Executive shall be awarded an annual bonus in the amount of at least $50,000 with respect to such fiscal year which shall be paid in accordance with the Company's customary payroll practices. (c) During the term of the Executive's employment, the Executive shall be eligible to participate in the Capstar Broadcasting Corporation 1997 Stock Option Plan, as amended. (d) During the term of the Executive's employment, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company ("Investment Plans"), which plan shall be substantially similar to the plans available to executives of the regional operating subsidiaries of Capstar. (e) During the term of the Executive's employment, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs ("Welfare Plans") provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company, which plan shall be substantially similar to the plans available to executives of the regional operating subsidiaries of Capstar. (f) During the term of the Executive's employment, the Executive shall be entitled to receive (in addition to the benefits described above) such perquisites and fringe benefits appertaining to her position in accordance with any practice established by the Board, but in no event less than perquisites and fringe benefits provided to similarly situated executive officers. (g) During the term of the Executive's employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company. (h) During the term of the Executive's employment, the Executive shall be entitled to paid vacation and paid holidays in accordance with the plans, policies, programs and practices of the Company for its executive officers. 4 5 5. Termination. (a) Any termination by the Company for Cause or without Cause, or by the Executive for Good Reason or without Good Reason, shall be communicated by means of notice which in the case of termination for Cause or Good Reason, specifies in reasonable detail the grounds therefor (the "Notice of Termination") to the other party hereto which specifies the effective date of the termination (which date shall not be more than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in a notice of termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstances in enforcing the Executive's or the Company's rights hereunder. (b) If the Executive's employment is terminated by the Company other than for either Cause or Disability or the Executive shall terminate her employment for Good Reason, and the termination of the Executive's employment in any case is not due to her death or retirement, as her exclusive right and remedy in respect of such termination: (i) the Company shall pay to the Executive (A) within ten days after the Date of Termination, a lump sum cash payment equal to the Accrued Obligations other than any severance payments or benefits under any Company severance policy generally applicable to the Company's salaried employees, (B) any amount arising from Executive's participation in, or benefits under, any Investment Plans ("Accrued Investments"), which amounts shall be payable in accordance with the terms and conditions of such Investment Plans, and (C) in regular installments in accordance with the customary payroll practices of the Company, the Executive's then current Annual Base Salary for the one-year period commencing from the Date of Termination (the "Severance Period"). (ii) The Executive shall continue to be covered at the expense of the Company by the same or equivalent medical, dental, and life insurance coverages as in effect for the Executive immediately prior to the Date of Termination, until the earlier of (A) the expiration of the Severance Period or (B) the date the Executive has commenced new employment and has thereby become eligible for comparable medical benefits. (iii) Notwithstanding the terms or conditions of any stock option, stock appreciation right or similar agreements between the Company and the Executive, the Executive shall vest, as of the Date of Termination, in all rights under such agreements (i.e., stock options that would otherwise vest after the Date of Termination) and thereafter shall be permitted to exercise any and all such rights until the earlier to occur of (x) the expiration of such stock option, stock appreciation right or similar agreement pursuant to its terms or (y) 5:00 p.m., Dallas, Texas time, on the 90th day after the Date of Termination; provided, however, the provisions of this clause (iii) of this Section 5(b) shall not apply to a termination of the Executive's employment during the Employment Period that is made by the Company pursuant to a Board Determination. (c) If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall pay to her legal representatives (i) within ten days after the Date of Termination, a lump sum cash payment equal to the Accrued Obligations, and (ii) 5 6 the Accrued Investments, which amounts shall be payable in accordance with the terms and conditions of such Investment Plans. In addition, except as otherwise provided in Section 5(g), the members of the Executive's family shall be entitled to continue their participation in the Company's Welfare Plans at the expense of the Company and otherwise on the same terms as prior to the Executive's termination for a period of 12 months after the Date of Termination. Further, notwithstanding the terms or conditions of any stock option, stock appreciation right or similar agreements between the Company and the Executive, the Executive shall vest, as of the Date of Termination, in all rights under such agreements (i.e., stock options that would otherwise vest after the Date of Termination) and thereafter her legal representatives shall be permitted to exercise any and all such rights until the earlier to occur of (x) the expiration of such stock option, stock appreciation right or similar agreement pursuant to its terms or (y) the first anniversary of the Date of Termination. (d) If the Executive's employment is terminated by reason of the Executive's Disability (or retirement pursuant to the Company's Board-approved retirement plan, "Retirement") during the Employment Period, the Company shall pay to the Executive (i) within ten days after the Date of Termination, a lump sum cash payment equal to the Accrued Obligations and (ii) the Accrued Investments, which amounts shall be payable in accordance with the terms and conditions of such Investment Plans. In addition, except as otherwise provided in Section 5(g), the Executive (and members of his family) shall be entitled to continue their participation in the Company's Welfare Plans at the expense of the Company and otherwise on the same terms as prior to the Executive's termination for a period of 12 months after the Date of Termination. Further, notwithstanding the terms or conditions of any stock option, stock appreciation right or similar agreements between