To the Board of Directors
Martin & MacFarlane, Inc.
Paso Robles, California
We have audited the accompanying balance sheet of Martin & MacFarlane, Inc.
as of June 30, 1995 and the related statements of income, retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of Martin & MacFarlane, Inc.'s management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of June 30, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
BARBICH LONGCRIER HOOPER & KING
ACCOUNTANCY CORPORATION
By: /s/ GEOFFREY B. KING, CPA
--------------------------------
Geoffrey B. King, CPA
Bakersfield, California
August 25, 1995
F-173
MARTIN & MACFARLANE, INC.
BALANCE SHEET
JUNE 30, 1995
ASSETS
1995
-----------
Current Assets
Cash and equivalents (Note 7)............................. $ 351,705
Restricted cash (Note 6).................................. 306,154
Certificates of deposit................................... 200,000
Investments............................................... 8,400
Trade accounts receivable, less allowance for doubtful
accounts of $100,000................................... 1,546,381
Other receivables......................................... 78,649
Inventories (Note 2)...................................... 768,035
Prepaid expenses (Note 3)................................. 630,548
Current deferred income taxes (Note 10)................... 145,554
-----------
4,035,426
-----------
Property and Equipment, net of accumulated depreciation
(Notes 4, 6 and 7)........................................ 16,872,469
-----------
Intangible Assets, net of accumulated amortization (Note
5)........................................................ 764,898
-----------
Other Assets................................................ 20,171
-----------
$21,692,964
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 6)............. $ 1,848,465
Note payable, bank (Note 7)............................... 200,000
Accounts payable.......................................... 652,567
Accrued expenses.......................................... 319,021
Dividends payable (Note 9)................................ 26,451
Unearned income........................................... 156,881
Income taxes payable (Note 10)............................ 891,486
-----------
4,094,871
-----------
Long-Term Debt, less current maturities (Note 6)............ 8,857,936
-----------
Long-Term Deferred Income Taxes (Note 10)................... 3,208,967
-----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares (Note
9)..................................................... 1,113,070
Retained earnings......................................... 4,418,120
-----------
5,531,190
-----------
$21,692,964
===========
The accompanying notes are an integral part of this balance sheet.
F-174
MARTIN & MACFARLANE, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995
1995
-----------
Revenues.................................................... $16,168,763
Cost of sales............................................... 2,045,552
-----------
Gross profit...................................... 14,123,211
Managers' controlled operating expenses..................... 10,070,408
-----------
Income from managers' operations.................. 4,052,803
-----------
Other operating expenses
Depreciation and amortization expense..................... 1,100,305
-----------
Operating income.................................. 2,952,498
-----------
Other income (expense)
Interest expense.......................................... (1,313,456)
Other income.............................................. 152,804
Gain on disposition of assets............................. 2,405,522
Employee separation expense............................... (269,803)
-----------
Income before income taxes.................................. 3,927,565
Income tax expense (Note 10)........................... 1,519,542
-----------
Net income........................................ $ 2,408,023
===========
The accompanying notes are an integral part of this statement.
F-175
MARTIN & MACFARLANE, INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1995
1995
----------
Balance, beginning of year.................................. $2,195,593
Net income................................................ 2,408,023
Dividends (Note 9)........................................ (185,496)
----------
Balance, end of year........................................ $4,418,120
==========
The accompanying notes are an integral part of this statement.
F-176
MARTIN & MACFARLANE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1995
1995
-----------
Cash flows from operating activities:
Net income................................................ $ 2,408,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,100,305
Gain on disposition of assets.......................... (2,405,522)
Increase in deferred income taxes...................... 469,749
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (57,463)
Increase in other receivables.......................... (66,187)
Decrease in inventory.................................. 11,117
Decrease in prepaid expenses........................... 34,520
Increase in other assets............................... (9,065)
Increase in accounts payable........................... 5,887
Decrease in accrued liabilities........................ (176,570)
Increase in unearned income............................ 30,106
Increase in income taxes payable....................... 820,732
-----------
Net cash provided by operating activities......... 2,165,632
-----------
Cash flows from investing activities:
Proceeds from sale of investments......................... 5,000
Increase in certificates of deposit....................... (200,000)
Proceeds from sale of fixed assets........................ 2,656,384
Capital expenditures...................................... (736,258)
Construction of capital improvements...................... (281,102)
Principal payments on loans and notes receivable.......... 32,000
Purchase of intangible assets............................. (310,001)
-----------
Net cash provided by investing activities......... 1,166,023
-----------
Cash flows from financing activities:
Proceeds from notes payable............................... 1,007,317
Principal payments on notes payable....................... (3,946,286)
Dividends paid............................................ (185,496)
-----------
Net cash used in financing activities............. (3,124,465)
-----------
Net increase in cash and cash equivalents................... 207,190
Cash and cash equivalents at beginning of year.............. 450,669
-----------
Cash and cash equivalents at end of year.................... $ 657,859
===========
Unrestricted cash........................................... $ 351,705
Restricted cash............................................. 306,154
-----------
$ 657,859
===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,339,278
===========
Payment of income taxes................................... $ 229,061
===========
Schedule of noncash investing:
The Company entered into an exchange agreement with National Outdoor
Media (3M) during the year ended June 30, 1995. In accordance with the
terms of the exchange agreement, the Company traded boards in Kansas City,
Missouri to 3M in exchange for posters and bulletins in Bakersfield,
California and Kansas at a value of $1,033,850 and $2,614,150 cash.
The accompanying notes are an integral part of this statement.
F-177
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends credit in the form of accounts receivable to
businesses and advertisers doing business in the above noted areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. As of June 30,
1995, the Company held funds of $646,293 in one financial institution.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are recognized under the allowance method of accounting which is
based on an average of actual write-offs in past years.
INVESTMENTS
Investments in marketable equity securities are carried at the lower of
cost or market. Decline in market values below cost, which are temporary in
nature, are not recognized as losses until the decline in value is deemed
permanent or until the security is sold.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
F-178
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives in years are as follows:
YEARS
-----
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
INTANGIBLE ASSETS
Goodwill is recorded at cost and is amortized using the straight-line
method over a forty year period.
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified, which ranges from
five to ten years.
INCOME TAXES
Effective July 1, 1993, as required by professional standards, the Company
adopted Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Deferred income taxes are provided on timing differences between
financial statement and taxable incomes. Timing differences arise primarily from
the use of the accelerated methods of depreciation, the direct write-off method
of accounting for bad debts, and the carryforward of net operating losses for
income tax purposes. Determination of current or long-term status of the asset
or liability is based upon when the particular timing difference reverses.
2. INVENTORIES
Inventories are as follows at June 30, 1995:
1995
--------
Raw material................................................ $ 84,383
Winery:
Materials and grape production costs...................... 141,255
In process................................................ 162,669
Finished goods............................................ 359,060
Tasting room, miscellaneous and resale.................... 20,668
--------
$768,035
========
F-179
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PREPAID EXPENSES
Prepaid expenses consist of the following at June 30, 1995:
Major classes of property and equipment and accumulated depreciation are as
follows at June 30, 1995:
1995
-----------
Outdoor Advertising
Buildings and improvements................................ $ 500,731
Posters................................................... 5,987,468
Bulletins................................................. 13,850,302
Shop equipment............................................ 278,749
Office furniture and equipment............................ 191,692
Autos and trucks.......................................... 1,063,156
Land...................................................... 414,472
Construction in process, boards........................... 69,038
-----------
22,355,608
Less accumulated depreciation............................. 7,105,290
-----------
15,250,318
-----------
Winery
Buildings and improvements................................ 664,515
Irrigation and wells...................................... 45,752
Vineyards................................................. 278,219
Landscaping............................................... 26,194
Auto...................................................... 19,500
Vineyard equipment........................................ 119,142
Winery equipment.......................................... 320,720
Office furniture and equipment............................ 37,604
Land...................................................... 206,133
-----------
1,717,779
Less accumulated depreciation............................. 755,093
-----------
962,686
-----------
F-180
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1995
-----------
Corporate
Buildings and improvements................................ $ 654,970
Office furniture and equipment............................ 267,308
Land...................................................... 42,783
-----------
965,061
Less accumulated depreciation............................. 305,596
-----------
659,465
-----------
$16,872,469
===========
Depreciation expense for the year ended June 30, 1995 was $1,021,709.
5. INTANGIBLES
Intangible assets and accumulated amortization are as follows at June 30,
1995:
1995
----------
Goodwill.................................................... $ 438,965
Covenants not to compete.................................... 69,000
Advertising rights.......................................... 136,100
Permits and licenses........................................ 168,567
Lease rights................................................ 335,001
----------
1,147,633
Less accumulated amortization............................... 382,735
----------
$ 764,898
==========
Amortization expense for the year ended June 30, 1995 was $78,596.
6. RESTRICTED CASH
Restricted cash at June 30, 1995 consisted of the following:
1995
--------
Cash, interest bearing account, holdback account, held for
the mutual benefit of the Company and National Advertising
Company, by Chicago Title & Trust Company, until released
by joint order of the parties. Cash is to be released
within twelve months of the June 30, 1995 balance sheet
date. Cash subsequently received July 7, 1995............. $306,154
========
F-181
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1995:
1995
-----------
Federal Land Bank, 5.75% and 6.73%, at 1995 and 1994,
collateralized by first trust deed, payable $3,510 per
month including interest, due May 1, 2011................. $ 410,068
Massachusetts Mutual Life Insurance Co., 11.05%, unsecured,
payable $500,000 per year beginning November 11, 1994,
interest payable quarterly, due November 15, 1999......... 2,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year beginning August 15, 1992,
interest payable quarterly, due August 15, 1999........... 3,437,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1995, interest payable quarterly, due June 1, 2002........ 3,500,000
Boatmen's First National Bank, interest at prime plus 1.5%,
collateralized by first deed of trust, payable $1,420 per
month including interest, due July 8, 2002................ 91,056
Citizens Bank of Paso Robles, interest at prime plus 2.5%,
collateralized by first trust deed, payable $1,188 per
month including interest, due May 13, 2002................ 124,134
Sierra Outdoor, 8%, collateralized by bulletins, payable
$940 per month including interest, due April 15, 1996..... 9,065
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $555 per month
including interest, due August 15, 1997................... 12,962
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $613 per month
including interest, due August 15, 1997................... 14,206
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 1, 2000........ 8,544
Estates Trust, Inc., 9%, collateralized by deed of trust,
payable $862 per month including interest, due October 1,
2009...................................................... 82,916
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 30, 1998.............. 20,000
Christine and Alice Henderson, 9%, collateralized by deed of
trust, payable $805 per month including interest, due
April 8, 2011............................................. 97,450
Pesenti Winery, non-interest bearing, collateralized by sign
structure, payable $1,500 per year, due December 15,
2003...................................................... 13,500
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $8,500 per month, due December
10, 1998.................................................. 357,000
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $1,000 per month, due October 1,
1997...................................................... 28,000
-----------
10,706,401
Less current maturities..................................... 1,848,465
-----------
$ 8,857,936
===========
Prime rate was 9% at June 30, 1995.
F-182
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at June 30, 1995 are as follows:
Note payable, bank is as follows at June 30, 1995:
1995
--------
Citizens Bank of Paso Robles, interest at 8.5%,
collateralized by certificate of deposit, annually
renewable on April 3, interest payable monthly, due April
3, 1996................................................... $200,000
========
Prime rate was 9% at June 30, 1995.
9. DIVIDENDS PAYABLE
In July 1994, October 1994 and January 1995, the Company declared a $.50
per share cash dividend, for 82,443 shares outstanding. In May 1995 the Company
declared a $.75 per share dividend, for 82,443 shares outstanding. At June 30,
1995 $26,451 was payable July 1, 1995.
10. DEFERRED INCOME TAXES
Income tax expense for the year ended June 30, 1995 is computed under SFAS
109 and consisted of the following:
FEDERAL STATE TOTAL
---------- -------- ----------
Current........................................... $ 808,602 $241,191 $1,049,793
Deferred.......................................... 657,023 100,162 757,185
Tax benefit of net operating loss carryforward.... (251,439) (35,997) (287,436)
---------- -------- ----------
Income tax expenses............................... $1,214,186 $305,356 $1,159,542
========== ======== ==========
Components of deferred income tax balances at June 30, 1995 consisted of:
FEDERAL STATE TOTAL
----------- -------- ----------
Current deferred tax assets....................... $ 136,254 $ 9,300 $ 145,554
========== ======== ==========
Long-term deferred tax liabilities................ $2,539,860 $669,107 $3,208,967
========== ======== ==========
Deferred income tax liabilities arise primarily from timing differences due
to use of accelerated depreciation methods for income tax purposes and the
straight-line method for financial reporting purposes. Deferred income tax
assets arise primarily from the application of federal and state net operating
loss carryovers.
At June 30, 1995, the Company had alternative minimum tax credits in the
amount of $16,837, available to offset future taxes. Tax credits are included in
deferred tax assets.
F-183
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS
The following transaction occurring between the Company and a related
party, which is not presented elsewhere in these financial statements, is as
follows:
Martin Media, which has partners who are also stockholders in the Company,
contracts the Company to perform management duties. Martin Media pays a
management fee to the Company which is approximately 3% of Martin Media's gross
revenue. Management fees of $986,356 were received from the partnership during
the fiscal year ending June 30, 1995.
12. PROFIT SHARING PLAN
Discretionary contributions under a defined contribution profit sharing
plan, which are determined by the Company's Board of Directors, have been
accrued to a trust for the benefit of qualified employees in the amount of
$50,000 for the year ended June 30, 1995. All costs are funded currently.
13. COMMITMENTS
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard spaces. These are long-term operating
leases which the Company and lessor have the option to terminate with thirty
days notice.
Lease expense for the year ended June 30, 1995 was $2,218,480.
The Company leases office and shop buildings which are located at various
divisions. A portion of these are long-term leases.
Future minimum lease payments under noncancellable leases at June 30, 1995
are as follows:
Years ending June 30,
1996...................................................... $ 47,747
1997...................................................... 22,665
1998...................................................... 18,711
1999...................................................... 19,944
2000...................................................... 19,944
Thereafter................................................ 121,830
--------
$250,841
========
On August 1, 1995, the Company entered into a lease with Gannett Outdoor
Company of Kansas City. Under the terms of the lease, Gannett Outdoor is leasing
87 outdoor advertising structures from the Company for $12,500 per month. The
agreement will terminate on December 31, 1997. In addition, Gannett Outdoor
shall have the right to exercise an option to purchase these structures at any
time on or after November 2, 1995 and prior to June 30, 1997 for the option
price of $1,030,000.
F-184
MARTIN & MACFARLANE, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- ----------
Income...................................................... $16,352,832 $9,717,160
Cost of sales............................................... 1,620,010 1,151,641
----------- ----------
Gross profit...................................... 14,732,822 8,565,519
Managers' controlled operating expenses..................... 8,323,130 5,033,818
----------- ----------
Income from managers' operations.................. 6,409,692 3,531,701
Other operating expenses:
Depreciation and amortization............................. 1,676,518 909,068
Management fees........................................... 1,672,981 98,132
Refinance and acquisition................................. 103,614 39,801
----------- ----------
3,453,113 1,047,001
Operating income.................................. 2,956,579 2,484,700
Nonoperating income (expenses):
Interest expense.......................................... (1,928,998) (796,203)
----------- ----------
(1,928,998) (796,203)
----------- ----------
Income before income taxes.................................. 1,027,581 1,688,497
Income tax expense.......................................... (9,992) --
----------- ----------
Net income........................................ $ 1,017,589 $1,688,497
=========== ==========
The accompanying note is an integral part of these statements.
F-185
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ -----------
Cash flows from operating activities:
Net income................................................ $ 1,017,589 $ 1,688,497
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,676,518 909,068
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,111,203) (118,870)
Increase in other receivables........................ (6,167) 279,700
Decrease in inventories, raw materials............... 75,728 117,325
Increase in prepaid expenses......................... (334,730) (225,219)
Decrease in deferred income tax asset................ 59 --
Increase in other assets............................. (125,142) (1,442,229)
Decrease in accounts payable......................... (711,997) 4,494,655
Decrease in accrued expenses......................... (121,962) (152,733)
Decrease in accrued income........................... (10,788) (64,230)
------------ -----------
Net cash provided (used) by operating
activities..................................... 347,905 5,485,964
Cash flows from investing activities:
Decrease (increase) in notes receivable................... 29,722 (22,129)
Change in intangible assets............................... (10,768,268) (810,001)
Capital expenditures...................................... (4,879,517) (1,821,808)
------------ -----------
Net cash used in investing activities............. (15,618,063) (2,653,938)
------------ -----------
Cash flows from financing activities:
Proceeds (payments) on long-term debt..................... 16,476,756 (325,153)
Distributions to partners................................. (463,235) (1,051,176)
------------ -----------
Net cash provided by investing activities......... 16,013,521 (1,376,329)
------------ -----------
Net decrease in cash........................................ 743,363 1,455,697
Cash at beginning of year................................... (27,790) (529,763)
------------ -----------
Cash at end of period....................................... $ 715,573 $ 925,934
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 1,912,798 $ 796,203
============ ===========
Payment of income taxes.............................. $ 3,584 $ --
============ ===========
The accompanying note is an integral part of these statements.
F-186
MARTIN & MACFARLANE, INC.
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-187
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying combined statements of operations and cash
flows of KYSR Inc. and KIBB Inc. for the year ended December 31, 1996. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
KYSR Inc. and KIBB Inc. for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG LLP
Dallas, Texas
March 14, 1997
F-188
KYSR INC. AND KIBB INC.
COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
Gross revenues.......................... $33,769 $15,762 $16,784
Less agency commissions and national
rep fees........................... 5,462 2,196 2,385
------- ------- -------
Net revenues.................. 28,307 13,566 14,399
------- ------- -------
Operating expenses:
Station operating expenses, excluding
depreciation and amortization...... 13,378 6,834 7,119
Depreciation and amortization......... 3,627 1,826 1,844
Corporate general and
administrative..................... 844 542 302
------- ------- -------
Operating expenses................. 17,849 9,202 9,265
------- ------- -------
Operating income................... 10,458 4,364 5,134
Interest expense (note 5)............... 6,374 3,187 3,178
------- ------- -------
Earnings before income taxes.......... 4,084 1,177 1,956
Income tax expense (benefit) (note 3)... 1,694 494 296
------- ------- -------
Net earnings.................. $ 2,390 $ 683 $ 1,660
======= ======= =======
See accompanying notes to combined financial statements.
F-189
KYSR INC. AND KIBB INC.
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
Cash flows provided by operating activities:
Net earnings.............................................. $2,390 $ 683 $ 1,660
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation........................................... 325 175 193
Amortization of intangibles............................ 3,302 1,651 1,651
Deferred tax expense................................... 1,332 -- --
Changes in certain assets and liabilities:
Accounts receivable, net............................. (1,030) (330) (120)
Prepaid expenses and other current assets............ (197) (1,468) 591
Accounts payable and accrued expenses................ (259) 2,236 (1,542)
------ ------- -------
Net cash provided by operating activities......... 5,863 2,947 2,433
------ ------- -------
Cash used by investing activities -- capital expenditures... (235) (80) (296)
------ ------- -------
Cash flows used by financing activities -- distributions to
Parent.................................................... (5,628) (2,867) (2,137)
------ ------- -------
Increase (decrease) in cash................................. -- -- --
Cash at beginning of period................................. -- -- --
------ ------- -------
Cash at end of period....................................... $ -- $ -- $ --
====== ======= =======
See accompanying notes to combined financial statements.
F-190
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of KYSR
Inc. and KIBB Inc. (collectively, the "Company"). The Company owns and operates
two commercial radio stations in the Los Angeles market, KYSR-FM and KIBB-FM,
and is wholly owned by Viacom International Inc. ("Viacom" or "Parent"), a
wholly owned subsidiary of Viacom, Inc. Significant intercompany balances and
transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of KYSR Inc. and KIBB
Inc. These financial statements are not necessarily indicative of the results
that would have occurred if the Company had been a separate stand-alone entity
during the period presented.
Corporate overhead allocations have been included in the accompanying
combined statements of earnings in corporate general and administrative expense
and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Repair and maintenance
costs are charged to expense when incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
F-191
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
No one advertiser accounted for more than 10% of net revenues during the
year ended December 31, 1996. Certain advertisers purchase the advertising of
the stations through a third party buying service. Approximately 19% of total
revenue was derived through the use of this service during the year ended
December 31, 1996.
(h) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
F-192
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The tax provision presented has been determined as if the Company were a
stand-alone business filing separate tax returns. Income tax expense for the
year ended December 31, 1996 consists of:
Current:
Federal................................................... $ 278
State and local........................................... 84
Deferred federal............................................ 1,332
------
$1,694
======
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes for the year ended December
31, 1996 is as follows:
Statutory U.S. tax rate..................................... 35.0%
State and local taxes, net of federal tax benefit........... 6.1
Other, net.................................................. 0.4
----
Effective tax rate.......................................... 41.5%
====
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(4) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company.
(5) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements.
On January 25, 1990, KYSR, Inc., formerly KXEZ, Inc., issued an
intercompany demand note to Viacom in the amount of $66,400. The note bears
interest at 9.6% per year payable on the last day of each calendar year. The
principal and final interest payment are payable on January 25, 2000. However,
immediately prior to closing of the Proposed Transaction, all debts between the
Company and Viacom will be canceled.
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying combined financial
statements as corporate general and administrative expense. Management believes
that the method of allocation of overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to this plan
in the amount of $191 for the year ended December 31, 1996.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
F-193
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services rendered from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(6) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $405 during
the year ended December 31, 1996.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
YEAR ENDING
DECEMBER 31:
------------
1997.................................................................. $ 365
1998.................................................................. 366
1999.................................................................. 312
2000.................................................................. 19
Thereafter............................................................ --
------
$1,062
======
F-194
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying statements of earnings and cash flows of
WLIT Inc. for the year ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of WLIT Inc.
for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG LLP
Dallas, Texas
March 14, 1997
F-195
WLIT INC.
STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------
1996 1996 1997
------------ ------ -------
(UNAUDITED)
Gross revenues.............................................. $18,294 $8,080 $10,035
Less agency commissions and national rep fees............. 3,071 1,144 1,410
------- ------ -------
Net revenues...................................... 15,223 6,936 8,625
------- ------ -------
Operating expenses:
Station operating expenses excluding depreciation and
amortization........................................... 7,508 3,839 4,221
Depreciation and amortization............................. 659 327 340
Corporate general and administrative...................... 479 274 172
------- ------ -------
Operating expenses..................................... 8,646 4,440 4,733
------- ------ -------
Earnings before income taxes........................... 6,577 2,496 3,892
Income tax expense (note 3)................................. 2,728 1,048 1,280
------- ------ -------
Net earnings...................................... $ 3,849 $1,448 $ 2,612
======= ====== =======
See accompanying notes to financial statements.
F-196
WLIT INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
Cash flows provided by operating
activities:
Net earnings.......................... $ 3,849 $ 1,448 $ 2,612
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 116 55 68
Amortization of intangibles........ 543 272 272
Deferred income taxes.............. (8) -- --
Changes in certain assets and
liabilities:
Accounts receivable, net......... (517) (476) (209)
Prepaid expenses and other
current assets................ 98 (577) 295
Accounts payable and accrued
expenses...................... (247) 1,461 (1,542)
------- ------- -------
Net cash provided by operating
activities.................. 3,834 2,183 1,496
------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (112) (45) (156)
------- ------- -------
Cash flows used by financing
activities -- distributions to
Parent................................ (3,722) (2,138) (1,340)
------- ------- -------
Increase (decrease) in cash............. -- -- --
Cash at beginning of period............. -- -- --
------- ------- -------
Cash at end of period................... $ -- $ -- $ --
======= ======= =======
See accompanying notes to financial statements.
F-197
WLIT INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of WLIT Inc.
(the "Company"). The Company owns and operates a commercial radio station in the
Chicago market, WLIT-FM, and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively, the "Viacom Radio
Properties") to Evergreen Media Corporation ("Evergreen") for $1.075 billion in
cash ("Proposed Transaction"). The Proposed Transaction is expected to close
after the expiration or termination of the applicable waiting periods under the
HSR Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying financial statements reflect the carve-out historical
results of operations and financial position of WLIT Inc. These financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been a separate stand-alone entity during the
periods presented.
Corporate overhead allocations have been included in the accompanying
statements of earnings in corporate general and administrative expense and
station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Repair and maintenance
costs are charged to expense when incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
F-198
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
No one customer accounted for more than 10% of net revenues in 1996.
(h) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
F-199
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provision presented has been determined as if the Company were a
stand-alone business filing separate tax returns.
Income tax expense for the year ended December 31, 1996 consists of:
Current:
Federal................................................... $2,391
State and local........................................... 345
Deferred federal............................................ (8)
------
$2,728
======
A reconciliation of the U.S. Federal Statutory tax rate to the Company's
effective tax rate on earnings before income taxes for the year ended December
31, 1996 is as follows:
Statutory U.S. tax rate..................................... 35.0%
Amortization of intangibles................................. 2.9
State and local taxes, net of federal tax benefit........... 3.4
Other, net.................................................. 0.2
----
Effective tax rate................................ 41.5%
====
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(4) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(5) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying financial statements.
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, tax and other
corporate services. The allocation of these expenses, which is generally based
on revenue dollars, is reflected in the accompanying financial statements as
corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars. The Company recognized
expense related to this plan in the amount of $126 for the year ended December
31, 1996.
F-200
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(6) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $327 during the
year ended December 31, 1996.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
To the Board of Directors of
Capstar Communications, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Capstar
Communications, Inc. and its subsidiaries (formerly known as SFX Broadcasting,
Inc. and Subsidiaries) at December 31, 1998 and the results of their operations
and their cash flows for the five month period ended May 31, 1998 and the seven
month period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
February 26, 1999, except as to Note 2,
which is as of March 15, 1999
F-202
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Capstar Communications, Inc.
We have audited the accompanying consolidated balance sheet of Capstar
Communications, Inc. and Subsidiaries (formerly known as SFX Broadcasting, Inc.
and Subsidiaries) as of December 31, 1997 and the related consolidated
statements of operations, shareholder's equity and cash flows for each of the
two 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 Communications, Inc. and Subsidiaries (formerly known as SFX
Broadcasting, Inc. and Subsidiaries) as of December 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 5, 1998 except for Note 1
as to which the date is April 27, 1998.
F-203
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
PREDECESSOR COMPANY
------------ ------------
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
Current assets:
Cash and cash equivalents................................. $ 24,686 $ 11,391
Accounts receivable, net of allowance for doubtful
accounts of $2,264 and $4,511 at December 31, 1997 and
1998, respectively..................................... 71,241 71,314
Assets under contract for sale............................ 42,883 --
Prepaid and other current assets.......................... 3,109 1,660
Receivable from SFX Entertainment......................... 11,539 --
---------- ----------
Total current assets.............................. 153,458 84,365
Property and equipment, net............................... 74,829 118,163
Intangibles and other, net................................ 1,039,394 3,323,486
Net assets to be distributed to shareholders.............. 102,144 --
Other assets.............................................. 5,790 627
---------- ----------
Total assets...................................... $1,375,615 $3,526,641
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,665 $ 3,303
Accrued expenses.......................................... 19,246 13,398
Payable to former national sales representative........... 23,025 471
Accrued interest.......................................... 6,675 4,136
Income taxes payable...................................... -- 35,140
Current portion of long-term debt......................... 610 372,903
---------- ----------
Total current liabilities......................... 58,221 429,351
Long-term debt, net of current portion.................... 764,092 325,686
Deferred income taxes..................................... 102,681 1,008,385
---------- ----------
Total liabilities................................. 924,994 1,763,422
---------- ----------
Redeemable Preferred Stock, aggregate liquidation
preference of $390,300 and $133,944, respectively...... 375,796 148,669
---------- ----------
Commitments and contingencies
Shareholder's equity:
Class A Voting Common Stock, $.01 par value; 100,000,000
and 200,000 shares authorized; 614 and 1,006 shares
issued; 612 and 1,006 shares outstanding at December
31, 1997 and 1998, respectively........................ 1 1
Class B Voting Convertible Common Stock, $01 par value,
10,000,000 shares, authorized; 77 shares issued and 68
shares outstanding at December 31, 1997................ 1 --
Additional paid-in capital................................ 185,642 1,613,967
Treasury stock; 11 shares at December 31, 1997............ (6,523) --
Retained earnings (deficit)............................... (104,296) 582
---------- ----------
Total shareholder's equity........................ 74,825 1,614,550
---------- ----------
Total liabilities and shareholder's equity........ $1,375,615 $3,526,641
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-204
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY
--------------------------------------------------------- ------------------
YEAR ENDED YEAR ENDED FIVE MONTHS ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 MAY 31, 1998 DECEMBER 31, 1998
----------------- ----------------- ----------------- ------------------
Gross broadcast revenue.......................... $162,011 $306,842 $ 141,369 $254,286
Less: agency commissions......................... (18,950) (36,478) (16,692) (25,325)
-------- -------- --------- --------
Net broadcast revenue.......................... 143,061 270,364 124,677 228,961
-------- -------- --------- --------
Station operating expenses....................... 92,816 167,063 78,235 114,000
Depreciation, amortization, duopoly integration
costs and acquisition related costs............ 17,311 38,232 17,668 55,685
Corporate expenses, net of $2,206 and $2,420
allocated to SFX Entertainment in 1997 and
during the five months ended May 31, 1998...... 6,261 6,837 3,069 5,676
LMA fees......................................... -- -- 697 289
Settlement of Options and Warrants............... 52 624 74,199 --
Non-recurring and unusual charges, including
adjustments to broadcast rights agreement...... 28,994 20,174 35,318 107
-------- -------- --------- --------
Total operating expenses................. 145,434 232,930 209,186 175,757
-------- -------- --------- --------
Operating income (loss).......................... (2,373) 37,434 (84,509) 53,204
Investment income................................ 4,017 2,821 352 339
Interest expense................................. (34,897) (64,506) (30,867) (36,205)
Loss on sale of radio station.................... (1,900) -- -- --
-------- -------- --------- --------
Income (loss) from continuing operations before
income taxes and extraordinary item............ (35,153) (24,251) (115,024) 17,338
Income tax expense............................... 480 810 210 6,977
-------- -------- --------- --------
Income (loss) from continuing operations before
extraordinary item............................. (35,633) (25,061) (115,234) 10,361
-------- -------- --------- --------
Discontinued operations:
Income (loss) from operations to be distributed
to shareholders, net of taxes.................. -- 3,814 (86,382) --
-------- -------- --------- --------
Income (loss) before extraordinary item.......... (35,633) (21,247) (201,616) 10,361
Extraordinary loss on debt retirement............ 15,219 -- -- --
-------- -------- --------- --------
Net income (loss)................................ (50,852) (21,247) (201,616) 10,361
Dividends and accretion on preferred stocks...... 6,061 38,510 17,264 9,779
-------- -------- --------- --------
Net income (loss) attributable to common stock... $(56,913) $(59,757) $(218,880) $ 582
======== ======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-205
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- ----------------- ADDITIONAL RETAINED TOTAL
NUMBER OF PAR NUMBER OF PAR PAID-IN TREASURY EARNINGS SHAREHOLDER'S
SHARES VALUE SHARES VALUE CAPITAL STOCK (DEFICIT) EQUITY
--------- ----- --------- ----- ---------- -------- --------- -------------
Balance at January 1, 1996
(Predecessor)....................... 609 $ 1 64 $ 1 $ 115,256 $ -- $ (32,197) $ 83,061
Dividends and accretion on preferred
stock............................... -- -- -- -- (6,061) -- -- (6,061)
Issuance upon exercise of stock
options............................. -- -- -- -- 370 -- -- 370
Issuance of warrants to SCMC.......... -- -- -- -- 8,905 -- -- 8,905
Issuance of equity securities for MMR
merger.............................. 3 -- 13 -- 71,541 -- -- 71,541
Repurchase of common stock............ -- -- -- -- -- (6,393) -- (6,393)
Net loss.............................. -- -- -- -- -- -- (50,852) (50,852)
----- --- -- --- ---------- ------- --------- ----------
Balance, December 31, 1996
(Predecessor)....................... 612 1 77 1 190,011 (6,393) (83,049) 100,571
Issuance upon exercise of stock
options............................. 1 -- -- -- 21,143 -- -- 21,143
Issuance upon exercise of Class B
Warrants............................ -- -- -- -- 2,476 -- -- 2,476
Issuance of stock for acquisitions.... 1 -- -- -- 9,522 -- -- 9,522
Payment from shareholder.............. -- -- -- -- 1,000 -- -- 1,000
Dividends and accretion on preferred
stock............................... -- -- -- -- (38,510) -- -- (38,510)
Repurchase of common stock............ -- -- -- -- -- (130) -- (130)
Net loss.............................. -- -- -- -- -- -- (21,247) (21,247)
----- --- -- --- ---------- ------- --------- ----------
Balance, December 31, 1997
(Predecessor)....................... 614 1 77 1 185,642 (6,523) (104,296) 74,825
Dividends and accretion on preferred
stock............................... -- -- -- -- (17,264) -- -- (17,264)
Settlement of Options and Warrants.... -- -- -- -- 74,061 -- -- 74,061
Spin-Off of SFX Entertainment......... -- -- -- -- 34,329 -- -- 34,329
Other, principally shares issued
pursuant to stock option plan....... 23 -- -- -- 13,418 -- -- 13,418
Net loss.............................. -- -- -- -- -- (201,616) (201,616)
----- --- -- --- ---------- ------- --------- ----------
Balance at May 31, 1998
(Predecessor)....................... 637 $ 1 77 $ 1 $ 290,186 $(6,523) $(305,912) $ (22,247)
===== === == === ========== ======= ========= ==========
Balance at June 1, 1998 (Company)..... 1,000 $ 1 -- $-- $1,287,948 $ -- $ -- $1,287,949
Issuance of common stock.............. 6 -- -- -- 314,510 -- -- 314,510
Capital contributions by Parent....... -- -- -- -- 11,509 -- -- 11,509
Dividends and accretion on preferred
stock............................... -- -- -- -- -- -- (9,779) (9,779)
Net income............................ -- -- -- -- -- -- 10,361 10,361
----- --- -- --- ---------- ------- --------- ----------
Balance at December 31, 1998
(Company)........................... 1,006 $ 1 -- $-- $1,613,967 $ -- $ 582 $1,614,550
===== === == === ========== ======= ========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-206
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY
--------------------------------------------------------- ------------------
YEAR ENDED YEAR ENDED FIVE MONTHS ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 MAY 31, 1998 DECEMBER 31, 1998
----------------- ----------------- ----------------- ------------------
Operating Activities:
Net income (loss)................................ $ (50,852) $ (21,247) $(201,616) $ 10,361
Loss (income) from operations distributed to
shareholders................................... -- (3,814) 86,382 --
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation................................... 5,972 10,955 4,919 5,637
Amortization................................... 10,202 26,406 12,628 50,048
Noncash interest............................... -- -- -- (1,545)
Noncash settlement of options and warrants..... -- -- 74,061 --
Noncash portion of non-recurring and unusual
charges...................................... 9,878 4,712 4,497 --
Extraordinary loss on debt repayment........... 15,219 -- -- --
Loss on sale of radio station and other noncash
items........................................ 1,900 -- -- --
Deferred income taxes.......................... (710) -- 22,195 (21,919)
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable.......................... (13,839) (22,189) (5,729) 16,850
Prepaid and other assets..................... (1,704) 2,599 4,238 2,478
Accounts payable, accrued expenses and other
liabilities................................ 10,487 6,620 (24,279) (22,276)
Income taxes payable......................... -- -- -- (60,578)
--------- --------- --------- ---------
Cash provided by (used in) continuing
operations..................................... (13,447) 4,042 (22,704) (20,944)
Cash from operating activities of SFX
Entertainment.................................. -- 1,005 10,988 --
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (13,447) 5,047 (11,716) (20,944)
--------- --------- --------- ---------
Investing activities:
Purchase of stations and related businesses,
net of cash
acquired..................................... (493,433) (408,788) -- (239,022)
Proceeds from sales of stations and other
assets....................................... 56,943 1,836 4,692 109,091
Deposits and other payments for pending
acquisitions................................. (30,799) (3,594) -- --
Purchase of property and equipment............. (3,224) (12,409) (5,179) (11,911)
Loans and advances to related parties.......... -- (2,800) -- --
Income tax liability indemnity payments........ -- -- -- 92,968
Other investing activities..................... -- -- (215) 184
--------- --------- --------- ---------
Net cash used in investing activities............ (470,513) (425,755) (702) (48,690)
Cash used in investing activities of SFX
Entertainment................................ -- (73,296) (397,640) --
--------- --------- --------- ---------
Net cash used in investing activities............ (470,513) (499,051) (398,342) (48,690)
--------- --------- --------- ---------
Financing activities:
Payments on long-term debt and credit
facilities................................... (110,396) (73,863) (141) (677,583)
Additions to debt issuance costs............... (19,505) (3,006) -- --
Proceeds from issuance of long-term debt and
credit
facilities................................... 501,500 356,500 -- 572,955
Proceeds from sales of preferred stock......... 143,445 215,258 -- --
Redemption of preferred stock.................. -- -- -- (135,207)
Purchase of treasury stock..................... (6,393) (130) -- --
Proceeds from issuance of common stock......... -- 24,619 17,177 314,510
Preferred stock dividends...................... (4,983) (23,487) (2,459) (9,507)
Other.......................................... (1,000) (1,000) -- --
--------- --------- --------- ---------
Net cash provided by financing activities........ 502,668 494,891 14,577 65,168
Cash provided by (used in) financing activities
of
SFX Entertainment.............................. -- (823) 467,874 --
--------- --------- --------- ---------
Net cash provided by financing activities........ 502,668 494,068 482,451 65,168
--------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents.................................... 18,708 64 72,393 (4,466)
Cash and cash equivalents at beginning of
period......................................... 11,893 30,601 24,686 15,857
Net (increase) decrease in cash of SFX
Entertainment.................................. -- (5,979) (81,222) --
--------- --------- --------- ---------
Cash and cash equivalents at end of period....... $ 30,601 $ 24,686 $ 15,857 $ 11,391
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-207
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- ORGANIZATION AND BUSINESS
Capstar Communications, Inc. and Subsidiaries ("CCI" or "the Company")
(formerly known as SFX Broadcasting, Inc. and Subsidiaries "SFX") is an indirect
wholly-owned subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio") which is indirectly wholly-owned by Capstar Broadcasting Corporation
("Capstar Broadcasting"). At December 31, 1998, the Company owned and operated
114 and programmed 3 radio stations throughout the United States. In addition,
the Company owned eleven radio stations which were operated by third parties,
ten of which were operated by Chancellor Media Corporation ("Chancellor Media").
On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX Broadcasting, Inc., which has been renamed CCI. The
acquisition was effected through the merger (the "SFX Merger") of SBI Radio
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
SFX Parent, with and into SFX, with SFX as the surviving corporation. The
acquisition of SFX by SFX Parent resulted in a change of control of SFX. As a
result of the SFX Merger, SFX became an indirect wholly-owned subsidiary of
Capstar Radio. The total consideration paid in the SFX Merger for all of the
outstanding common equity interest was approximately $1,300,000, including
direct costs of the acquisition.
In connection with the SFX Merger and other related transactions, the
Company (i) acquired and disposed of certain assets and stock as described in
Note 4 and (ii) borrowed approximately $441,400 in cash from Capstar Radio under
a revolving credit note with Capstar Radio ("the Capstar Radio Note"). In
connection with certain asset divestiture transactions occurring immediately
after the SFX Merger, CCI incurred an income tax liability to Capstar
Broadcasting of approximately $25,000. The Capstar Radio Note is a $1,400,000
revolving credit agreement with interest payable quarterly at an annual floating
rate equal to the per annum interest rate available to Capstar Radio under its
credit facility for revolving loans that are Eurodollar loans with a three month
interest period applicable thereto.
On April 27, 1998, SFX distributed the net assets (the "Spin Off") of its
live entertainment business ("SFX Entertainment") pro-rata to its stockholders
and the holders of certain warrants, options and stock appreciation rights.
The Company estimates that in connection with (i) the Spin-Off and (ii)
certain other intercompany transactions engaged in by SFX Entertainment prior to
the Spin-Off, SFX incurred a federal income tax liability of approximately
$88,000. SFX Entertainment has agreed to fully indemnify CCI from and against
such tax liability (Note 10), including any tax liability of CCI arising from
such indemnification payments, which full indemnity payments are presently
estimated to be approximately $93,000. On June 30, September 30, and December
31, 1998, respectively, CCI received approximately $52,500, $26,300 and $14,200
in cash from SFX Entertainment in payment of SFX Entertainment's estimated
indemnity obligation.