the Company and the Executive, the Executive shall vest, as of the Date of Termination, in all rights under such agreements (i.e., stock options that would otherwise vest after the Date of Termination) and thereafter shall be permitted to exercise any and all such rights until the earlier to occur of (x) the expiration of such stock option, stock appreciation right or similar agreement pursuant to its terms or (y) the first anniversary of the Date of Termination. (e) If the Executive's employment is terminated by the Company for Cause or by the Executive without Good Reason (other than because of death, Disability or Retirement) during the Employment Period, the Company shall pay to the Executive (i) within ten days after the Date of Termination, a lump sum cash payment equal to the Accrued Obligations and (ii) the Accrued Investments, which amounts shall be payable in accordance with the terms and conditions of such Investment Plan. (f) Upon the termination of the Executive's employment, the Company shall have no further obligations to the Executive or her legal representatives under this Agreement except to the extent provided for in this Section 5, and the Executive shall have no further obligations to the Company under this Agreement except to the extent provided for in Sections 7, 8 and 9. (g) If pursuant to the terms and provisions of the Company's Welfare Plans the Executive (or members of her family) are not eligible to participate in the Company's Welfare Plans because the Executive is no longer an employee of the Company, then the Company may fulfill its obligations under clause (iii) of Section 5(b), Section 5(c), as applicable, by either providing to the Executive (or her legal representatives), or reimbursing the Executive (or her legal representatives) 6 7 for the costs of, benefits substantially similar to the benefits provided by the Company to its senior management under its Welfare Plans as such may from time to time exist after the Date of Termination. Nothing in this Section 5(g) shall limit the Executive's and her family's rights and benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985. 6. Full Settlement, Mitigation. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced (except as provided in Section 5(c)(ii)) whether or not the Executive obtains other employment. Neither the Executive nor the Company shall be liable to the other party for any damages in addition to the amounts payable under Section 5 arising out of the termination of the Executive's employment prior to the end of the Employment Period; provided, however, that the Company shall be entitled to seek damages for any breach of Sections 7, 8 or 9 or criminal misconduct. 7. Confidential Information. (a) The Executive acknowledges that the Company and its affiliates have trade, business and financial secrets and other confidential and proprietary information (collectively, the "Confidential Information"). Confidential Information shall not include (i) information that is or becomes generally available to other persons or entities who can obtain economic value from its disclosure or use, (ii) information that was available in writing to the Executive on a non-confidential basis prior to its disclosure to the Executive, (iii) information that becomes available to the Executive on a non-confidential basis from another source, which is not known by the Executive to be subject to a confidentiality agreement with the Company, and (iv) information required to be disclosed by the Executive pursuant to a subpoena or court order, or pursuant to a requirement of a governmental agency or law of the United States of America or a state thereof or any governmental or political subdivision thereof; provided, however, that the Executive shall take all reasonable steps to prohibit disclosure pursuant to subsection (iv) above. (b) During and following the Executive's employment by the Company, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company or its subsidiaries except to the extent authorized in writing by the Board or required by any court or administrative agency, other than to an employee of the Company or its subsidiaries or a Person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of duties as an executive of the Company. (c) The Executive further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company. 8. Surrender of Materials Upon Termination. All records, files, documents and materials, or copies thereof, relating to the Company's and its subsidiaries' respective business which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company or its subsidiaries, as the case may be, and shall be promptly returned by the Executive to the owner upon termination of the Executive's employment with the Company. 7 8 9. Non-Competition. (a) The term of Non-Competition (herein so called) shall be for a term beginning on the date hereof and continuing until the first anniversary of the Date of Termination; provided, however, that if the Executive's employment is terminated by the Company other than for Cause or by the Executive for Good Reason the term of Non-Competition shall expire upon the earlier of the first anniversary of the Date of Termination or the date that the Executive waives her entitlement to any further payments under Section 5(c)(1)(C) hereunder. (b) During the term of Non-Competition, the Executive will not (other than for the benefit of the Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, equity owner, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever, (i) engage in the operation of any AM or FM radio station within 50 miles of any transmission site on which Capstar or any of its direct or indirect subsidiaries operates a radio station at the Date of Termination (a "Competing Business"), (ii) hire, attempt to hire, contact or solicit with respect to hiring any employee of Capstar or any of its direct or indirect subsidiaries, or (iii) divert or take away any customers or suppliers of Capstar or any of its direct or indirect subsidiaries. Notwithstanding the foregoing, the Company agrees that the Executive may own less than five percent of the outstanding voting securities of any publicly traded company that is a Competing Business so long as the Executive does not otherwise participate in such competing business in any way prohibited by the preceding clause. (c) During the term of Non-Competition, the Executive will not use the Executive's access to, knowledge of, or application of Confidential Information to perform any duty for any Competing Business; it being understood and agreed to that this Section 9(c) shall be in addition to and not be construed as a limitation upon the covenants in Section 9(b) hereof. (d) The Executive acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of the preceding paragraphs are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company's and its subsidiaries proprietary information, plans and services and to protect the other legitimate business interests of the Company and its subsidiaries. (e) If any court determines that any portion of this Section 9 is invalid or unenforceable, the remainder of this Section 9 shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 9, or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced. 10. Successors. The Company may assign its rights under this Agreement to any successor to all or substantially all the assets of the Company, by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its respective subsidiaries. The rights of Executive under this Agreement may not be assigned or encumbered by the Executive, voluntarily or involuntarily, during her lifetime, and any such purported assignment shall be void. However, all rights of the Executive under this Agreement 8 9 shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive hereunder shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives. 11. Enforcement. The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part thereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 12. Amendment. This Agreement may not be amended or modified at any time except by a written instrument approved by the Board and executed by the Company and the Executive. 13. Withholding. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state, local, or foreign withholding or other taxes or charges which it is from time to time required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. 14. Effect of Agreement on Other Benefits. The existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the executive compensation, employee benefit and other plans or programs in which executives of the Company are eligible to participate. 15. Governing Law. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law of Delaware or any other jurisdiction. Any dispute arising out of this Agreement (other than any disputes relating to Sections 7 and 9 hereof) shall be determined by arbitration in New York, New York under the rules of the American Arbitration Association then in effect and judgment upon any award pursuant to such arbitration may be enforced in any court having jurisdiction thereof. Disputes relating to Sections 7 and 9 shall be determined by any court of competent jurisdiction separately and independently of any arbitration proceeding (whether pending or concluded) with respect to any other provision of this Agreement. No judicial proceeding relating to Sections 7 and 9 shall be stayed or delayed by reason of any arbitration proceeding. 16. Miscellaneous. (a) The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. Whenever the terms "hereof", "hereby", "herein", or words of similar import are used in this Agreement they shall be construed as referring to this Agreement in its entirety rather than to a particular section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Section" or "paragraph" shall be construed as referring to the indicated section or paragraph of this Agreement unless the context indicates to the contrary. The use of the term "including" herein shall be construed as meaning "including without limitation." This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 9 10 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mary K. Quass 425 2nd Street S.E., Suite 450 Cedar Rapids, Iowa 52401 Facsimile: (319) 298-2497 with a copy to: Latham & Watkins 1001 Pennsylvania Avenue, N.W. Suite 1300 Washington, D.C. 20004 Attention: Joseph D. Sullivan Facsimile: (202) 637-2201 If to the Company Capstar Broadcasting Corporation. or Capstar: 600 Congress Avenue Suite 1400 Austin, Texas 78701 Attention: William S. Banowsky, Jr. Facsimile: (512) 340-7890 with a copy to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201-2975 Attention: Michael D. Wortley Facsimile: (214) 220-7716 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. 17. Injunctive Relief. The parties hereto acknowledge and agree that the Company would be irreparably injured if the provisions of Section 7 and Section 9 of this Agreement are not specifically enforced. Therefore, notwithstanding and in addition to any rights and remedies available hereunder, or under applicable law, the Company shall have the right to injunctive or such other equitable relief as may be necessary to specifically enforce the Executive's performance under such provisions. The Executive agrees to waive the defense in suit that the Company has an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of injunctive relief as a remedy. Notwithstanding anything contained in this Section 17, the Company 10 11 shall be entitled to pursue all available remedies to recover any damages to which the Company may be entitled. 18. No Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time. 19. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 20. Complete Agreement. The provisions of this Agreement constitute the complete understanding and agreement between the parties with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts. 11 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. EXECUTIVE /s/ MARY K. QUASS --------------------------------- Mary K. Quass CENTRAL STAR COMMUNICATIONS, INC. By: /s/ PAUL D. STONE ------------------------------ Paul D. Stone Vice President Capstar Broadcasting Corporation hereby joins in the execution and delivery of this Agreement solely for the purposes of Section 4(c), clause (iii) of Section 5(b) and Sections 5(c) and 5(d). CAPSTAR BROADCASTING CORPORATION By: /s/ PAUL D. STONE ------------------------------ Paul D. Stone Vice President S-1 EX-10.15 12 CONSULTING, NON-COMPETE/SEPARATION AGREEMENT 1 EXHIBIT 10.15 CONSULTING, NON-COMPETE AND SEPARATION AGREEMENT THIS CONSULTING, NON-COMPETE AND SEPARATION AGREEMENT (this "AGREEMENT"), effective as of March 1, 1998, is made and entered into by and between Southern Star Communications, Inc., a Delaware corporation (the "COMPANY"), and Frank D. Osborn ("EXECUTIVE"). RECITALS WHEREAS, the Company entered into that certain Employment Agreement dated February 20, 1997 (the "EMPLOYMENT AGREEMENT"), by and between the Company and Executive, pursuant to which Executive has served as the President and Chief Executive Officer of the Company; WHEREAS, Executive and the Company each desire that Executive resign his employment as President and Chief Executive Officer of the Company and the Company and Executive have mutually agreed to terminate the Employment Agreement without further obligation of either party thereunder, effective as of March 1, 1998 (the "EFFECTIVE TIME"); WHEREAS, the Company desires to retain Executive as a consultant of the Company, and Executive desires to be so retained by the Company, on the terms and subject to the conditions more fully set forth in this