The operations of SFX Entertainment have been presented in the financial
statements as discontinued operations pursuant to the Spin-Off. During the five
month period ended May 31, 1998, revenue and loss from operations for SFX
Entertainment were $122,700 and $5,307, respectively. Included in operating
expenses is $2,420 of allocated corporate expenses. Additionally, interest
expense relating to the debt that was distributed to the stockholders pursuant
to the Spin-Off of $7,300 has been allocated to SFX Entertainment. Included in
the loss from operations to be distributed to shareholders for the five months
ended May 31, 1998 is income tax expense of $75,700, which includes $93,000 of
current income tax expense offset by a tax benefit resulting from reduction of
the Company's deferred tax asset valuation allowance. During the year ended
December 31, 1997, revenue and income from operations for SFX Entertainment were
$96,100 and $5,100, respectively. Included in operating expenses is $2,200 of
allocated corporate expenses. Additionally, interest expense
F-208
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
relating to the debt to be distributed to the shareholders pursuant to the
Spin-Off of $1,600 has been allocated to SFX Entertainment. The Company provided
various administrative services to SFX Entertainment. It is the Company's policy
to allocate these expenses on the basis of direct usage. In the opinion of
management, this method of allocation is reasonable and allocated expenses
approximate what SFX Entertainment would have incurred on a stand-alone basis.
The Company accounted for the SFX Merger under the purchase method of
accounting, following the accounting treatment in accordance with push-down
accounting, whereby the Company recorded the purchase price allocation in its
financial statements. For financial reporting purposes, the Company accounted
for the transaction effective June 1, 1998. As of June 1, 1998, the Company made
a preliminary allocation of the purchase price to the net assets required. The
purchase price was allocated to assets and liabilities based on their respective
fair values at June 1, 1998, as adjusted, as listed in the table below which
represents the components of the opening balance sheet.
Cash........................................................ $ 15,857
Accounts receivable......................................... 73,701
Other current assets........................................ 2,693
Receivable from SFX Entertainment........................... 92,968
Receivable from Capstar Radio............................... 8,293
Land........................................................ 7,248
Buildings and improvements.................................. 14,337
Broadcasting equipment and other............................ 68,252
FCC licenses................................................ 3,193,074
Goodwill.................................................... 1,670
Other assets................................................ 222
Accounts payable............................................ (11,850)
Accrued expenses............................................ (13,342)
Payable to former national sales representative............. (7,014)
Accrued interest............................................ (6,782)
Income taxes payable........................................ (95,718)
Long-term debt.............................................. (812,436)
Capital lease obligations................................... (619)
Deferred income taxes....................................... (959,000)
Redeemable preferred stock.................................. (283,605)
----------
Shareholder's net equity.................................... $1,287,949
==========
NOTE 2 -- CHANCELLOR MERGER AGREEMENT
On August 26, 1998, Capstar Broadcasting and Chancellor Media, an affiliate
of the Company, entered into an agreement to merge (the "Chancellor Merger") in
a stock-for-stock transaction that will create the nation's largest radio
broadcasting entity. Under the merger agreement:
- Chancellor Media will acquire Capstar Broadcasting in a reverse merger in
which Capstar Broadcasting will be renamed Chancellor Media Corporation;
- each share of Class A Common Stock and Class C Common Stock will
represent 0.4955 shares of voting common stock in the combined entity;
F-209
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- each share of Class B Common Stock will represent 0.4955 shares of
nonvoting common stock of the combined entity;
- each share of Chancellor Media common stock will represent one share of
the combined entity; and
- each share of Chancellor Media preferred stock will represent one share
of preferred stock of the combined entity.
The completion of the merger depends upon the satisfaction of a number of
conditions. There can be no assurance that all of the conditions to the merger
will be satisfied. Either company may waive compliance with the conditions at
its discretion if permitted by law.
On September 9, 1998, Capstar Broadcasting was notified of an action filed
on behalf of all owners of securities of Chancellor Media against Chancellor
Media, Hicks Muse and the individual directors of Hicks Muse in the Court of
Chancery of the State of Delaware in and for New Castle County, Delaware. While
the complaint does not name Capstar Broadcasting as a defendant, the complaint
alleges that Chancellor Media and its directors breached their duties to the
alleged class by entering into an "overly generous offer for Capstar assets."
The action is relevant to Capstar Broadcasting because inter alia, the plaintiff
seeks an injunction prohibiting the proposed Chancellor Merger with Capstar
Broadcasting. As Capstar Broadcasting is not a defendant in this action, Capstar
Broadcasting has no obligation to appear or participate.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its direct and indirect subsidiaries. All significant inter-company accounts
and transactions have been eliminated in consolidation. The Company accounts for
investments in which it has a 50% or less and 20% or greater ownership interest
under the equity method.
Cash and Cash Equivalents.
All highly liquid investments with a maturity at date of purchase of less
than three months are classified as cash equivalents. The carrying amounts of
cash and cash equivalents reported in the balance sheet approximate their fair
values.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets. 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 the lease term or
estimated useful lives of the assets.
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 and deferred financing costs. Pending acquisition costs are deferred
and capitalized as
F-210
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
part of completed acquisitions or expensed in the period in which the pending
acquisition is terminated. Deferred financing costs are amortized under the
interest method over the life of the related debt.
The Company periodically evaluates intangible and other long-lived assets
for potential impairment in accordance with the provisions of Accounting
Principles Board ("APB") Opinion 17, "Intangible Assets," and Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," by analyzing
the operating results, future cash flows on an undiscounted basis, trends and
prospects of the Company's stations, as well as by comparing them to their
competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment. At this time, in the opinion of management,
no impairment has occurred.
Exchange of Radio Stations
The Company records the exchange of radio stations in accordance with APB
Opinion No. 16, "Business Combinations". The net book value of the station given
up is removed from the accounts and the station received is recorded at fair
value, with any resulting gain or loss included in results of operations.
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.
Revenue Recognition
Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.
Barter Transactions
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 or used. Barter revenue is recorded when commercials are
broadcast and related expenses are recorded when the product or service is
received or used. For the years ended December 31, 1996 and 1997 and the five
month period ended May 31, 1998 and the seven month period ended December 31,
1998, the Company recorded barter revenue of $8,029, $11,995, $5,469 and $7,980,
respectively, and expenses of $7,476, $11,281, $5,337 and $7,535, respectively.
Uncertainties and Use of Estimates and Assumptions
The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission ("FCC"). 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.
F-211
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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 FCC 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.
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 which 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 stations. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). 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.
Advertising Costs
Advertising and promotional costs are expensed as incurred and approximated
$5,068, $9,789, $7,141 and $12,618 for the years ended December 31 1996 and
1997, the five months ended May 31, 1998 and the seven months ended December 31,
1998, respectively.
Intercompany Matters
The Company is charged by its Parent for corporate services through a
monthly corporate overhead allocation charge. Such charge is based on factors of
direct usage and in the opinion of management, is reasonable and approximates
what the Company would have incurred on a stand-alone basis.
Subsequent to the SFX Merger, the Company's operating results are included
in the consolidated federal income tax return of its parent. Tax provisions in
the accompanying consolidated financial statements have been prepared on a
stand-alone basis with any net current tax liability due to taxing authorities
resulting from inclusion of the Company's activities in its parent's
consolidated tax return being reflected as due to its parent under the Capstar
Radio Note.
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 the management's expectations and adequate allowances
for any uncollectable accounts receivables are maintained.
F-212
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Segment Information
In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 superseded SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 does not affect results of operations or financial position. The
Company operates within a single radio broadcasting segment within the
continental United States.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management does not believe the implementation of
this accounting pronouncement will have a material effect on its consolidated
financial statements.
Reclassification
Certain amounts in 1996 and 1997 have been reclassified to conform to the
1998 presentation.
NOTE 4 -- ACQUISITIONS AND DISPOSITIONS
1998 Radio Broadcasting Acquisitions and Dispositions
On February 20, 1998, Capstar Broadcasting and Chancellor Media entered
into an exchange agreement pursuant to which Chancellor Media would acquire
stations KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, Texas, KODA-FM, KKRW-FM and
KQUE-AM in Houston, Texas, KPLN-FM and KYXY-FM in San Diego, California, and
WVTY-FM, WJJJ-FM, WXDX-FM and WDVE-FM in Pittsburgh, Pennsylvania (collectively,
the "Chancellor Exchange Stations") for an aggregate purchase price of
approximately $637.5 million in a series of purchases and exchanges over a
three-year period. The Chancellor Exchange Stations were acquired by Capstar
Broadcasting in connection with the acquisition of SFX Broadcasting, Inc. in May
1998. On May 29, 1998, as part of the SFX acquisition, Chancellor Media
exchanged stations WAPE-FM and WFYV-FM in Jacksonville, Florida in exchange for
station KODA-FM in Houston, Texas and cash placed with a qualified intermediary
(discussed below). In the case of the remaining Chancellor Exchange Stations,
Capstar Broadcasting will identify mid-sized radio stations for exchange with
Chancellor Media. The purchase price for the remaining ten Chancellor Exchange
Stations will be approximately $494.3 million. Capstar Broadcasting and
Chancellor Media are currently assessing whether the terms of the exchange
agreement will be modified upon consummation of the merger with Chancellor
Media. During the pendency of the Chancellor Merger, the Company does not
anticipate effecting any exchanges with Chancellor Media.
Chancellor Media is providing services to the Chancellor Exchange Stations
(other than KODA-FM) pursuant to separate LMAs until such stations are
exchanged. Chancellor Media will retain the advertising revenues it generates
while it provides services to the Chancellor Exchange Stations under such LMAs.
During 1998, the Company received approximately $28.8 million in LMA fees from
Chancellor Media. The LMA fees will decrease as each Chancellor Exchange Station
is exchanged.
F-213
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In January 1998, the Company sold one radio station operating in Richmond,
Virginia for $4.3 million.
On May 21, 1998, SFX completed the acquisition of three radio stations (two
FM and one AM) in the Nashville, Tennessee market from Sinclair Broadcasting
Group for an aggregate purchase price of approximately $35,000 in cash. Cash for
the purchase was provided by Capstar Radio.
On May 29, 1998, the Company exchanged station KODA-FM in Houston, Texas
for Chancellor Media radio stations WAPE-FM and WFYV-FM in Jacksonville, Florida
and approximately $90,250 in cash (the "KODA Exchange"). In an exchange under
Section 1031 of the Code, indirect, wholly-owned subsidiaries of CCI, through a
qualified intermediary, used the $90,250 in cash received from Chancellor Media
to acquire radio stations KASE-FM, KVET-AM and KVET-FM in Austin, Texas. The
deemed value of the KODA Exchange was $143,250.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of one FM radio station
in the Daytona Beach, Florida market for consideration of approximately $11,500
in cash to Clear Channel Metroplex, Inc. and Clear Channel Metroplex Licensee,
Inc.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of four radio stations
(three FM and one AM) in the Long Island, New York market for an aggregate sale
price of $46,000 in cash to Cox Radio, Inc.
On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of one FM radio station
in the Houston, Texas market for $54,000 in cash to HBC Houston, Inc. and HBC
Houston License Corporation. Pursuant to an agreement with Chancellor Media, the
Company paid 50% of the sale proceeds in excess of $50,000, approximately $1,700
to Chancellor Media.
On May 29, 1998, Capstar Radio sold all of the outstanding capital stock of
Patterson Broadcasting, Inc. (the "Patterson Broadcasting Acquisition") (which
then owned and operated or programmed 22 FM and 12 AM stations) to the Company.
In addition, Pacific Star Communications, Inc., a wholly-owned subsidiary of
Capstar Radio, sold radio stations KJSN-FM, KFIV-FM, KJAX-AM and KFRY-FM in the
Modesto/ Stockton, California market to the Company. Total consideration for the
foregoing purchases was approximately $223,000 in cash and approximately $11,500
due under the Capstar Radio Note. The Company funded the acquisition of
Patterson Broadcasting, Inc., and certain stations of Pacific Star
Communications, Inc. with proceeds from a loan by Bankers Trust Company, which
loan was refinanced with borrowings under the Capstar Radio Note.
For financial reporting purposes, the transaction in the preceding
paragraph has been treated as a transaction between entities under common
control. Accordingly, the assets and liabilities so acquired have been recorded
by the Company at historical cost in a manner similar to that in
pooling-of-interests accounting. The operating results of these businesses have
been included in the Company's financial statements from the date of the
Patterson Broadcasting Acquisition, the earliest date for which common control
of both entities existed.
On August 10, 1998, the Company exchanged one AM station in Pittsburgh,
Pennsylvania for another AM station in Cleveland, Ohio. On September 30, 1998,
the Company exchanged one FM station in Jackson, Mississippi for another FM
station in Jackson, Mississippi. The $5.0 million and $11.75 million,
respectively, carrying value of the station's net assets exchanged approximate
the fair value of the net assets received.
On October 5, 1998, the Company's parent contributed one FM station in
Albany, New York with a fair value and historical book value of $2.7 million to
the Company.
F-214
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 Radio Broadcasting Acquisitions and Dispositions
In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two radio stations in Milwaukee, Wisconsin for
$35.0 million.
In August 1997, the Company exchanged one radio station in Pittsburgh,
Pennsylvania and $20.0 million in cash for one radio station in Charlotte, North
Carolina. The Company operated the radio station in Charlotte, North Carolina
pursuant to a local market agreement during July 1997.
In July 1997, the Company acquired substantially all of the assets of four
radio stations operating in Richmond, Virginia for approximately $46.5 million
in cash, including payments made to buy out minority equity interests which the
Company had originally agreed to provide to certain of the sellers.
In April 1997, the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications for a total purchase price of $255.0
million in cash.
Also in April 1997, the Company sold one radio station operating in Little
Rock, Arkansas to Triathlon Broadcasting Company, a related party. The station
was sold for $4.1 million, of which $3.5 million had been held as a deposit by
the Company since 1996. No gain or loss was recorded on the transaction as the
radio station was acquired in connection with the MMR Merger, as defined below.
In March 1997, the Company acquired two radio stations operating in
Houston, Texas, for a purchase price of approximately $43.0 million in cash,
exclusive of certain additional contingent liabilities which may become payable.
The acquisition increased the number of stations the Company owns in the Houston
market to four.
In March 1997, the Company exchanged one radio station operating in
Washington D.C./Baltimore, Maryland, for two radio stations operating in Dallas,
Texas (the "CBS Exchange") and completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable in
installments over a five year period (present value approximately $4.3 million).
The CBS Exchange was structured as a substantially tax free exchange of
like-kind assets. The contract for the sale of the Myrtle Beach stations was in
place prior to the merger with Multi-Market Radio, Inc. ("MMR"). No gain or loss
was recognized on the Myrtle Beach stations that were recently acquired in the
MMR Merger, as defined below.
Costs of $871 related to the reformatting of the Dallas stations was
included in depreciation, amortization, duopoly integration costs and
acquisition related costs in 1997.
In February 1997, the Company purchased WWYZ-FM, operating in Hartford,
Connecticut, for a purchase price of $25.9 million in cash. The acquisition
increased the number of stations the Company owns in the Hartford market to
five.
In January 1997, the Company purchased one radio station operating in
Albany, New York, for $1.0 million in cash.
1996 Radio Broadcasting Acquisitions and Dispositions
In December 1996, the Company acquired substantially all of the assets of
WHSL-FM, operating in Greensboro, North Carolina, for a purchase price of $6.0
million in cash and exchanged radio station KRLD-AM, Dallas, Texas and the Texas
State Networks for radio station KKRW-FM, Houston, Texas. The exchange was
structured as a substantially tax free exchange of like kind assets. No gain or
loss was recorded
F-215
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
on the exchange as the book values of KRLD-AM and the Texas State Networks
approximated the fair value of the assets of KKRW-FM.
In November 1996, the Company consummated its merger with MMR (the "MMR
Merger"), pursuant to which it acquired MMR in exchange for 105 shares of Class
A Common Stock, 13 shares of Class B Common Stock both valued at $526,381 per
share and other equity securities with a total market value for all securities
issued of approximately $71.5 million in cash. Concurrently with the
consummation of the MMR Merger, the Company paid approximately $43.0 million in
cash to satisfy outstanding indebtedness of MMR. MMR was organized in 1992 by
the Company's executive chairman and another officer and director of the
Company. The Company's executive chairman owned a substantial equity interest in
MMR which was exchanged for Class B Common Stock of the Company upon the
consummation of the MMR Merger. MMR owned and operated, provided programming to
or sold advertising on behalf of thirteen FM stations and one AM station located
in eight markets: New Haven, Connecticut; Hartford, Connecticut; Springfield/
Northampton, Massachusetts; Daytona Beach, Florida; Augusta, Georgia; Biloxi,
Mississippi; Myrtle Beach, South Carolina and Little Rock, Arkansas. Prior to
the MMR Merger, MMR had entered into agreements to sell two stations operating
in Myrtle Beach, South Carolina and one station operating in Little Rock,
Arkansas (the "MMR Dispositions"). The Company also terminated a JSA with one
station operating in Augusta, Georgia and its LMA with one station operating in
Myrtle Beach, South Carolina in December 1996.
In October 1996, the Company sold radio station KTCK-AM, Dallas, Texas for
approximately $13.4 million in cash, net of certain sale expenses. The Company
acquired the assets of KTCK-AM in Dallas, Texas in September 1995 from a third
party for $8,633 in cash (including $133 in transaction costs) and $2,000 of 6%
current coupon Series C Redeemable Preferred Stock (Note 9). The purchase
agreement contains a provision for a contingent payment not to exceed $7,500
payable in 1998 if the Company's Dallas properties achieve certain ratings and
financial goals. In 1996, the Company recorded a loss of $1.9 million on the
disposition, based on its estimate of the ultimate resolution of the
contingency. During 1997, the company paid $3,000 to the Seller in connection
with this provision. During 1998, the Company paid $3,100 in final settlement of
this provision.
In July 1996, the Company acquired Liberty Broadcasting, Inc. for a
purchase price of approximately $239.7 million in cash, including $10.4 million
for working capital. Liberty Broadcasting Inc. was a privately-held radio
broadcasting company which owned and operated, provided programming to or sold
advertising on behalf of fourteen FM and six AM radio stations located in six
markets: Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York;
Providence, Rhode Island; Hartford, Connecticut; Albany, New York and Richmond,
Virginia.
In July 1996, the Company sold three stations operating in the Washington,
DC/Baltimore, Maryland market for $25.0 million. No gain or loss was recognized
on the dispositions.
In July 1996, the Company acquired from Prism Radio Partners, L.P.
("Prism"), substantially all of the assets used in the operation of eight FM and
five AM radio stations located in four markets: Jacksonville, Florida; Raleigh,
North Carolina; Tucson, Arizona and Wichita, Kansas. In September 1996, the
Company also acquired from Prism substantially all of the assets of three radio
stations operating in Louisville, Kentucky (the "Louisville Stations"), upon
renewal of the FCC licenses of such stations (collectively the "Prism
Acquisition"). The total purchase price for the Prism Acquisition was
approximately $105.3 million in cash. In October 1996, the Company sold the
Louisville Stations for $18.5 million in cash. The Company recognized no gain or
loss on the disposition.
In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi for a purchase price of approximately $3.2
million. In addition, in August 1996, the Company acquired
F-216
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
substantially all of the assets of WSTZ-FM and WZRX-AM, each operating in
Jackson, Mississippi, for approximately $3.5 million in cash.
In June 1996, the Company acquired substantially all of the assets of
WROQ-FM, Greenville, South Carolina, for approximately $14.0 million in cash and
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina, and WMFR-AM,
WMAG-FM and WTCK-AM (formerly WWWB-AM), each operating in Greensboro, North
Carolina for approximately $36.8 million in cash.
In February 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina, for an
aggregate purchase price of $24.3 million in cash. Costs of $785 related to the
integration and reformatting of the Charlotte stations were included in
depreciation, amortization, duopoly integration costs and acquisition related
costs in 1996.
For financial statement purposes, all of the acquisitions described above,
with the exception of the Patterson Broadcasting Acquisition, were accounted for
using the purchase method of accounting, with the purchase price allocated to
the assets acquired (principally intangible assets) and the liabilities assumed
based on their estimated fair values at the dates of acquisition. Certain of the
recent transactions are based on preliminary estimates of the fair value of the
net assets acquired and are subject to final adjustment. The excess purchase
price over the estimated fair value of the net assets acquired has been recorded
as FCC licenses and goodwill. The assets and liabilities of these acquisitions
and the results of their operations and cash flows for the period from the date
of acquisition are included in the accompanying consolidated financial
statements. The following unaudited pro forma summary presents the consolidated
results of operations for the years ended December 31, 1997 and 1998 as if the
foregoing transactions for any given year and the subsequent year had occurred
at the beginning of such year after giving effect to certain adjustments,
including amortization of FCC licenses and goodwill and interest expense on the
acquisition debt. 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 acquisition been made as of that date or of results which may occur in
the future.
1997 1998
-------- ---------
Net revenue (unaudited)................................ $340,818 $ 371,573
Loss from continuing operations (unaudited)............ $(22,491) $ (67,248)
Net loss (unaudited)................................... $(18,677) $(153,630)
Concert Promotion Acquisitions. During 1997 and 1998, the Company also
acquired the following concert promotion companies, which were contributed to
SFX Entertainment at the Spin-Off date.
In January 1997, the Company purchased Delsener/Slater for an aggregate
consideration of approximately $26.6 million, including $2.9 million for working
capital and the present value of deferred payments of $3.0 million to be paid,
without interest, over five years and $1.0 million to be paid, without interest,
over ten years. The deferred payments are subject to acceleration in certain
circumstances.
In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows for $900 in cash, 16
shares of SFX Class A Common Stock with a value of approximately $7.5 million
and the assumption of approximately $15.4 million of debt.
Also in March 1997, the Company, in partnership with Pavilion Partners,
entered into a twenty-two year lease to operate the PNC Bank Arts Center, a
10,800 seat complex located in Holmdel, New Jersey. The lease also granted
Pavilion Partners the right to expand the capacity to 17,500 prior to the 1998
season.
In June 1997, the Company acquired Sunshine Promotions for $53.9 million in
cash at closing, $2.0 million in cash payable over 5 years, 4 shares of Class A
Common Stock issued and issuable over a two
F-217
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
year period with a value of approximately $4.0 million and the assumption of
approximately $1.6 million of debt. The assets to be acquired include Deer Creek
Music Center, a 21,000 seat complex located in Indianapolis, Indiana, the
Polaris Amphitheater, a 20,000 seat complex located in Columbus, Ohio and a 99
year lease to operate Murat Centre, a 2,700 seat theater and 2,200 seat
ballroom, located in Indianapolis, Indiana.
In February and March 1998, SFX Entertainment acquired the following live
entertainment businesses.
PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having what
SFX Entertainment believes to be the largest distribution network in the United
Sates in each of its music, theater and specialized motor sports businesses (the
"PACE Acquisition"), for total consideration of approximately $156,056. In
connection with the PACE Acquisition, SFX Entertainment acquired 100% of
Pavilion Partners, a partnership that owns interest in 10 venues ("Pavilion"),
through the PACE Acquisition and directly from PACE's various partners for
$90,627, The Company has guaranteed the performance of SFX Entertainment's
obligation to PACE until PACE is issued the SFX Entertainment stock it is
entitled to under the acquisition agreement.
The Contemporary Group, a fully-integrated live entertainment and special
event promoter and producer, venue owner and operator and consumer marketer, for
total consideration of approximately $101,402.
The Network Magazine Group, a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment, an independent creator, producer
and distributor of music-related radio programming, services and research which
it exchanges with radio broadcasters for commercial air-time sold, in turn, to
national network advertisers, for total consideration of approximately $66,784.
BG Presents, one of the oldest promoters of, and owner-operators of venues
for, live entertainment in the United States, and a leading promoter in the San
Francisco Bay area, for total consideration of approximately $80,327.
Concert/Southern Promotions, a promoter of live music events in the
Atlanta, Georgia metropolitan, for total consideration of approximately $16,600.
Westbury Music Fair, a theater located in Westbury, New York for aggregate
consideration of $3.0 million in cash and an agreement to issue 75,019 shares of
Class A Common Stock of SFX Entertainment.
In order to facilitate certain concert promotion acquisitions, the Company
and/or SFX Entertainment undertook the following financing activities.
On February 11, 1998, SFX Entertainment completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes (the "Notes") due 2008.
Interest is payable on the Notes on February 1 and August 1 of each year.
On February 26, 1998, SFX Entertainment executed a Credit and Guarantee
Agreement (the "Credit Agreement") which established a $300.0 million senior
secured credit facility comprised of (i) a $150.0 million eight-year term loan
(the "Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Borrowings under the Credit Agreement are collateralized by
substantially all of the assets of SFX Entertainment, including a pledge of the
outstanding stock of substantially all of its subsidiaries and guaranteed by all
of SFX Entertainment's subsidiaries. On February 27, 1998, SFX Entertainment
borrowed $150.0 million under the Term Loan. Together with the proceeds from the
Notes, the proceeds from the Term Loan were used to finance the 1998
acquisitions discussed above.
F-218
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
For financial statement purposes, all of the acquisitions described above
were accounted for using the purchase method of accounting, with the purchase
price allocated to the assets acquired (principally intangible assets) and the
liabilities assumed based on their estimated fair values at the dates of
acquisition. Certain of the recent transactions are based on preliminary
estimates of the fair value of the net assets acquired and are subject to final
adjustment. The excess purchase price over the estimated fair value of the net
assets acquired has been recorded as goodwill. The assets and liabilities of
these acquisitions and the results of their operations and cash flows for the
period from the date of acquisition are included in the accompanying
consolidated financial statements.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DEPRECIABLE PREDECESSOR COMPANY
DEPRECIATION LIFE ----------- --------
METHOD (YEARS) 1997 1998
------------- ----------- ----------- --------
Buildings and improvements............. Straight-line 5-20 $ 18,295 $ 22,460
Broadcasting and other equipment....... Straight-line 3-20 67,821 92,398
-------- --------
86,116 114,858
Accumulated depreciation and
amortization......................... (17,456) (5,637)
-------- --------
68,660 109,221
Land................................... 6,169 8,942
-------- --------
$ 74,829 $118,163
======== ========
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 -- LONG-TERM DEBT
Long-Term Debt consists of the following:
PREDECESSOR COMPANY
----------- ---------
1997 1998
----------- ---------
Capstar Radio Note.................................... $ -- $ 372,703
10 3/4% Senior subordinated notes..................... 450,000 323,473
11 3/8% Senior subordinated notes..................... 566 566
Senior credit facility................................ 313,000 --
Capital lease obligations and other notes payable at
various interest rates.............................. 1,136 1,847
-------- ---------
764,702 698,589
Less: current portion................................. (610) (372,903)
-------- ---------
$764,092 $ 325,686
======== =========
The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1999 -- $372,903; 2000 -- $1,169; 2001 -- $378;
2002 -- $353; 2003 -- $313; thereafter -- $323,473.
The Capstar Radio Note is a $1,400,000 revolving credit agreement with
Capstar Radio, due on demand, with interest payable quarterly at an annual
floating rate equal to the per annum interest rate available to Capstar Radio
under its credit facility for revolving loans that are Eurodollar loans with a
three month interest period applicable thereto (7.7% at December 31, 1998).
Incidental to the SFX Merger, the Company repaid its senior credit
facility. No amounts are available under this facility.
On July 3, 1998, pursuant to the terms of the indenture governing the
Company's 10 3/4% Senior Subordinated Notes due 2006, the Company redeemed
$154,000 aggregate principal amount of the 10 3/4% senior subordinated notes for
an aggregate purchase price of $172,800 including a $16,600 redemption premium
and $2,200 of accrued interest. (The carrying value of the 10 3/4% senior
subordinated notes approximated their fair value at the date of redemption).
The SFX Merger resulted in a change of control under the indentures
governing the 10 3/4% senior subordinated notes and the Company's 11 3/8% Senior
Subordinated Notes due 2000 (in which case the Company is required to offer to
repurchase all outstanding notes at a specified price). Pursuant to change of
control offers to acquire all of the outstanding 10 3/4% senior subordinated
notes and 11 3/8% senior subordinated notes, each of which commenced on June 8,
1998, the Company purchased on July 10, 1998 $1,866 aggregate principal amount
of the 10 3/4% senior subordinated notes for an aggregate purchase price of
$1,915, including an $18 purchase premium and $31 of accrued interest (The
carrying value of the 10 3/4% senior subordinated notes approximated their fair
value at the date of redemption). No 11 3/8% senior subordinated notes were
tendered for repurchase.
To fund these purchases, Capstar Radio contributed $314,510 in cash to the
Company in exchange for stock of the Company.
To facilitate the Spin-Off, SFX Entertainment's 1998 acquisitions and its
financing thereof, the Company sought and obtained consents from the holders of
the 10 3/4% senior subordinated notes, holders of the 11 3/8% senior
subordinated notes and the holders of the Company's 12 5/8% Series E Cumulative
Exchangeable Preferred Stock. In connection with these consents, the Company
modified certain covenants. Fees and
F-220
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
expenses of approximately $18,000 were incurred by the Company in connection
with the consent solicitations and were reimbursed by SFX Entertainment. Such
charges are included in non-recurring and unusual charges.
In May 1996, the Company completed the placement of $450.0 million in
aggregate principal amount of its 10 3/4% senior subordinated notes (the "Note
Offering"). Interest is payable semi-annually on May 15 and November 15. The
notes are uncollateralized obligations of the Company and are subordinate to all
senior debt of the Company. The Company incurred issuance costs totaling $15.3
million related to the Note Offering which were recorded as deferred financing
costs. The effective interest rate on the notes is approximately 9.1% after
giving effect to revaluation at June 1, 1998.
Concurrently with the closings of the Note Offering, the Company completed
a tender offer (the "Tender Offer") and related consent solicitation with
respect to its 11 3/8% senior subordinated notes. SFX repurchased approximately
$79.4 million in principal amount of the $80.0 million in principal amount of
the 11 3/8% senior subordinated notes outstanding in the Tender Offer. The
Company also entered into a supplemental indenture amending the terms of the
indenture pursuant to which the remaining 113/8% senior subordinated notes were
issued.
In March 1995, the Company entered into a $50.0 million senior credit
facility (the "Old Credit Facility"). On May 31, 1996 all amounts outstanding
under the Old Credit Facility were repaid.
In connection with the repurchase of the 11 3/8% senior subordinated notes
and the repayment of the Old Credit Facility, the Company recorded an
extraordinary loss on debt retirement of approximately $15.2 million to reflect
the cost of prepayment premiums and the write-off of debt issuance costs.
The 10 3/4% CCI Notes indenture contains restrictive provisions that, among
other things, limit the ability of CCI 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.
Substantially, all of the assets of CCI are restricted.
The Company's 10 3/4% senior subordinated notes and 11 3/8% senior
subordinated notes are guaranteed by every direct and indirect subsidiary of the
Company. There are no non-guarantor subsidiaries. The guarantees by the
guarantor subsidiaries are full, unconditional, and joint and several. All of
the guarantor subsidiaries are wholly-owned. The Company is a holding company
with no assets, liabilities or operations other than its investment in its
subsidiaries. Separate financial statements of each guarantor have not been
included as management has determined that they are not material to investors.
NOTE 8 -- SHAREHOLDER'S EQUITY
Common Stock
In connection with the SFX Merger, the Company amended its charter to
provide for 10,210,000 shares of authorized stock consisting of 200,000 shares
of Class A Common Stock and 10,010,000 shares of preferred stock, par value
$0.01. Upon the filing of the new amendment all existing outstanding common
shares were immediately converted to .000064592 new Class A common shares. All
share information included in the accompanying consolidated financial statements
and notes thereto (with the exception of authorized shares) has been
retroactively adjusted to reflect the reverse split.
In May 1996, 2 shares of Class A Common Stock and 9 shares of Class B
Common Stock were repurchased from the Company's former President. In July 1997,
the Company repurchased .2 shares of Class A Common for $111. In addition, in
September 1997, the Company repurchased .03 shares of Class A Common Stock for
$19.
F-221
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock Options
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to employees" and related interpretations in accounting for its employee
stock options, as opposed to the fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation."
Under stock option plans adopted annually since 1993, stock options to
acquire Class A Common were granted to certain officers, key employees and other
key individuals who performed services for the Company. Options granted under
these plans were generally granted at option prices equal to the fair market
value of the Class A Common Stock on the date of grant. As such, under APB
Opinion No. 25, no expense was recorded in the statement of operations. Terms of
the options, determined by the Company, provided that the maximum term of each
options shall not exceed ten years and the options become fully exercisable
within five years of continued employment with the exception of certain options
granted to executives which were fully vested upon issuance.
Capstar Radio purchased and settled all outstanding options and warrants of
SFX resulting in SFX recording approximately $74,000 in expense and a
corresponding credit to paid-in capital.
The table below does not include the options issued in the MMR acquisition.
1996 1997 1998
----------------- ----------------- -----------------
Options outstanding at beginning of
year.............................. 48.31 58.78 39.01
Option price........................ $201,263-$328,988 $201,263-$522,511 $201,263-$445,102
Options granted..................... 22.54 27.13 --
Options price....................... $421,879-$522,511 $433,490 --
Options exercised................... -- 46.90 9.91
Option price........................ -- $201,263-$522,511 $201,263-$445,102
Options repurchased or settled...... 12.08 -- 29.10
Option price........................ $201,263-$328,988 -- $201,263-$445,102
Options expired or canceled......... -- -- --
Options outstanding at end of
year.............................. 58.78 39.01 --
Option price........................ $201,263-$522,511 $201,263-$445,102 --
Options exercisable at end of
year.............................. 29.79 28.40 --
F-222
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9 -- REDEEMABLE PREFERRED STOCK
Preferred stock consists of the following:
PREDECESSOR COMPANY
----------- --------
1997 1998
----------- --------
Preferred Stock of the Company, $.01 par value, 10,010,000
shares authorized:
Series C Redeemable, 2,000 shares issued and outstanding in
1997, including accreted dividends of $197................ $ 1,730 $ --
Series D Cumulative Convertible Exchangeable Preferred
Stock, 2,990,000 shares issued and outstanding in 1997,
including accreted issuance costs of $878................. 145,149 --
Series E Cumulative Exchangeable Preferred Stock, 2,250,000
and 1,266,176 shares issued and 2,250,000 and 1,266,176
shares outstanding in 1997 and 1998, respectively, net of
issuance costs, includes accreted issuance costs of $951
in 1997................................................... 228,917 148,669
-------- --------
$375,796 $148,669
======== ========
The Series C Redeemable Preferred Stock and Series D Cumulative Convertible
Exchangeable Preferred Stock were redeemed coincidental with the SFX Merger.
The shares of Series E Cumulative Exchangeable Preferred Stock (the "Series
E Preferred Stock") receive cumulative dividends equal to the rate of 12 5/8%
per annum which are paid by the Company on January 15 and July 15 of each year.
Dividends may be paid, at the Company's option, on any dividend payment date
occurring on or before January 15, 2002, either in cash or in additional shares
of Series E Preferred Stock having a liquidation preference equal to the amount
of such dividend. Subject to certain conditions, the shares of Series E
Preferred Stock are exchangeable in whole or in part, on a pro rata basis, at
the option of the Company, on any dividend payment date, for the Company's
12 5/8% Senior Subordinated Exchangeable Debentures due 2006 ("CCI Exchange
Notes"), provided that immediately after giving effect to any partial exchange,
there shall be outstanding Series E Preferred Stock with an aggregate
liquidation preference of not less than $50,000 and not less than $50,000 in
aggregate principal amount of CCI Exchange Notes. The Company is required,
subject to certain conditions, to redeem all of the Series E Preferred Stock
outstanding on October 31, 2006.
On July 3, 1998, pursuant to the terms of the certificate of designation
that governs the Series E Preferred Stock (the "CCI Certificate of
Designation"), the Company redeemed $119,600 aggregate liquidation preference,
or 1,196,011 shares, of the Series E Preferred stock for an aggregate purchase
price of $141,700, including a $15,100 redemption premium and $7,000 of accrued
dividends. (The carrying value of the Series E Preferred Stock approximated its
fair value at the date of redemption).
The SFX Merger resulted in a change of control under the CCI Certificate of
Designation (in which case the Company is required to offer to repurchase all
outstanding shares at a specified price). Pursuant to change of control offers
to acquire all of the outstanding Series E Preferred Stock, which commenced on
June 8, 1998, the Company purchased on July 10, 1998 $500 aggregate liquidation
preference, or 5,004 shares, of the Series E Preferred Stock for an aggregate
purchase price of $536, including a $5 purchase premium and $31 of accrued
dividends.
F-223
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
To fund these purchases, Capstar Radio contributed $314,510 in cash to the
Company in exchange for stock of the Company.
The CCI Certificate of Designation contains restrictive provisions that,
among other things, limit the ability of CCI 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.
Substantially all of the CCI assets are restricted.
NOTE 10 -- INCOME TAXES
The provisions for income taxes for the years ended December 31, 1996 and
1997 and the five and seven month periods ended May 31, 1998 and December 31,
1998, respectively are summarized as follows:
Prior to the SFX Merger, the Company filed a consolidated tax return for
federal income tax purposes. Subsequent to the SFX Merger, the Company is
included in the consolidated federal income tax return of its parent. As a
result of current losses, the benefit for which realization was not reasonably
assured, no federal tax provision was recorded for the years ended December 31,
1996 and 1997. The current income tax expense recorded during 1996, 1997 and
1998 is a result of current state and local income taxes in certain states where
subsidiaries file separate tax returns and state and federal income tax expense
for the seven months ended December 31, 1998 resulting primarily from taxable
gains on asset sales.
At December 31, 1998, the Company had total net operating loss
carryforwards of approximately $21,300 that will expire from 2007 through 2013,
which all result from net operating losses of acquired subsidiaries. The
acquired net operating losses are SRLY to the acquired subsidiaries that
generated the losses. 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, 1998.
F-224
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1998 are as follows:
PREDECESSOR COMPANY
----------- -----------
1997 1998
----------- -----------
Deferred tax assets:
Accounts receivable......................................... $ 860 $ 1,776
Net operating loss carryforwards............................ 23,965 8,123
Unamortized discount on long term debt...................... -- 11,719
Management service contract................................. 2,356 --
Other reserves.............................................. 113 --
National sales representative contract settlement........... 8,740 --
Accrued bonuses and other compensation...................... 1,563 --
--------- -----------
Total deferred tax assets................................... 37,597 21,618
Valuation allowance......................................... (21,876) (2,856)
--------- -----------
Net deferred tax assets........................... 15,721 18,762
Deferred tax liabilities:
Property and equipment and intangible asset basis
differences and related depreciation and amortization..... (118,402) (1,027,147)
--------- -----------
Total deferred tax liabilities.................... (118,402) (1,027,147)
--------- -----------
Net deferred tax liabilities...................... $(102,681) $(1,008,385)
========= ===========
The 1996, 1997 and 1998 effective tax rates varied from the statutory
federal income tax rate as follows:
PREDECESSOR COMPANY
--------------------------------------- ------------------
FIVE MONTHS ENDED SEVEN MONTHS ENDED
1996 1997 MAY 31, 1998 DECEMBER 31, 1998
-------- -------- ----------------- ------------------
Income taxes at the statutory rate.... $(16,924) $ (8,488) $(40,258) $6,068
Effect of non-recurring and unusual
charges............................. 6,875 6,781 11,325 --
Valuation allowance................... 9,859 13,977 -- --
Effect of nondeductible amortization
of intangibles...................... 264 295 -- --
Options and warrants.................. -- (12,380) 10,628 --
Utilization of net operating losses
through Spin-Off.................... -- -- 18,450 --
State and local income taxes (net of
federal benefit).................... 317 535 65 913
Other................................. 89 90 -- (4)
-------- -------- -------- ------
Total....................... $ 480 $ 810 $ 210 $6,977
======== ======== ======== ======
In connection with the Spin-Off of SFX Entertainment (Note 1), the Company
entered into a tax sharing agreement with SFX Entertainment. Under the tax
sharing agreement, the parties have agreed to indemnify each other for any net
tax consequences resulting from inclusion of SFX Entertainment's tax attributes
in the consolidated federal income tax returns of the Company including any tax
liability to the Company resulting from the Spin-Off of SFX Entertainment (Note
1). The term of the tax sharing
F-225
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
agreement is indefinite and includes provisions which consider the consequences
to the parties of future adjustments to tax liabilities, if any, which may be
required by taxing authorities related to past tax filings.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
On August 29, 1997, two lawsuits were commenced against SFX and its
directors in the Court of Chancery of the State of Delaware (New Castle County).