Agreement; and WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its sole stockholder to enter into the mutual release of claims contained within this Agreement and to require Executive to refrain from engaging in competitive activities, all as more fully set forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. EMPLOYMENT AGREEMENT. Executive hereby represents and warrants that his employment relationship with the Company is pursuant to and governed solely by the Employment Agreement, a true and correct copy of which is attached hereto as Annex I. 2. RESIGNATION/TERMINATION OF EMPLOYMENT AGREEMENT. Effective as of the Effective Time, (a) Executive hereby tenders his resignation as an officer of the Company and each of its subsidiaries and (b) the Employment Agreement shall be terminated in full without any further action on the part of the Company or Executive. Except as expressly provided in this Agreement, from and after the Effective Time, Executive shall not be entitled to receive any further wages, compensation, stock options or benefits arising pursuant to the Employment Agreement or in connection with his employment relationship with the Company or any of its subsidiaries, and Executive shall not be 2 entitled to any post termination wages, compensation or benefits (including, without limitation, severance pay, vacation pay or sick pay). 3. RELEASE OF CLAIMS. (a) RELEASE BY EXECUTIVE. Effective as of the Effective Time, Executive hereby releases and discharges, on behalf of himself and the Released Executive Parties, the Released Company Parties from all Claims and Damages, including those related to, arising from, or attributed to (i) his employment with the Company and its subsidiaries and resignations therefrom, (ii) the Employment Agreement, and (iii) all other acts or omissions related to any matter at any time prior to and including the date of termination of the Employment Agreement; except that this release shall not include Executive's (A) entitlement to continued group medical coverage in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), (B) vested account balances in the employee benefit plans described in Annex II attached hereto, (C) rights of Executive arising under this Agreement, (D) rights of Executive under that certain Stockholders Agreement dated as of November 26, 1996, as amended (the "STOCKHOLDERS AGREEMENT"), by and among Capstar Broadcasting Partners, Inc., the securityholders listed on the signature pages thereto, and Hicks, Muse, Tate & Furst Incorporated, or (E) except as modified by Section 5(d), rights of Executive under the Non-Qualified Stock Option Agreement dated June 20, 1997, by and between Executive and Capstar Broadcasting Corporation ("Capstar Broadcasting"), a true and correct copy of which is attached hereto as Annex III (the "OPTION AGREEMENT"). Executive understands and expressly agrees that, unless specifically excluded from this release, this release extends to all Claims and Damages of every nature and kind, known or unknown, suspected or unsuspected, past or present, whether or not these Claims and Damages were set forth in any writing, and that all such Claims and Damages are hereby expressly settled or waived. Notwithstanding the foregoing, Executive does not release or discharge the Company and its subsidiaries from any Claims or Damages related to or arising from Executive's capacity as an officer or director of the Company or its subsidiaries to which Executive is entitled to be indemnified against by the Company or its subsidiaries, whether by statute, contract or otherwise. (b) RELEASE BY THE COMPANY. Effective as of the Effective Time, the Company hereby releases and discharges, on behalf of itself and the Released Company Parties, the Released Executive Parties from all Claims and Damages, including those related to, arising from, or attributed to (i) Executive's employment with the Company and its subsidiaries and resignations therefrom, (ii) the Employment Agreement, and (iii) all other acts or omissions related to any matter at any time prior to and including the date of termination of the Employment Agreement; except that this release shall not include (A) rights of the Company arising under this Agreement, (B) rights of the Company and its affiliates under the Stockholders Agreement, (C) except as modified by Section 5(d), rights of the Company and Capstar Broadcasting under the Option Agreement. The Company understands and expressly agrees that, unless specifically excluded from this release, this release extends to all Claims and Damages of every nature and kind, known or unknown, suspected or unsuspected, past or present, whether or not these Claims and Damages were set forth in any writing, and that all such Claims and Damages are hereby expressly settled or waived. (c) DEFINITIONS. As used in this Section 3, the following terms shall have meanings set forth below: 2 3 (i) "CLAIMS" means all theories of recovery of whatever nature, whether known or unknown, at law or equity, of any jurisdiction, based on acts, omissions or other matters occurring on or before the Effective Time. This term includes, without limitation, lawsuits, petitions, complaints, causes of action, charges, indebtedness, losses, claims, liabilities, and demands, whether arising in equity or under the common law or under any contract (including, without limitation, the Employment Agreement), statute, regulation or ordinance. This term also includes, without limitation, any Claim of discrimination (based on age or any other factor) under any statute or law (including, without limitation, the Age Discrimination in Employment Act, 29 U.S.C. Section 621, et seq.; Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, et seq.; and the Americans with Disabilities Act, 42 U.S.C. Section 12101, et seq.), and all Claims asserted by any Released Executive Party or any Released Company Party, as applicable, in writing or otherwise, or which could be asserted, by any Released Executive Party or any Released Company Party, as applicable. (ii) "DAMAGES" means all elements of relief or recovery of whatever nature, whether known or unknown, which are recognized by the law or equity of any jurisdiction, based on acts, omissions or other matters occurring on or before the Effective Time. This term includes, without limitation, actual, incidental, indirect, consequential, compensatory, liquidated, exemplary, and punitive damages; rescission, attorneys' fees; interest; costs; equitable relief; and expenses. (iii) "RELEASED COMPANY PARTIES" means and includes the Company and its subsidiaries, and all of the foregoing entities' past, present and future stockholders, directors, officers, employees, agents, insurance carriers, employee benefit plans (and such plans' fiduciaries, trustees, administrators and representatives), predecessors, successors, assigns, executors, administrators, attorneys and representatives, in both their corporate and individual capacities. (iv) "RELEASED EXECUTIVE PARTY" means and includes Executive, his family, his estate, his agents, and each of their respective successors and assigns. 