The plaintiffs in the lawsuits are Harbor Finance Partners (C.A. No. 15891) and
Steven Lieberman (C.A. No. 15901). The complaints are identical and allege that
the consideration to be paid as a result of the SFX Merger to the holders of
SFX's Class A common stock is unfair and that the individual defendants have
breached their fiduciary duties. Both complainants seek to have the actions
certified as class actions and seek to enjoin the SFX Merger or, in the
alternative, monetary damages. The defendants have filed answers denying the
allegations, and discovery has commenced. The parties have agreed that the
lawsuits may be consolidated in one action entitled In Re SFX Broadcasting, Inc.
Shareholders Litigation (C.A. No. 15891).
On March 17, 1998, the parties entered into a Memorandum of Understanding,
pursuant to which the parties have reached an agreement providing for a
settlement of the action (the "Settlement"). Pursuant to the Settlement, SFX has
agreed not to seek an amendment to the merger agreement to reduce the
consideration to be received by the stockholders of SFX in the SFX Merger in
order to offset SFX Entertainment's indemnity obligations. The Settlement also
provides for SFX to pay plaintiff's counsel an aggregate of $950, including all
fees and expenses as approved by the court. The Settlement is conditioned on the
(a) consummation of the SFX Merger, (b) completion of the confirmatory discovery
and (c) approval of the court. Pursuant to the Settlement, the defendants have
denied, and continue to deny, that they have acted in bad faith or breached any
fiduciary duty. There can be no assurance that the court will approve the
Settlement on the terms and conditions provided for therein, or at all. The
parties currently are engaging in confirmatory discovery.
On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership ("Noddings") filed Civil Action No. 16538 in the Court of
Chancery of the State of Delaware in and for New Castle County against CCI.
Noddings alleges that CCI breached a Warrant Agreement that Noddings contends
requires CCI to permit Noddings to exercise warrants in exchange for cash and
shares of stock of SFX Entertainment, Inc. Specifically, Noddings alleges that
CCI has violated the Warrant Agreement by permitting Noddings to receive cash in
exchange for its warrants, but refusing to convey shares of stock of SFX
Entertainment. In addition to suing on its own behalf, Noddings is seeking to
prosecute the action on behalf of a putative class comprised of all persons who
owned equivalent warrants on April 21, 1998 (the date immediately following the
record date of the distribution of the stock of SFX Entertainment to holders of
the stock of SFX) and their transferees and successors in interest. Noddings has
requested that the court (i) declare that on the exercise of its warrants CCI
transmit to plaintiffs and members of the class that it seeks to represent
$22.3725 in cash per warrant and 0.2983 shares of common stock of SFX
Entertainment per warrant, (ii) require CCI to pay 0.2983 shares of common stock
of SFX Entertainment per warrant and (if not previously paid) $22.3725 in cash,
to any putative class member that has exercised or exercises warrants after
April 20, 1998, (iii) in the alternative, award plaintiffs and members of the
putative class monetary damages in an amount to be determined at trial, and (iv)
award costs and attorney's fees.
In March 1999, the court issued an opinion dismissing two of Nodding's
counts and granting summary judgment in favor of Noddings on one count. The
court held that Noddings is entitled to 0.2983 shares of SFX Entertainment stock
per warrant. Capstar Communication intends to continue to defend this action
through a motion for reargument and if necessary an appeal.
F-226
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company is subject to various other 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.
The Company has entered into various operating leases, broadcast rights
agreements and employment agreements. Total rent expense was $2,903, $5,403,
$2,251 and $2,442 for the years ended December 31, 1996 and 1997, the five
months ended May 31, 1998 and the seven months ended December 31, 1998,
respectively. The Company has historically entered into employment agreements
with certain officers and other key employees. Expenses under the contracts
approximated $19,748 for the year ended December 31, 1997 and $8,228 for the
five months ended May 31, 1998.
Future aggregate minimum payments under noncancelable operating leases
including broadcast rights agreements with initial terms of one year or more are
as follows as of December 31, 1998:
Beginning in 1998, the Company 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. For the five months ended May 31,
1998 and the seven months ended December 31, 1998, the Company incurred $1.6
million and $2.3 million, respectively, for media representation services from
Katz.
Beginning in 1998, the Company broadcasts advertising over the Company's
portfolio of stations from the AMFM Radio Networks. The AMFM Radio Networks are
owned and operated by Chancellor Media. For the seven months ended December 31,
1998, the Company recorded $2.1 million in revenue relating to the AMFM Radio
Networks.
As stated in Note 4, in 1998, the Company began earning LMA revenue from
Chancellor Media under the Chancellor Exchange Agreement. For the seven months
ended December 31, 1998, the Company earned LMA fees of approximately $28,800
from the Chancellor Exchange Stations.
Prior to April 1996, SCMC, where Robert F.X. Sillerman, the Company's
former Executive Chairman, serves as Chairman of the Board of Directors and
Chief Executive Officer, had been engaged by the Company from time to time for
advisory services with respect to specific transactions. In April 1996, the
Company and SCMC entered into the SCMC Termination Agreement, pursuant to which
SCMC assigned to the Company its rights to provide services to, and receive fees
payable by each of, MMR and Triathlon in respect of such consulting and
marketing services to be performed on behalf of such companies, except for fees
related to certain transactions pending at the date of such agreement. In
addition, the Company and SCMC terminated the arrangement pursuant to which SCMC
performed financial consulting services for the Company. Upon consummation of
the MMR Merger, SCMC's agreement with MMR was terminated. Prior to consummation
of the MMR Merger, MMR paid an annual fee of $500 to SCMC and Triathlon paid
SCMC an annual fee of $300 (which increased to $500 effective January 1, 1997).
In addition, Triathlon has agreed to advance to
F-227
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCMC an amount of $500 per year in connection with transaction-related services
to be rendered by SCMC. However, if the agreement between SCMC and Triathlon is
terminated or if an unaffiliated person acquires a majority of the capital stock
of Triathlon the unearned fees must be repaid. Pursuant to the SCMC Termination
Agreement, the Company has agreed to continue to provide consulting and
marketing services to Triathlon until the expiration of their agreement on June
1, 2005, and not to perform any consulting or investment banking services for
any person or entity other than Triathlon in the radio broadcasting industry or
in any business which uses technology for the audio transmission of information
or entertainment. Pursuant to the SFX Merger, the Company transferred the
Triathlon consulting contract to SFX Entertainment. In consideration of the
foregoing agreements, the Company issued to SCMC warrants to purchase up to 39
shares of Class A Common Stock at an exercise price, subject to adjustment, of
$522,511 per share (the market price at the time the financial consulting
arrangement was terminated). The Company also forgave a $2.0 million loan made
by the Company to SCMC, plus accrued and unpaid interest thereon. Pursuant to
such agreement, the former Chairman agreed with the Company that he would
supervise, subject to the direction of the Board of Directors, the performance
of the financial consulting and other services previously performed by SCMC for
the Company. During 1996, the Company received fees of $292 from MMR and $511
from Triathlon. During 1997, the Company received fees of $1,794 from Triathlon.
In connection with this agreement, the Company had a $44 receivable from
Triathlon at December 31, 1997.
In 1996, the Company paid to SCMC advisory fees of $4,000 in connection
with the Liberty acquisition, the Prism acquisition, the Greenville acquisition,
the Jackson acquisitions, the Greensboro acquisition and the Raleigh-Greensboro
acquisition. In addition, the Company paid SCMC, on behalf of MMR, a
non-refundable fee of $2,000 for investment banking services provided to MMR in
connection with the MMR Merger.
Prior to June 1996, the Company held a non-recourse note receivable from
the Company's former President in the amount of $2,000 which was secured by 9
shares of Class B Common Stock. The note bore interest at 6% per annum. Interest
income of $60 was accrued in 1996 on the loan. The loan and interest accrued
were forgiven in June 1996 pursuant to an agreement with the former President
and are included in non-recurring and unusual charges.
During the last quarter of 1996, the Company consolidated all of its
corporate office functions in New York. Prior to such time, the Company had an
agreement with the Company's former Chairman related to the maintenance of the
Company's New York Office whereby the Company reimbursed SCMC for certain office
expenses and salaries for certain employees of SCMC who provided services on
behalf of the Company. In addition certain of the Company's employees performed
certain services for other entities affiliated with SCMC. In connection with
SCMC Termination Agreement and the consolidation of the Company's Corporate
Office in New York, SCMC employees who provided services on behalf of the
Company became employees of the Company. Total reimbursements paid to SCMC for
office expenses and salaries totaled approximately $1,082 for the year ended
December 31, 1996. The reimbursements paid to SCMC in 1996 included $292 and
$261 of fees paid by MMR and Triathlon, respectively, directly to SCMC following
the effective date of the SCMC Termination Agreement. The timing of these
payments during the year were such that the Company had advanced amounts to SCMC
of up to $230 during the period.
The transactions above were not negotiated on an arms-length basis.
Accordingly, each transaction was approved by the Company's Board of Directors,
including the Company's independent directors, in accordance with the provisions
relating to affiliate transactions in the Company's by-laws, bank agreements and
Indenture, which provisions require a determination as to the fairness of the
transactions to the Company.
The Company's former Executive Vice President, General Counsel and Director
is Of Counsel to the law firm of Baker & McKenzie. Baker & McKenzie served as
counsel to the Company in certain matters up to the date of the SFX Merger.
Baker & McKenzie compensates the executive based, in part, on the fees it
receives
F-228
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
from providing legal services to the Company and other clients originated by the
executive. The Company paid Baker & McKenzie $4,886, $6,813 and $3,915 for legal
services during 1996, 1997 and the five months ended May 31, 1998, respectively.
NOTE 13 -- 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, 1997
and 1998. 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.
PREDECESSOR COMPANY
------------------- -------------------
1997 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
Long-term debt -- Senior Subordinated
Notes.................................... $450,566 $493,313 $324,039 $355,733
Redeemable preferred stock................. 375,796 521,620 148,669 152,891
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash, 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 senior subordinated
notes is based on quoted market prices. As amounts outstanding under the
Company's Capstar Radio Note bear interest at current market rates, their
carrying amounts approximate fair market value.
Redeemable preferred stock: The fair value is estimated based on
quoted market prices.
NOTE 14 -- NON-RECURRING AND UNUSUAL CHARGES, INCLUDING ADJUSTMENTS TO BROADCAST
RIGHTS AGREEMENT
The Company recorded non-recurring and unusual charges of $35,318 in the
five months ended May 31, 1998 which consisted primarily of (i) $5,554 of
compensation expense related to bonuses and options issued, (ii) $1,420 relating
to the settlement of lawsuits, (iii) $489 relating to the increase in value of
certain Stock Appreciation Rights, (iv) $16,600 relating to the consent
solicitations from the holders of its Senior Subordinated Notes due 2006 and the
holders of its Series E Preferred Stock in connection with the Spin-Off, (v)
$6,255 of expenses, primarily legal, accounting and regulatory fees associated
with the SFX Merger and the consent solicitations in connection with the
Spin-Off and (vi) $5,000 related to a brokers contract due upon a change in
control.
The Company recorded non-recurring and unusual charges related to the SFX
Merger and the Spin-Off of SFX Entertainment of $20,174 in 1997 which consisted
primarily of (i) $12,140 related to bonuses paid to officers of the Company (ii)
a write-off of a $2,500 loan made to the Company's then Executive Chairman (iii)
$1,713 relating to an increase in value of certain Stock Appreciation Rights and
(iv) $3,821 of other expenses, primarily legal, accounting and regulatory fees.
The Company recorded non-recurring and unusual charges of $28,994 in 1996
which consisted primarily of (i) payments in excess of the fair value of stock
repurchased totaling $12,461 to the company's former President and the write-off
by the Company of $2,330 relating to a loan and accrued interest to the
Company's former President, (ii) $5,586 related to the SCMC Termination
Agreement (Note 12), (iii) $4,575 for the repurchase of options and rights to
receive options held by the former Chief Operating Officer and (iv) a
F-229
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
charge of $1,600 related to the termination of the Company's contractual
four-year broadcast rights of Texas Rangers baseball and an adjustment in the
value of the contract for the 1996 season.
NOTE 15 -- DEFINED CONTRIBUTION PLAN
The Company participates in a 401(k) defined contribution plan in which
most of its employees were eligible to participate. The Plan presently provides
for discretionary employer contributions. The Company made contributions of
approximately $672 in 1998. The Company made no contributions in 1996 or 1997.
NOTE 16 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
PREDECESSOR COMPANY
------------------------------- ------------
FIVE MONTHS SEVEN MONTHS
ENDED ENDED
MAY 31, DECEMBER 31,
1996 1997 1998 1998
------- ------- ----------- ------------
Cash paid during the year for:
Interest........................................ $30,898 $65,184 $30,760 $40,397
Income taxes.................................... $ 81 $ 1,059 $ 1,200 $89,625
Supplemental schedule of noncash investing and financing activities:
During 1998, the Company's parent contributed certain radio stations
and rights to the Company with an aggregate historical book value and fair
value of approximately $11,509.
Issuance of equity securities, including deferred equity security
issuance, and assumption of debt in connection with certain acquisitions
(Note 4)
Agreements to pay future cash consideration in connection with certain
acquisitions (Note 4)
Exchange of radio stations (Note 4)
Issuance of warrants in connection with SCMC termination agreement
(Note 12).
F-230
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
Current assets:
Cash and cash equivalents................................. $ 11,391 $ 8,380
Accounts receivable, net of allowance for doubtful
accounts of $4,511 and $4,660, respectively............ 71,314 59,232
Prepaid and other current assets.......................... 1,660 4,317
---------- ----------
Total current assets.............................. 84,365 71,929
Property and equipment, net............................... 118,163 117,780
Intangibles and other, net................................ 3,323,486 3,301,542
Other assets.............................................. 627 1,947
---------- ----------
Total assets...................................... $3,526,641 $3,493,198
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable.......................................... $ 3,303 $ 2,628
Accrued expenses.......................................... 13,869 12,903
Accrued interest.......................................... 4,136 11,913
Income taxes payable...................................... 35,140 2,203
Current portion of long-term debt......................... 372,903 369,467
---------- ----------
Total current liabilities......................... 429,351 399,114
Long-term debt, net of current portion.................... 325,686 324,622
Deferred income taxes..................................... 1,008,385 1,007,867
---------- ----------
Total liabilities................................. 1,763,422 1,731,603
---------- ----------
Redeemable Preferred Stock, aggregate liquidation preference
of $133,944 and $138,150, respectively.................... 148,669 152,511
---------- ----------
Commitments and contingencies
Shareholder's equity:
Class A Voting Common Stock, $.01 par value; 200,000
shares authorized; 1,006 shares issued and outstanding,
respectively........................................... 1 1
Class B Voting Convertible Common Stock, $.01 par value,
10,000,000 shares, authorized; none issued............. -- --
Additional paid-in capital................................ 1,613,967 1,610,125
Retained earnings (deficit)............................... 582 (1,042)
---------- ----------
Total shareholder's equity........................ 1,614,550 1,609,084
---------- ----------
Total liabilities and shareholder's equity........ $3,526,641 $3,493,198
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-231
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PREDECESSOR COMPANY
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1999
------------------ ------------------
Gross broadcast revenue.................................. $ 74,405 $ 94,130
Less: agency commissions................................. (8,654) (8,909)
--------- --------
Net broadcast revenue.................................... 65,751 85,221
--------- --------
Station operating expenses............................... 44,636 49,281
Depreciation, amortization, duopoly integration costs and
acquisition related costs.............................. 10,653 23,060
Corporate expenses....................................... 1,569 1,681
LMA fees................................................. -- 75
Settlement of options and warrants....................... 138 --
Non-recurring and unusual charges, including adjustments
to broadcast rights agreement.......................... 24,974 --
--------- --------
Total operating expenses....................... 81,970 74,097
--------- --------
Operating income (loss).................................. (16,219) 11,124
Investment income........................................ 202 42
Interest expense......................................... (19,190) (13,312)
--------- --------
Loss from continuing operations before income taxes...... (35,207) (2,146)
Income tax expense (benefit)............................. 210 (522)
--------- --------
Loss from continuing operations.......................... (35,417) (1,624)
--------- --------
Discontinued operations:
Loss from operations to be distributed to shareholders,
net of taxes........................................ (97,576) --
--------- --------
Net loss................................................. (132,993) (1,624)
Dividends and accretion on preferred stocks.............. 10,350 3,842
--------- --------
Net loss attributable to common stock.................... $(143,343) $ (5,466)
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-232
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PREDECESSOR COMPANY
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1999
------------------ ------------------
Cash provided by continuing operations................... $ 11,547 $ 3,919
Cash from operating activities of SFX Entertainment...... 9,140 --
--------- --------
Net cash provided by operating activities................ 20,687 3,919
--------- --------
Investing activities:
Proceeds from sales of stations and other assets....... 4,692 --
Deposits and other payments for pending acquisitions... -- (596)
Purchase of property and equipment..................... (3,602) (2,173)
Other investing activities............................. (59) (591)
--------- --------
Net cash used in investing activities.................... 1,031 (3,360)
Cash used in investing activities of SFX Entertainment... (379,782) --
--------- --------
Net cash used in investing activities.................... (378,751) (3,360)
--------- --------
Financing activities:
Payments on long-term debt and credit facilities....... (100) (44,527)
Proceeds from issuance of long-term debt and credit
facilities.......................................... -- 40,957
Proceeds from issuance of common stock................. 3,759 --
Preferred stock dividends.............................. (2,459) --
--------- --------
Net cash provided by (used in) financing activities...... 1,200 (3,570)
Cash provided by financing activities of SFX
Entertainment.......................................... 458,654 --
--------- --------
Net cash provided by (used in) financing activities...... 459,854 (3,570)
--------- --------
Net increase (decrease) in cash and equivalents.......... 101,790 (3,011)
Cash and cash equivalents at beginning of period......... 24,686 11,391
Net increase in cash of SFX Entertainment................ (88,012) --
--------- --------
Cash and cash equivalents at end of period............... $ 38,464 $ 8,380
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-233
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Information with respect to the three month periods ended March 31, 1998
and 1999 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments considered necessary for a fair
presentation. Operating results for the three month period ended March 31, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999, or for any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto for Capstar Communications included in its Form 10-K for the year ended
December 31, 1998.
On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX Broadcasting, Inc., which has been renamed Capstar
Communications, Inc. The acquisition was effected through the merger (the "SFX
Merger") of SBI Radio Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of SFX Parent, with and into SFX, with SFX as the
surviving corporation. The acquisition of SFX by SFX Parent resulted in a change
of control of SFX. As a result of the SFX Merger, SFX became an indirect
wholly-owned subsidiary of Capstar Radio.
NOTE 2 -- CHANCELLOR MERGER AGREEMENT
On August 26, 1998, Capstar Broadcasting and Chancellor Media Corporation
("Chancellor Media"), an affiliate of Capstar Broadcasting, entered into a
merger agreement (the merger agreement was subsequently amended and restated
effective April 29, 1999). Under the merger agreement:
- Chancellor Media will acquire Capstar Broadcasting in a merger between a
wholly-owned subsidiary of Chancellor Media and Capstar Broadcasting,
with Capstar Broadcasting surviving the merger as a wholly-owned
subsidiary of Chancellor Media;
- each share of Class A Common Stock, Class B Common Stock and Class C
Common Stock will represent 0.4955 shares of common stock in Chancellor
Media;
- each Capstar Broadcasting stock option and warrant that is outstanding
and unexercised immediately prior to the merger will be assumed by
Chancellor Media and will thereafter be an option or warrant to acquire
0.4955 shares of common stock of Chancellor Media;
- each share of Chancellor Media common stock will remain equal to one
share of Chancellor Media common stock; and
- each share of Chancellor Media preferred stock will remain equal to one
share of Chancellor preferred stock.
The completion of the merger depends on the satisfaction of a number of
conditions. There can be no assurance that all of the conditions to the merger
will be satisfied. Either company may waive compliance with the conditions at
its discretion if permitted by law.
F-234
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management does not believe the implementation of
this accounting pronouncement will have a material effect on its consolidated
financial statements.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
On August 29, 1997, two lawsuits were commenced against SFX Broadcasting,
Inc. and its directors in the Court of Chancery of the State of Delaware (New
Castle County). The plaintiffs in the lawsuits are Harbor Finance Partners (C.A.
No. 15891) and Steven Lieberman (C.A. No. 15901). The complaints are identical
and allege that the consideration to be paid as a result of the SFX acquisition
by Capstar Broadcasting to the holders of SFX's Class A common stock is unfair
and that the individual defendants have breached their fiduciary duties. Both
complaints seek to have the actions certified as class actions and seek to
enjoin the SFX acquisition by Capstar Broadcasting or, in the alternative,
monetary damages. The defendants have filed answers denying the allegations, and
discovery has commenced. The parties have agreed that the lawsuits may be
consolidated in one action entitled In Re SFX Broadcasting, Inc. Shareholders
Litigation (C.A. No. 15891). On March 17, 1998, the parties entered into a
Memorandum of Understanding, pursuant to which the parties have reached an
agreement providing for a settlement of the action. Pursuant to the settlement,
SFX has agreed not to seek an amendment to the merger agreement to reduce the
consideration to be received by the stockholders of SFX in the SFX acquisition
by Capstar Broadcasting in order to offset SFX Entertainment's indemnity
obligations. The settlement also provides for SFX to pay plaintiff's counsel an
aggregate of $950,000, including all fees and expenses as approved by the court.
The settlement is conditioned on the consummation of the SFX acquisition by
Capstar Broadcasting (which has been consummated), completion of the
confirmatory discovery (which has been completed) and approval of the court.
Pursuant to the settlement, the defendants have denied, and continue to deny,
that they have acted in bad faith or breached any fiduciary duty. The parties
expect to submit the settlement documents soon to the court for its approval.
However, there can be no assurance that the court will approve the settlement.
On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership filed Civil Action No. 16538 in the Court of Chancery of the
State of Delaware in and for New Castle County against Capstar Communications.
Noddings alleges that Capstar Communications breached a March 23, 1994, Warrant
Agreement that Noddings contends requires Capstar Communications to permit
Noddings to exercise warrants in exchange for cash and shares of stock of SFX
Entertainment, Inc. Specifically, Noddings alleges that Capstar Communications
has violated the Warrant Agreement by permitting Noddings to receive cash in
exchange for its warrants, but refusing to convey shares of stock of SFX
Entertainment. In addition to suing on its own behalf, Noddings is seeking to
prosecute the action on behalf of a putative class comprised of all persons who
owned equivalent warrants on April 21, 1998 (the date immediately following the
record date of the distribution of stock of SFX Entertainment to holders of the
stock of SFX) and their transferees and successors in interest. Noddings has
requested that the Court:
- declare that on the exercise of its warrants Capstar Communications
transmit to plaintiffs and members of the class that it seeks to
represent $22.3725 in cash per warrant and 0.2983 shares of common stock
of SFX Entertainment per warrant,
- require Capstar Communications to pay 0.2983 shares of common stock of
SFX Entertainment per warrant and, (if not previously paid) $22.3725 in
cash, to any putative class member that has exercised or exercises
warrants after April 20, 1998,
F-235
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial, and
- award costs and attorneys' fees.
In March 1999, the court issued an opinion dismissing two of Noddings'
counts and granted summary judgment in favor of Noddings on one count. The court
held that Noddings is entitled to 0.2983 shares of SFX Entertainment, Inc. stock
per warrant. Both parties have filed a notice of appeal.
Capstar Communications 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 Capstar Communications.
F-236
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying combined statement of assets acquired as
of April 3, 1998 and the related combined statements of revenues and direct
operating expenses of KBIG-FM, KLDE-FM, and WBIX-FM (formerly WNSR-FM),
(collectively, the "Company"), for each of the three years ended December 31,
1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 combined statement of assets acquired and
the combined statements of revenues and direct operating expenses 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.
The accompanying combined financial statements reflect the assets acquired
and the revenues and direct operating expenses attributable to the Company as
described in Note 1 and are not intended to be a complete presentation of the
assets or revenues and expenses of the Company.
In our opinion, the combined statement of assets acquired and statements of
revenues and direct operating expenses present fairly, in all material respects,
the assets described in Note 1 as of April 3, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the three years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
F-237
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)
COMBINED STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)
APRIL 3,
1998
--------
Property and equipment, net................................. $5,699
Broadcast licenses.......................................... --
------
$5,699
======
The accompanying notes are an integral part of the financial statements
F-238
KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)
COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
Total revenue................................ $55,125 $55,286 $44,738 $ 9,870 $10,109
Less agency commissions...................... (9,252) (8,485) (6,290) (1,521) (1,398)
------- ------- ------- ------- -------
Net revenue........................ 45,873 46,801 38,448 8,349 8,711
------- ------- ------- ------- -------
Direct operating expenses:
Programming, technical and news............ 7,933 7,081 6,906 1,820 1,690
Sales and promotion........................ 15,720 13,187 10,536 3,294 2,293
Station general and administrative......... 4,981 5,437 5,064 1,754 1,674
Depreciation expense....................... 976 975 1,000 250 185
------- ------- ------- ------- -------
Total.............................. 29,610 26,680 23,506 7,118 5,842
------- ------- ------- ------- -------
Excess of net revenues over direct operating
expenses................................... $16,263 $20,121 $14,942 $ 1,231 $ 2,869
======= ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements
F-239
KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
KBIG-FM, KLDE-FM and WBIX-FM (formerly WNSR-FM), (collectively, the "Company").
The Company operates three commercial radio stations, KBIG-FM in Los Angeles,
KLDE-FM in Houston and WBIX-FM in New York. The Company is wholly owned by
Bonneville International Corporation. Bonneville Holding Company is the licensee
of the Company pursuant to certain licenses and authorizations issued by the
Federal Communications Commission.
On April 3, 1998, Bonneville International Corporation and Bonneville
Holding Company (together, "Bonneville") exchanged KBIG-FM, KLDE-FM and WBIX-FM
for Chancellor Media Corporation of Los Angeles ("CMCLA") stations WTOP-AM in
Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63,000 in
cash under an asset exchange agreement. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction. CMCLA operated KBIG-FM and KDLE-FM
under time brokerage agreements from October 1, 1997 to April 3, 1998 and
WBIX-FM from October 10, 1997 to April 3, 1998. Revenues and direct operating
expenses of the Company included in the Combined Statements of Revenues and
Direct Operating Expenses and recognized by CMCLA in its Consolidated Statement
of Operations amounted to net revenue of approximately $9,959 and direct
operating expenses of approximately $4,229 for the period ended December 31,
1997 and net revenue of approximately $8,711 and direct operating expenses of
approximately $5,657 for the period ended March 31, 1998.
The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company. Significant intercompany balances and transactions have
been eliminated in combination.
The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on April 3, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.
The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense, income taxes or the LMA fees earned by
Bonneville pursuant to the time brokerage agreements.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Bonneville has not segregated
indirect corporate operating cost information or related assets and liabilities
for the Company in its accounting records.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
F-240
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Broadcast Licenses
Broadcast licenses are stated at zero as Bonneville has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined statements of
revenues and direct operating expenses for the three months ended March 31, 1998
and 1997, reflect all adjustments, consisting of only normal and recurring
items, which are necessary for a fair presentation of the results for the
interim period presented. The results for the interim periods are not
necessarily indicative of results to be expected for any other interim periods
or for the full year.
F-241
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying statement of assets acquired as of May 29,
1998 and the related statements of revenues and direct operating expenses of
KODA-FM, (the "Company"), for each of the two years ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets acquired and the
statements of revenues and direct operating expenses 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.
The accompanying financial statements reflect the assets acquired and the
revenues and direct operating expenses attributable to the Company as described
in Note 1 and are not intended to be a complete presentation of the assets or
revenues and expenses of the Company.
In our opinion, the statement of assets acquired and statements of revenues
and direct operating expenses present fairly, in all material respects, the
assets described in Note 1 as of May 29, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the two years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
F-242
KODA-FM
STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)
MAY 29,
1998
-------
Property and equipment, net................................. $391
Broadcast license........................................... --
----
$391
====
The accompanying notes are an integral part of the financial statements
F-243
KODA-FM
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ---------------
1996 1997 1997 1998
------- ------- ------ ------
(UNAUDITED)
Total revenue............................................ $18,950 $20,869 $4,440 $5,044
Less agency commissions.................................. (2,605) (2,889) (608) (691)
------- ------- ------ ------
Net revenue.................................... 16,345 17,980 3,832 4,353
------- ------- ------ ------
Direct operating expenses:
Programming, technical and news........................ 1,012 960 359 412
Sales and promotion.................................... 4,269 4,539 790 754
Station general and administrative..................... 2,125 2,036 529 465
Depreciation expense................................... 183 185 46 47
------- ------- ------ ------
Total.......................................... 7,589 7,720 1,724 1,678
------- ------- ------ ------
Excess of net revenues over direct operating expenses.... $ 8,756 $10,260 $2,108 $2,675
======= ======= ====== ======
The accompanying notes are an integral part of the financial statements
F-244
KODA-FM
NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of KODA-FM, (the
"Company"). The Company operates a commercial radio station, KODA-FM in Houston.
The Company is wholly owned by Capstar Broadcasting Corporation ("Capstar") and
formerly owned by SFX Broadcasting, Inc. ("SFX") prior to Capstar's acquisition
of SFX.
On May 29, 1998, Capstar exchanged KODA-FM for Chancellor Media Corporation
of Los Angeles ("CMCLA") stations WAPE-FM and WFYV-FM in Jacksonville under an
asset exchange agreement. As part of the transaction, CMCLA also paid cash of
$90,250 to the owners of KVET-AM, KVET-FM and KASE-FM, who simultaneously
transferred such stations to Capstar. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction.
The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company.
The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on May 29, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.
The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense or income taxes.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Capstar and SFX had not
segregated indirect corporate operating cost information or related assets and
liabilities for the Company in its accounting records.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
(b) Broadcast Licenses
Broadcast licenses are stated at zero as Capstar has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
F-245
KODA-FM
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim statements of revenues
and direct operating expenses for the three months ended March 31, 1998 and
1997, reflect all adjustments, consisting of only normal and recurring items,
which are necessary for a fair presentation of the results for the interim
period presented. The results for the interim periods are not necessarily
indicative of results to be expected for any other interim periods or for the
full year.
F-246
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Broadcast Group, Inc.
Detroit, Michigan
We have audited the accompanying balance sheets of The Broadcast Group,
Inc. as of December 31, 1998 and 1997, and the related statements of
stockholder's equity (deficit), income, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Broadcast Group, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KLEIMAN, CARNEY & GREENBAUM
Certified Public Accountants
February 18, 1999, except
the third paragraph of
Note 1 as to which the
date is April 23, 1999
F-247
THE BROADCAST GROUP, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---------- -----------
CURRENT ASSETS
Cash...................................................... $ 15,864 $ 157,168
Accounts receivable (less allowance for uncollectible
accounts of $259,182 and $343,000, respectively)....... 1,096,779 2,429,832
Prepaid expenses and deposits............................. 35,856 112,168
---------- -----------
Total Current Assets.............................. 1,148,499 2,699,168
---------- -----------
PROPERTY AND EQUIPMENT
Land...................................................... 1,225,800 1,225,800
Buildings and improvements................................ 724,117 713,070
Broadcast equipment....................................... 1,092,151 1,090,911
Office furniture and equipment............................ 807,873 765,791
---------- -----------
3,849,941 3,795,572
Less: Accumulated depreciation......................... 2,078,969 1,994,509
---------- -----------
1,770,972 1,801,063
---------- -----------
OTHER ASSETS
Licenses, goodwill and network affiliation costs.......... 2,911,200 2,911,200
Lease acquisition costs................................... 775,000 775,000
---------- -----------
3,686,200 3,686,200
Less: Accumulated amortization......................... 1,829,656 1,726,441
---------- -----------
1,856,544 1,959,759
---------- -----------
TOTAL ASSETS...................................... $4,776,015 $ 6,459,990
========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable -- parent company (due on demand with
interest at 5.56%)..................................... $3,229,341 $ 7,984,408
Accounts payable.......................................... 105,285 266,841
Accrued expenses
Salaries and commissions............................... 113,807 113,770
Taxes, other than income............................... 18,441 23,403
Profit sharing plan contribution....................... 21,000 36,000
---------- -----------
Total Current Liabilities......................... 3,487,874 8,424,422
---------- -----------
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, $1 par value, 10,000 shares authorized,
issued and outstanding................................. 10,000 10,000
Excess of amount paid in over par value of stock.......... 1,280,972 1,280,972
Deficit................................................... (2,831) (3,255,404)
---------- -----------
Total Stockholder's Equity (Deficit).............. 1,288,141 (1,964,432)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)....................................... $4,776,015 $ 6,459,990
========== ===========
See accompanying Notes to Financial Statements
F-248
THE BROADCAST GROUP, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1997 1998
----------------------------------------------------- -------------------------
STOCK
BALANCE, REDEMPTION BALANCE BALANCE
JANUARY 1, AND NET DECEMBER 31, NET DECEMBER 31,
1997 RETIREMENT INCOME 1997 INCOME 1998
----------- ----------- ---------- ------------ ---------- ------------
Preferred stock................. $ 20,000 $ (20,000) $ -- $ -- $ -- $ --
Common stock.................... 10,000 -- -- 10,000 -- 10,000
Excess of amount paid in over
par value of stock............ 9,545,380 (8,264,408) -- 1,280,972 -- 1,280,972
Deficit......................... (6,329,466) -- 3,074,062 (3,255,404) 3,252,573 (2,831)
----------- ----------- ---------- ----------- ---------- ----------
TOTAL STOCKHOLDER'S EQUITY
(DEFICIT)................. $ 3,245,914 $(8,284,408) $3,074,062 $(1,964,432) $3,252,573 $1,288,141
=========== =========== ========== =========== ========== ==========
See accompanying Notes to Financial Statements
F-249
THE BROADCAST GROUP, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
REVENUE
AM and FM sales........................................... $11,828,487 $13,404,597
Time brokerage fees....................................... 1,049,067 --
Barter sales.............................................. 223,875 391,032
----------- -----------
Total Revenue.......................................... 13,101,429 13,795,629
Less: Commissions -- agencies and representatives......... 1,328,941 1,656,154
----------- -----------
Net Revenue....................................... 11,772,488 12,139,475
----------- -----------
OPERATING EXPENSES
Technical................................................. 223,470 212,528
Program................................................... 2,230,239 2,582,531
Selling................................................... 2,532,026 3,141,371
General and administrative................................ 1,164,505 1,195,355
Amortization.............................................. 103,215 103,215
Depreciation.............................................. 84,460 80,413
----------- -----------
Total Operating Expenses.......................... 6,337,915 7,315,413
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES........... 5,434,573 4,824,067
----------- -----------
Interest.................................................... 332,000 --
----------- -----------
INCOME BEFORE INCOME TAXES........................ 5,102,573 4,824,062
Income Taxes................................................ 1,850,000 1,750,000
----------- -----------
NET INCOME........................................ $ 3,252,573 $ 3,074,062
=========== ===========
See accompanying Notes to Financial Statements
F-250
THE BROADCAST GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net income................................................ $ 3,252,573 $ 3,074,062
Depreciation and amortization, charged to net income, not
requiring the use of cash.............................. 187,675 183,628
Changes in operating assets and liabilities that provide
(use) cash
Accounts receivable.................................... 1,333,053 (104,671)
Prepaid expenses and deposits.......................... 76,312 (27,479)
Accounts payable....................................... (161,556) (126,758)
Accrued expenses....................................... (19,925) (68,381)
----------- -----------
Cash Provided by Operating Activities............. 4,668,132 2,930,401
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment....................... (54,369) (81,679)
FINANCING ACTIVITIES
Payments on note payable to parent company................ (4,755,067) (300,000)
Repayment of loans payable to parent company.............. -- (2,523,670)
----------- -----------
Cash Used by Financing Activities................. (4,755,067) (2,823,670)
INCREASE (DECREASE) IN CASH....................... (141,304) 25,052
CASH, BEGINNING OF YEAR..................................... 157,168 132,116
----------- -----------
CASH, END OF YEAR................................. $ 15,864 $ 157,168
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for income taxes................ $ 1,850,000 $ 1,750,000
=========== ===========
Cash paid during the year for interest.................... $ 332,000 $ --
=========== ===========
SCHEDULE OF SIGNIFICANT NON-CASH FINANCING TRANSACTIONS
Demand promissory note exchanged for redemption and
retirement of preferred stock.......................... $ -- $ 8,284,408
=========== ===========
See accompanying Notes to Financial Statements
F-251
THE BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 -- SIGNIFICANT EVENT
In September, 1998, the Company entered into an agreement to sell all of
its operating assets to Chancellor Media Corporation ("Chancellor") at a price
substantially in excess of net book value. The sale is expected to close during
the second quarter of 1999.
In conjunction with the pending sale, the Company also entered into a "time
brokerage agreement" with Chancellor that commenced on November 5, 1998. This
agreement transfers substantially all the operations of the Company to
Chancellor, until the sale is consummated, for a monthly payment of $562,000.
The results of operations for the stations from November 5 through December
31, 1998 recognized by Chancellor are as follows:
Total Revenue............................................... $2,307,845
Less Commissions............................................ 256,942
----------
Net Revenue....................................... 2,050,903
Direct Operating Expenses
Technical................................................. 21,041
Program................................................... 363,842
Selling................................................... 419,142
General and Administrative................................ 150,952
----------
Total Operating Expenses.......................... 954,977
----------
Excess of net revenue over direct operating expenses........ $1,095,926
==========
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Business Activity
The Company operated two radio stations, one AM and one FM in Phoenix,
Arizona. Both stations received revenues from local, regional and national
advertisers.
(b) Cash
The Company maintains cash accounts in a financial institution which, at
times, exceed federally insured amounts.
(c) Property and Depreciation
All tangible property is recorded at cost. Expenditures for maintenance and
repairs are charged to operations in the year incurred. For financial statement
purposes, property is depreciated using the straight line method over the
following estimated useful lives:
Buildings and improvements.............................. 10-33 years
Broadcast equipment..................................... 10 years
Office furniture and equipment.......................... 5-7 years
(d) Other Assets
The following costs are being amortized using the straight line method over
the following lives:
Licenses, goodwill and network affiliation costs........... 40 years
Lease acquisition costs.................................... 23 years
F-252
THE BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Income Taxes
The Broadcast Group, Inc. is a wholly owned subsidiary of The Wolpin Co.
and files a consolidated income tax return with its Parent. Differences in
financial and tax reporting for depreciation, amortization and accrued expenses
are not significant and, accordingly, no deferred income tax expense or
liability is reflected herein.
(f) Profit Sharing Plan
The Company established a 401(k) employee elective wage deferral plan with
a matching employer contribution. A matching contribution and administration fee
of $25,148 and $43,275 were expensed for the years ended December 31, 1998 and
1997, respectively.
The 1998 employer matching contribution was significantly reduced by the
termination of substantially all of the Company's employees on November 5, 1998.
(See Note 1).
(g) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 3 -- ASSETS PLEDGED
Substantially all of the Company's assets are pledged as collateral under
the terms of a bank debt agreement entered into by the Parent Company.
NOTE 4 -- RELATED ENTITY TRANSACTIONS
Shareholders of the parent company, The Wolpin Co., are active in the
administration and management of The Broadcast Group, Inc. The Parent Company
charged administration and management fees of $350,000 for their services in
each of the years ended December 31, 1998 and 1997.
NOTE 5 -- STOCKHOLDER'S EQUITY (DEFICIT)
On December 31, 1997, the Company redeemed, from its Parent Company, all
2,000 outstanding shares of its non-voting preferred stock. The redemption price
of $8,284,408 represents the original issue price plus an 11% accumulated
dividend.
The Company executed a demand promissory note with interest at 5.56% in
exchange for the shares.
F-253
KFYI-AM AND KKFR-FM
COMBINED STATEMENT OF ASSETS TO BE ACQUIRED
MARCH 31, 1999
--------------
(UNAUDITED)
Broadcast licenses, net of accumulated amortization of
$888,892.................................................. $1,172,307
Property and equipment:
Land...................................................... 1,225,800
Buildings and improvements................................ 724,117
Broadcast equipment....................................... 1,092,151
Office furniture and equipment............................ 807,873
----------
3,849,941
Less accumulated depreciation............................. 2,099,969
----------
1,749,972
----------
Total assets to be acquired....................... $2,922,279
==========
The accompanying notes are an integral part of the financial statements.
F-254
KFYI-AM AND KKFR-FM
COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
THREE MONTHS
ENDED MARCH 31,
------------------------
1999 1998
---------- ----------
(UNAUDITED)
Total revenue............................................... $3,328,727 $3,103,698
Less agency commissions..................................... (326,915) (322,369)
---------- ----------
Net revenue....................................... 3,001,812 2,781,329
---------- ----------
Direct operating expenses:
Programming, technical and news........................... 637,262 629,302
Sales and promotion....................................... 646,114 558,683
Station general and administrative........................ 418,493 516,824
Depreciation and amortization............................. 33,882 33,882
---------- ----------
1,735,751 1,738,691
---------- ----------
Excess of net revenues over direct operating expenses....... $1,266,061 $1,042,638
========== ==========
The accompanying notes are an integral part of the financial statements.
F-255
KFYI-AM AND KKFR-FM
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
KFYI-AM and KKFR-FM, (collectively, the "Company"). The Company operates two
commercial radio stations, KFYI-AM and KKFR-FM in Phoenix, Arizona. The Company
is wholly owned by The Broadcast Group, Inc. ("TBG").
TBG intends to sell KFYI-AM and KKFR-FM to a subsidiary of Chancellor Media
Corporation ("CMC") for $89,850,000. Additionally, CMC will pay $150,000 for
certain noncompetition agreements to be executed at the date of purchase. The
accompanying combined financial statements do not reflect any adjustments
relating to this transaction. CMC has operated KFYI-AM and KKFR-FM under a time
brokerage agreement since November 5, 1998. Revenues and direct operating
expenses of the Company included in the combined statement of revenues and
direct operating expenses and recognized by CMC in its consolidated statement of
operations amounted to net revenue of approximately $3,001,812 and direct
operating expenses of approximately $1,701,869 for the three months ended March
31, 1999.
The accompanying combined statement of assets to be acquired and statements
of revenues and direct operating expenses have been prepared in accordance with
generally accepted accounting principles and were derived from the historical
accounting records of the Company. Significant intercompany balances and
transactions have been eliminated in combination.
The combined statement of assets to be acquired includes the assets of the
Company to be acquired by CMC. Accordingly, this statement excludes cash,
accounts receivable, prepaid or other assets, accounts payable, accrued expenses
or other borrowings which are not being purchased.
The combined statements of revenues and direct operating expenses include
the revenues and direct expenses directly attributable to each station. The
statements do not include corporate general and administrative expenses,
interest expense, income taxes or the fees earned by TBG pursuant to the time
brokerage agreement.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as neither TBG nor CMC has
segregated the related assets and liabilities for the stations in their
accounting records for the three months ended March 31, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustments to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
(b) Broadcast Licenses
The Company continually evaluates the propriety of the carrying amount of
broadcast licenses to determine whether current events or circumstances warrant
adjustment to the carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
F-256
KFYI-AM AND KKFR-FM
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined statements of
revenues and direct operating expenses for the three months ended March 31, 1999
and 1998, reflect all adjustments, consisting of only normal and recurring
items, which are necessary for a fair presentation of the results for the
interim periods presented. The results for the interim periods are not
necessarily indicative of results to be expected for any other interim periods
or for the full year.
F-257
INDEPENDENT AUDITORS' REPORT
Board of Directors
Lamar Advertising Company:
We have audited the accompanying consolidated balance sheets of Lamar
Advertising Company and subsidiaries as of December 31, 1998, and December 31,
1997, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for the years ended December 31,
1998 and 1997, the two months ended December 31, 1996, and the year ended
October 31, 1996. 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 financial position of Lamar
Advertising Company and subsidiaries as of December 31, 1998 and December 31,
1997, and the results of their operations and their cash flows for the years
ended December 31, 1998 and 1997, the two months ended December 31, 1996, and
the year ended October 31, 1996, in conformity with generally accepted
accounting principles.
KPMG LLP
New Orleans, Louisiana
February 5, 1999
F-258
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1998 AND DECEMBER 31, 1997
ASSETS
1998 1997
---------- --------
Current assets:
Cash and cash equivalents................................. $ 128,597 $ 7,246
Receivables:
Trade accounts, less allowance for doubtful accounts of
$2,722 in 1998 and $1,311 in 1997..................... 39,681 29,854
Affiliates, related parties and employees............... 378 788
Other................................................... 321 1,284
---------- --------
40,380 31,926
Prepaid expenses........................................ 12,346 9,112
Other current assets.................................... 1,736 1,136
---------- --------
Total current assets............................... 183,059 49,420
---------- --------
Property, plant and equipment (note 5)...................... 661,324 429,615
Less accumulated depreciation and amortization............ (153,972) (113,477)
---------- --------
507,352 316,138
---------- --------
Intangible assets (note 6).................................. 705,934 278,923
Investment securities (note 1).............................. -- 679
Receivables -- noncurrent................................... 1,972 1,625
Other assets................................................ 15,060 4,551
---------- --------
Total assets....................................... $1,413,377 $651,336
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 4,258 $ 3,308
Current maturities of long-term debt (note 9)............. 49,079 5,109
Accrued expenses (note 8)................................. 25,912 14,804
Deferred income........................................... 9,589 7,537
---------- --------
Total current liabilities.......................... 88,838 30,758
Long-term debt (note 9)..................................... 827,453 534,091
Deferred income taxes (note 10)............................. 25,613 14,687
Deferred income............................................. 1,293 837
Other liabilities........................................... 3,401 2,250
---------- --------
946,598 582,623
---------- --------
Stockholders' equity (note 12):
Class A preferred stock, par value $638, $63.80 cumulative
dividends, 10,000 shares authorized, 5,719 shares issued
and outstanding......................................... 3,649 3,649
Class A common stock, par value $.001, 75,000,000 shares
authorized, 43,392,876 and 28,453,805 shares issued and
outstanding at 1998 and 1997, respectively.............. 43 28
Class B common stock, par value $.001, 37,500,000 shares
authorized, 17,699,997 and 18,762,909 shares issued and
outstanding at 1998 and 1997, respectively.............. 18 19
Additional paid-in capital................................ 505,644 95,691
Accumulated deficit....................................... (42,575) (30,320)
Unrealized loss on investment securities.................. -- (354)
---------- --------
Stockholders' equity............................... 466,779 68,713
---------- --------
Total liabilities and stockholders' equity......... $1,413,377 $651,336
========== ========
See accompanying notes to consolidated financial statements.
F-259
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
Net revenues............................. $ 288,588 $ 201,062 $ 23,262 $ 120,602
Operating expenses:
Direct advertising expenses............ 92,849 63,390 7,975 41,184
General and administrative expenses.... 60,935 45,368 5,034 29,466
Depreciation and amortization.......... 88,572 48,037 3,928 16,470
----------- ----------- ----------- -----------
242,356 156,795 16,937 87,120
----------- ----------- ----------- -----------
Operating income............... 46,232 44,267 6,325 33,482
----------- ----------- ----------- -----------
Other expense (income):
Interest income........................ (762) (1,723) (243) (240)
Interest expense....................... 60,008 38,230 3,803 15,441
Loss (gain) on disposition of assets... (1,152) (15) 76 91
Other expenses......................... 219 280 30 242
----------- ----------- ----------- -----------
58,313 36,772 3,666 15,534
----------- ----------- ----------- -----------
Earnings (loss) before income
taxes and extraordinary
item......................... (12,081) 7,495 2,659 17,948
Income tax expense (benefit) (note 10)... (191) 4,654 1,199 7,099
----------- ----------- ----------- -----------
Earnings (loss) before extraordinary
item................................... (11,890) 2,841 1,460 10,849
Extraordinary item -- Loss on debt
extinguishment net of income tax
benefit of $5,660...................... -- -- 9,514 --
----------- ----------- ----------- -----------
Net earnings (loss)............ (11,890) 2,841 (8,054) 10,849
Preferred stock dividends................ (365) (365) (61) (365)
----------- ----------- ----------- -----------
Net earnings (loss) applicable to common
stock.................................. $ (12,255) $ 2,476 $ (8,115) $ 10,484
=========== =========== =========== ===========
Earnings (loss) before extraordinary item
per common share (basic and diluted)... $ (.24) $ .05 $ .03 $ .25
=========== =========== =========== ===========
Extraordinary item....................... $ -- $ -- $ (.21) $ --
=========== =========== =========== ===========
Net earnings (loss) per common share
(basic and diluted).................... $ (.24) $ .05 $ (.18) $ .25
=========== =========== =========== ===========
Weighted average common shares
outstanding............................ 51,361,522 47,037,497 45,520,784 41,134,476
Incremental common shares from dilutive
stock options.......................... -- 363,483 -- 114,057
----------- ----------- ----------- -----------
Weighted average common shares assuming
dilution............................... 51,361,522 47,400,980 45,520,784 41,248,533
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-260
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEAR ENDED YEAR ENDED TWO MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ---------------- -----------
Net earnings (loss) applicable to common
stock................................. $(12,255) $2,476 $(8,115) $10,484
Other comprehensive income -- change in
unrealized gain (loss) on investment
securities (net of deferred tax
expense (benefit) of $217, $(596),
$(801), $1180 for the years ended
December 31, 1998, and 1997, two
months ended December 31, 1996, and
the year ended October 31, 1996)...... 354 (974) (1,364) 1,984
-------- ------ ------- -------
Comprehensive income (loss)............. $(11,901) $1,502 $(9,479) $12,468
======== ====== ======= =======
F-261
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED OCTOBER 31, 1996, THE TWO MONTHS ENDED DECEMBER 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
UNREALIZED
CLASS A CLASS A CLASS B ADDITIONAL GAIN (LOSS)
PREFERRED COMMON COMMON PAID-IN ACCUMULATED ON INVESTMENT
STOCK STOCK STOCK CAPITAL DEFICIT SECURITIES TOTAL
--------- ------- ------- ---------- ----------- ------------- --------
Balance, October 31, 1995............... $ -- $16 $17 $ -- $(28,187) $ -- $(28,154)
Conversion of 6,682,169 shares of
common stock to 5,719.49 shares of
preferred stock..................... 3,649 (2) (2) -- (3,645) -- --
Redemption of 5,427,305 shares of
common stock........................ -- (4) -- -- (2,958) -- (2,962)
Issuance of 6,441,062 shares of common
stock............................... -- 4 -- 62,745 -- -- 62,749
Conversion of 765,225 shares of Class
B common stock to Class A common
stock............................... -- 1 (1) -- -- -- --
Additional consideration for
redemption of common stock.......... -- -- -- (25,000) -- -- (25,000)
Exercise of stock options............. -- -- -- 315 -- -- 315
Unrealized gain on investment
securities, net of deferred taxes of
$1,180.............................. -- -- -- -- -- 1,984 1,984
Net earnings.......................... -- -- -- -- 10,849 -- 10,849
Dividends ($.006 per common share and
$63.80 per preferred share)......... -- -- -- -- (740) -- (740)
------ --- --- -------- -------- ------- --------
Balance, October 31, 1996............... 3,649 15 14 38,060 (24,681) 1,984 19,041
Issuance of 3,795,000 shares of common
stock............................... -- 3 -- 54,168 -- -- 54,171
Exercise of stock options............. -- -- -- 30 -- -- 30
Net loss.............................. -- -- -- -- (8,054) -- (8,054)
Dividends ($10.63 per preferred
share).............................. -- -- -- -- (61) -- (61)
Unrealized loss on investment
securities, net of deferred taxes of
$801................................ -- -- -- -- -- (1,364) (1,364)
------ --- --- -------- -------- ------- --------
Balance, December 31, 1996.............. 3,649 18 14 92,258 (32,796) 620 63,763
Exercise of stock options............. -- -- -- 3,448 -- -- 3,448
Conversion of 1,811,552 shares of
Class B common stock to Class A
common stock........................ -- 1 (1) -- -- -- --
Net earnings.......................... -- -- -- -- 2,841 -- 2,841
Dividends ($63.80 per preferred
share).............................. -- -- -- -- (365) -- (365)
Unrealized loss on investment
securities, net of deferred taxes of
$596................................ -- -- -- -- -- (974) (974)
Three-for-two stock split (Note 12)... -- 9 6 (15) -- -- --
------ --- --- -------- -------- ------- --------
Balance, December 31, 1997.............. 3,649 28 19 95,691 (30,320) (354) 68,713
Issuance of 13,338,005 shares of
common stock........................ -- 13 -- 399,288 -- -- 399,301
Exercise of stock options............. -- 1 -- 10,665 -- -- 10,666
Conversion of 1,062,912 shares of
Class B common stock to Class A
common stock........................ -- 1 (1) -- -- -- --
Net loss.............................. -- -- -- -- (11,890) -- (11,890)
Dividends ($63.80 per preferred
share).............................. -- -- -- -- (365) -- (365)
Realized loss on investment
securities, net of tax.............. -- -- -- -- -- 354 354
------ --- --- -------- -------- ------- --------
Balance December 31, 1998............... $3,649 $43 $18 $505,644 $(42,575) $ -- $466,779
====== === === ======== ======== ======= ========
See accompanying notes to consolidated financial statements.
F-262
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
Cash flows from operating activities:
Net earnings (loss)........................ $ (11,890) $ 2,841 $ (8,054) $ 10,849
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization........... 88,572 48,037 3,928 16,470
Loss (gain) on disposition of assets.... (1,152) (15) 76 91
Loss on debt extinguishment, net of
tax................................... -- -- 9,514 --
Deferred tax expense (benefit).......... (7,537) (2,839) 1,055 2,308
Provision for doubtful accounts......... 2,883 2,098 256 580
Changes in operating assets and
liabilities:
(Increase) decrease in:
Receivables........................... (2,464) (7,646) (4,524) (2,677)
Prepaid expenses...................... (521) (367) (28) 9
Other assets.......................... (1,929) 29 (180) (594)
Increase (decrease) in:
Trade accounts payable................ 250 (1,951) 249 828
Accrued expenses...................... 4,326 6,063 (3,121) 1,302
Deferred income....................... 2,132 (425) (38) 2,690
Other liabilities..................... (172) (42) 18 637
--------- --------- --------- --------
Net cash provided by (used in)
operating activities............. 72,498 45,783 (849) 32,493
--------- --------- --------- --------
Cash flows from investing activities:
Capital expenditures....................... (55,196) (36,654) (4,877) (25,944)
Purchase of new markets.................... (485,514) (386,842) (108,746) (23,029)
Proceeds from sale of property and
equipment............................... 5,493 53,268 225 849
--------- --------- --------- --------
Net cash used in investing
activities....................... (535,217) (370,228) (113,398) (48,124)
--------- --------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of common
stock................................... 402,629 2,403 54,927 63,064
Proceeds from issuance of long-term debt... 70 193,926 247,813 5,000
Principal payments on long-term debt....... (6,229) -- (110,143) --
Debt issuance costs........................ (3,035) -- -- --
Net borrowing (payments) under credit
agreements.............................. 191,000 54,720 (5,773) (41,187)
Redemption of common stock................. -- -- -- (7,962)
Dividends.................................. (365) (365) -- (740)
--------- --------- --------- --------
Net cash provided by financing
activities....................... 584,070 250,684 186,824 18,175
--------- --------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................ 121,351 (73,761) 72,577 2,544
Cash and cash equivalents at beginning of
period..................................... 7,246 81,007 8,430 5,886
--------- --------- --------- --------
Cash and cash equivalents at end of period... $ 128,597 $ 7,246 $ 81,007 $ 8,430
========= ========= ========= ========
Supplemental disclosures of cash flow
information:
Cash paid for interest..................... $ 56,960 $ 33,284 $ 6,573 $ 15,659
========= ========= ========= ========
Cash paid for income taxes................. $ 1,107 $ 8,792 $ 15 $ 3,756
========= ========= ========= ========
See accompanying notes to consolidated financial statements.
F-263
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1998, 1997 AND OCTOBER 31, 1996
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Lamar Advertising Company ("LAC" or the "Company") is engaged in the
outdoor advertising business operating approximately 71,900 outdoor advertising
displays in 36 states. The Company's operating strategy is to be the leading
provider of outdoor advertising services in most of the markets it serves, with
a historical emphasis on providing a full range of outdoor advertising services
in middle markets with a population ranking between 50 and 250 in the United
States.
In addition, the Company operates a logo sign business in 18 states
throughout the United States and in 1 province of Canada. Logo signs are erected
pursuant to state-awarded service contracts on public rights-of-way near highway
exits and deliver brand name information on available gas, food, lodging and
camping services. Included in the Company's logo sign business are tourism
signing contracts. Revenues of the logo sign business contributed approximately
8%, 10% and 10% of the Company's net revenues for the years ended December 31,
1998, 1997 and October 31, 1996, respectively.
(b) Principles of Consolidation
The accompanying consolidated financial statements include Lamar
Advertising Company, its wholly-owned subsidiary, The Lamar Corporation (TLC),
and their majority-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated using accelerated and straight-line methods over the estimated useful
lives of the assets.
(d) Intangible Assets
Intangible assets, consisting primarily of goodwill, customer lists and
contracts, and non-competition agreements are amortized using the straight-line
method over the assets estimated useful lives, generally from 5 to 15 years.
Debt issuance costs are deferred and amortized over the terms of the related
credit facilities using the interest method.
(e) Investment Securities
Investment securities at December 31, 1997 consisted of the Company's
investment in approximately 340,000 shares of common stock of Wireless One,
Inc., a publicly-held company in the wireless cable business. The former Chief
Executive Officer of Wireless One, Inc. is an employee and principal shareholder
of the Company and has been nominated for election as a director of the Company
at the 1999 Annual Meeting.
The Wireless One, Inc. shares were classified as available-for-sale at
December 31, 1997 and were carried at fair value with the unrealized gain or
loss, net of the related tax effect, reported as a separate component of
stockholders' equity. These shares were sold in May, 1998, resulting in a
realized loss of $875. The cost of the Wireless One, Inc. shares owned by the
Company was $1,250, and the market value was $679 at December 31, 1997.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-
F-264
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(g) Deferred Income
Deferred income consists principally of advertising revenue received in
advance and gains resulting from the sale of certain assets to related parties.
Deferred advertising revenue is recognized in income as services are provided
over the term of the contract. Deferred gains are recognized in income in the
consolidated financial statements at the time the assets are sold to an
unrelated party or otherwise disposed of.
(h) Revenue Recognition
The Company recognizes revenue from outdoor and logo sign advertising
contracts, net of agency commissions, on an accrual basis ratably over the term
of the contracts, as advertising services are provided.
(i) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(j) Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share." The calculation of basic earnings per share excludes any dilutive
effect of stock options, while diluted earnings per share includes the dilutive
effect of stock options.
(k) Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation," permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 has been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
F-265
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(l) Cash and Cash Equivalents
The Company considers all highly-liquid investments with original
maturities of three months or less to be cash equivalents.
(m) Reclassification of Prior Year Amounts
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year presentation. These
reclassifications had no effect on previously reported net earnings.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) CHANGE IN FISCAL YEAR END
Effective January 1, 1997, the Company changed its fiscal year from a
twelve-month period ending October 31 to a twelve-month period ending December
31. The year end change was made to conform to the predominant year ends within
the outdoor advertising industry. The consolidated statements of operations,
stockholders' equity and cash flows are presented for the twelve months ended
December 31, 1998, December 31, 1997, the two months ended December 31, 1996 and
for the twelve-months ended October 31, 1996.
(3) ACQUISITIONS
Year Ended October 31, 1996
During the year ended October 31, 1996, the Company completed twelve
acquisitions of outdoor advertising businesses, none of which were individually
significant, for an aggregate purchase price of $24,010. Each purchase was
accounted for under the purchase method of accounting, and, accordingly, the
accompanying financial statements include the results of operations of each
acquired entity from the date of acquisition. The Company recorded an aggregate
of approximately $6,100 of intangible assets as a result of these acquisitions.
Proforma net revenues, assuming these acquisitions had occurred on November 1,
1995, would have been approximately $123,000. The effect on net earnings and net
earnings per share would not have been material.
Fourteen Months Ended December 31, 1997
Effective November 1, 1996, the Company acquired all of the outstanding
capital stock of FKM Advertising, Co., Inc. for a cash purchase price of
approximately $40,000, and on December 10, 1996, the Company purchased
substantially all of the assets of Outdoor East, L.P. for a total cash purchase
price of approximately $60,500.
Effective April 1, 1997, the Company acquired all of the outstanding
capital stock of Penn Advertising, Inc. for a cash purchase price of
approximately $167,000. The Company subsequently sold approximately 16% of the
outdoor displays acquired to Universal Outdoor, Inc. for a cash purchase price
of $46,500.
F-266
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On June 3, 1997, the Company purchased substantially all of the assets of
Headrick Outdoor, Inc. for a cash purchase price of approximately $76,600.
Simultaneous with the acquisition, the Company sold approximately 9% of the
outdoor displays acquired for a total purchase price of $6,000.
On August 15, 1997, the Company purchased from Outdoor Systems, Inc.
("OSI") for a cash purchase price of approximately $116,000 (excluding
approximately $2,000 in capitalized costs), certain outdoor advertising assets
that OSI had acquired from National Advertising Company, a division of Minnesota
Mining and Manufacturing Company.
During the year ended December 31, 1997, the Company completed 22
additional acquisitions of outdoor advertising assets, none of which were
individually significant, for an aggregate cash purchase price of approximately
$21,000.
Each of these acquisitions were accounted for under the purchase method of
accounting, and, accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
acquisition costs have been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the acquisition costs in the above transactions.
The following unaudited financial information for the Company gives effect
to the acquisitions during the two months ended December 31, 1996 and the year
ended December 31, 1997 as if they had occurred on November 1, 1995. These
proforma results do not purport to be indicative of the results of operations
which actually would have resulted had the acquisitions occurred on such date,
or to project the Company's results of operations for any future period.
YEAR ENDED YEAR ENDED
DECEMBER 31, OCTOBER 31,
1997 1996
------------ -----------
Revenues, net............................................... $225,903 $207,023
Net loss applicable to common stock......................... (3,520) (8,977)
Net loss per common share (basic and diluted)............... (.07) (.22)
Year Ended December 31, 1998
On January 2, 1998, the Company purchased all the outdoor advertising
assets of Ragan Outdoor Advertising Company, Ragan Outdoor Advertising Company
of Cedar Rapids, and Ragan Outdoor Advertising Company of Rockford, L.L.C. for a
cash purchase price of $25,000.
On January 30, 1998, the Company acquired all of the outdoor advertising
assets of three related outdoor advertising companies (Pioneer Advertising
Company, Superior Outdoor Advertising Company and Overland Outdoor Advertising
Company, Inc.) located in Missouri and Arkansas for a cash purchase price of
$19,200.
F-267
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On April 30, 1998, the Company purchased all the outdoor advertising assets
of Northwest Outdoor Advertising, L.L.C. for a cash purchase price of
approximately $70,000. The acquired displays are located in the states of
Washington, Montana, Oregon, Idaho, Wyoming, Nebraska, Nevada and Utah.
On May 15, 1998, the Company purchased the assets of Odegard Outdoor
Advertising, L.L.C., for a cash purchase price of approximately $8,500. This
acquisition increases the Company's presence in the Kansas City, Missouri
market.
On May 29, 1998, the Company entered into an agreement to purchase from
Rainier Evergreen, Inc. or through its affiliates (i) all of the issued and
outstanding common stock of American Signs, Inc., (ii) the assets of the Sun
Media division and (iii) the assets of Sun Media of the Rockies, Inc. The asset
purchases were closed on that date; while the stock purchase was delayed due to
lease transfer issues involving the Bureau of Interior Affairs. The stock
purchase was completed in September, 1998. The total purchase price was $26,550.
On September 1, 1998, the Company entered into an agreement to purchase all
of the outdoor advertising assets of Nichols & Vann Advertising. The Company
paid a cash purchase price of $11,000 of which $6,100 is held on deposit as of
December 31, 1998, and is included in other assets in the accompanying balance
sheet at December 31, 1998.
On October 1, 1998, the Company purchased all of the outstanding stock of
OCI for a purchase price of $385,000. The purchase price included approximately
$235,000 in cash, the assumption of OCI debt of approximately $105,000 and the
issuance of notes in the aggregate amount of $45,000 to certain principal
stockholders of OCI. Pursuant to this acquisition, the Company acquired
approximately 14,700 displays in 12 states. Funds for this acquisition were
provided from borrowings under the New Revolving Credit Facility and the Term
Facility.
During the twelve months ended December 31, 1998, the Company completed 60
additional acquisitions of outdoor advertising assets, none of which were
individually significant, for an aggregate cash purchase price of approximately
$89 million and issuance of 63,005 shares of Class A common stock valued at
approximately $2,400.
Each of these acquisitions were accounted for under the purchase method of
accounting, and accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
acquisition costs have been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the acquisition costs in the above transactions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited pro forma financial information for the Company
gives effect to the 1998 and 1997 acquisitions as if they had occurred on
January 1, 1997. These pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the acquisitions
occurred on such date, or to project the Company's results of operations for any
future period.
YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
Revenues, net............................................... $342,101 $307,530
======== ========
Net loss applicable to common stock......................... $(25,455) $(35,117)
======== ========
Net loss per common share (basic and diluted)............... $ (.50) $ (.75)
======== ========
(4) NONCASH FINANCING AND INVESTING ACTIVITIES
A summary of significant noncash financing and investing activities for the
years ended December 31, 1998, 1997 and the year ended October 31, 1996 follows:
1998 1997 1996
------ ------ -------
Disposition of assets..................................... $ 30 $1,300 $ --
Acquisitions of assets.................................... 2,706 -- 2,104
Issuance of preferred stock in exchange for common
stock................................................... -- -- 3,649
Redemption of common stock for debt....................... -- -- 20,000
Conversion of note receivable to equity investment........ -- 500 --
Debt issuance costs....................................... -- 4,750 --
Significant noncash financing activities during the two months ended
December 31, 1996 include approximately $7,000 of debt issuance costs.
(5) PROPERTY, PLANT AND EQUIPMENT
Major categories of property, plant and equipment at December 31, 1998 and
December 31, 1997 are as follows:
ESTIMATED
LIFE
(YEARS) 1998 1997
--------- -------- --------
Land.................................................. -- $ 25,543 $ 15,185
Building and improvements............................. 10-39 28,924 20,672
Advertising structures................................ 15 576,676 371,491
Automotive and other equipment........................ 3-7 30,181 22,267
-------- --------
$661,324 $429,615
======== ========
F-269
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(6) INTANGIBLE ASSETS
The following is a summary of intangible assets at December 31, 1998 and
December 31, 1997:
The Company is party to various operating leases for production facilities
and sites upon which advertising structures are built. The leases expire at
various dates, generally during the next five years, and have varying options to
renew and to cancel. The following is a summary of minimum annual rental
payments required under those operating leases that have original or remaining
lease terms in excess of one year as of December 31:
Rental expense related to the Company's operating leases was $43,440,
$31,411 and $19,387 for the years ended December 31, 1998, December 31, 1997 and
October 31, 1996, respectively.
(8) ACCRUED EXPENSES
The following is a summary of accrued expenses at December 31, 1998 and
December 31, 1997:
In November 1996, the Company issued $255,000 in principal amount of 9 5/8
Senior Subordinated Notes due 2006 (the "1996 Notes"), with interest payable
semi-annually on June 1 and December 1 of each year. The 1996 Notes are senior
subordinated unsecured obligations of the Company and are subordinated in right
of payment to all senior indebtedness of the Company, pari passu with the 1997
Notes (as defined below), and are senior to all existing and future subordinated
indebtedness of the Company.
In September 1997, the Company issued $200,000 in principal amount of
8 5/8% Senior Subordinated Notes due 2007 (the "1997 Notes") with interest
payable semi-annually on March 15 and September 15 of each year, commencing
March 15, 1998. The 1997 Notes were issued at a discount for $198,676. The
Company is using the effective interest method to recognize the discount over
the life of the 1997 Notes. The 1997 Notes are senior subordinated unsecured
obligations of the Company, subordinated in right of payment to all senior
indebtedness of the Company, pari passu with the 1996 Notes and are senior to
all existing and future subordinated indebtedness of the Company.
The 1996 and 1997 Notes are redeemable at the Company's option at any time
on or after December 31, 2001 and September 15, 2002, respectively, at
redemption prices specified by the indentures, and are required to be
repurchased earlier in the event of a change of control of the Company. The
indentures covering the 1996 and 1997 Notes include certain restrictive
covenants which limit the Company's ability to incur additional debt, pay
dividends and make other restricted payments, consummate certain transactions
and other matters.
The Bank Credit Agreement provides the Company with a committed $225,000
revolving credit facility and a $75,000 incremental term facility to be funded
at the discretion of the lenders. As of December 31, 1997, there was $59,000
outstanding under the revolving credit facility and there were no borrowings
under the incremental term facility. The revolving credit facility bears
interest at a variable rate of interest based upon an
F-271
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
applicable margin over LIBOR or the prime rate. The weighted average interest
rate under the facility at December 31, 1997 was 7.93%.
The Bank Credit Agreement is guaranteed by the Company's subsidiaries and
secured by the capital stock of the Company's subsidiaries. The Bank Credit
Agreement contains various restrictive covenants, which require that the Company
meet certain minimum leverage, and coverage ratios, restrict additional
indebtedness, limit dividends and other restricted payments, limit capital
expenditures and disposition of assets, and other restrictions. In September
1997, the Company amended certain financial and other covenants in the Bank
Credit Facility, including increases in permitted capital expenditures and
permitted acquisitions.
In July, 1998, the Company entered into a new Bank Credit Agreement (the
"New Bank Credit Agreement") which consists of a committed $250,000 revolving
credit facility (the "New Revolving Credit Facility"), a $150,000 term facility
(the "Term Facility") and a $100,000 incremental facility (the "Incremental
Facility") funded at the discretion of the lenders. As of December 31, 1998, the
Company had borrowings outstanding of $150 million under the Term Facility, $100
million under the Incremental Facility, and $0 under the New Revolving Credit
Facility. The New Bank Credit Agreement replaced the Company's previous Bank
Credit Facility.
Availability of the line under the New Revolving Credit Facility is reduced
quarterly beginning with the quarter ended March 31, 2000, in the following
amounts:
March 31, 2000 -- December 31, 2001......................... $ 6,250
March 31, 2002 -- December 31, 2003......................... 9,375
March 31, 2004 -- December 31, 2004......................... 12,500
March 31, 2005 -- December 31, 2005......................... 18,750
The Term Facility will begin to amortize quarterly beginning September 30,
2000 in the following quarterly amounts:
September 30, 2000 -- December 31, 2000..................... $7,500
March 31, 2001 -- December 31, 2001......................... 3,750
March 31, 2002 -- December 31, 2005......................... 7,500
The Incremental Facility will begin quarterly principal reductions of
between 1% and 2% of the outstanding balance at the date the loans begin to
amortize, beginning with the quarter ended March 31, 2001 and ending June 30,
2006.
The Incremental Facility and the Term Facility bear interest at a variable
rate of interest based on the applicable margin over LIBOR or the prime rate.
The weighted average interest rate on borrowings under the Bank Credit Agreement
at December 31, 1998, was 7.37%
Revolving credit loans may be requested under the New Revolving Credit
Facility at any time prior to maturity. The loans bear interest, at the
Company's option, at the LIBOR Rate or Chase Prime Rate plus applicable margins,
such margins being set from time to time based on the Company's ratio of debt to
trailing twelve month EBITDA. EBITDA is defined in the New Bank Credit Agreement
as operating income before depreciation and amortization, a commonly used
measure of financial performance. The New Bank Credit Agreement contains
restrictive covenants comparable to those under the prior agreement, and of a
sort customary in credit facilities for outdoor advertising companies. The terms
of the Company's credit facility
F-272
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
and the indentures relating to the Company's outstanding notes restrict, among
other things, the Company's ability to:
- dispose of assets;
- incur or repay debt;
- create liens; and
- make investments.
Under the Company's credit facility the Company must maintain specified
financial ratios and levels including:
- cash interest coverage;
- fixed charge coverage;
- senior debt ratios; and
- total debt ratios.
The $103,949 of 9 1/4% Senior Subordinated Notes are due 2007, with
interest payable semi-annually on February 15 and August 15 of each year, and
were previously issued by OCI. The Notes are senior subordinated unsecured
obligations of the Company, subordinated in right of payment to all senior
indebtedness of the Company, and are senior to all existing and future
subordinated indebtedness of the Company.
In November 1996, the Company commenced a tender offer for all of its
$100,000 outstanding principal amount of 11% Senior Secured Notes due 2003 (the
"1993 Notes"). As of December 31, 1997, approximately $98,827 of the 1993 Notes
were tendered to the Company and retired. As a result of this tender offer and
the extinguishment of other credit facilities, the Company recorded a loss on
debt extinguishment of $9,514, net of income tax benefit of $5,660, during the
two months ended December 31, 1996 (see Note 2).
(10) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998,
December 31, 1997, the two months ended December 31, 1996, and the year ended
October 31, 1996, consists of:
CURRENT DEFERRED TOTAL
------- -------- ------
Year ended December 31, 1998:
U.S. federal............................................ $6,269 $(6,074) $ 195
State and local......................................... 1,077 (1,463) (386)
------ ------- ------
$7,346 $(7,537) $ (191)
Change in deferred tax attributable to unrealized losses
on investment securities, included in stockholders'
equity.................................................. -- 217 217
------ ------- ------
$7,346 $(7,320) $ 26
====== ======= ======
F-273
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CURRENT DEFERRED TOTAL
------- -------- ------
Year ended December 31, 1997:
U.S. federal............................................ $6,108 $(2,475) $3,633
State and local......................................... 1,385 (364) 1,021
------ ------- ------
$7,493 $(2,839) $4,654
Change in deferred tax attributable to unrealized losses
on investment securities, included in stockholders'
equity.................................................. -- (596) (596)
------ ------- ------
$7,493 $(3,435) $4,058
====== ======= ======
Two months ended December 31, 1996:
U.S. federal............................................ $ -- $ 1,028 $1,028
State and local......................................... 144 27 171
------ ------- ------
$ 144 $ 1,055 $1,199
Change in deferred tax attributable to unrealized losses
on investment securities, included in stockholders'
equity.................................................. -- (379) (379)
------ ------- ------
$ 144 $ 676 $ 820
====== ======= ======
Year ended October 31, 1996:
U.S. federal............................................ $3,991 $ 2,683 $6,674
State and local......................................... 800 (375) 425
------ ------- ------
$4,791 $ 2,308 $7,099
Change in deferred tax attributable to unrealized gains on
investment securities, included in stockholders'
equity.................................................. -- 1,180 1,180
------ ------- ------
$4,791 $ 3,488 $8,279
====== ======= ======
Income tax expense (benefit) attributable to continuing operations for the
years ended December 31, 1998 and 1997, the two months ended December 31, 1996,
and the year ended October 31, 1996, differs from the amounts computed by
applying the U.S. federal income tax rate of 34 percent to earnings before
income taxes as follows:
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
Computed "expected" tax expense
(benefit).......................... $(4,108) $2,548 $ 904 $6,102
Increase (reduction) in income taxes
resulting from:
Book expenses not deductible for
tax purposes.................... 450 92 18 110
Amortization of non-deductible
goodwill........................ 3,752 1,730 -- --
State and local income taxes, net
of federal income tax benefit... (255) 674 113 281
Other differences, net............. (30) (390) 164 606
------- ------ ------ ------
$ (191) $4,654 $1,199 $7,099
======= ====== ====== ======
F-274
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are presented below:
1998 1997
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation........................................... $ (4,915) $ (3,125)
Plant and equipment, due to basis differences on
acquisitions........................................... (28,556) (15,582)
Intangibles, due to differences in amortizable lives...... (5,058) (5,646)
-------- --------
Deferred tax liabilities.......................... (38,529) (24,353)
Deferred tax assets:
Receivables, principally due to allowance for doubtful
accounts............................................... 1,151 511
Plant and equipment, due to basis differences on
acquisitions and costs capitalized for tax purposes.... 4,530 4,823
Investment in affiliates and plant and equipment, due to
gains recognized for tax purposes and deferred for
financial reporting purposes........................... 941 941
Accrued liabilities not deducted for tax purposes......... 2,125 1,384
Net operating loss carryforward........................... 3,563 1,673
Unrealized losses on investment securities................ -- 217
Other, net................................................ 606 117
-------- --------
Deferred tax assets............................... 12,916 9,666
-------- --------
Net deferred tax liability........................ $(25,613) $(14,687)
======== ========
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,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences. The amount of the deferred
tax assets considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
(11) RELATED PARTY TRANSACTIONS
Affiliates, as used within these statements, are persons or entities that
are affiliated with Lamar Advertising Company or its subsidiaries through common
ownership and directorate control.
As of December 31, 1998, and December 31, 1997, debentures and ten year
subordinated notes totaling $16,749 and $19,153, respectively, are owned by
shareholders, directors and employees. Interest expense under the debentures and
ten year subordinated notes during the years ended December 31, 1998, December
31, 1997, and October 31, 1996 was $1,497, $1,719 and $494, respectively.
(12) STOCKHOLDERS' EQUITY
On December 31, 1997, the Board of Directors approved a three-for-two split
of its Class A and Class B common stock subject to the approval by the
shareholders of an increase in the authorized number of shares of
F-275
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Class A and Class B common stock. On February 26, 1998, the shareholders
approved an increase in the authorized number of shares of Class A common stock
to 75,000,000 and Class B common stock to 37,500,000. The stock split, which was
effected by means of a 50% stock dividend, was paid to shareholders on February
27, 1998. Par value of the common stock remained unchanged at $.001. Common
stock and additional paid in capital were adjusted to reflect the split as of
December 31, 1997. All references to share and per share information in the
consolidated financial statements and related footnotes have been restated to
reflect the effect of the split for all periods presented.
During 1995 and 1996, the Company repurchased 3.6% and 12.9%, respectively,
of its then outstanding common stock (1,830,750 and 5,427,305 shares,
respectively) from certain of its existing stockholders for an aggregate
purchase price of approximately $4 million. The terms of such repurchases
entitled the selling stockholders to receive additional consideration from the
Company in the event that the Company consummated a public offering of its
common stock at a higher price within 24 months of the repurchase. In
satisfaction of that obligation, upon completion of the Company's initial public
equity offering in August 1996, the Company paid the selling stockholders an
aggregate of $5.0 million in cash and issued to them ten-year subordinated notes
in the aggregate principal amount of $20,000. The notes bear interest at 8% (1%
above the ten-year treasury note rate when issued) and are payable in monthly
installments of $167, plus interest. The balance outstanding under these notes
at December 31, 1998 and December 31, 1997, was $15,333 and $17,319,
respectively.
In June, 1998, the Company completed a public offering of 6,375,000 shares
of Class A Common Stock at $29.00 per share. Net proceeds to the Company after
underwriting discounts from the equity offering were $177.5 million. These
proceeds were used to pay down outstanding bank debt of approximately $173.0
million with the remainder used for operations.
In December, 1998, the Company completed a public offering of 6,900,000
shares of Class A Common Stock at $35 per share. Net proceeds to the Company
after underwriting discounts from the equity offering were $219.8 million. These
proceeds were used to pay down outstanding bank debt of approximately $99.0
million with the remainder used for debt reduction and acquisitions in 1999.
The rights of the Class A and Class B common stock are equal in all
respects, except holders of Class B common stock have ten votes per share on all
matters in which the holders of common stock are entitled to vote and holders of
Class A common stock have one vote per share on such matters. The Class B common
stock will convert automatically into Class A common stock upon the sale or
transfer to persons other than permitted transferees (as defined in the
Company's certificate of incorporation, as amended).