4. PARTICIPATION IN WELFARE BENEFIT PLANS. For a period of 24 months commencing as of the Effective Time, Executive (and members of his family) shall be entitled to continue their participation in the Company's welfare benefit plans, practices, policies and programs (including, without limitation, the Company's executive medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) (the "WELFARE PLANS") on the same basis as Executive participated in the Welfare Plans immediately prior to the Effective Time. If pursuant to the terms and provisions of the Company's Welfare Plans Executive (or members of his family) are not eligible to participate in the Company's Welfare Plans because Executive is no longer an employee of the Company, then the Company may fulfill its obligations under this Section 4 by either providing to Executive (or his legal representatives), or reimbursing the Executive (or his legal representatives) for the costs of, benefits substantially similar to the benefits provided by the Company to its senior management under its Welfare Plans as such may from time to time exist after the Effective Time. 3 4 5. CONSULTING ARRANGEMENT. (a) CONSULTING SERVICES. Effective as of the Effective Time, the Company hereby retains Executive to render such consulting and advisory services (the "CONSULTING SERVICES") as the Company may reasonably request from time to time during the term of the consulting arrangement set forth in this Section 5 concerning the management or operation of the Company and its subsidiaries, including, without limitation, the development of strategies to maximize the value of the Muzak Division of the Company. Executive hereby accepts such engagement and agrees to perform such services for the Company upon the terms and conditions set forth in this Agreement. Executive will perform the Consulting Services at such times and places as the President and/or Chief Executive Officer of the Company, from time to time, shall reasonably request. It is expressly understood and agreed that such consulting services shall be incidental to and shall not unreasonably interfere with the other business activities of Executive which may include full time employment responsibilities to one or more employers. Consulting and advising via telephone, facsimile transmission and correspondence, as well as in person, shall constitute performance of Executive's services hereunder. The Company will reimburse Executive for reasonable out-of-pocket expenses which Executive incurs in the course of providing the Consulting Services. Notwithstanding anything in this Agreement, Executive is an independent contractor with authority to select the means and method of performing the Consulting Services. Executive is not an employee or agent of the Company and any action taken by Executive which is not authorized by this Agreement or any other agreement between the Company and Executive will not bind the Company or create any claim against the Company. Unless otherwise specifically authorized by this Agreement or any other agreement between the Company and Executive, Executive has no authority to transact any business or make any representations or promises in the name of the Company. (b) TERM. Unless terminated at an earlier date in accordance with subsection (c) of this Section 5, the term of the consulting arrangement shall be for the period commencing as of the Effective Time and ending at 5:00 p.m., Texas time, on February 28, 2001 (the "CONSULTING PERIOD"). (c) TERMINATION OF CONSULTING ARRANGEMENT. Notwithstanding any contrary provision contained elsewhere in this Agreement, this Section 5 and the consulting arrangement created by this Section 5 between the Company and Executive (i) may be terminated prior to the expiration of the term set forth in subsection (b) by the Company or Executive, in either case, for any reason or no reason at all and (ii) shall terminate automatically upon the death of Executive. Termination of this consulting arrangement by either party hereto shall be evidenced by a written notice delivered to the other party, which notice shall specify the termination date (which date shall not be more than 15 days after the giving of such notice). Upon a termination of the consulting arrangement set forth in this Section 5, neither of the parties hereto shall have any further duty or obligation under this Section 5, provided that the Company shall pay to Executive (or, in the case of Executive's death, to Executive's legal representatives), in regular installments in accordance with the customary payroll practices of the Company, Executive's Consulting Fee (as defined in Section 8) for the remainder of the Consulting Period without regard to such termination, unless, however, the consulting arrangement shall have been terminated by Executive pursuant to this Section 5(c), in which case the Company shall have no further obligation to pay Executive's Consulting Fee. 4 5 (d) STOCK OPTIONS. Executive has previously been granted an option to acquire 1,500,000 shares of Class A Common Stock, par value $.01 per share ("CLASS A COMMON STOCK"), of Capstar Broadcasting pursuant to the Option Agreement. Executive hereby represents and warrants that, except for the Option Agreement, he is not a party to any stock option, stock appreciation right or similar agreement granting Executive the right to acquire or benefit from the appreciation in value of capital stock of Capstar Broadcasting or any of its subsidiaries. Notwithstanding the terms or conditions of the Option Agreement or the Employment Agreement, Executive shall vest, as of the Effective Time, in all rights under the Option Agreement (i.e., the option to acquire 1,500,000 shares of Class A Common Stock evidenced by the Option Agreement shall be deemed 100% vested and immediately and fully exercisable) and thereafter Executive (or, in the case of Executive's death, his legal representatives) shall be permitted to exercise the option to acquire all or any portion of said 1,500,000 shares of Class A Common Stock at any time and from time to time until 5:00 p.m., Texas time, until the earlier to occur of (i) February 28, 2001 or (ii) the 90th day after the date of termination of the consulting arrangement pursuant to subsection (c) of this Section 5. 