(13) STOCK OPTION PLAN
In 1996, the Company adopted the 1996 Equity Incentive Plan (the "1996
Plan"). The purpose of the 1996 Plan is to attract and retain key employees and
consultants of the Company. The 1996 Plan authorizes the grant of stock options,
stock appreciation rights and restricted stock to employees and consultants of
the Company capable of contributing to the Company's performance. Options
granted under the 1996 Plan generally become exercisable over a five-year period
and expire 10 years from the date of grant. The Company initially reserved an
aggregate of 3,000,000 shares of Class A Common Stock (as adjusted for the
Company's February 1998 three-for-two stock split) for awards under the 1996
Plan. In September, 1998, the Board of Directors of the Company voted to
increase the number of shares reserved for issuance under the 1996 Plan by
1,000,000 shares to 4,000,000 shares, subject to the approval of the
stockholders of the Company, at its next regularly scheduled shareholders'
meeting.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has
F-276
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
been recognized for the stock option grants. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date for awards in 1996, 1997 and 1998, consistent with the provisions of SFAS
No. 123, the Company's net earnings (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated below:
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
Net earnings (loss) applicable to
common stock -- as reported........ $(12,255) $2,476 $(8,115) $10,484
======== ====== ======= =======
Net earnings (loss) applicable to
common stock -- pro forma.......... $(15,145) $ (603) $(8,666) $ 8,891
======== ====== ======= =======
Earnings (loss) per common share --as
reported (basic and diluted)....... $ (.24) $ .05 $ (.18) $ .25
======== ====== ======= =======
Earnings (loss) per common
share -- pro forma (basic and
diluted)........................... $ (.29) $ (.01) $ (.19) $ .22
======== ====== ======= =======
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used:
Information regarding the 1996 Plan for the years ended December 31, 1998
and December 31, 1997, two months ended December 31, 1996, and year ended
October 31, 1996, is as follows:
TWO MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 OCTOBER 31, 1996
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- -------- --------- --------
Outstanding, beginning of
year...................... 1,868,804 $11.60 1,774,896 $10.85 1,742,753 $10.67 -- $ --
Granted..................... 950,500 29.88 399,000 15.20 36,750 17.93 1,772,250 10.67
Exercised................... (538,154) 10.84 (225,256) 10.67 (2,844) 10.67 (29,497) 10.67
Canceled.................... (40,583) 18.24 (79,836) 10.96 (1,763) 10.67 -- --
--------- ------ --------- ------ --------- ------ --------- ------
Outstanding, end of year.... 2,240,567 $19.25 1,868,804 $11.60 1,774,896 $10.85 1,742,753 $10.67
========= ====== ========= ====== ========= ====== ========= ======
Price for exercised
shares.................... $ 10.84 $ 10.67 $ 10.67 $ 10.67
Shares available for grant,
end of year............... 963,682 873,599 1,192,763 1,227,750
Weighted average fair value
of options granted during
the year.................. $ 13.09 $ 7.18 $ 10.06 $ 4.14
F-277
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1998:
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
------------------------ ------------ ----------- -------- ------------ --------
$ 10.67......................... 979,467 7.62 $10.67 333,849 $10.67
10.67-13.67......................... 149,000 7.66 13.25 17,750 13.25
13.83-18.42......................... 137,100 7.63 16.86 1,200 17.67
26.17......................... 63,000 8.14 22.79 0 0
26.69......................... 209,000 7.61 26.69 0 0
30.34......................... 694,000 7.62 30.34 116,100 30.34
37.50......................... 9,000 7.60 37.50 0 0
No stock appreciation rights or restricted stock authorized by the 1996
Plan have been granted.
(14) COMMITMENTS AND OTHER CONTINGENCIES
The Company sponsors a partially self-insured group health insurance
program. The Company is obligated to pay all claims under the program, which are
in excess of premiums, up to program limits of $150 per employee, per claim, per
year. The Company is also self-insured with respect to its income disability
benefits and against casualty losses on advertising structures. Amounts for
expected losses, including a provision for losses incurred but not reported, is
included in accrued expenses in the accompanying consolidated financial
statements. The Company maintains a $500 letter of credit with a bank to meet
requirements of the Company's worker's compensation insurance carrier.
The Company sponsors The Lamar Corporation Savings and Profit Sharing Plan
covering employees who have completed one year of service and are at least 21
years of age. The Company matches 50% of employees' contributions up to 5% of
related compensation. Employees can contribute up to 15% of compensation. Full
vesting on the Company's matched contributions occurs after five years.
Annually, at the Company's discretion, an additional profit sharing contribution
may be made on behalf of each eligible employee. In total, for the years ended
December 31, 1998, December 31, 1997 and October 31, 1996, the Company
contributed $952, $1,181 and $1,262, respectively.
The Company sponsors a Deferred Compensation Plan for the benefit of
certain of its senior management who meet specific age and years of service
criteria. Employees who have attained the age of 30 and have a minimum of 10
years of service are eligible for annual contributions to the Plan generally
ranging from $3 to $8, depending on the employee's length of service. LAC's
contributions to the Plan are maintained in a "rabbi" trust and, accordingly,
the assets and liabilities of the Plan are reflected in the balance sheet of
LAC. Upon termination, death or disability, participating employees are eligible
to receive an amount equal to the fair market value of the assets in the
employee's deferred compensation account. The Company has contributed $406, $190
and $182 to the Plan during the years ended December 31, 1998, December 31,
1997, and October 31, 1996, respectively. Contributions to the Deferred
Compensation Plan are discretionary and are determined by the Board of
Directors.
The Company is the subject of litigation arising during the normal course
of business. In the opinion of management and the general counsel of the
Company, those claims will not have a material impact on the financial position,
results of operations or liquidity of the Company.
F-278
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(15) SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES
Except as set forth below, separate financial statements of each of the
Company's direct or indirect subsidiaries that have guaranteed the Company's
obligations under the 1996 Notes and the 1997 Notes (collectively, the
"Guarantors") are not included herein because the Guarantors are jointly and
severally liable under the guarantees, and the aggregate assets, liabilities,
earnings and equity of the Guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the Company on a consolidated basis.
Summarized financial information for Missouri Logos, a Partnership, a
66 2/3% owned subsidiary of the Company and the only subsidiary of the Company
that is not a Guarantor, is set forth below:
1998 1997
---- ----
Balance Sheet Information:
Current assets............................................ $248 $237
Total assets.............................................. 297 290
Current liabilities....................................... 7 7
Total liabilities......................................... 7 7
Venturers' equity......................................... 290 283
1998 1997 1996
------ ---- ----
Income Statement Information:
Revenues.................................................. $1,038 $991 $931
Net income................................................ 523 540 545
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1998 and 1997. The fair
value of the financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Marketable investment securities................... $ -- $ -- $ 679 $ 679
Long-term debt..................................... $827,453 $874,091 $534,091 $575,198
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies as follows:
- The carrying amounts of cash and cash equivalents, receivables, trade
accounts payable, accrued expenses, and deferred income approximate fair
value because of the short term nature of these items.
- The fair value of the Company's marketable investment securities are
based on quoted market prices.
- The fair value of long-term debt is based upon market quotes obtained
from dealers where available and by discounting future cash flows at
rates currently available to the Company for similar instruments when
quoted market rates are not available.
Fair value estimates are subject to inherent limitations. Estimates of fair
values are made at a specific point in time, based on relevant market
information and information about the financial instrument. The estimated fair
values of financial instruments presented above are not necessarily indicative
of amounts the
F-279
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Company might realize in actual market transactions. Estimates of fair value are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL YEAR 1998 QUARTERS
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Net revenues..................................... $58,397 $69,675 $73,528 $86,988
Net revenues less direct advertising expenses.... 37,567 48,066 51,271 58,835
Net earnings (loss) applicable to common stock... (4,682) (1,253) 1,538 (7,858)
Net earnings per common share (basic)............ (.10) (.02) .03 (.15)
Net earnings per common share (diluted).......... (.10) (.02) .03 (.15)
FISCAL YEAR 1997 QUARTERS
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Net revenues..................................... $37,847 $50,108 $55,485 $57,622
Net revenues less direct advertising expenses.... 24,380 34,625 38,974 39,693
Net earnings (loss) applicable to common stock... 1,205 1,402 916 (1,047)
Net earnings (loss) per common share (basic)..... .03 .03 .02 (.02)
Net earnings (loss) per common share (diluted)... .03 .03 .02 (.02)
(18) NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, and requires that the costs of start-up
activities, including organizational costs, be expensed as incurred. At December
31, 1998, the Company estimates that $1,169, of such capitalized costs are
included in intangible assets on the Company's balance sheet.
The effect of SOP 98-5 will be recorded in the first quarter of fiscal 1999
as the cumulative effect of a change in accounting principle, as described in
Accounting Principles Board Opinion No. 20 "Accounting Changes."
(19) SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company purchased substantially all of
the assets of four outdoor advertising companies for a total purchase price of
approximately $63,000 in cash. The acquisitions will be accounted for under the
purchase method of accounting.
F-280
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
Cash and cash equivalents................................... $ 8,171 $ 128,597
Receivables:
Trade accounts, net....................................... 40,242 39,681
Affiliates, related parties and employees................. 470 378
Other..................................................... 330 321
---------- ----------
Net receivables................................... 41,042 40,380
Prepaid expenses............................................ 12,856 12,346
Other current assets........................................ 4,717 1,736
---------- ----------
Total current assets.............................. 66,786 183,059
---------- ----------
Property, plant and equipment............................... 687,523 661,324
Less accumulated depreciation and amortization............ (166,028) (153,972)
---------- ----------
Net property, plant and equipment................. 521,495 507,352
---------- ----------
Intangible assets........................................... 752,809 705,934
Receivables -- noncurrent................................... 3,183 1,972
Other assets................................................ 14,264 15,060
---------- ----------
Total assets...................................... $1,358,537 $1,413,377
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 4,064 $ 4,258
Accrued expenses.......................................... 22,061 25,912
Current maturities of long-term debt...................... 4,165 49,079
Deferred income........................................... 10,279 9,589
---------- ----------
Total current liabilities......................... 40,569 88,838
Long-term debt.............................................. 829,288 827,453
Deferred tax liability...................................... 23,998 25,613
Deferred income............................................. 1,313 1,293
Other liabilities........................................... 4,464 3,401
---------- ----------
Total liabilities................................. 899,632 946,598
---------- ----------
Stockholders' equity:
Class A preferred stock, par value $638, $63.80 cumulative
dividends, authorized 10,000 shares; 5,719.49 shares
issued and outstanding................................. 3,649 3,649
Class A common stock, $.001 par value, authorized
75,000,000 shares; issued and outstanding 43,514,283
shares and 43,392,876 shares at March 31, 1999 and
December 31, 1998, respectively........................ 43 43
Class B common stock, $.001 par value, authorized
37,500,000 shares; issued and outstanding 17,699,997... 18 18
Additional paid-in capital................................ 508,567 505,644
Accumulated deficit....................................... (53,372) (42,575)
---------- ----------
Stockholders' equity...................................... 458,905 466,779
---------- ----------
Total liabilities and stockholders' equity........ $1,358,537 $1,413,377
========== ==========
See accompanying notes to consolidated financial statements
F-281
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- -----------
Revenues
Outdoor advertising, net.................................. $ 85,766 $ 58,397
----------- -----------
Operating expenses:
Direct advertising expenses............................... 29,764 20,830
Selling, general and administrative expenses.............. 20,099 13,216
Depreciation and amortization............................. 31,561 17,605
----------- -----------
81,424 51,651
----------- -----------
Operating income.................................. 4,342 6,746
----------- -----------
Other expense (income):
Interest income........................................... (686) (107)
Interest expense.......................................... 18,145 13,326
Gain on disposition of assets............................. (336) (317)
----------- -----------
17,123 12,902
----------- -----------
Loss before income taxes and cumulative effect of a change
in accounting principle................................ (12,781) (6,156)
Income tax benefit.......................................... (2,842) (1,565)
----------- -----------
Loss before cumulative effect of a change in accounting
principle.............................................. (9,939) (4,591)
Cumulative effect of a change in accounting principle, net
of tax.................................................... (767) --
----------- -----------
Net loss.......................................... (10,706) (4,591)
Preferred stock dividends................................... (91) (91)
----------- -----------
Net loss applicable to common stock......................... $ (10,797) $ (4,682)
=========== ===========
Loss before cumulative effect of a change in accounting
principle per common share -- basic and diluted........... $ (.17) $ (.10)
=========== ===========
Cumulative effect of a change in accounting principle, net
of tax, per common share -- basic and diluted............. $ (.01) $ --
=========== ===========
Net loss per common share -- basic.......................... $ (.18) $ (.10)
=========== ===========
Net loss per common share -- diluted........................ $ (.18) $ (.10)
=========== ===========
Weighted average common shares outstanding.................. 61,143,351 47,350,919
Incremental common shares from dilutive stock options....... -- --
----------- -----------
Weighted average common shares assuming dilution............ 61,143,351 47,350,919
=========== ===========
See accompanying notes to consolidated financial statements
F-282
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- -------
Net loss applicable to common stock......................... $(10,797) $(4,682)
Other comprehensive income -- change in unrealized loss on
investment securities (net of deferred tax benefit of
$(133) for the three months ending March 31, 1998)........ -- (217)
-------- -------
Comprehensive loss.......................................... $(10,797) $(4,899)
======== =======
F-283
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (10,706) $ (4,591)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 31,561 17,605
Gain on disposition of assets............................. (336) (317)
Deferred taxes............................................ (2,319) (1,550)
Provision for doubtful accounts........................... 941 551
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables............................................ (1,923) 2,772
Prepaid expenses....................................... (11) (115)
Other assets........................................... (1,915) (2,315)
Increase (decrease) in:
Trade accounts payable................................. (194) (444)
Accrued expenses....................................... (6,432) (1,178)
Other liabilities...................................... 37 20
Deferred income........................................ 675 570
--------- --------
Net cash provided by operating activities......... 9,378 11,008
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable................................ (1,184) (250)
Acquisition of new markets.................................. (74,930) (54,990)
Capital expenditures........................................ (12,581) (11,069)
Proceeds from disposition of assets......................... 749 579
--------- --------
Net cash used in investing activities............. (87,946) (65,730)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. 1,312 2,601
Principal payments on long-term debt........................ (45,939) (1,063)
Proceeds from issuance of notes payable..................... 2,860 70
Net borrowings under credit agreements...................... -- 50,000
Dividends................................................... (91) (91)
--------- --------
Net cash provided by (used in) financing
activities...................................... (41,858) 51,517
--------- --------
Net decrease in cash and cash equivalents................... (120,426) (3,205)
Cash and cash equivalents at beginning of period............ 128,597 7,246
--------- --------
Cash and cash equivalents at end of period.................. $ 8,171 $ 4,041
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 18,835 $ 10,783
========= ========
Cash paid for state and federal income taxes................ $ 570 $ 848
========= ========
See accompanying notes to consolidated financial statements
F-284
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for the interim periods presented
have been reflected herein. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire year.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K.
Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share." The calculations of basic earnings per share excludes any dilutive
effect of stock options, while diluted earnings per share includes the dilutive
effect of stock options. Antidilutive shares of 598,848 and 611,296 for the
three months ended March 31, 1999 and 1998 have been excluded from the
calculation of diluted earnings per share.
Certain amounts in the prior year's consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net earnings.
New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP 98-5"), Reporting on the Costs of Start-Up
Activities. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, and requires that the costs of start-up
activities, including organizational costs, be expensed as incurred. The effect
of SOP 98-5 is recorded as a cumulative effect of a change in accounting
principle as described in Accounting Principles Board Opinion No. 20 "Accounting
Changes."
2. ACQUISITIONS
On January 5, 1999, the Company purchased all the outdoor advertising
assets of American Displays, Inc. for a cash purchase price of approximately
$14,511.
On February 1, 1999, the company purchased all of the outdoor advertising
assets of KJS, LLC for a cash purchase price of $40,494.
During the three months ended March 31, 1999, the company completed 17
additional acquisitions for an aggregate cash purchase price of approximately
$20,000 and issuance of 13,023 shares of class A common stock valued at
approximately $475.
Each of these acquisitions were accounted for under the purchase method of
accounting, and, accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
acquisition costs have been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the acquisition costs in the above transactions.
\
F-285
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Summarized below are certain unaudited pro forma statement of operations
data for the three months ended March 31, 1999 and March 31, 1998 as if each of
the above acquisitions and the acquisitions occurring in 1998, which were fully
described in the Company's December 31, 1998 Annual Report on Form 10K, had been
consummated as of January 1, 1998. This pro forma information does not purport
to represent what the Company's results of operations actually would have been
had such transactions occurred on the date specified or to project the Company's
results of operations for any future periods.
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
Revenues, net............................................... $ 86,244 $ 79,691
Net loss applicable to common stock......................... (11,012) (13,021)
Net loss per common share -- basic.......................... (.18) (.27)
Net loss per common share -- diluted........................ (.18) (.27)
3. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES
Separate financial statements of each of the Company's direct or indirect
wholly owned subsidiaries that have guaranteed the Company's obligations with
respect to its publicly issued notes (collectively, the "Guarantors") are not
included herein because the Guarantors are jointly and severally liable under
the guarantees, and the aggregate assets, liabilities, earnings and equity of
the Guarantors are substantially equivalent to the assets, liabilities, earnings
and equity of the Company on a consolidated basis.
Summarized financial information for Missouri Logos, a Partnership, a
66 2/3% owned subsidiary of the Company and the only subsidiary of the Company
that is not a Guarantor, is set forth below:
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
Balance Sheet Information:
Current assets............................................ $208 $248
Total assets.............................................. 256 297
Total liabilities......................................... -- 7
Venturers' equity......................................... 256 290
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
--------- ------------
(UNAUDITED)
Income Statement Information:
Revenues.................................................. $274 $264
Net income................................................ 214 162
F-286
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Company purchased substantially all of
the assets of two outdoor advertising companies for a total purchase price of
approximately $23,200 in cash. The acquisitions will be accounted for under the
purchase method of accounting.
F-287
ANNEX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
CHANCELLOR MEDIA CORPORATION,
CAPSTAR BROADCASTING CORPORATION,
CBC ACQUISITION COMPANY, INC.
AND
CMC MERGER SUB, INC.
DATED AS OF APRIL 29, 1999
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER............................................................. 2
1.1 The Merger........................................................... 2
1.2 Closing.............................................................. 2
1.3 Effective Time....................................................... 2
1.4 Certificate of Incorporation......................................... 2
1.5 Bylaws............................................................... 3
1.6 Directors............................................................ 3
1.7 Officers............................................................. 3
1.8 Effect on Capstar Capital Stock...................................... 3
(a) Outstanding Capstar Common Stock.......................... 3
(b) Treasury Shares........................................... 3
(c) Impact of Stock Splits, etc. ............................. 4
1.9 Effect on Chancellor Capital Stock................................... 4
1.10 Effect on Merger Sub Capital Stock................................... 4
1.11 Exchange of Certificates............................................. 4
(a) Paying Agent.............................................. 4
(b) Exchange Procedures....................................... 4
(c) Letter of Transmittal..................................... 5
(d) Distributions with Respect to Unexchanged Shares.......... 5
(e) No Further Ownership Rights in Capstar Common Stock....... 5
(f) No Fractional Shares...................................... 6
(g) Termination of Payment Fund............................... 6
(h) No Liability.............................................. 6
(i) Withholding of Tax........................................ 7
1.12 Dissenting Shares.................................................... 7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF CAPSTAR.............................. 7
2.1 Organization, Standing and Corporate Power........................... 7
2.2 Capital Structure.................................................... 8
2.3 Authority; Noncontravention.......................................... 9
2.4 Capstar SEC Documents; Financial Statements.......................... 10
2.5 Absence of Certain Changes or Events................................. 11
2.6 No Extraordinary Payments or Change in Benefits...................... 12
2.7 Voting Requirements.................................................. 12
2.8 State Takeover Statutes.............................................. 12
2.9 Capstar FCC Licenses; Operations of Capstar Licensed Facilities...... 12
2.10 Brokers.............................................................. 13
2.11 FCC Qualification.................................................... 14
2.12 Compliance With Applicable Laws...................................... 14
2.13 Absence of Undisclosed Liabilities................................... 14
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2.14 Litigation........................................................... 14
2.15 Transactions With Affiliates......................................... 15
2.16 Labor Matters........................................................ 15
2.17 Employee Arrangements and Benefit Plans.............................. 15
2.18 Tax Matters.......................................................... 16
2.19 Intellectual Property................................................ 17
2.20 Environmental Matters................................................ 18
2.21 Material Agreements.................................................. 19
2.22 Tangible Property.................................................... 19
2.23 Opinion of Financial Advisors........................................ 19
2.24 No Other Representations and Warranties.............................. 20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF CHANCELLOR........................... 20
3.1 Organization, Standing and Corporate Power........................... 20
3.2 Capital Structure.................................................... 20
3.3 Authority; Noncontravention.......................................... 21
3.4 Chancellor SEC Documents; Financial Statements....................... 23
3.5 Absence of Certain Changes or Events................................. 23
3.6 No Extraordinary Payments or Change in Benefits...................... 24
3.7 Brokers.............................................................. 24
3.8 Opinion of Financial Advisors........................................ 25
3.9 Absence of Undisclosed Liabilities................................... 25
3.10 Litigation........................................................... 25
3.11 Transactions With Affiliates......................................... 25
3.12 Voting Requirements.................................................. 26
3.13 FCC Qualification.................................................... 26
3.14 Employee Arrangements and Benefit Plans.............................. 26
3.15 Tax Matters.......................................................... 26
3.16 Intellectual Property................................................ 27
3.17 Environmental Matters................................................ 28
3.18 Compliance With Applicable Laws...................................... 28
3.19 Chancellor FCC Licenses; Operations of Chancellor Licensed 28
Facilities...........................................................
3.20 State Takeover Statutes.............................................. 29
3.21 Chancellor Common Stock.............................................. 30
3.22 No Other Representations and Warranties.............................. 30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MERGER SUB........................... 30
4.1 Organization, Standing and Corporate Power........................... 30
4.2 Capital Structure.................................................... 30
4.3 Authority; Noncontravention.......................................... 30
4.4 No Prior Activities.................................................. 31
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ARTICLE 5 ADDITIONAL AGREEMENTS.................................................. 31
5.1 Preparation of Form S-4 and Joint Proxy Statement/Prospectus;
Information Supplied................................................. 31
5.2 Stockholder Approval................................................. 32
5.3 Access To Information; Confidentiality............................... 34
5.4 Public Announcements................................................. 34
5.5 Acquisition Proposals................................................ 34
5.6 Consents, Approvals and Filings...................................... 36
5.7 Affiliates Letters................................................... 36
5.8 Nasdaq or Exchange Listing........................................... 36
5.9 Indemnification...................................................... 37
5.10 Letter of Chancellor's Accountants................................... 37
5.11 Letter of Capstar's Accountants...................................... 37
5.12 [Intentionally left blank.].......................................... 38
5.13 Senior Credit Facility Consents...................................... 38
5.14 Section 16(b) Board Approval......................................... 38
5.15 Termination of or Waiver of Rights Under Stockholders Agreements..... 39
5.16 Chancellor Registration Rights....................................... 39
ARTICLE 6 COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER..............
39
6.1 Conduct of Business.................................................. 39
6.2 Capstar Stock Options................................................ 41
6.3 Capstar Warrants..................................................... 42
6.4 Other Actions........................................................ 43
ARTICLE 7 CONDITIONS PRECEDENT................................................... 43
7.1 Conditions to Each Party's Obligation to Effect the Merger........... 43
(a) Stockholder Approval...................................... 43
(b) FCC Order................................................. 43
(c) Governmental and Regulatory Consents...................... 43
(d) HSR Act................................................... 43
(e) No Injunctions or Restraints.............................. 43
(f) Nasdaq or Exchange Approval............................... 43
(g) Form S-4.................................................. 44
(h) [Intentionally left blank.]............................... 44
(i) [Intentionally left blank.]............................... 44
(j) Consent of Senior Lenders................................. 44
7.2 Conditions to Obligations of Capstar................................. 44
(a) Representations and Warranties............................ 44
(b) Performance of Obligations of Chancellor and Merger Sub... 44
(c) Tax Opinion............................................... 44
(d) Chancellor Registration Rights............................ 45
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7.3 Conditions to Obligations of Chancellor.............................. 45
(a) Representations and Warranties............................ 45
(b) Performance of Obligations of Capstar..................... 45
(c) Tax Opinion............................................... 45
(d) Material Agreements....................................... 45
(e) Financial Services Agreements............................. 45
(f) Dissenting Shares......................................... 46
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER...................................... 46
8.1 Termination.......................................................... 46
8.2 Effect of Termination................................................ 47
8.3 Amendment............................................................ 48
8.4 Extension; Consent; Waiver........................................... 48
8.5 Procedure for Termination, Amendment, Extension, Consent or Waiver... 48
ARTICLE 9 SURVIVAL OF PROVISIONS................................................. 48
9.1 Survival............................................................. 48
ARTICLE 10 NOTICES............................................................... 49
10.1 Notices.............................................................. 49
ARTICLE 11 MISCELLANEOUS......................................................... 50
11.1 Entire Agreement..................................................... 50
11.2 Expenses............................................................. 50
11.3 Counterparts......................................................... 51
11.4 No Third Party Beneficiary........................................... 51
11.5 Governing Law........................................................ 51
11.6 Assignment; Binding Effect........................................... 51
11.7 Headings, Gender, Etc. .............................................. 51
11.8 Invalid Provisions................................................... 51
11.9 No Recourse Against Others........................................... 51
11.10 Release of Old Merger Sub............................................ 52
ANNEXES
Annex I Certificate of Incorporation of Merger Sub
Annex II Form of Second Amended and Restated Certificate of
Incorporation of Chancellor
Annex III Bylaws of Merger Sub
Annex IV Form of Affiliate Letter
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
as of April 29, 1999, is being entered into by and among CHANCELLOR MEDIA
CORPORATION, a Delaware corporation ("Chancellor"), CAPSTAR BROADCASTING
CORPORATION, a Delaware corporation ("Capstar"), CBC ACQUISITION COMPANY, INC.,
a Delaware corporation and wholly-owned subsidiary of Capstar ("Old Merger
Sub"), and CMC MERGER SUB, INC., a Delaware corporation and wholly-owned
subsidiary of Chancellor ("Merger Sub").
RECITALS
WHEREAS, Chancellor, Capstar and Old Merger Sub are parties to that certain
Agreement and Plan of Merger, dated as of August 26, 1998 (the "Old Agreement");
WHEREAS, Chancellor and Capstar still deem it advisable and in the best
interests of their respective stockholders to combine their respective
businesses in a strategic merger as contemplated by the Old Agreement;
WHEREAS, Chancellor, Capstar and Old Merger Sub desire hereby to amend and
restate the Old Agreement in its entirety and to add Merger Sub as a party to
the Agreement and to release Old Merger Sub from any obligations under the Old
Agreement;
WHEREAS, subject to the terms and conditions set forth herein, (i) the Board of
Directors of Capstar, upon the recommendation of a duly authorized special
committee thereof (consisting of Capstar's independent director) (the "Capstar
Special Committee"), has approved and declared advisable the merger of Merger
Sub with and into Capstar, (ii) the Board of Directors of Chancellor, including
a majority of the independent directors thereof, has approved and declared
advisable the foregoing merger and the other transactions contemplated by this
Agreement, and (iii) the Board of Directors of Merger Sub has approved and
declared advisable the foregoing merger;
WHEREAS, concurrently with the execution of the Old Agreement and as a condition
to Chancellor entering into the Old Agreement, certain stockholders of Capstar
have entered into a voting agreement with respect to the transactions
contemplated thereby (the "Voting Agreement");
WHEREAS, concurrently with the execution hereof and as a condition to Chancellor
entering into this Agreement, Chancellor and the stockholders of Capstar parties
to the Voting Agreement have entered into an amendment and restatement of such
Voting Agreement;
WHEREAS, it is the intention of Chancellor, Capstar and Merger Sub that such
merger will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Chancellor, Capstar and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3), Merger Sub shall merge with and into
Capstar (the "Merger") in accordance with the General Corporation Law of the
State of Delaware (the "Delaware Code"). At the Effective Time, the separate
corporate existence of Merger Sub shall cease and Capstar shall continue as the
surviving corporation of the Merger (the "Surviving Corporation") and as a
wholly-owned subsidiary of Chancellor under the laws of the State of Delaware
and with all the rights, privileges, immunities and powers, and subject to all
the duties and liabilities, of a corporation organized under the Delaware Code.
The Merger shall have the effects set forth in the Delaware Code.
1.2 CLOSING. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at 10:00
a.m., Dallas, Texas time, on the second business day following the date on which
the last to be fulfilled or waived of the conditions set forth in Article VII
shall be fulfilled or waived in accordance with this Agreement (the "Closing
Date"), at the offices of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite
1300, Dallas, Texas 75201, unless another date, time or place is agreed to in
writing by the parties hereto.
1.3 EFFECTIVE TIME. The parties hereto will file with the Secretary of State of
the State of Delaware (the "Delaware Secretary of State") on the Closing Date
(or on such other date as the parties may agree) a certificate of merger or
other appropriate documents, executed in accordance with the relevant provisions
of the Delaware Code, and make all other filings or recordings required under
the Delaware Code in connection with the Merger. The Merger shall become
effective upon the filing of the certificate of merger with the Delaware
Secretary of State, or at such later time specified in such certificate of
merger (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION.
(a) The Certificate of Incorporation of Merger Sub in effect immediately
prior to the Merger, attached hereto as Annex I, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with its terms and as provided by the Delaware Code, except that the
name of the Surviving Corporation will be "Capstar Broadcasting Corporation."
(b) Concurrently with the execution and delivery of this Agreement, the
Board of Directors of Chancellor has adopted a resolution setting forth and
approving an amendment and restatement of the Certificate of Incorporation of
Chancellor in the form set forth as Annex II hereto (the "Amended and Restated
Charter"), and directing that the Amended and Restated Charter be considered by
the stockholders of Chancellor at the Chancellor Stockholders Meeting (as
defined in Section 5.2(b)), all in accordance with the provisions of the
Delaware Code. Prior to the Effective Time of the Merger,
2
Chancellor shall file the Amended and Restated Charter with the Secretary of
State of the State of Delaware.
1.5 BYLAWS. The Bylaws of Merger Sub in effect immediately prior to the Merger,
attached hereto as Annex III, shall be the bylaws of the Surviving Corporation
until thereafter amended in accordance with their terms and as provided by
applicable law.
1.6 DIRECTORS. At the Effective Time, R. Gerald Turner shall become a "Class II
Director" of Chancellor. At or prior to the Effective Time, the Board of
Directors of Chancellor shall deliver or cause to be delivered to Chancellor
certified copies of the resolutions of the Chancellor Board of Directors
appointing R. Gerald Turner as a "Class II Director" of Chancellor to be
effective as of the Effective Time.
The directors of the Surviving Corporation immediately following the Effective
Time shall be the same as the directors of Chancellor immediately following the
Effective Time, except that such directors will not be classified as to term.
Each director of the Surviving Corporation will hold office from the Effective
Time until his or her respective successor is duly elected or appointed and
qualified in the manner provided in the Surviving Corporation's Certificate of
Incorporation and Bylaws or as otherwise provided by applicable law.
1.7 OFFICERS. The initial officers of the Surviving Corporation at the
Effective Time shall be the officers of Chancellor immediately prior to the
Effective Time. Each such officer of the Surviving Corporation will hold office
from the Effective Time until his respective successor is duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation or as otherwise provided
by applicable law.
1.8 EFFECT ON CAPSTAR CAPITAL STOCK.
(a) OUTSTANDING CAPSTAR COMMON STOCK. Each share of Class A Common
Stock, $0.01 par value, of Capstar ("Capstar Class A Common Stock"), Class B
Common Stock, $0.01 par value, of Capstar ("Capstar Class B Common Stock"), and
Class C Common Stock, $0.01 par value, of Capstar ("Capstar Class C Common
Stock" and, collectively with the Capstar Class A Common Stock and Capstar Class
B Common Stock, the "Capstar Common Stock") issued and outstanding immediately
prior to the Effective Time (other than shares of Capstar Common Stock held as
treasury shares by Capstar and Dissenting Shares (as defined in Section 1.12))
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive 0.4955 of a validly issued,
fully paid and nonassessable share of the common stock, $0.01 par value, of
Chancellor ("Chancellor Common Stock"). The ratio of the shares of Chancellor
Common Stock to be issued in exchange for each whole share of Capstar Common
Stock is referred to as the "Exchange Ratio." The shares of Chancellor Common
Stock to be issued to holders of Capstar Common Stock in accordance with this
Section 1.8(a), and any cash to be paid in lieu of fractional shares of
Chancellor Common Stock, are referred to as the "Merger Consideration."
(b) TREASURY SHARES. Each share of Capstar Common Stock which is held as
a treasury share by Capstar at the Effective Time shall, by virtue of the Merger
and without any action on the part of Capstar, be cancelled and retired and
cease to exist, without any conversion thereof.
3
(c) IMPACT OF STOCK SPLITS, ETC. In the event of any change in Capstar
Common Stock and/or Chancellor Common Stock between the date of this Agreement
and the Effective Time of the Merger in accordance with the terms of this
Agreement by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange of shares or the like,
the number and class of shares of Chancellor Common Stock to be issued and
delivered in the Merger in exchange for each outstanding share of Capstar Common
Stock as provided in this Agreement shall be appropriately adjusted so as to
maintain the relative proportionate interests of the holders of Chancellor
Common Stock and Capstar Common Stock.
1.9 EFFECT ON CHANCELLOR CAPITAL STOCK. Each share of Chancellor Common Stock,
7% Convertible Preferred Stock, $0.01 par value ("Chancellor 7% Convertible
Preferred Stock"), and $3.00 Convertible Exchangeable Preferred Stock, $0.01 par
value ("Chancellor $3.00 Convertible Preferred Stock" and, collectively with the
Chancellor 7% Convertible Preferred Stock, the "Chancellor Convertible Preferred
Stock"), of Chancellor issued and outstanding immediately prior to the Effective
Time shall remain outstanding and shall be unaffected by the Merger.
1.10 EFFECT ON MERGER SUB CAPITAL STOCK. Each share of common stock, $0.01 par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of common stock, $0.01 par value, of
the Surviving Corporation and such shares shall, collectively, represent all of
the issued and outstanding capital stock of the Surviving Corporation.
1.11 EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Immediately following the Effective Time, Chancellor
shall deposit with its transfer agent and registrar (the "Paying Agent"), for
the benefit of the holders of Capstar Common Stock (other than treasury shares
and Dissenting Shares), certificates representing the shares of Chancellor
Common Stock to be issued to such holders pursuant to Section 1.8 (such
certificates, together with any dividends or distributions with respect to the
shares represented by such certificates, being hereinafter referred to as the
"Payment Fund").
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates which prior
thereto represented shares of Capstar Common Stock shall, upon surrender to the
Paying Agent of such certificate or certificates and acceptance thereof by the
Paying Agent, be entitled to a certificate representing that number of whole
shares of Chancellor Common Stock which the aggregate number of shares of
Capstar Common Stock previously represented by such certificate or certificates
surrendered shall have been converted into the right to receive pursuant to
Section 1.8 of this Agreement. The Paying Agent shall accept such certificates
upon compliance with such reasonable terms and conditions as the Paying Agent
may impose to effect an orderly exchange thereof in accordance with its normal
exchange practices. If the Merger Consideration (or any portion thereof) is to
be delivered to any person other than the person in whose name the certificate
or certificates representing the shares of Capstar Common Stock surrendered in
exchange therefor is registered, it shall be a condition to such exchange that
the certificate or certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
exchange shall pay to the Paying Agent any transfer or other Taxes (as
4
defined in Section 2.18) required by reason of the payment of such consideration
to a person other than the registered holder of the certificate(s) surrendered,
or shall establish to the satisfaction of the Paying Agent that such Tax has
been paid or is not applicable. After the Effective Time, there shall be no
further transfer on the records of Capstar or its transfer agent of certificates
representing shares of Capstar Common Stock, and if such certificates are
presented to the Surviving Corporation, they shall be cancelled against delivery
of the Merger Consideration as hereinabove provided. Until surrendered as
contemplated by this Section 1.11(b), each certificate representing shares of
Capstar Common Stock (other than certificates representing treasury shares to be
cancelled in accordance with the terms of this Agreement and Dissenting Shares),
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration without any interest
thereon, as contemplated by Section 1.8.
(c) LETTER OF TRANSMITTAL. Promptly after the Effective Time (but in no
event more than five business days thereafter), Chancellor shall require the
Paying Agent to mail to each record holder of certificates that immediately
prior to the Effective Time represented shares of Capstar Common Stock which
have been converted pursuant to Section 1.8, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
shall pass, only upon proper delivery of certificates representing shares of
Capstar Common Stock to the Paying Agent, and which shall be in such form and
have such provisions as Chancellor reasonably may specify) and instructions for
use in surrendering such certificates and receiving the Merger Consideration to
which such holder shall be entitled therefor pursuant to Section 1.8.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Chancellor Common Stock with a record date
after the Effective Time shall be paid to the holder of any certificate that
immediately prior to the Effective Time represented shares of Capstar Common
Stock which have been converted pursuant to Section 1.8, until the surrender for
exchange of such certificate in accordance with this Article I. Following
surrender for exchange of any such certificate, there shall be paid to the
holder of such certificate, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the number of whole shares of
Chancellor Common Stock into which the shares of Capstar Common Stock
represented by such certificate immediately prior to the Effective Time were
converted pursuant to Section 1.8, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time, but prior to such surrender, and with a payment date subsequent
to such surrender, payable with respect to such whole shares of Chancellor
Common Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN CAPSTAR COMMON STOCK. The Merger
Consideration (or, in the case of Dissenting Shares, the cash payment therefor)
paid upon the surrender for exchange of certificates representing shares of
Capstar Common Stock in accordance with the terms of this Article I shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Capstar Common Stock theretofore represented by such
certificates, subject, however, to Capstar's obligation (if any) to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared by Capstar on the shares of Capstar
Common Stock and which remain unpaid at the Effective Time. From and after the
5
Effective Time, the holders of certificates evidencing ownership of shares of
Capstar Common Stock shall cease to have any further rights with respect to such
shares except as provided herein or by applicable law.
(f) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Chancellor Common Stock shall be issued upon the surrender
for exchange of certificates that immediately prior to the Effective Time
represented shares of Capstar Common Stock which have been converted pursuant to
Section 1.8, and such fractional share interests will not entitle the owner
thereof to vote or any rights of a stockholder of Chancellor. In lieu of any
such fractional shares, the Paying Agent shall, on behalf of all holders of
fractional shares of Chancellor Common Stock, aggregate all such fractional
interests (collectively, the "Fractional Shares") and such Fractional Shares
shall be sold by the Paying Agent as agent for the holders of such Fractional
Shares at the then prevailing price on The Nasdaq Stock Market (or on the New
York Stock Exchange, if such shares of Chancellor Common Stock are then listed
thereon), all in the manner provided hereinafter. Until the gross proceeds of
such sale or sales have been distributed to the holders of Fractional Shares,
the Paying Agent shall retain such proceeds in trust for the benefit of such
holders as part of the Payment Fund. The sale of the Fractional Shares shall be
executed on The Nasdaq Stock Market or through one or more member firms of The
Nasdaq Stock Market (or, in each case, on the New York Stock Exchange, if such
shares of Chancellor Common Stock are then listed thereon) and will be executed
in round lots, to the extent practicable. The Paying Agent will determine the
portion, if any, of the gross proceeds of such sale or sales to which each
holder of Fractional Shares is entitled, by multiplying the amount of the
aggregate gross proceeds of the sale of the Fractional Shares by a fraction, the
numerator of which is the amount of Fractional Shares to which such holder is
entitled and the denominator of which is the aggregate amount of Fractional
Shares to which all holders of Fractional Shares are entitled; provided,
however, that in lieu of the foregoing, at the sole option of Chancellor,
Chancellor may instead satisfy payment with respect to such Fractional Shares by
delivering to the Paying Agent reasonably promptly following the Effective Time
cash (without interest) in an amount equal to the aggregate amount of all such
Fractional Shares multiplied by the closing price per share of Chancellor Common
Stock on The Nasdaq Stock Market (or on the New York Stock Exchange, if such
shares of Chancellor Common Stock are then listed thereon) on the trading day
immediately prior to the Effective Time.
(g) TERMINATION OF PAYMENT FUND. Any portion of the Payment Fund which
remains undistributed to the holders of certificates representing shares of
Capstar Common Stock for 120 days after the Effective Time shall be delivered to
Chancellor, upon demand, and any holders of shares of Capstar Common Stock who
have not theretofore complied with this Article I shall thereafter look only to
Chancellor and only as general creditors thereof for payment of their claims for
any Merger Consideration.
(h) NO LIABILITY. None of Chancellor, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any cash, shares,
dividends or distributions payable from the Payment Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Capstar Common Stock shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 2.3)), any such cash, shares,
6
dividends or distributions payable in respect of such certificate shall, to the
extent permitted by applicable law, become the property of Chancellor, free and
clear of all claims or interest of any person previously entitled thereto.
(i) WITHHOLDING OF TAX. Chancellor shall be entitled to deduct and
withhold (or caused to be deducted or withheld) from the Merger Consideration
otherwise payable pursuant to this Agreement to any former holder of Capstar
Common Stock and from payments made in respect of Dissenting Shares, such amount
as Chancellor (or any affiliate thereof) or the Paying Agent is required to
deduct and withhold with respect to the making of such payment under the Code or
state, local or foreign Tax law. To the extent that amounts are so withheld (or
caused to be withheld) by Chancellor, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder of
Capstar Common Stock in respect of which such deduction and withholding was made
by Chancellor.
1.12 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, shares of Capstar Class B Common Stock and Capstar Class C Common
Stock outstanding immediately prior to the Effective Time and held by a holder
who has not voted in favor of the Merger or consented thereto and who properly
demands in writing appraisal of such shares of Capstar Class B Common Stock and
Capstar Class C Common Stock, as the case may be, in accordance with Section 262
of the Delaware Code and who shall not have withdrawn such demand or otherwise
have forfeited appraisal rights, shall not be converted into or represent the
right to receive the Merger Consideration therefor ("Dissenting Shares"). Such
stockholders shall be entitled to receive payment of the appraised value of such
shares of Capstar Class B Common Stock and Capstar Class C Common Stock, as the
case may be, held by them in accordance with the provisions of Section 262 of
the Delaware Code, except that all Dissenting Shares held by stockholders who
shall have failed to perfect or who effectively shall have withdrawn or lost
their rights to appraisal of such securities under Section 262 shall thereupon
be deemed to have been converted into, as of the Effective Time, the right to
receive, without any interest thereon, the Merger Consideration, upon surrender
in the manner provided in this Article I of the certificate or certificates that
formerly represented such securities. Capstar shall take all actions required to
be taken by it in accordance with Section 262(d) of the Delaware Code with
respect to the holders of Capstar Class B Common Stock and Capstar Class C
Common Stock.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CAPSTAR
Capstar hereby represents and warrants to Chancellor and Merger Sub as follows:
2.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of Capstar and the Capstar
Significant Subsidiaries (as defined below) is a corporation, limited
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is organized and
has the requisite corporate, partnership or limited liability company power and
authority to carry on its business as now being conducted. Each of Capstar and
the Capstar Significant Subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified could not reasonably be expected to
have a material adverse
7
effect on the business, properties, results of operations, or condition
(financial or otherwise) of Capstar and its subsidiaries, considered as a whole
(other than as a result of changes in general economic conditions or in economic
conditions generally affecting the radio broadcasting industry) (a "Capstar
Material Adverse Effect"). Capstar has delivered to Chancellor complete and
correct copies of its Certificate of Incorporation and Bylaws, as amended to
August 26, 1998. For purposes of this Agreement, a "Capstar Significant
Subsidiary" means any subsidiary of Capstar that would constitute a "significant
subsidiary" within the meaning of Rule 1-02 of Regulation S-X of the Securities
and Exchange Commission (the "SEC"). For purposes of this Agreement, a
"subsidiary" of any person shall mean any other entity at least a majority of
the equity interests in which is beneficially owned, directly or indirectly, by
the specified person.
2.2 CAPITAL STRUCTURE. (a) The authorized capital stock of Capstar consists of
(i) 750,000,000 shares of Capstar Class A Common Stock, (ii) 150,000,000 shares
of Capstar Class B Common Stock, (iii) 150,000,000 shares of Capstar Class C
Common Stock, and (iv) 100,000,000 shares of preferred stock, $0.01 par value,
none of which shares of preferred stock are issued and outstanding. At the close
of business on August 24, 1998: (A) 33,925,158 shares of Capstar Class A Common
Stock were issued and outstanding, 500,000 shares of Capstar Class A Common
Stock were reserved for issuance pursuant to outstanding warrants (the "Class A
Warrants") to purchase shares of Capstar Class A Common Stock, 4,700,000 shares
of Capstar Class A Common Stock were reserved for issuance pursuant to options
to purchase Capstar Class A Common Stock granted under the Capstar Broadcasting
Corporation 1998 Amended and Restated Stock Option Plan (the "Capstar Stock
Option Plan"), of which stock options to purchase 3,841,045 shares of Capstar
Class A Common Stock have been granted to directors, officers or employees of
Capstar or others ("Capstar Stock Options"), and 300,000,000 shares of Capstar
Class A Common Stock were reserved for issuance upon the conversion of shares of
Capstar Class B Common Stock and Capstar Class C Common Stock; (B) 6,081,723
shares of Capstar Class B Common Stock were issued and outstanding and no shares
of Capstar Class B Common Stock were reserved for issuance for any purpose; (C)
67,589,121 shares of Capstar Class C Common Stock were issued and outstanding
and 2,196,408 shares of Capstar Class C Common Stock were reserved for issuance
pursuant to outstanding warrants (the "Class C Warrants" and, collectively with
the Class A Warrants, the "Warrants") to purchase shares of Capstar Class C
Common Stock; and (D) no shares of Capstar Common Stock were held as treasury
shares by Capstar or any subsidiary of Capstar. Except as set forth above or
disclosed in writing by Capstar to Chancellor in a disclosure letter (the
"Capstar Disclosure Letter") delivered to Capstar prior to the execution and
delivery of the Old Agreement, at the close of business on August 24, 1998, no
shares of capital stock or other equity securities of Capstar were authorized,
issued, reserved for issuance or outstanding. All outstanding shares of Capstar
Common Stock are, and all shares which may be issued upon the exercise of
outstanding Capstar Stock Options and Warrants will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. No bonds, debentures, notes or other indebtedness of Capstar
or any subsidiary of Capstar having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of Capstar or any subsidiary of Capstar may vote are issued or
outstanding. All the outstanding shares of capital stock or other equity
interests of each subsidiary of Capstar have been validly issued and are fully
paid and nonassessable and (except for the shares of 12% Senior Exchangeable
Preferred Stock, $0.01 par value
8
("Capstar Partners 12% Preferred Stock"), of Capstar Broadcasting Partners,
Inc., a Delaware corporation ("Capstar Partners"), and the 12 5/8% Series E
Cumulative Exchangeable Preferred Stock, $0.01 par value ("Capstar
Communications 12 5/8% Preferred Stock"), of Capstar Communications, Inc.
(formerly known as SFX Broadcasting, Inc.) ("Capstar Communications")), are
owned by Capstar, by one or more wholly-owned subsidiaries of Capstar or by
Capstar and one or more such wholly-owned subsidiaries, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens"), except for Liens arising out of
the senior credit facility of Capstar Radio Broadcasting Partners, Inc., a
Delaware corporation ("Capstar Radio Partners"), and the $150 million promissory
note dated May 29, 1998, as it may be amended from time to time, made payable by
Capstar to Chancellor. Except as set forth above, in Section 6.4, in the Capstar
Disclosure Letter or the Capstar SEC Documents (as defined in Section 2.4) and
except for certain provisions of the Certificate of Incorporation of Capstar
relating to "alien ownership" of the Capstar Common Stock, as of August 26,
1998, neither Capstar nor any subsidiary of Capstar had any outstanding option,
warrant, subscription or other right, agreement or commitment that either (i)
obligated Capstar or any subsidiary of Capstar to issue, sell or transfer,
repurchase, redeem or otherwise acquire or vote any shares of the capital stock
of Capstar or any Capstar Significant Subsidiary or (ii) restricted the transfer
of Capstar Common Stock. Except with respect to the formation of Old Merger Sub,
from the close of business on August 24, 1998 to August 26, 1998, neither
Capstar nor any subsidiary of Capstar issued any capital stock or securities or
other rights convertible into or exercisable or exchangeable for shares of such
capital stock.
2.3 AUTHORITY; NONCONTRAVENTION. Capstar has the requisite corporate power and
authority to enter into this Agreement and, subject to the approval and adoption
of this Agreement by the holders of a majority of the voting power of the
outstanding shares of Capstar Class A Common Stock and the Capstar Class C
Common Stock, voting as a single class as set forth in Section 5.2(a) (the
"Capstar Stockholders Approval"), to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by Capstar and the
consummation by Capstar of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Capstar, subject to
the Capstar Stockholders Approval. This Agreement has been duly executed and
delivered by Capstar and, assuming this Agreement constitutes the valid and
binding agreement of each of the other parties hereto, constitutes a valid and
binding obligation of Capstar, enforceable against it in accordance with its
terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as disclosed in the Capstar Disclosure Letter or the
supplement to the Capstar Disclosure Letter dated the date hereof and subject to
receipt of the Capstar Stockholders Approval, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not, (i) conflict with
any of the provisions of the Certificate of Incorporation or Bylaws of Capstar
or the comparable documents of any Capstar Significant Subsidiary, (ii) subject
to the governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
9
under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which Capstar or any of the Capstar Significant Subsidiaries is a
party or by which Capstar or any of the Capstar Significant Subsidiaries or any
of their assets is bound or affected, (iii) result in an obligation by Capstar,
the Surviving Corporation, Chancellor, or any of their respective subsidiaries
to redeem, repurchase or retire (or offer to redeem, repurchase or retire) any
indebtedness of Capstar or any of its subsidiaries outstanding as of the date
hereof or equity security of Capstar or any of its subsidiaries outstanding as
of the date hereof, or (iv) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule or
regulation of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect, except, in the cases of the
foregoing clauses (ii) through (iv), for conflicts, breaches, defaults or other
consequences (collectively, "breaches") that, individually or in the aggregate,
could not reasonably be expected to have a Capstar Material Adverse Effect or to
materially hinder Capstar's ability to consummate the transactions contemplated
by this Agreement. No consent, approval or authorization of, or declaration or
filing with, or notice to, any governmental agency or regulatory authority (a
"Governmental Entity") which has not been received or made, is required by or
with respect to Capstar or any of the Capstar Significant Subsidiaries in
connection with the execution and delivery of this Agreement by Capstar or the
consummation by Capstar of the transactions contemplated hereby, except for (i)
the filing of premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the Merger and the termination or earlier expiration of
the applicable waiting period thereunder, (ii) such filings with and approvals
required by the Federal Communications Commission or any successor entity (the
"FCC") under the Communications Act of 1934, as amended, and the rules,
regulations and policies of the FCC promulgated thereunder (collectively, the
"Communications Act") including those required in connection with the transfer
of control of Capstar FCC Licenses (as defined in Section 2.9) for the operation
of the Capstar Licensed Facilities, (iii) a proxy statement to be filed with the
SEC by Capstar relating to the Capstar Stockholders Approval (such proxy
statement, as amended or supplemented from time to time, the "Joint Proxy
Statement/Prospectus"), (iv) such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (v) such
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the other transactions contemplated by this
Agreement, (vi) such filings as may be required in connection with statutory
provisions and regulations relating to real property transfer gains taxes and
real property transfer taxes, (vii) any filing required by the New York Stock
Exchange, and (viii) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities of
other states in which Capstar is qualified to do business.
2.4 CAPSTAR SEC DOCUMENTS; FINANCIAL STATEMENTS. (i) Capstar has filed with the
SEC a Registration Statement on Form S-1, as amended (the "IPO Registration
Statement"), with respect to the registration of an initial public offering of
the Capstar Class A Common Stock pursuant to the Prospectus dated May 26, 1998
contained in such IPO Registration Statement, and has filed all required
reports, schedules, forms, statements and other documents with the SEC since the
effective date of the IPO Registration Statement
10
to August 26, 1998 (such IPO Registration Statement and reports, schedules,
forms, statements and other documents and any other documents filed with the SEC
by Capstar, Capstar Partners, Capstar Radio Partners and Capstar Communications
and publicly available prior to August 26, 1998 are hereinafter referred to as
the "Capstar SEC Documents"); (ii) as of their respective dates, the Capstar SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Capstar SEC Documents, and none of the Capstar SEC
Documents as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; and (iii) as of their respective dates, the
consolidated financial statements of Capstar and its predecessors included in
the Capstar SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Rule
10-01 of Regulation S-X) and fairly present, in all material respects, the
consolidated financial position of Capstar and its consolidated subsidiaries (or
its predecessors and their respective consolidated subsidiaries) as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (on the basis stated therein and subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments).
2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Capstar
SEC Documents, the Capstar Disclosure Letter or in the supplement to the Capstar
Disclosure Letter dated the date hereof, or as otherwise agreed to in one or
more writings after August 26, 1998 by Chancellor (which writings are hereby
reaffirmed), or as expressly permitted by this Agreement, since the date of the
most recent audited financial statements of Capstar contained in the Capstar SEC
Documents, Capstar and its subsidiaries have conducted their business only in
the ordinary course, and there has not been (i) any change which could
reasonably be expected to have a Capstar Material Adverse Effect (including as a
result of the consummation of the transactions contemplated by this Agreement),
(ii) to August 26, 1998, any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of Capstar's outstanding capital stock, (iii) to August 26, 1998, any
split, combination or reclassification of any of its outstanding capital stock
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its outstanding capital
stock, (iv) to August 26, 1998, (x) any granting by Capstar or any of its
subsidiaries to any director, officer or other employee or independent
contractor of Capstar or any of its subsidiaries of any increase in compensation
or acceleration of benefits as a result of which the annual compensation payable
with respect thereto would exceed $150,000, except under employment agreements
in effect as of the date of the most recent audited financial statements of
Capstar contained in the Capstar SEC Documents, (y) any granting by Capstar or
any of its subsidiaries to any director, officer or other employee or
independent contractor of any increase in, or acceleration of benefits in
respect of, severance or termination pay, or pay in connection with any change
of control of Capstar, except in the ordinary course of business consistent with
prior practice or as was required under any employment, severance or
11
termination agreements in effect as of the date of the most recent audited
financial statements of Capstar contained in the Capstar SEC Documents, or (z)
any entry by Capstar or any of its subsidiaries into any employment, severance,
change of control, or termination or similar agreement as a result of which the
annual compensation payable with respect thereto would exceed $150,000 with any
director, executive officer or other employee or independent contractor, or (v)
any change in accounting methods, principles or practices by Capstar or any of
its subsidiaries materially affecting its assets, liability or business, except
insofar as may have been required by a change in generally accepted accounting
principles.
2.6 NO EXTRAORDINARY PAYMENTS OR CHANGE IN BENEFITS. Except as disclosed in the
Capstar Disclosure Letter, in the supplement to the Capstar Disclosure Letter
dated the date hereof or in the Capstar SEC Documents, no current or former
director, officer, employee or independent contractor of Capstar or any of its
subsidiaries is entitled to receive any payment under any agreement, arrangement
or policy (written or oral) relating to employment, severance, change of
control, termination, stock options, stock purchases, compensation, deferred
compensation, fringe benefits or other employee benefits currently in effect
(collectively, the "Capstar Benefit Plans"), nor will any benefit received or to
be received by any current or former director, officer, employee or independent
contractor of Capstar or any of its subsidiaries under any Capstar Benefit Plan
be accelerated or modified, in each case, as a result of or in connection with
the execution and delivery of, or the consummation of the transactions
contemplated by, this Agreement.
2.7 VOTING REQUIREMENTS. The affirmative vote of the holders of a majority of
the voting power of the outstanding shares of Capstar Class A Common Stock and
Capstar Class C Common Stock, voting as a single class as provided in Capstar's
Certificate of Incorporation, with respect to the adoption of this Agreement is
the only vote of the holders of any class or series of Capstar's capital stock
necessary by law to approve this Agreement and the transactions contemplated by
this Agreement.
2.8 STATE TAKEOVER STATUTES. The Board of Directors of Capstar has approved the
terms of this Agreement and the consummation of the transactions contemplated by
this Agreement, and such approval is sufficient to render inapplicable to the
Merger and the other transactions contemplated by this Agreement the provisions
of Section 203 of the Delaware Code. To Capstar's knowledge, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement or any of the transactions contemplated by this
Agreement and no provision of the Certificate of Incorporation, Bylaws or other
governing instrument of Capstar or any of its subsidiaries would, directly or
indirectly, restrict or impair the ability of Capstar to consummate the
transactions contemplated by this Agreement.
2.9 CAPSTAR FCC LICENSES; OPERATIONS OF CAPSTAR LICENSED FACILITIES. Capstar
and its subsidiaries have operated the radio stations for which Capstar and any
of its subsidiaries hold licenses from the FCC, in each case which are owned or
operated by Capstar and its subsidiaries (each a "Capstar Licensed Facility" and
collectively the "Capstar Licensed Facilities"), in material compliance with the
terms of the licenses issued by the FCC to Capstar and its subsidiaries (the
"Capstar FCC Licenses"), and in material compliance with the Communications Act,
except where the failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Capstar Material Adverse Effect. To the
knowledge of Capstar, each broadcast radio station for which Capstar or any of
its
12
subsidiaries provides programming and advertising services pursuant to a local
marketing agreement (each a "Capstar LMA Facility" and collectively the "Capstar
LMA Facilities") has been operated in material compliance with the terms of the
licenses issued by the FCC to the owner of such Capstar LMA Facility (each an
"LMA Facility FCC License" and collectively the "LMA Facility FCC Licenses").
Capstar has, and its subsidiaries have, timely filed or made all applications,
reports and other disclosures required by the FCC to be made with respect to the
Capstar Licensed Facilities and have timely paid all FCC regulatory fees with
respect thereto, except where the failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Capstar Material Adverse Effect.
Capstar and each of its subsidiaries have, and are the authorized legal holders
of, all the Capstar FCC Licenses necessary or used in the operation of the
businesses of the Capstar Licensed Facilities as presently operated. To the
knowledge of Capstar, the third-parties with which Capstar or its subsidiaries
have entered into local marketing agreements with respect to the Capstar LMA
Facilities have, and are the authorized legal holders of, the LMA Facility FCC
License necessary or used in the operation of the business of the respective
Capstar LMA Facility to which such local marketing agreement relates. All
Capstar FCC Licenses and, to the knowledge of Capstar, LMA Facility FCC Licenses
are validly held and are in full force and effect, unimpaired by any act or
omission of Capstar, each of its subsidiaries (or, to Capstar's knowledge, their
respective predecessors) or their respective officers, employees or agents,
except where such impairments could not, individually or in the aggregate,
reasonably be expected to have a Capstar Material Adverse Effect. As of August
26, 1998, except as set forth in the Capstar Disclosure Letter, no application,
action or proceeding is pending for the renewal of any Capstar FCC License or,
to the knowledge of Capstar, LMA Facility FCC License as to which any petition
to deny has been filed and, to Capstar's knowledge, there is not now before the
FCC any material investigation, proceeding, notice of violation or order of
forfeiture relating to any Capstar Licensed Facility or Capstar LMA Facility
that, if adversely determined, could reasonably be expected to have a Capstar
Material Adverse Effect. As of August 26, 1998, except as set forth in the
Capstar Disclosure Letter, Capstar is not aware of any basis that could
reasonably be expected to cause the FCC not to renew any of the Capstar FCC
Licenses or the LMA Facility FCC Licenses (other than proceedings to amend FCC
rules or the Communications Act of general applicability to the radio broadcast
industry). There is not now pending and, to Capstar's knowledge, there is not
threatened, any action by or before the FCC to revoke, suspend, cancel, rescind
or modify in any material respect any of the Capstar FCC Licenses or, to the
knowledge of Capstar, any of the LMA Facility FCC Licenses that, if adversely
determined, could reasonably be expected to have a Capstar Material Adverse
Effect (other than proceedings to amend FCC rules or the Communications Act of
general applicability to the radio broadcast industry).
2.10 BROKERS. Except with respect to Hicks, Muse & Co. Partners, L.P. ("Hicks
Muse"), Credit Suisse First Boston Corporation ("CSFB"), BT Wolfensohn, a
division of BT Alex. Brown Incorporated ("BT Wolfensohn") and Bear, Stearns &
Co. Inc. ("Bear Stearns"), all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by Capstar directly with
Chancellor without the intervention of any person on behalf of Capstar in such a
manner as to give rise to any valid claim by any person against Capstar,
Chancellor, the Surviving Corporation or any subsidiary of any of them for a
finder's fee, brokerage commission, or similar payment. The Capstar Disclosure
Letter and the supplement to the Capstar Disclosure Letter dated the date
13
hereof set forth a written summary of the terms of its agreement relating to the
transactions contemplated by this Agreement with CSFB, BT Wolfensohn and Bear
Stearns, and Section 7.3(e) of this Agreement sets forth a summary of the terms
of its agreement relating to the transactions contemplated by this Agreement
with Hicks Muse, and Capstar has no other agreements or understandings (written
or oral) with respect to such services.
2.11 FCC QUALIFICATION. Capstar and its subsidiaries are fully qualified under
the Communications Act to be the transferors of control of the Capstar FCC
Licenses. Except as disclosed in the Capstar Disclosure Letter or in the
supplement to the Capstar disclosure letter dated the date hereof, Capstar is
not aware of any facts or circumstances relating to the FCC qualifications of
Capstar or any of its subsidiaries that could reasonably be expected to prevent
the FCC's granting the FCC Form 316 Transfer of Control Application to be filed
with respect to the Merger.
2.12 COMPLIANCE WITH APPLICABLE LAWS. Each of Capstar and its subsidiaries has
in effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights (collectively, "Permits") necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, other
than such Permits the absence of which could not, individually or in the
aggregate, reasonably be expected to have a Capstar Material Adverse Effect, and
there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, could not reasonably be expected to
have a Capstar Material Adverse Effect. Except as disclosed in the Capstar
Disclosure Letter, Capstar and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for such noncompliance which, individually or in the
aggregate, could not reasonably be expected to have a Capstar Material Adverse
Effect.
2.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except for (x) liabilities disclosed
in the Capstar SEC Documents, (y) current liabilities incurred by Capstar and
its subsidiaries in the ordinary course of business consistent with past
practices since the date of the most recent consolidated balance sheet of
Capstar set forth in Capstar's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, as filed with the SEC (the "1998 Capstar 10-K"), and
(z) liabilities contemplated by this Agreement or disclosed in the Capstar
Disclosure Letter, Capstar and its subsidiaries do not have any material
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise) (i) required by GAAP to be reflected on a consolidated
balance sheet of Capstar and its consolidated subsidiaries or in the notes,
exhibits or schedules thereto or (ii) which reasonably could be expected to have
a Capstar Material Adverse Effect.
2.14 LITIGATION. Except as disclosed in the Capstar SEC Documents or the
Capstar Disclosure Letter, to August 26, 1998, there is no litigation,
administrative action, arbitration or other proceeding pending against Capstar
or any of its subsidiaries or, to the knowledge of Capstar, threatened that,
individually or in the aggregate, could reasonably be expected to (i) have a
Capstar Material Adverse Effect or (ii) prevent, or significantly delay, the
consummation of the transactions contemplated by this Agreement. Except as set
forth in the Capstar Disclosure Letter or in the Capstar SEC Documents, to
August 26, 1998, there is no judgment, order, injunction or decree of any
Governmental Entity outstanding against Capstar or any of its subsidiaries that,
individually or in the
14
aggregate, could reasonably be expected to have any effect referred to in the
foregoing clauses (i) and (ii) of this Section 2.14.
2.15 TRANSACTIONS WITH AFFILIATES. Other than the transactions contemplated by
this Agreement, or except to the extent disclosed in the Capstar SEC Documents
or in the Capstar Disclosure Letter or in the supplement to the Capstar
Disclosure Letter dated the date hereof, there have been no transactions,
agreements, arrangements or understandings between Capstar or its subsidiaries,
on the one hand, and Capstar's affiliates (other than subsidiaries of Capstar)
or any other person, on the other hand, that would be required to be disclosed
under Item 404 of Regulation S-K under the Securities Act.
2.16 LABOR MATTERS. Except as set forth in the Capstar Disclosure Letter or in
the Capstar SEC Documents, (i) neither Capstar nor any of its subsidiaries is a
party to any labor or collective bargaining agreement, and no employees of
Capstar or any of its subsidiaries are represented by any labor organization,
(ii) to the knowledge of Capstar, there are no material representation or
certification proceedings, or petitions seeking a representation proceeding,
pending or threatened to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority and (iii) to the
knowledge of Capstar, there are no material organizing activities involving
Capstar or any of its subsidiaries with respect to any group of employees of
Capstar or its subsidiaries.
2.17 EMPLOYEE ARRANGEMENTS AND BENEFIT PLANS.
(a) The Capstar Disclosure Letter sets forth a complete and correct list
of (i) as of August 26, 1998, all Capstar Benefit Plans, including all employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), sponsored by Capstar or any
of its subsidiaries, and (ii) as of August 26, 1998, all persons with whom
Capstar or its subsidiaries had written employment, severance, termination,
change-in-control or indemnification agreements (collectively, the "Employment
Arrangements"), under which Capstar or any of its subsidiaries had any
obligation or liability (contingent or otherwise), except for any Employment
Arrangement which (x) provided for annual compensation (excluding benefits) of
$150,000 or less, (y) had an unexpired term of or can be terminated (before, on
or after a change in control) in less than one year from the date hereof without
additional cost or penalty or (z) related to agreements for on-air talent
entered into in the ordinary course of business consistent with past practices.
Except as set forth in the Capstar SEC Documents or in the Capstar Disclosure
Letter and except as could not, individually or in the aggregate, reasonably be
expected to have a Capstar Material Adverse Effect: (A) each Capstar Benefit
Plan has been administered and is in compliance with the terms of such plan and
all applicable laws, rules and regulations, (B) no "reportable event" (as such
term is used in section 4043 of ERISA) (other than those events for which the 30
day notice has been waived pursuant to the regulations), "prohibited
transaction" (as such term is used in section 406 of ERISA or section 4975 of
the Code) or "accumulated funding deficiency" (as such term is used in section
412 or 4971 of the Code) has heretofore occurred with respect to any Capstar
Benefit Plan and (C) each Capstar Benefit Plan intended to qualify under Section
401(a) of the Code has received a favorable determination from the United States
Internal Revenue Service ("IRS") regarding its qualified status and no notice
has been received from the IRS with respect to the revocation of such
qualification.
15
(b) To August 26, 1998, there is no litigation or administrative or
other proceeding involving any Capstar Benefit Plan or Employment Arrangement
nor has Capstar or any of its subsidiaries received written notice that any such
proceeding is threatened, in each case where an adverse determination could
reasonably be expected to have a Capstar Material Adverse Effect. Except as set
forth in the Capstar Disclosure Letter, to August 26, 1998, neither Capstar nor
any of its subsidiaries has contributed to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) and neither Capstar nor any of its
subsidiaries has incurred, nor, to the best of Capstar's knowledge, is
reasonably likely to incur any withdrawal liability which remains unsatisfied in
an amount which could reasonably be expected to have a Capstar Material Adverse
Effect. The termination of, or withdrawal from, any Capstar Benefit Plan or
multiemployer plan to which Capstar or its subsidiaries contributes, on or prior
to the Closing Date, will not subject Capstar or any of its subsidiaries to any
liability under Title IV of ERISA that could reasonably be expected to have a
Capstar Material Adverse Effect.
2.18 TAX MATTERS. Except as set forth in the Capstar Disclosure Letter, in the
Capstar SEC Documents or in the 1998 Capstar 10-K, (A) Capstar and each of its
subsidiaries have timely filed with the appropriate taxing authorities all
material Tax Returns (as defined below) required to be filed through the date
hereof and will timely file any such material Tax Returns required to be filed
on or prior to the Closing Date (except those under valid extension) and all
such Tax Returns are and will be true and correct in all material respects, (B)
all Taxes (as defined below) of Capstar and each of its subsidiaries shown to be
due on the Tax Returns described in (A) above have been or will be timely paid,
(C) no material deficiencies for any Taxes have been proposed, asserted or
assessed against Capstar or any of its subsidiaries that have not been fully
paid or adequately provided for in the appropriate financial statements of
Capstar and its subsidiaries, and no power of attorney with respect to any Taxes
has been executed or filed with any taxing authority and no material issues
relating to Taxes have been raised in writing by any governmental authority
during any presently pending audit or examination, (D) Capstar and its
subsidiaries are not now subject to audit by any taxing authority and no waivers
of statutes of limitation with respect to the Tax Returns have been given by or
requested in writing from Capstar or any of its subsidiaries, (E) there are no
material liens for Taxes (other than for Taxes not yet due and payable) on any
assets of Capstar or any of its subsidiaries, (F) neither Capstar nor any of its
subsidiaries is a party to or bound by (nor will any of them become a party to
or bound by) any tax indemnity, tax sharing, tax allocation agreement, or
similar agreement, arrangement or practice with respect to Taxes, (G) neither
Capstar nor any of its subsidiaries has ever been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code, other than
the affiliated group of which Capstar is the common parent, (H) neither Capstar
nor any of its subsidiaries has filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state or local law) or agreed to have Section 341(f)(2) of the Code
(or any corresponding provisions of state or local law) apply to any disposition
of any asset owned by Capstar or any of its subsidiaries, as the case may be,
(l) neither Capstar nor any of its subsidiaries has agreed to make, nor is any
required to make, any adjustment under Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method or otherwise, (J) Capstar and its subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
withholding of Taxes and (K) no property owned by Capstar or any of its
subsidiaries (i) is property required to be treated as being
16
owned by another person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(l) of the Code; or (iii) is tax
exempt bond financed property within the meaning of Section 168(g) of the Code.
As used in this Agreement, "Tax Return" shall mean any return, report, claim for
refund, estimate, information return or statement or other similar document
relating to or required to be filed with any governmental authority with respect
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof. As used in this Agreement, "Taxes" shall mean all federal,
state, local and foreign taxes, duties, levies or similar charges of any kind,
including but not limited to those measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign.
2.19 INTELLECTUAL PROPERTY. Except as set forth in the Capstar Disclosure
Letter and except to the extent that the inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy), individually or in the
aggregate, could not reasonably be expected to have a Capstar Material Adverse
Effect: (a) Capstar and each of its subsidiaries owns, or is licensed to use (in
each case, free and clear of any Liens), all Intellectual Property (as defined
below) used in or necessary for the conduct of its business as currently
conducted; (b) the use of any Intellectual Property by Capstar and its
subsidiaries does not infringe on or otherwise violate the rights of any person
and is in accordance with any applicable license pursuant to which Capstar or
any subsidiary acquired the right to use any Intellectual Property; (c) to the
knowledge of Capstar, no person is challenging, infringing on or otherwise
violating any right of Capstar or any of its subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Capstar or its subsidiaries;
and (d) neither Capstar nor any of its subsidiaries has received any written
notice of any pending claim with respect to any Intellectual Property used by
Capstar and its subsidiaries and to its knowledge no Intellectual Property owned
and/or licensed by Capstar or its subsidiaries is being used or enforced in a
manner that would result in the abandonment, cancellation or unenforceability of
such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, brand names and other indications of origin, the goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings and
other works, whether copyrightable or not, in any jurisdiction; registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual property or proprietary
rights; and any claims or causes of action arising out of or relating to any
infringement or misappropriation of any of the foregoing.
17
2.20 ENVIRONMENTAL MATTERS. Except as disclosed in the Capstar SEC Documents or
in the Capstar Disclosure Letter and except as could not reasonably be expected
to have a Capstar Material Adverse Effect: (i) the operations of Capstar and its
subsidiaries have been and are in compliance with all Environmental Laws (as
defined below) and with all Permits required by Environmental Laws, (ii) to
August 26, 1998, there are no pending or, to the knowledge of Capstar,
threatened, actions, suits, claims, investigations or other proceedings
(collectively, "Actions") under or pursuant to Environmental Laws against
Capstar or its subsidiaries or involving any real property currently or, to the
knowledge of Capstar, formerly owned, operated or leased by Capstar or its
subsidiaries, (iii) Capstar and its subsidiaries are not subject to any
Environmental Liabilities (as defined below), and, to the knowledge of Capstar,
no facts, circumstances or conditions relating to, arising from, associated with
or attributable to any real property currently or, to the knowledge of Capstar,
formerly owned, operated or leased by Capstar or its subsidiaries or operations
thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of Capstar all
real property operated or leased by Capstar or its subsidiaries is free of
contamination from Hazardous Material (as defined below) and (v) there is not
now, nor, to the knowledge of Capstar, has there been in the past, on, in or
under any real property owned, leased or operated by Capstar or any of its
predecessors (a) any underground storage tanks, above-ground storage tanks,
dikes or impoundments containing Hazardous Materials, (b) any
asbestos-containing materials, (c) any polychlorinated biphenyls, or (d) any
radioactive substances.
As used in this Agreement, "Environmental Laws" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, orders, decrees, requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health or the
environment, as currently in effect and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. sec. 9601 et seq., the Hazardous Materials Transportation Act 49
U.S.C. sec. 1801 et seq., the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. sec. 6901 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq.,
the Clean Air Act, 33 U.S.C. sec. 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. sec. 2601 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C., sec. 136 et seq., and the Oil Pollution Act of 1990,
33 U.S.C. sec. 2701 et seq., as such laws have been amended or supplemented, and
the regulations promulgated pursuant thereto, and all analogous state or local
statutes. As used in this Agreement, "Environmental Liabilities" with respect to
any person means any and all liabilities of or relating to such person or any of
its subsidiaries (including any entity which is, in whole or in part, a
predecessor of such person or any of such subsidiaries), whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which (i)
arise under or relate to matters covered by Environmental Laws and (ii) relate
to actions occurring or conditions existing on or prior to the Closing Date. As
used in this Agreement, "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated as
such in or under any Environmental Laws which includes, but is not limited to,
petroleum, petroleum products, friable asbestos, urea formaldehyde and
polychlorinated biphenyls.
18
2.21 MATERIAL AGREEMENTS.
(a) Except as disclosed in the Capstar Disclosure Letter, from and after
the date of filing of the Capstar SEC Documents to August 26, 1998, neither
Capstar nor any of its subsidiaries has entered into any contract, agreement or
other document or instrument (other than the Old Agreement) that would be
required to be filed with the SEC or any material amendment, modification or
waiver under any contract, agreement or other document or instrument (other than
any such amendments, modifications or waivers entered into following August 26,
1998 in connection with the transactions contemplated hereby) that was
previously filed with the SEC or would be required to be so filed.
(b) Except as filed as an exhibit to the Capstar SEC Documents or as set
forth in the Capstar Disclosure Letter, to August 26, 1998, neither Capstar nor
any of its subsidiaries is a party to or has entered into or made any material
amendment or modification to or granted any material waiver under any contract,
agreement, document or instrument that Capstar would be required to file under
Item 601 of Regulation S-K promulgated under the Exchange Act as an Exhibit to
Form 10-K (collectively, the "Material Agreements").
(c) Each of the Material Agreements is valid and enforceable against
Capstar in accordance with its terms, and there is no default under any Material
Agreements either by Capstar or any of its subsidiaries which is a party to such
Material Agreements or, to the knowledge of Capstar, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by Capstar or, to the knowledge of
Capstar, any other party thereto, in any such case in which such default or
event could reasonably be expected to have a Capstar Material Adverse Effect. In
addition, neither Capstar nor any subsidiary of Capstar is in material breach of
any Material Agreement (including any breach which would give rise to a right to
terminate any such agreement). To August 26, 1998, neither Capstar nor any
subsidiary of Capstar has received any written notice (or to the knowledge of
Capstar any other notice) of default or termination under any Material
Agreement, and to the knowledge of Capstar, there exists no basis for any
assertion of a right of default or termination under such agreements. To August
26, 1998, neither Capstar nor any subsidiary of Capstar has received any written
notice (or to the knowledge of Capstar any other notice) of the exercise of a
put option or other right pursuant to which Capstar or any of its subsidiaries
would be obligated to purchase capital stock or assets relating to any Capstar
LMA Facility.
2.22 TANGIBLE PROPERTY. All of the assets of Capstar and the Capstar
Significant Subsidiaries are in good operating condition, reasonable wear and
tear excepted, and usable in the ordinary course of business, except where the
failure to be in such condition or so usable could not, individually or in the
aggregate, reasonably be expected to have a Capstar Material Adverse Effect.
2.23 OPINION OF FINANCIAL ADVISORS.
(a) The Capstar Special Committee has received the opinion of Bear
Stearns, dated as of April 13, 1999, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to the public holders of
Capstar Class A Common Stock.
(b) The Board of Directors of Capstar has received the opinions of each
of CSFB and BT Wolfensohn, dated August 26, 1998, to the effect that, as of such
date, the
19
Exchange Ratio is fair, from a financial point of view, to the holders of
Capstar Common Stock.
2.24 NO OTHER REPRESENTATIONS AND WARRANTIES. Except for the representations
and warranties made by Capstar as expressly set forth in this Agreement or in
any certificate or document delivered pursuant this Agreement, neither Capstar
nor any of its affiliates has made and shall not be construed as having made to
Chancellor or to any affiliate thereof any representation or warranty of any
kind.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CHANCELLOR
Chancellor represents and warrants to Capstar as follows:
3.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of Chancellor and the
Chancellor Significant Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of
Chancellor and the Chancellor Significant Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to have a material adverse effect on the business, properties, results
of operations, or condition (financial or otherwise) of Chancellor and its
subsidiaries, considered as a whole (other than as a result of changes in
general economic conditions or in economic conditions generally affecting the
radio broadcasting industry) (a "Chancellor Material Adverse Effect").
Chancellor has delivered to Capstar complete and correct copies of its
Certificate of Incorporation and Bylaws, as amended to August 26, 1998. For
purposes of this Agreement, a "Chancellor Significant Subsidiary" means any
subsidiary of Chancellor that would constitute a "significant subsidiary" within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Chancellor consists of
(i) 75,000,000 shares of Chancellor Class A Common Stock, none of which are
issued and outstanding, (ii) 200,000,000 shares of Chancellor Common Stock and
(iii) 50,000,000 shares of preferred stock, $0.01 par value, of which (x)
2,200,000 shares have been designated as 7% Convertible Preferred Stock and (y)
6,000,000 shares have been designated as $3.00 Convertible Exchangeable
Preferred Stock. At the close of business on August 24, 1998: (i) 142,355,677
shares of Chancellor Common Stock were issued and outstanding, 14,149,671 shares
of Chancellor Common Stock were reserved for issuance pursuant to outstanding
options or warrants to purchase Chancellor Common Stock which have been granted
to directors, officers or employees of Chancellor or others ("Chancellor Stock
Options"), 18,059,088 shares of Chancellor Common Stock were reserved for
issuance upon the conversion of the Chancellor Convertible Preferred Stock, and
no shares of Chancellor Common Stock were held as treasury shares by Chancellor
or any subsidiary of Chancellor; (ii) 2,200,000 shares of Chancellor 7%
Convertible Preferred Stock were issued and outstanding; (iii) 6,000,000 shares
of Chancellor $3.00 Convertible Preferred Stock were issued and outstanding; and
(iv) no shares of Chancellor Convertible Preferred Stock were held as treasury
shares by Chancellor or any subsidiary of Chancellor. Except as set forth above
or disclosed in writing by Chancellor to Capstar in a
20
disclosure letter (the "Chancellor Disclosure Letter") delivered to Capstar
prior to the execution and delivery of the Old Agreement, at the close of
business on August 24, 1998, no shares of capital stock or other equity
securities of Chancellor were authorized, issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of Chancellor are, and all
shares which may be issued pursuant to Chancellor's stock option plans, as
amended to the date hereof (the "Chancellor Stock Option Plans"), or upon the
exercise of outstanding Chancellor Stock Options or upon the conversion of
outstanding shares of Chancellor Convertible Preferred Stock will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No bonds, debentures, notes or other indebtedness
of Chancellor or any subsidiary of Chancellor having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Chancellor or any subsidiary of
Chancellor may vote are issued or outstanding. All the outstanding shares of
capital stock of each subsidiary of Chancellor have been validly issued and are
fully paid and nonassessable and (except for the shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock, $0.01 par value, of Chancellor
Media Corporation of Los Angeles, a Delaware corporation (the "Chancellor
Operating Subsidiary")), are owned by Chancellor, by one or more wholly-owned
subsidiaries of Chancellor or by Chancellor and one or more such wholly-owned
subsidiaries, free and clear of all Liens, except for Liens arising out of the
senior credit facility of Chancellor Operating Subsidiary and those that,
individually or in the aggregate, could not reasonably be expected to have a
Chancellor Material Adverse Effect. Except as set forth above or in the
Chancellor Disclosure Letter and in that certain Amended and Restated
Stockholders Agreement, dated as of February 14, 1996, as amended by the First
Amendment to Amended and Restated Stockholders Agreement dated as of September
4, 1997, among Chancellor and the stockholders parties thereto (the "Chancellor
Stockholders Agreement") (which restricts the transfer of shares of Chancellor
Common Stock by the parties to the Chancellor Stockholders Agreement in certain
circumstances), and except for certain provisions of the Certificate of
Incorporation of Chancellor relating to "alien ownership" of the Chancellor
Common Stock, as of August 26, 1998, neither Chancellor nor any subsidiary of
Chancellor had any outstanding option, warrant, subscription or other right,
agreement or commitment that either (i) obligates Chancellor or any subsidiary
of Chancellor to issue, sell or transfer, repurchase, redeem or otherwise
acquire or vote any shares of the capital stock of Chancellor or any Chancellor
Significant Subsidiary or (ii) restricts the transfer of Chancellor Common
Stock. From the close of business on August 24, 1998 to August 26, 1998, neither
Chancellor nor any subsidiary of Chancellor had issued any capital stock or
securities or other rights convertible into or exercisable or exchangeable for
shares of such capital stock, other than shares of Chancellor Common Stock
issued upon the exercise of Chancellor Stock Options outstanding on August 24,
1998 or upon the conversion of shares of Chancellor Convertible Preferred Stock
outstanding on August 24, 1998.