6. CONFIDENTIALITY. (a) PROTECTION OF CONFIDENTIAL INFORMATION AND TRADE SECRETS. Executive acknowledges that the business of the Company and its subsidiaries is highly competitive and that their contracts, books, records, and documents, their technical information concerning their services, pricing techniques, and computer system and software, and the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets which are valuable, special, and unique assets which the Company and its subsidiaries use in their business to obtain a competitive advantage over their competitors. (All such information belonging to the Company and its subsidiaries is jointly referred to herein as "CONFIDENTIAL INFORMATION AND TRADE SECRETS.") Executive agrees that all Confidential Information and Trade Secrets are the exclusive, confidential, and proprietary information and property of the Company and, except as necessary to perform the Consulting Services, will not be used by Executive for any other purpose or in any other manner. Executive further acknowledges that protection of such Confidential Information and Trade Secrets against unauthorized disclosure and use is of critical importance to the Company and its subsidiaries in maintaining their competitive position. Executive hereby agrees that he will not make any unauthorized disclosure of any such Confidential Information and Trade Secrets, or make any unauthorized use thereof. In the event that Executive is requested pursuant to, or required by, applicable law or regulation or by legal process to disclose any Confidential Information and Trade Secrets, Executive agrees to provide the Company with prompt notice of such request(s) to enable the Company to seek an appropriate protective order; provided, however, that Executive shall not be prohibited from complying with any such request unless an appropriate protective order is in place. (b) SURRENDER OF MATERIALS UPON TERMINATION. Upon any termination of Executive's consulting arrangement set forth in Section 5 of this Agreement, Executive shall immediately return to the Company all copies, in whatever form, of any and all Confidential Information and Trade Secrets and other properties of the Company and its affiliates which are in Executive's possession, custody or control. 5 6 (c) SCOPE OF PROHIBITED ACTIVITIES; REMEDIES. Executive acknowledges that the scope of prohibited activities, and time of duration of the provisions of this Section 6 are reasonable and are no broader than are necessary to protect the goodwill and legitimate business interests of the Company and its subsidiaries. Executive also acknowledges that the provisions of this Section 6 do not and will not impose any unreasonable burden on Executive. Executive further acknowledges that a violation of this Section 6 will cause irreparable damage to the Company and its subsidiaries, entitling them to an injunction and other equitable relief in a court of competent jurisdiction against Executive. In addition, the Company and its subsidiaries shall be entitled to whatever other remedies they may have at law, including, without limitation, reasonable attorneys fees and costs incurred by the Company and its subsidiaries in enforcing the terms of this Section 6. 7. NON-COMPETITION AGREEMENT. (a) NON-COMPETITION. Except as expressly permitted herein, effective as of the date hereof Executive agrees that he shall not (other than for the benefit of the Company pursuant to this Agreement), until after 11:59 p.m. on February 28, 2002: (i) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever, (A) engage in any radio broadcasting business that transmits a primary or city-grade signal within a Metro Survey Area (as currently defined by The Arbitron Company in its Radio Markets Reports) in which (1) a station, which as of the Effective Time, is directly operated by the Company or any of its subsidiaries, transmits a primary or city-grade signal or (2) a station, which as of the Effective Time is under binding contract to be acquired by the Company or any of its affiliates and is identified on Annex IV attached hereto, and which shall be directly operated by the Company or any of its subsidiaries upon consummation of such acquisition, transmits a primary or city grade signal (all such areas being collectively called the "GEOGRAPHIC AREA") (a "COMPETING BUSINESS"), (B) hire, attempt to hire, or contact or solicit with respect to hiring any employee of the Company or any of its subsidiaries, or (C) divert or take away any customers or suppliers of the Company or any of its subsidiaries in the Geographic Area. Notwithstanding the foregoing, the Company agrees that Executive may own less than five percent of the outstanding voting securities of any publicly traded company that is a Competing Business so long as Executive does not otherwise participate in such competing business in any way prohibited by the preceding clause; and (ii) use Executive's access to, knowledge of, or application of Confidential Information and Trade Secrets to perform any duty for any Competing Business; it being understood and agreed to that this Section 7(a)(ii) shall be in addition to and not be construed as a limitation upon the covenants in Section 7(a)(i) hereof. (b) SCOPE OF PROHIBITED ACTIVITIES; REMEDIES. Executive acknowledges that he has consulted with his counsel and has been advised in all respects concerning the reasonableness and propriety of this Section 7 and acknowledges that it is his valid, binding and enforceable obligation. Executive acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of this Section 7 are reasonable in nature and are no broader than are necessary 6 7 to maintain the confidentiality and the goodwill of the Company's proprietary information, plans and services and to protect the other legitimate business interests of the Company. Executive also acknowledges that the provisions of this Section 7 do not and will not impose any unreasonable burden on Executive. Executive further acknowledges that violation of this Section 7 will cause irreparable damage to the Company and its subsidiaries, entitling them to an injunction and other equitable relief in a court of competent jurisdiction against Executive. In addition, the Company and its subsidiaries shall be entitled to whatever other remedies they may have at law, including, without limitation, reasonable attorneys fees and costs incurred by the Company and its subsidiaries in enforcing the terms of this Section 7. 