3.3 AUTHORITY; NONCONTRAVENTION. Chancellor has the requisite corporate power
and authority to enter into this Agreement and, subject to the approval of the
stockholders of Chancellor as set forth in Section 5.2(b) (the "Chancellor
Stockholders Approval") of (i) the issuance of shares of Chancellor Common Stock
to the holders of Capstar Common Stock in the Merger and (ii) the Amended and
Restated Charter (clauses (i) and (ii) collectively being referred to
hereinafter as the "Chancellor Stockholder Proposals"), to consummate the
transactions contemplated by this Agreement. The
21
execution and delivery of this Agreement by Chancellor and the consummation by
Chancellor of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Chancellor, subject to the
Chancellor Stockholders Approval. This Agreement has been duly executed and
delivered by Chancellor and, assuming this Agreement constitutes the valid and
binding agreement of each of the other parties hereto, constitutes a valid and
binding obligation of Chancellor, enforceable against it in accordance with its
terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as set forth in the Chancellor Disclosure Letter and
subject to the receipt of the Chancellor Stockholders Approval and the filing of
the Amended and Restated Charter, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated by this Agreement
and compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Certificate of Incorporation or Bylaws of Chancellor or the
comparable documents of any subsidiary of Chancellor, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Chancellor or any of its subsidiaries is a party or by which Chancellor or any
of its subsidiaries or any of their assets is bound or affected, (iii) result in
an obligation by Chancellor or any of its subsidiaries to redeem, repurchase or
retire (or offer to redeem, repurchase or retire) any indebtedness of Chancellor
or any of its subsidiaries outstanding as of the date hereof or equity security
of Chancellor or any of its subsidiaries outstanding as of the date hereof, or
(iv) subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
except, in the cases of the foregoing clauses (ii) through (iv), for breaches
that, individually or in the aggregate, could not reasonably be expected to have
a Chancellor Material Adverse Effect or to materially hinder Chancellor's
ability to consummate the transactions contemplated by this Agreement. No
consent, approval or authorization of, or declaration or filing with, or notice
to, any Governmental Entity which has not been received or made, is required by
or with respect to Chancellor or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Chancellor or the consummation by
Chancellor of the transactions contemplated hereby, except for (i) the filing of
premerger notification and report forms under the HSR Act with respect to the
Merger and the termination or earlier expiration of the applicable waiting
period thereunder, (ii) such filings with and approvals required by the FCC
under the Communications Act, including those required in connection with the
acquisition of control of the Capstar FCC Licenses for the operation of the
Capstar Licensed Facilities, (iii) the filing of the Certificate of Merger with
the Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which Chancellor is qualified to do business,
(iv) the Joint Proxy Statement/Prospectus to be filed with the SEC by Chancellor
relating to the Chancellor Stockholders Approval and the issuance of Chancellor
Common Stock in connection with the Merger, (v) any filing required by The
22
Nasdaq Stock Market (or the New York Stock Exchange, if the shares of Chancellor
Common Stock are then listed thereon) with respect to the issuance of shares of
Chancellor Common Stock in connection with the Merger or upon the exercise of
Capstar Stock Options issued pursuant to the Capstar Stock Option Plan or the
Warrants, (vi) the filing of such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (vii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
other transactions contemplated by this Agreement, (viii) such filings as may be
required in connection with statutory provisions and regulations relating to
real property transfer gains taxes and real property transfer taxes, and (ix)
the filing of the Amended and Restated Charter.
3.4 CHANCELLOR SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as set forth in the
supplement to the Chancellor Disclosure Letter dated the date hereof, (i)
Chancellor and its predecessors have filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1995 to
August 26, 1998 (such reports, schedules, forms, statements and other documents
and any other documents filed with the SEC and publicly available prior to
August 26, 1998 are hereinafter referred to as the "Chancellor SEC Documents");
(ii) as of their respective dates, the Chancellor SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Chancellor SEC Documents, and none of the
Chancellor SEC Documents as of such dates contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (iii) as of their
respective dates, the consolidated financial statements of Chancellor and its
predecessors included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Rule 10-01 of Regulation
S-X) and fairly present, in all material respects, the consolidated financial
position of Chancellor and its consolidated subsidiaries (or its predecessors
and their respective consolidated subsidiaries) as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (on the basis stated therein and subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments).
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Chancellor
SEC Documents or except as disclosed in the Chancellor Disclosure Letter or in
the supplement to the Chancellor Disclosure Letter dated the date hereof, or as
otherwise agreed to in writing after August 26, 1998 by Capstar, or as expressly
permitted by this Agreement, since the date of the most recent audited financial
statements included in the Chancellor SEC Documents, Chancellor and its
subsidiaries have conducted their business only in the ordinary course, and
there has not been (i) any change which could reasonably be expected to have a
Chancellor Material Adverse Effect (including as a result of the consummation of
the transactions contemplated by this Agreement), (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or
23
property) with respect to any of Chancellor's currently outstanding capital
stock (other than the payment of regular cash dividends on the Chancellor 7%
Convertible Preferred Stock and Chancellor $3.00 Convertible Preferred Stock, in
each case in accordance with usual record and payment dates), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital stock,
(iv) (x) any granting by Chancellor or any of its subsidiaries to any director,
officer or other employee or independent contractor of Chancellor or any of its
subsidiaries of any increase in compensation or acceleration of benefits, except
in the ordinary course of business consistent with prior practice or as was
required under employment agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents, (y) any
granting by Chancellor or any of its subsidiaries to any director, officer or
other employee or independent contractor of any increase in, or acceleration of
benefits in respect of, severance or termination pay, or pay in connection with
any change of control of Chancellor, except in the ordinary course of business
consistent with prior practice or as was required under any employment,
severance or termination agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents or (z) any
entry by Chancellor or any of its subsidiaries into any employment, severance,
change of control, or termination or similar agreement with any director,
executive officer or other employee or independent contractor other than in the
ordinary course of business consistent with past practices, or (v) any change in
accounting methods, principles or practices by Chancellor or any of its
subsidiaries materially affecting its assets, liability or business, except
insofar as may have been required by a change in generally accepted accounting
principles.
3.6 NO EXTRAORDINARY PAYMENTS OR CHANGE IN BENEFITS. Except as disclosed in the
Chancellor Disclosure Letter or in the supplement to the Chancellor Disclosure
Letter dated the date hereof, no current or former director, officer, employee
or independent contractor of Chancellor or any of its subsidiaries is entitled
to receive any payment under any agreement, arrangement or policy (written or
oral) relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "Chancellor
Benefit Plans"), nor will any benefit received or to be received by any current
or former director, officer, employee or independent contractor of Chancellor or
any of its subsidiaries under any Chancellor Benefit Plan be accelerated or
modified, in each case, as a result of or in connection with the execution and
delivery of, or the consummation of the transactions contemplated by, this
Agreement.
3.7 BROKERS. Except with respect to Salomon Brothers Inc. and Smith Barney
Inc., collectively doing business as Salomon Smith Barney ("Salomon Smith
Barney"), Wasserstein Perella & Co. ("Wasserstein"), Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Goldman, Sachs & Co. ("Goldman Sachs"), all
negotiations relating to this Agreement and the transactions contemplated hereby
have been carried out by Chancellor directly with Capstar without the
intervention of any person on behalf of Chancellor in such a manner as to give
rise to any valid claim by any person against Chancellor, Capstar, the Surviving
Corporation or any subsidiary of any of them for a finder's fee, brokerage
commission, or similar payment. The Chancellor Disclosure Letter and the
supplement to the Chancellor Disclosure Letter dated the date hereof set forth a
written summary of the terms of its agreements relating to the transactions
contemplated
24
by this Agreement with Salomon Smith Barney, Wasserstein, Morgan Stanley and
Goldman Sachs, and Chancellor has no other agreements or understandings (written
or oral) with respect to such services.
3.8 OPINION OF FINANCIAL ADVISORS.
(a) The Board of Directors of Chancellor has received the opinion of
Wasserstein, dated the date hereof, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to Chancellor and the
holders of Chancellor Common Stock.
(b) The special committee of the Board of Directors of Chancellor
(consisting of independent directors) (the "Chancellor Special Committee") has
received the opinion of Salomon Smith Barney, dated as of August 26, 1998, to
the effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the holders of Chancellor Common Stock who are not affiliated
with Hicks, Muse, Tate & Furst Incorporated.
(c) The Board of Directors of Chancellor has received the opinion of
Morgan Stanley, dated as of August 26, 1998, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to Chancellor
and the holders of Chancellor Common Stock.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for (x) liabilities disclosed in
the Chancellor SEC Documents, (y) current liabilities incurred by Chancellor and
its subsidiaries in the ordinary course of business consistent with past
practices since the date of the most recent consolidated balance sheet of
Chancellor set forth in Chancellor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as filed with the SEC, and (z) liabilities
contemplated by this Agreement or disclosed in the Chancellor Disclosure Letter,
Chancellor and its subsidiaries do not have any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise) (i) required by GAAP to be reflected on a consolidated balance sheet
of Chancellor and its consolidated subsidiaries or in the notes, exhibits or
schedules thereto or (ii) which reasonably could be expected to have a
Chancellor Material Adverse Effect.
3.10 LITIGATION. Except as disclosed in the Chancellor SEC Documents or in the
Chancellor Disclosure Letter, to August 26, 1998, there is no litigation,
administrative action, arbitration or other proceeding pending against
Chancellor or any of its subsidiaries or, to the knowledge of Chancellor,
threatened that, individually or in the aggregate, could reasonably be expected
to (i) have a Chancellor Material Adverse Effect or (ii) prevent, or
significantly delay the consummation of the transactions contemplated by this
Agreement. Except as set forth in the Chancellor SEC Documents, to the date of
this Agreement, there is no judgment, order, injunction or decree of any
Governmental Entity outstanding against Chancellor or any of its subsidiaries
that, individually or in the aggregate, could reasonably be expected to have any
effect referred to in the foregoing clauses (i) and (ii) of this Section 3.10.
3.11 TRANSACTIONS WITH AFFILIATES. Other than the transactions contemplated by
this Agreement or except to the extent disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter or in the supplement to the Chancellor
Disclosure Letter dated the date hereof, there have been no transactions,
agreements, arrangements or understandings between Chancellor or its
subsidiaries, on the one hand, and Chancellor's affiliates (other than
subsidiaries of Chancellor) or any other person, on the other hand,
25
that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act.
3.12 VOTING REQUIREMENTS. The affirmative votes of (i) a majority of the
outstanding shares of Chancellor Common Stock with respect to the approval and
adoption of the Amended and Restated Charter, and (ii) a majority of the votes
cast by the holders of Chancellor Common Stock with respect to the approval of
the issuance of Chancellor Common Stock to Capstar stockholders in the Merger,
are the only votes of the holders of any class or series of Chancellor's capital
stock necessary by law to approve the transactions contemplated by this
Agreement.
3.13 FCC QUALIFICATION. Chancellor and its subsidiaries are fully qualified
under the Communications Act to be the transferees of control of the Capstar FCC
Licenses. Except as disclosed in the Chancellor Disclosure Letter or in the
supplement to the Chancellor Disclosure Letter dated the date hereof, Chancellor
is not aware of any facts or circumstances relating to the FCC qualifications of
Chancellor or any of its subsidiaries that could reasonably be expected to
prevent the FCC's granting the FCC Form 316 Transfer of Control Application to
be filed with respect to the Merger.
3.14 EMPLOYEE ARRANGEMENTS AND BENEFIT PLANS.
(a) Except as set forth in the Chancellor SEC Documents or in the
Chancellor Disclosure Letter and except as could not, individually or in the
aggregate, reasonably be expected to have a Chancellor Material Adverse Effect:
(A) each Chancellor Benefit Plan has been administered and is in compliance with
the terms of such plan and all applicable laws, rules and regulations, (B) no
"reportable event" (as such term is used in section 4043 of ERISA) (other than
those events for which the 30 day notice has been waived pursuant to the
regulations), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code) or "accumulated funding deficiency" (as such
term is used in section 412 or 4971 of the Code) has heretofore occurred with
respect to any Chancellor Benefit Plan and (C) each Chancellor Benefit Plan
intended to qualify under Section 401(a) of the Code has received a favorable
determination from the IRS regarding its qualified status and no notice has been
received from the IRS with respect to the revocation of such qualification.
(b) To August 26, 1998, there is no litigation or administrative or
other proceeding involving any Chancellor Benefit Plan nor has Chancellor or its
subsidiaries received written notice that any such proceeding is threatened, in
each case where an adverse determination could reasonably be expected to have a
Chancellor Material Adverse Effect. Neither Chancellor nor any of its
subsidiaries has incurred, nor, to the best of Chancellor's knowledge, is
reasonably likely to incur any withdrawal liability with respect to any
"multiemployer plan" (within the meaning of section 3(37) of ERISA) which
remains unsatisfied in an amount which could reasonably be expected to have a
Chancellor Material Adverse Effect. The termination of, or withdrawal from, any
Chancellor Benefit Plan or multiemployer plan to which Chancellor or its
subsidiaries contributes, on or prior to the Closing Date, will not subject
Chancellor or any of its subsidiaries to any liability under Title IV of ERISA
that could reasonably be expected to have a Chancellor Material Adverse Effect.
3.15 TAX MATTERS. Except as set forth in the Chancellor Disclosure Letter or
the Chancellor SEC Documents, (A) Chancellor and each of its subsidiaries have
timely filed with the appropriate taxing authorities all material Tax Returns
required to be filed
26
through the date hereof and will timely file any such material Tax Returns
required to be filed on or prior to the Closing Date (except those under valid
extension) and all such Tax Returns are and will be true and correct in all
material respects, (B) all Taxes of Chancellor and each of its subsidiaries
shown to be due on the Tax Returns described in (A) above have been or will be
timely paid, (C) no material deficiencies for any Taxes have been proposed,
asserted or assessed against Chancellor or any of its subsidiaries that have not
been fully paid or adequately provided for in the appropriate financial
statements of Chancellor and its subsidiaries, and no power of attorney with
respect to any Taxes has been executed or filed with any taxing authority and no
material issues relating to Taxes have been raised in writing by any
governmental authority during any presently pending audit or examination, (D)
Chancellor and its subsidiaries are not now subject to audit by any taxing
authority and no waivers of statutes of limitation with respect to the Tax
Returns have been given by or requested in writing from Chancellor or any of its
subsidiaries, (E) there are no material liens for Taxes (other than for Taxes
not yet due and payable) on any assets of Chancellor or any of its subsidiaries,
(F) neither Chancellor nor any of its subsidiaries is a party to or bound by
(nor will any of them become a party to or bound by) any tax indemnity, tax
sharing, tax allocation agreement, or similar agreement, arrangement or practice
with respect to Taxes, (G) neither Chancellor nor any of its subsidiaries has
ever been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code, other than the affiliated group of which Chancellor is
the common parent, (H) neither Chancellor nor any of its subsidiaries has filed
a consent pursuant to the collapsible corporation provisions of Section 341(f)
of the Code (or any corresponding provision of state or local law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provisions of state or
local law) apply to any disposition of any asset owned by Chancellor or any of
its subsidiaries, as the case may be, (I) neither Chancellor nor any of its
subsidiaries has agreed to make, nor is any required to make, any adjustment
under Section 481(a) of the Code or any similar provision of state, local or
foreign law by reason of a change in accounting method or otherwise, (J)
Chancellor and its subsidiaries have complied in all material respects with all
applicable laws, rules and regulations relating to withholding of Taxes and (K)
no property owned by Chancellor or any of its subsidiaries (i) is property
required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986;
(ii) constitutes "tax exempt use property" within the meaning of Section
168(h)(l) of the Code; or (iii) is tax exempt bond financed property within the
meaning of Section 168(g) of the Code.
3.16 INTELLECTUAL PROPERTY. Except as set forth in the Chancellor Disclosure
Letter or the Chancellor SEC Documents and except to the extent that the
inaccuracy of any of the following (or the circumstances giving rise to such
inaccuracy), individually or in the aggregate, could not reasonably be expected
to have a Chancellor Material Adverse Effect: (a) Chancellor and each of its
subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of its
business as currently conducted; (b) the use of any Intellectual Property by
Chancellor and its subsidiaries does not infringe on or otherwise violate the
rights of any person and is in accordance with any applicable license pursuant
to which Chancellor or any subsidiary acquired the right to use any Intellectual
Property; and (c) to the knowledge of Chancellor, no person is challenging,
infringing on or otherwise violating any right of Chancellor or any of its
subsidiaries with respect to any Intellectual Property owned by
27
and/or licensed to Chancellor or its subsidiaries; and (d) neither Chancellor
nor any of its subsidiaries has received any written notice of any pending claim
with respect to any Intellectual Property used by Chancellor and its
subsidiaries and to its knowledge no Intellectual Property owned and/or licensed
by Chancellor or its subsidiaries is being used or enforced in a manner that
would result in the abandonment, cancellation or unenforceability of such
Intellectual Property.
3.17 ENVIRONMENTAL MATTERS. Except as disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter and except as could not reasonably be
expected to have a Chancellor Material Adverse Effect (i) the operations of
Chancellor and its subsidiaries have been and are in compliance with all
Environmental Laws and with all Permits required by Environmental Laws, (ii) to
August 26, 1998, there are no pending or, to the knowledge of Chancellor,
threatened, Actions under or pursuant to Environmental Laws against Chancellor
or its subsidiaries or involving any real property currently or, to the
knowledge of Chancellor, formerly owned, operated or leased by Chancellor or its
subsidiaries, (iii) Chancellor and its subsidiaries are not subject to any
Environmental Liabilities, and, to the knowledge of Chancellor, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or, to the knowledge of Chancellor,
formerly owned, operated or leased by Chancellor or its subsidiaries or
operations thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of Chancellor all
real property operated or leased by Chancellor or its subsidiaries is free of
contamination from Hazardous Material and (v) there is not now, nor, to the
knowledge of Chancellor, has there been in the past, on, in or under any real
property owned, leased or operated by Chancellor or any of its predecessors (a)
any underground storage tanks, above-ground storage tanks, dikes or impoundments
containing Hazardous Materials, (b) any asbestos-containing materials, (c) any
polychlorinated biphenyls, or (d) any radioactive substances.
3.18 COMPLIANCE WITH APPLICABLE LAWS. Each of Chancellor and its subsidiaries
has in effect all Permits necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, other than
such Permits the absence of which could not, individually or in the aggregate,
reasonably be expected to have a Chancellor Material Adverse Effect, and there
has occurred no default under any such Permit other than such defaults which,
individually or in the aggregate, could not reasonably be expected to have a
Chancellor Material Adverse Effect. Except as disclosed in the Chancellor
Disclosure Letter, Chancellor and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for such noncompliance which, individually or in the
aggregate, could not reasonably be expected to have a Chancellor Material
Adverse Effect.
3.19 CHANCELLOR FCC LICENSES; OPERATIONS OF CHANCELLOR LICENSED
FACILITIES. Chancellor and its subsidiaries have operated the radio stations for
which Chancellor and any of its subsidiaries hold licenses from the FCC, in each
case which are owned or operated by Chancellor and its subsidiaries (each a
"Chancellor Licensed Facility" and collectively the "Chancellor Licensed
Facilities"), in material compliance with the terms of the licenses issued by
the FCC to Chancellor and its subsidiaries (the "Chancellor FCC Licenses"), and
in material compliance with the Communications Act, except where the failure to
do so could not, individually or in the aggregate, reasonably be expected to
have a Chancellor Material Adverse Effect. To the knowledge of Chancellor, each
broadcast
28
radio station for which Chancellor or any of its subsidiaries provides
programming and advertising services pursuant to a local marketing agreement
(each a "Chancellor LMA Facility" and collectively the "Chancellor LMA
Facilities") has been operated in material compliance with the terms of the
licenses issued by the FCC to the owner of such Chancellor LMA Facility (each an
"Chancellor LMA Facility FCC License" and collectively the "Chancellor LMA
Facility FCC Licenses"). Chancellor has, and its subsidiaries have, timely filed
or made all applications, reports and other disclosures required by the FCC to
be made with respect to the Chancellor Licensed Facilities and have timely paid
all FCC regulatory fees with respect thereto, except where the failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Chancellor Material Adverse Effect. Chancellor and each of its subsidiaries
have, and are the authorized legal holders of, all the Chancellor FCC Licenses
necessary or used in the operation of the businesses of the Chancellor Licensed
Facilities as presently operated. To the knowledge of Chancellor, the
third-parties with which Chancellor or its subsidiaries have entered into local
marketing agreements with respect to the Chancellor LMA Facilities have, and are
the authorized legal holders of, the Chancellor LMA Facility FCC License
necessary or used in the operation of the business of the respective Chancellor
LMA Facility to which such local marketing agreement relates. All Chancellor FCC
Licenses and, to the knowledge of Chancellor, Chancellor LMA Facility FCC
Licenses are validly held and are in full force and effect, unimpaired by any
act or omission of Chancellor, each of its subsidiaries (or, to Chancellor's
knowledge, their respective predecessors) or their respective officers,
employees or agents, except where such impairments could not, individually or in
the aggregate, reasonably be expected to have a Chancellor Material Adverse
Effect. As of August 26, 1998, except as set forth in the Chancellor Disclosure
Letter, no application, action or proceeding is pending for the renewal of any
Chancellor FCC License or, to the knowledge of Chancellor, Chancellor LMA
Facility FCC License as to which any petition to deny has been filed and, to
Chancellor's knowledge, there is not now before the FCC any material
investigation, proceeding, notice of violation or order of forfeiture relating
to any Chancellor Licensed Facility or Chancellor LMA Facility that, if
adversely determined, could reasonably be expected to have a Chancellor Material
Adverse Effect, and Chancellor is not aware of any basis that could reasonably
be expected to cause the FCC not to renew any of the Chancellor FCC Licenses or
the Chancellor LMA Facility FCC Licenses (other than proceedings to amend FCC
rules or the Communications Act of general applicability to the radio broadcast
industry). There is not now pending and, to Chancellor's knowledge, there is not
threatened, any action by or before the FCC to revoke, suspend, cancel, rescind
or modify in any material respect any of the Chancellor FCC Licenses or to the
knowledge of Chancellor, any of the Chancellor LMA Facility FCC Licenses that,
if adversely determined, could reasonably be expected to have a Chancellor
Material Adverse Effect (other than proceedings to amend FCC rules or the
Communications Act of general applicability to the radio broadcast industry).
3.20 STATE TAKEOVER STATUTES. The Board of Directors of Chancellor has approved
the terms of this Agreement and the consummation of the transactions
contemplated by this Agreement, and such approval is sufficient to render
inapplicable to the Merger and the other transactions contemplated by this
Agreement the provisions of Section 203 of the Delaware Code. To Chancellor's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement or any of the
transactions contemplated by this Agreement and no provision of the Certificate
of
29
Incorporation, Bylaws or other governing instrument of Chancellor or any of its
subsidiaries would, directly or indirectly, restrict or impair the ability of
Chancellor to consummate the transactions contemplated by this Agreement.
3.21 CHANCELLOR COMMON STOCK. The shares of Chancellor Common Stock to be
issued in the Merger will be, upon delivery against receipt of the shares of
Capstar Common Stock for which such shares will be issued in accordance with
Section 1.8 of this Agreement, duly authorized, validly issued, fully paid and
nonassessable. The shares of Chancellor Common Stock to be issued pursuant to
the Capstar Stock Options issued under the Capstar Stock Option Plan and upon
exercise of the Warrants will be, upon delivery of the exercise price therefor
in accordance with the terms of the Capstar Stock Option Plan and agreements
pursuant to which such Capstar Stock Options were issued and the warrant
agreements pursuant to which such Warrants were issued, respectively, duly
authorized, validly issued, fully paid and nonassessable.
3.22 NO OTHER REPRESENTATIONS AND WARRANTIES. Except for the representations
and warranties made by Chancellor as expressly set forth in this Agreement or in
any certificate or document delivered pursuant this Agreement, neither
Chancellor nor any of its affiliates has made and shall not be construed as
having made to Capstar or to any affiliate thereof any representation or
warranty of any kind.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to Capstar as follows:
4.1 ORGANIZATION, STANDING AND CORPORATE POWER. Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. Merger Sub is duly qualified to do
business and in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties would make such
qualification necessary, except where the failure to be so qualified could not
reasonably be expected to have a Chancellor Material Adverse Effect.
4.2 CAPITAL STRUCTURE. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, $0.01 par value, all of which are issued and
outstanding and owned of record and beneficially by Chancellor, free and clear
of all Liens. All outstanding shares of capital stock of Merger Sub are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Merger Sub has no outstanding options, warrants,
subscriptions or other rights, agreements or commitments that obligates it to
issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any
shares of the capital stock of Merger Sub.
4.3 AUTHORITY; NONCONTRAVENTION. Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
Merger Sub and the consummation by it of the transactions contemplated by this
Agreement, have been duly authorized by all necessary corporate action on the
part of Merger Sub, including all necessary stockholder approval. This Agreement
has been duly executed and delivered by Merger Sub, and, assuming this Agreement
constitutes the valid and binding agreement of Chancellor and Capstar,
constitutes a valid and binding obligation of Merger Sub
30
enforceable against it in accordance with its terms except that the enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect relating to creditor's rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). The execution
and delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, (i) conflict with any of the provisions of the Certificate
of Incorporation or Bylaws of Merger Sub, or (ii) subject to the governmental
filings and other matters referred to in the following sentence, contravene any
law, rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made is required by or with respect to
Merger Sub in connection with the execution and delivery of this Agreement by it
or the consummation by it of any of the transactions contemplated by this
Agreement, except for (i) the filing of premerger notification and report forms
under the HSR Act with respect to the Merger and the termination or earlier
expiration of the applicable waiting periods thereunder, (ii) such filings with
and approvals required by the FCC under the Communications Act including those
required in connection with the transfer of control of the Capstar FCC Licenses
for the operation of the Capstar Licensed Facilities, and (iii) the filing of a
certificate of merger with the Delaware Secretary of State.
4.4 NO PRIOR ACTIVITIES. Except for this Agreement, Merger Sub (i) has not
entered into any agreements or arrangements with any person or (ii) is not
subject to or bound by any obligation or undertaking. Except as contemplated by
this Agreement, Merger Sub has not engaged, directly or indirectly, in any
business activities of any type or kind.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF FORM S-4 AND JOINT PROXY STATEMENT/PROSPECTUS; INFORMATION
SUPPLIED.
(a) As soon as practicable following the date of this Agreement, (i)
Chancellor and Capstar shall prepare and file with the SEC the Joint Proxy
Statement/Prospectus and (ii) Capstar and Chancellor shall prepare and file a
Registration Statement on Form S-4 (the "Form S-4") with respect to the
registration of the issuance of shares of Chancellor Common Stock in the Merger,
of which the Joint Proxy Statement/Prospectus will form a part. Each of
Chancellor and Capstar shall use its reasonable best efforts to have the Form
S-4 declared effective under the Securities Act as promptly as practicable after
such filing. Chancellor shall use its reasonable best efforts to cause the Joint
Proxy Statement/ Prospectus to be mailed to Chancellor's stockholders, and
Capstar shall use its reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to Capstar's stockholders, in each case as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Chancellor shall also take any action (other than qualifying to
do business in any jurisdiction in which it is not now so qualified or take any
action that would subject it to the service of process in suits, other than as
to matters and transactions relating to the Form S-4, in any jurisdiction where
it is not so subject) required to be taken under any applicable state securities
laws in connection with the
31
issuance of the Chancellor Common Stock in the Merger and Capstar shall furnish
all information concerning itself and the holders of shares of Capstar Common
Stock as may be reasonably requested in connection with any such action.
(b) Capstar agrees and represents and warrants that the information
supplied or to be supplied by it specifically for inclusion or incorporation by
reference in the (i) Form S-4 will not, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, or (ii) the Joint Proxy
Statement/Prospectus will not, at the date it is first mailed to Capstar's
stockholders or at the time of the Capstar Stockholders Meeting (as defined in
Section 5.2(a)), contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omits to state any material fact necessary in order to make
the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter thereof which has become false or
misleading.
(c) Chancellor agrees and represents and warrants that the information
supplied or to be supplied by it specifically for inclusion or incorporation by
reference in (i) the Form S-4 will not, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, or (ii) the Joint Proxy
Statement/Prospectus will not, at the date it is first mailed to Chancellor's
stockholders or at the time of the Chancellor Stockholders Meeting, contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter thereof which has become false or misleading. Chancellor
agrees that the Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder and Chancellor agrees that the Joint Proxy Statement/Prospectus will
comply as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder, except in each case
with respect to statements made or incorporated by reference in the Form S-4 or
the Joint Proxy Statement/Prospectus supplied by Capstar specifically for
inclusion or incorporation by reference therein as to which Chancellor assumes
no responsibility.
5.2 STOCKHOLDER APPROVAL.
(a) Capstar agrees that it will take all action necessary in accordance
with applicable law and its Certificate of Incorporation and Bylaws to convene a
meeting of its stockholders (the "Capstar Stockholders Meeting") to submit this
Agreement, together (subject to Section 5.5(b) below) with the affirmative
recommendation of the Capstar Special Committee and Capstar's Board of
Directors, to Capstar's stockholders so that
32
they may consider and vote upon the approval and adoption of this Agreement.
Capstar will use its best efforts to hold the Capstar Stockholders Meeting as
soon as reasonable after the date hereof and, so long as the recommendation of
the Capstar Special Committee or the Board of Directors of Capstar has not been
withdrawn or modified in accordance with Section 5.5(b), to obtain the favorable
votes of its stockholders. Except as may otherwise be permitted by Section
5.5(b) below, the Capstar Special Committee and the Board of Directors of
Capstar shall recommend to its stockholders that they vote in favor of the
approval and adoption of this Agreement. Without limiting the generality of the
foregoing, Capstar agrees that its obligations pursuant to the first two
sentences of this Section 5.2(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to Chancellor of any
Acquisition Proposal (as defined in Section 5.5(c) below) or (ii) the withdrawal
or modification by Capstar Special Committee or the Board of Directors of
Capstar of its approval or recommendation of this Agreement and the Merger in
accordance with Section 5.5(b) below, except with respect to a withdrawal or
modification of the affirmative recommendation of the Capstar Special Committee
or the Board of Directors of Capstar to Capstar stockholders at the Capstar
Stockholders Meeting in accordance with Section 5.5(b) or in the event Capstar
elects to terminate this Agreement in accordance with Section 8.1(b)(vii).
(b) Chancellor agrees that it will take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders (the "Chancellor Stockholders Meeting")
to submit the Chancellor Stockholder Proposals, together (subject to the proviso
of the last sentence of this Section 5.2(b)) with the affirmative recommendation
of the Chancellor Special Committee and Chancellor's Board of Directors, to the
Chancellor's stockholders so that they may consider and vote upon the Chancellor
Stockholder Proposals. Chancellor will use its best efforts to hold the
Chancellor Stockholders Meeting as soon as reasonable after the date hereof and,
so long as the recommendation of the Chancellor Special Committee or the Board
of Directors of Chancellor has not been withdrawn or modified in accordance with
this Section 5.2(b), to obtain the favorable votes of its stockholders. The
Chancellor Special Committee and the Board of Directors of Chancellor shall
recommend to its stockholders that they vote in favor of each of the Chancellor
Stockholder Proposals; provided, however, that in the event that the Chancellor
Special Committee or the Board of Directors of Chancellor determines in good
faith, following consultation with and after considering the advice of outside
counsel, that in order to comply with its fiduciary duties to stockholders under
applicable law it is necessary for the Chancellor Special Committee or the full
Board of Directors of Chancellor to withdraw or modify, in a manner materially
adverse to Capstar, its approval or recommendation of the transactions
contemplated by this Agreement or the Merger (including either or both of the
Chancellor Stockholder Proposals), then the Chancellor Special Committee or the
full Board of Directors of Chancellor shall be entitled to (A) withdraw or
modify such recommendation without breaching the terms of this Agreement or (B)
terminate this Agreement in accordance with Section 8.1(b)(viii); provided,
further, that in the event of any such withdrawal or modification of such
recommendation by the Chancellor Special Committee or the full Board of
Directors of Chancellor in which Chancellor does not elect to terminate this
Agreement pursuant to Section 8.1(b)(viii), such modification or withdrawal
shall not affect the obligation of Chancellor's Board of Directors to call and
convene the Chancellor Stockholders Meeting and submit the Chancellor
Stockholder Proposals to the Chancellor stockholders for a vote thereon in
accordance with this Section 5.2(b) and 5.2(c) hereof.
33
(c) Unless this Agreement is first terminated in accordance with Section
8.1(b)(vii) or 8.1(b)(viii), each of Chancellor and Capstar agrees to cooperate
and use its respective best efforts to hold the Chancellor Stockholders Meeting
and the Capstar Stockholders Meeting on the same day.
5.3 ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice, each of
Chancellor and Capstar shall, and shall cause each of its respective
subsidiaries to, afford to the other parties hereto and to their respective
officers, employees, counsel, financial advisors and other representatives
reasonable access during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts, commitments, personnel
and records and, during such period, each of Chancellor and Capstar shall, and
shall cause each of its respective subsidiaries to, furnish as promptly as
practicable to the other parties hereto such information concerning its
business, properties, financial condition, operations and personnel as such
parties may from time to time reasonably request, subject to restrictions as to
confidentiality contained in any agreements in effect as of the date of this
Agreement to which either Chancellor or Capstar is a party, provided that
Chancellor or Capstar, as the case may be, shall use its reasonable best efforts
to obtain consent to the waiver of any such restrictions upon the request of the
other party. Without limiting the foregoing, Capstar shall provide promptly to
Chancellor all weekly pacing reports and monthly financial statements prepared
by Capstar or any of its subsidiaries in the ordinary course of business. Except
as required by law, each of the Chancellor and Capstar will hold, and will cause
its respective directors, officers, partners, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information obtained from Capstar or Chancellor, respectively, in
confidence to the extent required by and in accordance with the provisions of
the letter dated August 1, 1998, between Chancellor and Capstar (the
"Confidentiality Agreement"), and each of Chancellor and Capstar agrees that
prior to the Effective Time neither party will use any of such nonpublic
information to directly or indirectly divert or attempt to divert any business,
customer or employee of the other.
5.4 PUBLIC ANNOUNCEMENTS. Chancellor and Capstar agree that each of them will
consult with the other before issuing, and will provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to rules of any
national securities exchange or The Nasdaq Stock Market (to the extent
applicable to them).
5.5 ACQUISITION PROPOSALS.
(a) Except as may otherwise be provided in Section 5.5(e), from and
after August 26, 1998, without the prior written consent of Chancellor, Capstar
did not and shall not, and did not and shall not authorize or permit any of its
subsidiaries to, and did and shall direct and use its best efforts to cause its
and its subsidiaries' respective directors, officers, partners, employees,
agents, accountants, counsel, financial advisors and other representatives and
affiliates (collectively, "Representatives") not to, (i) directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information or
assistance) or take any other action to facilitate any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition
34
Proposal (as defined below) or (ii) enter into or participate in any discussions
or negotiations regarding any Acquisition Proposal. As of August 26, 1998,
Capstar immediately ceased and terminated any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any persons conducted by
it or its Representatives with respect to the foregoing. Except as may otherwise
be provided by Section 5.5(e), from and after August 26, 1998, Capstar did not,
and agrees not to, release any third party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality agreement
between it and another person who has made, or who may reasonably be considered
likely to make, an Acquisition Proposal. From and after August 26, 1998, Capstar
did, and agrees that it will, notify Chancellor orally and in writing promptly
(but in any event within 24 hours) of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of any such proposal
but, at Capstar's discretion, excluding the identity of such third party).
(b) Neither the Board of Directors of Capstar nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Chancellor, the approval or recommendation by such Board of Directors
or committee thereof of this Agreement and the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
cause Capstar to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Acquisition
Proposal; provided, however, that in the event that the Capstar Special
Committee or the Board of Directors of Capstar determines in good faith,
following consultation with and after considering the advice of outside counsel,
that in order to comply with its fiduciary duties to stockholders under
applicable law it is necessary for the Capstar Special Committee or the full
Board of Directors of Capstar to withdraw or modify, in a manner materially
adverse to Chancellor, its approval or recommendation of this Agreement and the
Merger, then the Capstar Special Committee or the full Board of Directors of
Capstar shall be entitled to (A) withdraw or modify such recommendation without
breaching the terms of this Agreement or (B) terminate this Agreement in
accordance with Section 8.1(b)(vii); provided, further, that in the event of any
such withdrawal or modification of such recommendation by the Capstar Special
Committee or the full Board of Directors of Capstar in which Capstar does not
elect to terminate this Agreement pursuant to Section 8.1(b)(vii), such
modification or withdrawal shall not affect the obligation of Capstar's Board of
Directors to call and convene the Capstar Stockholders Meeting and submit this
Agreement to the Capstar stockholders for a vote thereon in accordance with
Section 5.2(a) and 5.2(c) hereof.
(c) For purposes of this Agreement, an "Acquisition Proposal" means any
written proposal or offer from any person (other than Chancellor or any of its
subsidiaries) for a tender or exchange offer, merger, consolidation, other
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Capstar or any Capstar Significant Subsidiary, or any
proposal to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, Capstar or a Capstar Significant
Subsidiary.
(d) Nothing contained in this Section 5.5 shall prohibit the Board of
Directors of Capstar from taking and disclosing to its stockholders a position
in accordance with Rules 14d-9 and 14e-2 under the Exchange Act with respect to
a tender offer or any exchange offer commenced by a third party.
35
(e) In the event that Capstar notifies Chancellor of the existence of
any inquiries, offers or proposals in accordance with Section 5.5(a), the
Capstar Special Committee or the Board of Directors of Capstar may, or authorize
Capstar to, engage in discussions or negotiations with a third party who
(without any solicitation or initiation, directly or indirectly, by or with
Capstar or any of its Representatives after the date of this Agreement) seeks to
initiate such discussions or negotiations and may, or authorize Capstar to,
furnish such third party information concerning Capstar and its business,
properties and assets and may release such third party from, or waive any
provision of, any standstill or confidentiality agreement with respect to such
third party, provided that such action is consistent with the fiduciary duties
of the Capstar Special Committee or the full Board of Directors of Capstar under
applicable law, as determined by the Capstar Special Committee or the Board of
Directors in good faith following consultation with and after considering the
advice of outside counsel.
5.6 CONSENTS, APPROVALS AND FILINGS. Chancellor and Capstar will make and cause
their respective subsidiaries and, to the extent necessary, their other
affiliates to make all necessary filings, including, without limitation, those
required under the HSR Act, the Securities Act, the Exchange Act, and the
Communications Act (including filing an application with the FCC for the
transfer of control of the Capstar FCC Licenses) as soon as practicable after
the date of this Agreement, in order to facilitate the prompt consummation of
the Merger and the other transactions contemplated by this Agreement. In
addition, Chancellor and Capstar will each use its best efforts, and will
cooperate fully and in good faith with each other, (i) to comply as promptly as
practicable with all governmental requirements applicable to the Merger and the
other transactions contemplated by this Agreement, and (ii) to obtain as
promptly as practicable all necessary permits, orders or other consents of
Governmental Entities and consents of all third parties necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement, including without limitation, the consent of the FCC to the transfer
of control of the Capstar FCC Licenses. Each of Chancellor and Capstar shall use
its best efforts to promptly provide such information and communications to
Governmental Entities as such Governmental Entities may reasonably request. Each
of the parties hereto shall provide to the other parties copies of all
applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement and shall make such
revisions thereto as reasonably requested by each other party hereto. Each of
the parties hereto shall provide to the other parties the opportunity to
participate in all meetings and material conversations with Governmental
Entities with respect to the matters contemplated by this Agreement.
5.7 AFFILIATES LETTERS. Prior to the Closing Date, Capstar shall deliver to
Chancellor a letter identifying all persons who, at the time the Merger is
submitted for approval to the stockholders, may be deemed to be an "affiliate"
of such party for purposes of Rule 145 under the Securities Act. Capstar shall
use its best efforts to cause each such person to deliver to Chancellor on or
prior to the Closing Date a written agreement substantially in the form attached
as Annex IV hereto.
5.8 NASDAQ OR EXCHANGE LISTING. Chancellor shall use its best efforts to cause
the shares of Chancellor Common Stock to be issued (a) in the Merger, (b) upon
the exercise of the Capstar Stock Options issued under the Capstar Stock Option
Plan, and (c) upon exercise of the Warrants, to be approved for quotation on The
Nasdaq Stock Market (or for listing
36
on the New York Stock Exchange, if the shares of Chancellor Common Stock are
then listed thereon) at the Effective Time.