8. CONSIDERATION. (a) TERMINATION AND RELEASE. As consideration for the termination of the Employment Agreement pursuant to Section 2 and the Executive's release of claims pursuant to Section 3, the Company hereby agrees to pay Executive immediately after the Effective Time, by means of wire transfer of immediately available funds, an amount equal to $730,000. (b) CONSULTING SERVICES. As consideration for the Consulting Services to be rendered by Executive pursuant to Section 5, except as provided in Section 5(c), the Company hereby agrees to pay Executive $100,000 (the "CONSULTING FEE") annually during the Consulting Period, which shall be paid in accordance with the customary payroll practices of the Company. Executive shall be entitled to the payment of the full Consulting Fee regardless of the amount and frequency of Consulting Services actually requested of him. (c) NON-COMPETITION AGREEMENT. As consideration for Executive's obligations under the non-competition agreement set forth in Section 7, the Company hereby agrees to pay Executive $375,000 annually during the period commencing at the Effective Time and ending at 5:00 p.m., Texas time, on February 28, 2001, which shall be paid in accordance with the customary payroll practices of the Company. Executive acknowledges and agrees that the consideration described in clauses (a), (b) and (c) of this Section 8 constitutes adequate consideration for his obligations under this Agreement. 9. SURVIVAL. The provisions of Sections 3, 4, 5(d), 6, 7, 8 and this Section 9 shall survive any termination of the consulting arrangement set forth in Section 5 of this Agreement. 10. MISCELLANEOUS. (a) COMPANY AUTOMOBILE. As further consideration for Executive's agreement to enter into this Agreement, the Company agrees that Executive may forever retain, and shall obtain title to at the Effective Time, the Company purchased automobile currently used by Executive. (b) No Mitigation. In no event shall Executive be obligated to take any action by way of mitigation of the amounts payable to Executive hereunder and such amounts shall not be 7 8 reduced whether or not Executive obtains other employment or receives compensation for the provision of employment, consulting or other services to any person or entity. (c) EXPENSES. Except as otherwise expressly provided in this Agreement, all costs and expenses (including attorneys fees and expenses) incurred by the parties hereto in connection with this Agreement and the transactions contemplated hereby shall be borne solely and entirely by the party which has incurred such expenses. (d) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (e) CERTAIN EVENTS. Executive agrees that this Agreement and the obligations hereunder shall be binding upon his heirs, guardians, administrators or successors. (f) ASSIGNMENT. This Agreement shall not be assigned by operation of law or otherwise without the prior written consent of the other party; provided that nothing in this Agreement shall preclude Executive, upon prior written notice to the Company, from designating any of his beneficiaries to receive any benefits payable hereunder upon his death or disability, or his executors, administrators, or other legal representatives, from assigning any rights hereunder to the person or persons entitled thereto; provided further that nothing in this Agreement shall preclude the consolidation or merger of the Company with another person in which the Company is not the continuing person or the transfer of all or substantially all of the assets of the Company if the successor assumes (by operation of law or otherwise) the rights and obligations of the Company under this Agreement. (g) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the parties hereto. Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (h) NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: 8 9 If to Executive: Frank D. Osborn 174 Hemlock Hill Road New Canaan, Connecticut 06840 Telecopy: (203) 629-1749 copies to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Telecopy: (212) 373-2159 Attn: Brian D. Robbins If to the Company: c/o Capstar Broadcasting Corporation 600 Congress Avenue, Suite 1400 Austin, Texas 78701 Telecopy: (512) 404-6850 Attn: William S. Banowsky, Jr. copies to: Vinson & Elkins L.L.P. 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201-2975 Telecopy: (214) 999-7732 Attn: Michael D. Wortley or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. (i) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (j) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled, without the requirement of posting of bond or other security, 9 10 to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. (k) REMEDIES CUMULATIVE. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (l) NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (m) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. (n) GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. (o) DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Whenever the terms "HEREOF," "HEREBY," "HEREIN," "HEREUNDER," or words of similar import are used in this Agreement they shall be construed as referring to this Agreement in its entirety rather than to a particular section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "SECTION" or "PARAGRAPH" shall be construed as referred to the indicated section or paragraph of this Agreement unless the context indicates to the contrary. The use of the term "INCLUDING" herein shall be construed as meaning "INCLUDING WITHOUT LIMITATION." (p) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. (q) WITHHOLDINGS. As may be appropriate, the Company shall report the payments made hereunder by (i) filing the appropriate 1099 forms for this amount, and (ii) making any other reports required by law. (r) TAXES. Executive agrees to comply, on a timely basis, with all tax reporting requirements applicable to the receipt of the payments and other compensation received hereunder and to timely pay all taxes due with respect to such amounts. 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. EXECUTIVE: ---------------------------------------- Frank D. Osborn COMPANY: SOUTHERN STAR COMMUNICATIONS, INC. By: /s/ WILLIAM S. BANOWSKY, JR. ---------------------------------- Name: William S. Banowsky, Jr. ---------------------------------- Title: Executive Vice President ---------------------------------- 11 12 ANNEX I EMPLOYMENT AGREEMENT 13 ANNEX II EMPLOYEE BENEFIT PLANS Capstar Broadcasting Partners, Inc. 401(k) Retirement Plan Osborn Communications Corporation Profit Sharing Plan Osborn Communications Corporation Deferred Compensation Plan (a non-employer matching plan) 14 ANNEX III OPTION AGREEMENT 15 ANNEX IV SCHEDULE OF STATIONS UNDER BINDING CONTRACT AS OF THE EFFECTIVE TIME
STATION MARKET ---------------------- -------------------------------------------------- WZBQ-FM Tuscaloosa, Alabama WPAW-FM Ft. Pierce-Stuart-Vero Beach, Florida
EX-21.1 13 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 CAPSTAR BROADCASTING PARTNERS, INC. SUBSIDIARIES ENTITY DOMESTIC - ------ -------- Ameron Broadcasting Corporation Delaware Asheville Broadcasting Corp. Delaware Atlantic City Broadcasting Corp. Delaware Atlantic Star Communications, Inc. Delaware Baton Rouge Broadcasting Company, Inc. Louisiana BC Funds Holdings, Inc. Maryland Beatrice Broadcasting Corp. Delaware Benchmark Communications Holdings, Inc. Delaware Benchmark Communications Radio Limited Partnership Maryland Benchmark Greenville, L.L.C. Delaware Benchmark Jackson, L.L.C. Delaware Benchmark Radio Acquisition Fund I Limited Maryland Partnership Benchmark Radio Acquisition Fund II Limited Maryland Partnership Benchmark Radio Acquisition Fund IV Limited Maryland Partnership Benchmark Radio Acquisition Fund V Limited Maryland Partnership Benchmark Radio Acquisition Fund VI Limited Maryland Partnership Benchmark Radio Acquisition Fund VII Limited Maryland Partnership Benchmark Radio Acquisition Fund VIII Limited Maryland Partnership Benchmark Radio Acquisition Fund IX Limited Maryland Partnership 2 ENTITY DOMESTIC - ------ -------- Benchmark Radio Acquisition Fund XI Limited Maryland Partnership Benchmark Transition, Inc. Delaware Breadbasket Broadcasting Corporation Delaware Capstar Acquisition Company, Inc. Delaware Capstar Broadcasting Partners, Inc. Delaware Capstar Employee Management Company, Inc. Delaware Capstar Radio Broadcasting Partners, Inc. Delaware Central Star Communications, Inc. Delaware Commodore Media of Delaware, Inc. Delaware Commodore Media of Florida, Inc. Delaware Commodore Media of Kentucky, Inc. Delaware Commodore Media of Norwalk, Inc. Delaware Commodore Media of Pennsylvania, Inc. Delaware Commodore Media of Westchester, Inc. Delaware Congaree Broadcasters, Inc. South Carolina Corkscrew Broadcasting Corporation Delaware Country Heartlines, Incorporated Delaware Currey Broadcasting Corporation Delaware Danbury Broadcasting, Inc. Connecticut Daytona Beach Broadcasting Corp. Delaware Dixie Broadcasting, Inc. Alabama GCBR, Inc. Delaware GCBR, L.P. Delaware Great American East, Inc. North Carolina GulfStar Beaumont Broadcasting, Inc. Texas GulfStar Communications, Inc. Delaware 3 ENTITY DOMESTIC - ------ -------- GulfStar Communications Arkansas, Inc. Delaware GulfStar Communications Arkansas Licensee, Inc. Arkansas GulfStar Communications Baton Rouge, Inc. Delaware GulfStar Communications Beaumont, Inc. Delaware GulfStar Communications Beaumont Licensee, Inc. Texas GulfStar Communications Corpus Christi, Inc. Delaware GulfStar Communications Corpus Chrisis Licensee, Inc. Texas GulfStar Communications Holdings, Inc. Delaware GulfStar Communications Killeen, Inc. Delaware GulfStar Communications Killeen Licensee, Inc. Delaware GulfStar Communications Lubbock, Inc. Delaware GulfStar Communications Lubbock Licensee, Inc. Delaware GulfStar Communications Lufkin, Inc. Delaware GulfStar Communications Lufkin Licensee, Inc. Texas GulfStar Communications Management, Inc. Delaware GulfStar Communications New Mexico, Inc. Delaware GulfStar Communications New Mexico Licensee, Inc. New Mexico GulfStar Communications Oklahoma, Inc. Delaware GulfStar Communications Oklahoma Licensee, Inc. Oklahoma GulfStar Communications Port Arthur, Inc. Delaware GulfStar Communications Port Arthur Licensee, Inc. Texas GulfStar Communications Texarkana, Inc. Delaware GulfStar Communications Texarkana Licensee, Inc. Texas GulfStar Communications Tyler, Inc. Delaware GulfStar Communications Tyler Licensee, Inc. Texas GulfStar Communications Victoria, Inc. Delaware GulfStar Communications Victoria Licensee, Inc. Texas 4 ENTITY DOMESTIC - ------ -------- GulfStar Communications Waco, Inc. Delaware GulfStar Communications Waco Licensee, Inc. Texas Houndstooth Broadcasting Corporation Delaware Jamboree in the Hills, Inc. Delaware June Broadcasting, Inc. Delaware K-106, Inc. Texas Ladner Communications Holding Corp. Delaware Mountain Lakes Broadcasting, L.L.C. Alabama Mountain Radio Corporation Delaware Music Hall Club, Inc. West Virginia Nelson Broadcasting Corporation Delaware O.C.C., Inc. Delaware Orange Communications, Inc. Delaware Osborn Entertainment Enterprises Corporation Delaware Osborn Sound & Communications Corp. Delaware Pacific Star Communications, Inc. Delaware Patterson Acquisition Company, Inc. Delaware Patterson Battle Creek Broadcasting Corp. Delaware Patterson Battle Creek Licensee Corp. Delaware Patterson Broadcasting, Inc. Delaware Patterson Fresno Broadcasting Corp. Delaware Patterson Fresno Licensee Corp. Delaware Patterson Grand Rapids Broadcasting Corp. Delaware Patterson Grand Rapids Licensee Corp. Delaware Patterson Harrisburg Licensee Corp. Delaware Patterson Honolulu Broadcasting Corp. Delaware Patterson Honolulu Licensee Corp. Delaware 5 ENTITY DOMESTIC - ------ -------- Patterson Pensacola Licensee Corp. Delaware Patterson Reno Broadcasting Corp. Delaware Patterson Reno Licensee Corp. Delaware Patterson Savannah Broadcasting Corp. Delaware Patterson Savannah Licensee Corp. Delaware Patterson Springfield Broadcasting Corp. Delaware Patterson Springfield Licensee Corp. Delaware Point Madison Acquisition Company, Inc. Delaware Quass Broadcasting Corporation Iowa Radio Dinuba Company California Radio WBHP, Inc. Alabama Radioco I, Inc. Maryland Radioco II, Inc. Maryland Rainbow Broadcasting Corporation Delaware RKZ Television, Inc. Delaware Short Broadcasting Corporation Delaware SNG Holdings, Inc. Delaware Sonance Waco License Subsidiary, Inc. Delaware Sonance Waco Operating Company, Inc. Delaware Southeast Radio Holding Corp. Delaware Southern Star Communications, Inc. Delaware Waite Broadcasting Corp. Delaware WCOS (AM) License Limited Partnership Maryland WCOS-FM License Limited Partnership Maryland WDOV License Limited Partnership Maryland WDSD License Limited Partnership Maryland WESC (AM) License Limited Partnership Maryland 6 ENTITY DOMESTIC - ------ -------- WESC-FM License Limited Partnership Maryland WFNQ License Limited Partnership Maryland WHKZ License Limited Partnership Maryland Wilmington WJBR-FM, L.L.C. Delaware WJMZ License Limited Partnership Maryland WKOC License Limited Partnership Maryland WNOK Acquisition Company, Inc. Delaware WNTW License Limited Partnership Maryland WOSC License Limited Partnership Maryland WROV (AM) License Limited Partnership Maryland WROV-FM License Limited Partnership Maryland WSRV License Limited Partnership Maryland WVOC License Limited Partnership Maryland WUSQ License Limited Partnership Maryland WWFG License Limited Partnership Maryland WYYD License Limited Partnership Maryland Yellow Brick Radio Corporation Delaware EX-27.1 14 FINANCIAL DATA SCHEDULE
5 0001026516 CAPSTAR BROADCASTING PARTNERS, INC. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 70,059 0 43,239 2,889 0 114,694 119,927 13,210 1,106,050 34,272 593,184 101,493 0 2,796 213,073 1,106,050 0 175,445 0 120,091 51,211 2,044 49,531 (49,250) (11,992) (37,258) 0 (2,403) 0 (39,661) 0 0
EX-27.2 15 FINANCIAL DATA SCHEDULE
5 0000945821 CAPSTAR RADIO BROADCASTING PARTNERS, INC. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 70,719 0 43,239 2,889 0 114,768 105,716 10,211 1,096,872 30,552 426,192 0 0 4,759 456,556 1,096,872 0 175,445 0 120,091 51,081 2,044 30,559 (30,514) (4,910) (25,604) 0 (2,403) 0 (28,007) 0 0
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