5.9 INDEMNIFICATION. The Certificate of Incorporation of the Surviving
Corporation shall contain the provisions with respect to indemnification
contained in the certificate of incorporation of Capstar, as in effect on the
date hereof, and none of such provisions shall be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of Capstar, or any of its
respective subsidiaries (the "Capstar Indemnified Parties") in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by law. If commercially available, Chancellor will
cause to be maintained for a period of not less than six years from the
Effective Time Capstar's current directors' and officers' insurance and
indemnification policies to the extent that they provide coverage for events
occurring prior to the Effective Time (the "D&O Insurance") for all persons who
are directors and executive officers of Capstar on the date of this Agreement,
so long as the annual premium therefor would not be in excess of 250% of the
last annual premium paid prior to the date of the Old Agreement; provided,
however, that Chancellor or its subsidiaries may, in lieu of maintaining such
existing D&O Insurance as provided above, cause coverage to be provided under
any policy maintained for the benefit of Chancellor and its subsidiaries so long
as the terms thereof are not less advantageous to the beneficiaries thereof than
the existing D&O Insurance. Immediately following the Effective Time, Chancellor
shall (i) enter into agreements with Chancellor's executive officers and members
of the Board of Directors providing for indemnification on substantially
identical terms as the agreements of Capstar with the current directors of
Capstar and (ii) use its commercially reasonable efforts to obtain an additional
directors and officers insurance policy for Chancellor in an amount equal to at
least $25 million to cover members of the Chancellor Board of Directors
(including the director appointed as of the Effective Time pursuant to this
Agreement) for facts and circumstances arising after the Effective Time. The
provisions of this Section 5.9 are intended to be for the benefit of, and shall
be enforceable by, each Capstar Indemnified Party, executive officer of
Chancellor and member of the Chancellor Board of Directors following the
Effective Time, and his heirs and his personal representatives and shall be
binding on all successors and assigns of Chancellor and the Surviving
Corporation.
5.10 LETTER OF CHANCELLOR'S ACCOUNTANTS. Chancellor shall use its reasonable
best efforts to cause to be delivered to Capstar a letter of
PricewaterhouseCoopers LLP, Chancellor's independent public accountants, and any
other independent public accountants whose report would be required to be
included in the Form S-4 pursuant to the rules and regulations under the
Securities Act, each dated a date within two business days before the date on
which the Form S-4 shall become effective and an additional letter from each of
them dated a date within two business days before the Closing Date, each
addressed to such party, in form and substance reasonably satisfactory to
Capstar and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
5.11 LETTER OF CAPSTAR'S ACCOUNTANTS. Capstar shall use its reasonable best
efforts to cause to be delivered to Chancellor, a letter of
PricewaterhouseCoopers LLP, Capstar's independent public accountants, and any
other independent public accountants whose
37
report would be required to be included in the Form S-4 pursuant to the rules
and regulations under the Securities Act, each dated a date within two business
days before the date on which the Form S-4 shall become effective and an
additional letter from each of them dated a date within two business days before
the Closing Date, each addressed to such party, in form and substance reasonably
satisfactory to Chancellor and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
5.12 [INTENTIONALLY LEFT BLANK.]
5.13 SENIOR CREDIT FACILITY CONSENTS. Prior to Closing, Capstar agrees to use
its commercially reasonable efforts to obtain the consent of lenders under its
senior secured credit facilities to (i) waive the potential event of default
under such facility as a result of a change of control thereunder in order to
consummate the Merger and the transactions contemplated by this Agreement and
(ii) permit Capstar and its subsidiaries to make change of control offers
pursuant to the terms of the indentures governing their outstanding indebtedness
and the certificates of designation governing the Capstar Partners 12% Preferred
Stock and the Capstar Communications 12 5/8% Preferred Stock. In the event that
Capstar is unable to obtain such consent upon commercially reasonable terms
(giving effect to the overall capitalization of Chancellor and its consolidated
subsidiaries following the Effective Time), each of Chancellor and Capstar
agrees to cooperate with the other party in obtaining refinancing of such senior
secured credit facility upon terms and conditions that are mutually agreed upon
in good faith by each party.
5.14 SECTION 16(B) BOARD APPROVAL.
(a) Prior to Closing, the Board of Directors of Chancellor shall, by
resolution duly adopted by such Board of Directors or a duly authorized
committee of "non-employee directors" thereof, approve and adopt, for purposes
of exemption from "short-swing" liability under Section 16(b) of the Exchange
Act, the acquisition of Chancellor Common Stock at the Effective Time by
officers and directors of Chancellor (including officers or directors of Capstar
who become, prior to, at, or following the Effective Time of the Merger,
officers or directors of Chancellor) as a result of the conversion of shares of
Capstar Common Stock in the Merger and the assumption of the Capstar Stock
Options and Warrants by Chancellor at the Effective Time. Such resolution shall
set forth the name of the applicable "insiders" for purposes of Section 16 of
the Exchange Act, the number of securities to be acquired by each individual,
that the approval is being granted to exempt the transaction under Rule 16b-3
under the Exchange Act, and, for Capstar Stock Options and Warrants to be
assumed by Chancellor at the Effective Time, the material terms of the options
and warrants to purchase Chancellor Common Stock acquired by such insiders as a
result of the assumption by Chancellor of such Capstar Stock Options and
Warrants.
(b) Prior to Closing, the Board of Directors of Capstar shall, by
resolution duly adopted by such Board of Directors or a duly authorized
committee of "non-employee directors" thereof, approve and adopt, for purposes
of exemption from "short-swing" liability under Section 16(b) of the Exchange
Act, the conversion at the Effective Time of the shares of Capstar Common Stock
held by officers and directors of Capstar into shares of Chancellor Common Stock
as a result of the conversion of shares in the Merger, and the assumption by
Chancellor at the Effective Time of the Capstar Stock Options and Warrants of
the officers and directors of Capstar. Such resolution shall set forth the name
38
of the applicable "insiders" for purposes of Section 16 of the Exchange Act and,
for each "insider," the number of shares of Capstar Common Stock to be converted
into shares of Chancellor Common Stock at the Effective Time, the number and
material terms of the Capstar Stock Options and Warrants to be assumed by
Chancellor at the Effective Time, and that the approval is being granted to
exempt the transaction under Rule 16b-3 under the Exchange Act.
5.15 TERMINATION OF OR WAIVER OF RIGHTS UNDER STOCKHOLDERS AGREEMENTS. Prior to
the Closing, Capstar shall use its reasonable best efforts to obtain the consent
of the requisite parties to the Stockholders Agreement dated October 16, 1996,
as amended, among Capstar and the other parties listed therein, the Stockholders
Agreement dated November 26, 1996, as amended, among Capstar and the other
parties listed therein, and the Amended and Restated Stockholders Agreement
dated May 18, 1998, among Capstar and the other parties listed therein
(collectively, the "Capstar Stockholders Agreements") to terminate, or otherwise
waive their rights from and after the Effective Time under, such Capstar
Stockholders Agreements at the Effective Time. To the extent that a termination
or waiver of rights under any of the Capstar Stockholders Agreements is not
effected prior to Closing, Chancellor agrees to assume the obligations of the
Surviving Corporation thereunder with respect to shares of Chancellor Stock
issued in the Merger or otherwise subject to such agreement(s).
5.16 CHANCELLOR REGISTRATION RIGHTS. Prior to the Closing, Chancellor shall use
its reasonable best efforts to enter into a joinder to the Chancellor
Stockholders Agreement (the "Chancellor Registration Rights Agreement") with the
holders of Capstar Common Stock at the Effective Time (or otherwise enter into a
new agreement with such holders and the existing parties to the Chancellor
Stockholders Agreement) that, after giving effect to the Merger and the issuance
of shares of Chancellor Common Stock therein, will own at least 1% of the
outstanding shares of Chancellor Common Stock immediately following the
Effective Time, providing for rights of registration under the Securities Act of
all shares of Chancellor Common Stock held by such holders following the Merger
on substantially similar terms as are provided in the Chancellor Stockholders
Agreement, with such changes as are described in the supplement to the
Chancellor Disclosure Letter dated the date hereof.
ARTICLE 6
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
6.1 CONDUCT OF BUSINESS.
(a) Except as expressly contemplated by this Agreement or in the
supplement to the Capstar Disclosure Letter dated the date hereof, during the
period from August 26, 1998 to the Effective Time, Capstar did and shall, and
did and shall cause its subsidiaries to, act and carry on their respective
businesses in the ordinary course of business and, to the extent consistent
therewith, use reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve the goodwill of those engaged in material business
relationships with them. Without limiting the generality of the foregoing,
during the period from August 26, 1998 to the Effective Time and except as
contemplated by this Agreement, as set forth in the Capstar SEC Documents or a
supplement to the Capstar Disclosure Letter dated the date hereof or as
otherwise agreed to in one or more writings after August 26, 1998 (which
39
writings are hereby reaffirmed), Capstar did and shall not, and did and shall
not permit any of its subsidiaries to, without the prior consent of Chancellor
(which shall not be unreasonably delayed or withheld):
(i) (w) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of Capstar to its
parent and regularly scheduled dividend payments on the 12% Senior Exchangeable
Preferred Stock of Capstar Partners and 12 5/8% Series E Cumulative Preferred
Stock of Capstar Communications), (x) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, (y) except in connection with the termination of the
employment of any employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire any such
shares, or (z) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other equity securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, equity
securities or convertible securities (other than (A) upon the exercise of
Capstar Stock Options outstanding on August 26, 1998, (B) pursuant to employment
agreements or other contractual arrangements in effect on August 26, 1998, and
(C) issuances of stock of any direct or indirect wholly-owned subsidiary of
Capstar to its parent);
(ii) amend its Certificate of Incorporation, Bylaws or other
comparable charter or organizational documents;
(iii) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
(iv) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
Capstar and its subsidiaries, taken as whole, other than bank Liens on any radio
station assets acquired by Capstar or any of its subsidiaries in accordance with
the terms of this Agreement;
(v) (x) other than working capital borrowings in the ordinary
course of business and consistent with past practices or borrowings used for the
purchase of any radio station or other acquisition permitted by the terms of
this Agreement, incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or guarantees
of indebtedness owing to Capstar or any of its direct or indirect wholly-owned
subsidiaries or (y) make any material loans or advances to any other person,
other than to Capstar or any of its direct or indirect wholly-owned subsidiaries
and other than routine advances to employees consistent with past practices;
(vi) make any Tax election or settle or compromise any Tax
liability that could reasonably be expected to be material to Capstar and its
subsidiaries, taken as a whole or change its Tax or accounting methods,
policies, practice or procedures, except as required by GAAP;
(vii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against
40
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of Capstar included in the Capstar SEC Documents or incurred
since the date of such financial statements in the ordinary course of business
consistent with past practice;
(viii) make any material commitments or agreements for capital
expenditures or capital additions or betterments except as materially consistent
with the budget for capital expenditures as of August 26, 1998, in the ordinary
course of business consistent with past practices and for acquisitions of radio
station assets, including radio towers related thereto, in accordance with the
terms of this Agreement;
(ix) except as may be required by law:
(A) other than in the ordinary course of business and
consistent with past practices, make any representation or promise, oral or
written, to any employee or former director, officer or employee of Capstar or
any of its subsidiaries which is inconsistent with the terms of any Capstar
Benefit Plan;
(B) other than in the ordinary course of business and
consistent with past practices, make any change to, or amend in any way, the
contracts, salaries, wages, or other compensation of any director, employee or
any agent or consultant of Capstar or any of its subsidiaries other than routine
changes or amendments that are required under existing contracts;
(C) except for renewals in the ordinary course of business
consistent with past practices, adopt, enter into, amend, alter or terminate,
partially or completely, any Capstar Benefit Plan, or any election made pursuant
to the provisions of any Capstar Benefit Plan, to accelerate any payments,
obligations or vesting schedules under any Capstar Benefit Plan; or
(D) other than in the ordinary course of business consistent
with past practices, approve any general or company-wide pay increases for
employees;
(x) except in the ordinary course of business, modify, amend or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which Capstar or any of its subsidiaries is a party or
waive, release or assign any material rights or claims thereunder; or
(xi) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.2 CAPSTAR STOCK OPTIONS.
(a) At the Effective Time, each Capstar Stock Option that is outstanding
and unexercised immediately prior to the Effective Time shall be deemed to have
been assumed by Chancellor, without further action by Chancellor, the Surviving
Corporation or the holders of such options, and shall thereafter be deemed to be
an option to acquire shares of Chancellor Common Stock in such amount and at the
exercise price provided below and otherwise having the same terms and conditions
as are in effect immediately prior to the Effective Time (except to the extent
that such terms and conditions may be altered in accordance with their terms as
a result of the transactions contemplated hereby):
(i) the number of shares of Chancellor Common Stock to be subject
to the new option shall be equal to the product of (x) the number of shares of
Capstar Common Stock subject to the original option and (y) the Exchange Ratio;
and
41
(ii) the exercise price per share of Chancellor Common Stock under
the new option shall be equal to (x) the exercise price per share of Capstar
Common Stock under the original option divided by (y) the Exchange Ratio.
The adjustments provided herein to any options which are "incentive stock
options" (as defined in Section 422 of the Code) shall be effected in a manner
consistent with Section 424(a) of the Code.
(b) At the Effective Time, Chancellor shall approve and adopt the
Capstar Stock Option Plans and assume the obligations of Capstar thereunder,
with such changes thereto as may be necessary to reflect the consummation of the
transactions contemplated hereby. Nothing in this Section 6.2(b) shall be
construed to prevent Chancellor in any way from terminating or freezing the
benefits under any such plans (subject to the rights of the holders of the
Capstar Stock Options thereunder) and adopting one or more new stock option
plans, as approved by the Board of Directors of Chancellor following the
Effective Time.
(c) Promptly following the Effective Time, Chancellor shall use its
reasonable best efforts to file with the SEC a Registration Statement on Form
S-8 (or an amendment to any such form of Chancellor currently on file with the
SEC that is available therefor) (the "Form S-8") for the purpose of registering
the shares of Chancellor Common Stock issuable upon the exercise of the Capstar
Stock Options issued or issuable under the Capstar Stock Option Plan, and
Chancellor shall use its reasonable best efforts to have the Form S-8 (or any
post-effective amendment thereto) declared effective under the Securities Act as
soon as practicable after such filing.
6.3 CAPSTAR WARRANTS.
(a) At the Effective Time, each Warrant to purchase shares of Capstar
Common Stock that is outstanding immediately prior to the Effective Time shall
be deemed to have been assumed by Chancellor, without further action by
Chancellor, the Surviving Corporation or the holders of such Warrants, and shall
thereafter be deemed to be a warrant to purchase shares of Chancellor Common
Stock in such amount and at the purchase price provided below and otherwise
having the same terms and conditions as are in effect immediately prior to the
Effective Time (except to the extent that such terms and conditions may be
altered in accordance with their terms as a result of the transactions
contemplated hereby):
(i) the number of shares of Chancellor Common Stock to be subject
to the new warrant shall be equal to the product of (x) the number of shares of
Capstar Common Stock subject to the original Warrant and (y) the Exchange Ratio;
and
(ii) the purchase price per share of Chancellor Common Stock under
the new warrant shall be equal to (x) the purchase price per share of Capstar
Common Stock under the original Warrant divided by (y) the Exchange Ratio.
(b) Promptly following the Effective Time, Chancellor shall use its
reasonable best efforts to file with the SEC a Registration Statement on Form
S-8 (or an amendment to any such form of Chancellor currently on file with the
SEC that is available therefor) (the "Form S-8") for the purpose of registering
the shares of Chancellor Common Stock issuable upon the exercise of the
Warrants, and Chancellor shall use its reasonable best efforts to have the Form
S-8 (or any post-effective amendment thereto) declared effective under the
Securities Act as soon as practicable after such filing.
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6.4 OTHER ACTIONS. From and after August 26, 1998, neither Chancellor nor
Capstar shall, and neither of them shall permit any of their respective
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the conditions of the Merger set forth in Article
VII not being satisfied.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective
obligation of each party to effect the Merger is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) STOCKHOLDER APPROVAL. The Capstar Stockholders Approval and
Chancellor Stockholders Approval shall have been obtained in accordance with the
requirements of the Delaware Code and The Nasdaq Stock Market, as applicable.
(b) FCC ORDER. The FCC shall have issued an order (the "FCC Order")
approving the transfers of control pursuant to the Merger of the Capstar FCC
Licenses for the operation of the Capstar Licensed Facilities without the
imposition of any conditions or restrictions that could reasonably be expected
to have a Capstar Material Adverse Effect, and which FCC Order has not been
reversed, stayed, enjoined, set aside or suspended and with respect to which no
timely request for stay, petition for reconsideration or appeal has been filed
and as to which the time period for filing of any such appeal or request for
reconsideration or for any sua sponte action by the FCC with respect to the FCC
Order has expired, or, in the event that such a filing or review sua sponte has
occurred, as to which such filing or review shall have been disposed of
favorably to the grant of the FCC Order and the time period for seeking further
relief with respect thereto shall have expired without any request for such
further relief having been filed or review initiated.
(c) GOVERNMENTAL AND REGULATORY CONSENTS. All required consents,
approvals, permits and authorizations to the consummation of the Merger shall be
obtained from any Governmental Entity (other than the FCC) whose consent,
approval, permission or authorization is required by reason of a change in law
after the date of this Agreement, unless the failure to obtain such consent,
approval, permission or authorization could not reasonably be expected to have a
Capstar Material Adverse Effect, or to materially and adversely affect the
validity or enforceability of this Agreement or the Merger.
(d) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
otherwise expired.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the party
invoking this condition shall use its reasonable best efforts to have any such
order or injunction vacated.
(f) NASDAQ OR EXCHANGE APPROVAL. The shares of Chancellor Common Stock
issuable pursuant to the Merger shall have been approved for quotation on The
Nasdaq Stock Market (or the New York Stock Exchange, if the shares of Chancellor
Common Stock are then listed thereon).
43
(g) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(h) [INTENTIONALLY LEFT BLANK.]
(i) [INTENTIONALLY LEFT BLANK.]
(j) CONSENT OF SENIOR LENDERS. Capstar shall have received (i) all
necessary consents under its senior secured credit facility in order to
consummate the Merger and the transactions contemplated by this Agreement, or
(ii) a firm commitment of senior secured financing from a nationally recognized
commercial bank or syndicate of banks in amounts sufficient to refinance all of
the outstanding indebtedness under its senior secured credit facilities at the
Closing.
7.2 CONDITIONS TO OBLIGATIONS OF CAPSTAR. The obligation of Capstar to effect
the Merger is further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Chancellor and Merger Sub contained in this Agreement shall have been true
and correct as of the date such representations and warranties are made under
this Agreement and shall be true and correct at and as of the Closing Date as
though made at and as of such time (except to the extent that any such
representations and warranties expressly relate only to an earlier time, in
which case they shall have been true and correct at such earlier time);
provided, however, that this condition shall be deemed to have been satisfied
unless the individual or aggregate impact of all inaccuracies of such
representations and warranties (without regard to any materiality or Chancellor
Material Adverse Effect qualifier(s) contained therein) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise) of Chancellor and its subsidiaries, considered as a whole, and except
to the extent that any inaccuracies of such representations and warranties are a
result of changes in the United States financial markets generally or in
national, regional or local economic conditions generally, or are a result of
matters arising after the date hereof that affect the broadcast industry
generally. Each of Chancellor and Merger Sub shall have delivered to Capstar a
certificate dated as of the Closing Date, signed by a senior executive officer
of such company, to the effect set forth in this Section 7.2(a).
(b) PERFORMANCE OF OBLIGATIONS OF CHANCELLOR AND MERGER SUB. Each of
Chancellor and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, including without limitation, the filing of the Amended and
Restated Charter, and Capstar shall have received a certificate signed on behalf
of each of Chancellor and Merger Sub by a senior executive officer of each of
them to such effect.
(c) TAX OPINION. Capstar shall have received an opinion of Vinson &
Elkins L.L.P., dated as of the Closing Date, to the effect that (i) the Merger
will constitute a reorganization under Section 368(a) of the Code, (ii)
Chancellor, Merger Sub and Capstar will each be a party to the reorganization
under Section 368(b) of the Code, and (iii) no gain or loss will be recognized
by the stockholders of Capstar on the receipt pursuant to the Merger of shares
of Chancellor Common Stock in exchange for shares of Capstar Common Stock,
except with respect to cash received in lieu of fractional shares of Chancellor
Common Stock or Dissenting Shares. In rendering such opinion, Vinson &
44
Elkins L.L.P. shall receive and may rely upon representations contained in
certificates of Chancellor, Merger Sub and Capstar.
(d) CHANCELLOR REGISTRATION RIGHTS. Chancellor shall have entered into
the Chancellor Registration Rights Agreement.
7.3 CONDITIONS TO OBLIGATIONS OF CHANCELLOR. The obligations of Chancellor and
Merger Sub to effect the Merger is further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Capstar contained in this Agreement shall have been true and correct as of
the date such representations and warranties are made under this Agreement and
shall be true and correct at and as of the Closing Date as though made at and as
of such time (except to the extent that any such representations and warranties
expressly relate only to an earlier time, in which case they shall have been
true and correct at such earlier time); provided, however, that this condition
shall be deemed to have been satisfied unless the individual or aggregate impact
of all inaccuracies of such representations and warranties (without regard to
any materiality or Capstar Material Adverse Effect qualifier(s) contained
therein) could reasonably be expected to have a material adverse effect on the
condition (financial or otherwise) of Capstar (or, following the Effective Time,
the Surviving Corporation) and its subsidiaries, considered as a whole, and
except to the extent that any inaccuracies of such representations and
warranties are a result of changes in the United States financial markets
generally or in national, regional or local economic conditions generally, or
are a result of matters arising after the date hereof that affect the broadcast
industry generally. Capstar shall have delivered to Chancellor a certificate
dated as of the Closing Date, signed by a senior executive officer of Capstar,
to the effect set forth in this Section 7.3(a).
(b) PERFORMANCE OF OBLIGATIONS OF CAPSTAR. Capstar shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Chancellor and Merger Sub
shall have received a certificate signed on behalf of Capstar by a senior
executive officer of Capstar to such effect.
(c) TAX OPINION. Chancellor shall have received an opinion of Weil,
Gotshal & Manges LLP, dated as of the Closing Date, to the effect that (i) the
Merger will constitute a reorganization under Section 368(a) of the Code, (ii)
Chancellor, Merger Sub and Capstar will each be a party to the reorganization
under Section 368(b) of the Code, and (iii) no gain or loss will be recognized
by Chancellor, Merger Sub or Capstar by reason of the Merger. In rendering such
opinion, Weil, Gotshal & Manges LLP shall receive and may rely upon
representations contained in certificates of Chancellor, Merger Sub and Capstar.
(d) MATERIAL AGREEMENTS. Capstar and its subsidiaries shall have
received any necessary consents required as a result of the Merger and
transactions contemplated by this Agreement with respect to each Material
Agreement. A true and correct list of which Material Agreements require such
consents is set forth in the Capstar Disclosure Letter.
(e) FINANCIAL SERVICES AGREEMENTS. Capstar and certain of its
subsidiaries and Hicks Muse shall have entered into an amendment to each of the
Monitoring and Oversight Agreement (the "Capstar M&O Agreement") between Hicks
Muse and Capstar, the Monitoring and Oversight Agreement (the "Partners M&O
Agreement") between Hicks Muse and Capstar Partners, the Financial Advisory
Agreement (the
45
"Capstar Financial Advisory Agreement") between Hicks Muse and Capstar, and the
Financial Advisory Agreement (the "Partners Financial Advisory Agreement")
between Hicks Muse and Partners, that provide (i) the Partners M&O Agreement
will be terminated at the Effective Time with no further obligation of any party
thereto, (ii) the Partners Financial Advisory Agreement will be terminated at
the Effective Time with no further obligation of any party thereto, (iii) the
Capstar M&O Agreement will be terminated at the Effective Time and, in
consideration therefor, Capstar shall deliver to Hicks Muse at Closing a
one-time cash payment of $14,202,000, and (iv) the Capstar Financial Advisory
Agreement will be terminated at the Effective Time and, in consideration
therefor, Hicks Muse will receive a fee from Capstar of $17,500,000 in cash,
payable at Closing, in satisfaction of its services performed under the Capstar
Financial Advisory Agreement in connection with the Merger.
(f) DISSENTING SHARES. Holders of not more than 10% of the outstanding
shares of Capstar Class B Common Stock and Capstar Class C Common Stock shall
have properly demanded appraisal rights for their shares under the Delaware
Code.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger abandoned as
follows:
(a) at any time prior to the Effective Time, whether before or after
receipt of the Chancellor Stockholders Approval or the Capstar Stockholders
Approval, by mutual written consent of Chancellor and Capstar;
(b) at any time prior to the Effective Time, whether before or after
receipt of the Chancellor Stockholders Approval or the Capstar Stockholders
Approval:
(i) by Chancellor or Capstar if the Capstar Stockholders Approval
shall not have been obtained after submission by the Board of Directors of
Capstar of this Agreement for approval and adoption by the common stockholders
of Capstar at a special meeting called for such purpose in accordance with
Section 5.2(a);
(ii) by Capstar or Chancellor if the Chancellor Stockholders
Approval shall not have been obtained after submission by the Board of Directors
of Chancellor of the Chancellor Stockholder Proposals for approval by the common
stockholders of Chancellor at an annual or special meeting called for such
purpose in accordance with Section 5.2(b);
(iii) by Chancellor or Capstar if the Merger shall not have been
consummated on or before September 30, 1999, unless the failure to consummate
the Merger is the result of a willful and material breach of this Agreement by
the party seeking to terminate this Agreement;
(iv) by Chancellor or Capstar if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
(v) by Chancellor or Capstar in the event of a breach by the other
party of any representation, warranty, covenant or other agreement contained in
this Agreement
46
which (A) would give rise to the failure of a condition set forth in Section
7.2(a) or (b) or Section 7.3(a) or (b), as applicable, and (B) cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching party of such breach (a "Material Breach"), provided that the
terminating party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Agreement;
(vi) by Chancellor if Capstar shall have breached the requirements
of Section 5.5 hereof, unless Chancellor shall at such time be in Material
Breach of any representation, warranty, covenant or other agreement contained in
this Agreement;
(vii) by Capstar if the Board of Directors of Capstar or the
Capstar Special Committee has determined in good faith, following consultation
with and after considering the advice of outside counsel, that in order to
comply with its fiduciary duties to stockholders under applicable law it is
necessary for the Capstar Special Committee or the full Board of Directors of
Capstar to withdraw or modify, in a manner materially adverse to Chancellor, its
approval or recommendation of this Agreement or the Merger in accordance with
Section 5.5(b); or
(viii) by Chancellor if the Board of Directors of Chancellor or the
Chancellor Special Committee has determined in good faith, following
consultation with and after considering the advice of outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
it is necessary for the Chancellor Special Committee or the full Board of
Directors of Chancellor to withdraw or modify, in a manner materially adverse to
Capstar, its approval or recommendation of the Merger and the Chancellor
Stockholder Proposals in accordance with Section 5.2(b).
8.2 EFFECT OF TERMINATION.
(a) In the event that Chancellor or Capstar terminates this Agreement as
provided in Section 8.1(a), 8.1(b)(iii) or 8.1(b)(iv), this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Chancellor or Capstar, other than the last sentence of Section 5.3
and Sections 2.10, 3.7, 8.2 and 11.2.
(b) In the event that this Agreement is terminated by Chancellor
pursuant to Section 8.1(b)(v) or 8.1(b)(vi) or by Capstar or Chancellor pursuant
to Section 8.1(b)(i), Capstar shall promptly reimburse Chancellor for all
substantiated out-of-pocket costs and expenses incurred by them in connection
with this Agreement and the transactions contemplated hereby, including, without
limitation, costs and expenses of accountants, attorneys and financial advisors.
In the event that this Agreement is terminated by Capstar pursuant to Section
8.1(b)(v) or by Chancellor or Capstar pursuant to Section 8.1(b)(ii), Chancellor
shall promptly reimburse Capstar for all substantiated out-of-pocket costs and
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, costs and expenses of
accountants, attorneys and financial advisors.
(c) In the event that this Agreement is terminated by Capstar pursuant
to Section 8.1(b)(vii) or by Chancellor pursuant to Section 8.1(b)(viii), the
party electing to terminate this Agreement shall, concurrently with such
termination, pay to the non-terminating party (by wire transfer of immediately
available funds) an amount of $50,000,000 in cash (the "Termination Fee").
47
(d) This Agreement shall not be deemed to have been validly terminated
until all payments contemplated by Section 8.2(b) and 8.2(c) shall have been
made in full. In the event of a termination pursuant to Sections 8.1(b)(i),
8.1(b)(ii), 8.1(b)(v) or 8.1(b)(vi), the reimbursement of expenses by the
breaching party pursuant to Section 8.2(b) shall be the parties sole remedy
unless the termination resulted from a willful material breach of the
representations, warranties, covenants or other agreements in this Agreement, in
which case the non-breaching party may seek damages or any other appropriate
remedy at law or in equity. In the event of a termination pursuant to Sections
8.1(b)(vii) or 8.1(b)(viii), the payment of the Termination Fee by Capstar or
Chancellor, as applicable, pursuant to Section 8.2(c) shall be the
non-terminating party's sole remedy.
8.3 AMENDMENT. Subject to the applicable provisions of the Delaware Code, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after the Capstar
Stockholders Approval has been obtained, no amendment shall be made which
reduces the consideration payable in the Merger or adversely affects the rights
of Capstar's stockholders hereunder without the approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.4 EXTENSION; CONSENT; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to
Section 8.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement or consent to any action requiring
consent pursuant to this Agreement. Any agreement on the part of a party to any
such extension, waiver or consent shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
8.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION, CONSENT OR WAIVER. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension, consent or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of each of
Chancellor or Capstar, action by its Board of Directors.
ARTICLE 9
SURVIVAL OF PROVISIONS
9.1 SURVIVAL. The representations and warranties of Chancellor, Merger Sub and
Capstar made in this Agreement, or in any certificate, respectively, delivered
by any of them pursuant to this Agreement, will not survive the Closing.
48
ARTICLE 10
NOTICES
10.1 NOTICES. All notices and other communications under this Agreement must be
in writing and will be deemed to have been duly given if delivered, telecopied
or mailed, by certified mail, return receipt requested, first-class postage
prepaid, to the parties at the following addresses:
If to Chancellor or Merger Sub, to:
Chancellor Media Corporation
300 Crescent Court, Suite 600
Dallas, Texas 75201
Attention: D. Geoffrey Armstrong
William S. Banowsky, Jr.
Facsimile: (214) 922-8701
with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Michael A. Saslaw
Facsimile: (214) 746-7777
and
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Attention: Sam P. Burford, Jr.
Facsimile: (214) 969-1751
If to Capstar, to:
Capstar Broadcasting Corporation
600 Congress Avenue
Suite 1400
Austin, Texas 78701
Attention: R. Steven Hicks
William S. Banowsky, Jr.
Facsimile: (512) 340-7890
and
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 740-7313
49
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Facsimile: (214) 999-7732
and
R. Gerald Turner
Southern Methodist University
P.O. Box 750100
Dallas, Texas 75272-0333
Facsimile: (214) 768-3844
and
Hughes & Luce, LLP
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
Facsimile: (214) 939-5849
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article X will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
ARTICLE 11
MISCELLANEOUS
11.1 ENTIRE AGREEMENT. Except for the documents executed by Chancellor and
Capstar pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the exhibits hereto and other documents
delivered in connection herewith) and the Confidentiality Agreement contain the
sole and entire agreement between the parties hereto with respect to the subject
matter hereof.
11.2 EXPENSES. Except as provided in Section 8.2, whether or not the Merger is
consummated, each of Chancellor and Capstar will pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby; provided, that the fees
and expenses incurred in connection with (i) the filings and registrations with
the Department of Justice and Federal Trade Commission pursuant to the HSR Act,
(ii) the filings with the FCC under
50
the Communications Act, and (iii) the printing, mailing and distribution of the
Joint Proxy Statement/Prospectus and the preparation and filing of the Form S-4,
shall be borne equally by Chancellor and Capstar. In the event of any lawsuit or
other judicial proceeding brought by either party to enforce any of the
provisions of this Agreement, the losing party in such proceeding shall
reimburse the prevailing party's fees and expenses incurred in connection
therewith, including the fees and expenses of its attorneys.
11.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which will constitute one
and the same instrument and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
11.4 NO THIRD PARTY BENEFICIARY. Except for Section 5.9, the terms and
provisions of this Agreement are intended solely for the benefit of the parties
hereto (including their respective Boards of Directors and the Capstar Special
Committee and Chancellor Special Committee), and their respective successors or
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
11.6 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns.
11.7 HEADINGS, GENDER, ETC. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; (f) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is not exclusive.
11.8 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of Capstar or Chancellor under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom.
11.9 NO RECOURSE AGAINST OTHERS. No past, present or future director, officer,
employee, stockholder, incorporator or partner, as such, of Chancellor, Capstar,
Merger Sub or the
51
Surviving Corporation shall have any liability for any obligations of
Chancellor, Capstar, Merger Sub or the Surviving Corporation under this
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation.
11.10 RELEASE OF OLD MERGER SUB. Each of Chancellor and Capstar hereby
generally release and forever discharge Old Merger Sub and its successors and
their respective directors, officers, employees, agents or other representatives
from any and all obligations, claims or liabilities whatsoever arising out of
the Old Agreement, this Agreement and the transactions contemplated thereby or
hereby.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
52
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of Chancellor, Capstar, Old Merger Sub and Merger Sub
effective as of the date first written above.
CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
-----------------------------------
Name: Thomas O. Hicks
Title: Chairman and Chief Executive
Officer
CAPSTAR BROADCASTING CORPORATION
By: /s/ WILLIAM S. BANOWSKY, JR.
-----------------------------------
Name:
Title:
CMC MERGER SUB, INC.
By: /s/ THOMAS O. HICKS
-----------------------------------
Name: Thomas O. Hicks
Title: Chairman
CBC ACQUISITION COMPANY, INC.
By: /s/ WILLIAM S. BANOWSKY, JR.
-----------------------------------
Name:
Title:
53
ANNEX II
[SALOMON SMITH BARNEY LETTERHEAD]
August 27, 1998
Special Committee of
the Board of Directors
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, Texas 75201
Dear Members of the Special Committee:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of common stock, par value $0.01 per
share (the "Common Stock"), of Chancellor Media Corporation ("Chancellor") who
are not affiliated with Hicks Muse Tate & Furst, Inc. (such holders, the "Public
Shareholders") of the Chancellor Exchange Ratio (as defined below) to be
received by the Public Shareholders in the acquisition by Chancellor of Capstar
Broadcasting Corporation ("Capstar") pursuant to the Agreement and Plan of
Merger (the "Merger Agreement") by and among Chancellor, Capstar and CBC
Acquisition Company, Inc. ("Merger Sub"), a wholly owned subsidiary of Capstar.
The Merger Agreement provides for, among other things, (i) the amendment by
Capstar of its Certificate of Incorporation, which amendment will, among other
things, change the name of Capstar to Chancellor Media Corporation (as such, the
"Parent"); (ii) the merger (the "Merger") of Chancellor with and into Merger
Sub, pursuant to which each share of Common Stock issued and outstanding
immediately prior to the effective time (the "Effective Time") of the Merger
will be converted into the right to receive one share (the "Chancellor Exchange
Ratio") of the common stock, $0.01 par value per share (the "Parent Voting
Common Stock"), of Parent; (iii) each share of 7% Convertible Preferred Stock,
$0.01 par value per share, of Chancellor and each share of $3.00 Convertible
Exchangeable Preferred Stock, $0.01 par value per share, of Chancellor,
outstanding immediately prior to the Effective Time to be converted into the
right to receive one share of substantially identical 7% Convertible Preferred
Stock, $0.01 par value per share, of Parent and substantially identical $3.00
Convertible Exchangeable Preferred Stock, $0.01 par value per share, of Parent,
respectively; (iv) each share of Class A common stock, $0.01 par value per share
(the "Capstar Class A Common Stock"), of Capstar and each share of Class C
common stock, $0.01 par value per share (the "Capstar Class C Common Stock" and,
collectively with the Capstar Class A Common Stock, the "Capstar Voting Common
Stock"), issued and outstanding immediately prior to the Effective Time to be
reclassified, changed and converted into 0.4800 shares (the "Initial Capstar
Voting Exchange Ratio") of Parent Voting Common Stock, which Initial Capstar
Voting Exchange Ratio will be subject to upward adjustment (as so adjusted, the
"Capstar Voting Exchange Ratio"), as specified in Section 1.9 of the Merger
Agreement, if the Adjusted BCF (as defined in the Merger Agreement) is greater
than $245.5 million, but in no event will the Capstar Voting Exchange Ratio
exceed 0.5050; and (v) each share of Class B common stock, $0.01 par value per
share (the "Capstar Class B Common Stock" and, collectively with the Capstar
Voting Common Stock, the "Capstar Common Stock"), of Capstar issued and
outstanding immediately
II-1
prior to the Effective Time to be reclassified, changed and converted into the
right to receive 0.4800 shares (the "Initial Non-Voting Exchange Ratio" and,
collectively with the Initial Capstar Voting Exchange Ratio, the "Initial
Capstar Exchange Ratio") of the non-voting common stock, par value $0.01 per
share (the "Parent Non-Voting Common Stock" and, collectively with the Parent
Voting Common Stock, the "Parent Common Stock"), of Parent, which Initial
Capstar Non-Voting Exchange Ratio will be subject to upward adjustment (as so
adjusted, the "Capstar Non-Voting Exchange Ratio" and, collectively with the
"Capstar Voting Exchange Ratio, the "Capstar Exchange Ratio"), as specified in
Section 1.9 of the Merger Agreement, if the Adjusted BCF is greater than $245.5
million, but in no event will the Capstar Non-Voting Exchange Ratio exceed
0.5050. You have informed us that as a result of the Merger, the Public
Shareholders would own approximately 65.7% of the Parent Voting Common Stock and
64.7% of the Parent Common Stock at the Initial Capstar Exchange Ratio, and
would own approximately 64.8% of the Parent Voting Common Stock and 63.8% of the
Parent Common Stock if the Capstar Exchange Ratio were 0.5050.
We understand that the Merger is intended to qualify as a tax-free
reorganization for federal income tax purposes within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended. The terms and conditions of
the Merger are set forth in more detail in the Merger Agreement.
In connection with rendering our opinion, we have, among other things: (i)
reviewed the August 26, 1998 draft of the Merger Agreement, including the
exhibits thereto and certain documents referred to therein, in the form provided
to us and have assumed that the final form of such agreement will not vary in
any respect that is material to our analysis; (ii) reviewed certain publicly
available business and financial information that we deemed relevant relating to
Chancellor and Capstar and the industries in which they operate; (iii) reviewed
certain internal non-public financial and operating data and other information
provided to us by the managements of Chancellor and Capstar relating to
Chancellor's and Capstar's businesses, including certain forecast and projection
information as to the future financial results of such businesses; (iv) reviewed
certain publicly available business and financial information with respect to
certain other companies that we believed to be relevant or comparable in certain
respects to Chancellor and Capstar, and the trading markets for such other
companies' securities; (v) reviewed and analyzed certain publicly available and
other information concerning the trading of, and the trading market for, the
Common Stock and the Capstar Common Stock; (vi) reviewed the financial terms of
certain business combinations and acquisition transactions we deem reasonably
comparable to the Merger and otherwise relevant to our inquiry; (vii) analyzed
certain information concerning cost savings and combination benefits expected to
result from the Merger that was provided to or reviewed for us by the
managements of Chancellor and Capstar; (viii) discussed with members of
Chancellor's and Capstar's senior managements and other officers and employees
of Chancellor and Capstar the foregoing, including the past and current business
operations, financial condition and prospects of Chancellor and Capstar,
respectively, before and after giving effect to the Merger; and (ix) considered
such other information, financial studies, analyses, investigations and
financial, economic, market and trading criteria as we deemed relevant to our
inquiry.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon, without assuming any responsibility for verification, the accuracy
and completeness of all of the financial and other information provided to,
discussed with, or reviewed by or
II-2
for us, or publicly available. With respect to Chancellor's and Capstar's
financial projections, as well as the information concerning operating cost
savings and combination benefits provided to or reviewed for us by the
managements of Chancellor and Capstar, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgements on the part of management of Chancellor or Capstar, as the case
may be, as to the future financial performance of Chancellor or Capstar, as the
case may be, and as to the cost savings and combination benefits expected to
result from the Merger. We express no view as to such projections or information
or the assumptions on which they are based. We have not assumed any
responsibility for making or obtaining any independent evaluations or appraisals
of any of the assets or liabilities of Chancellor or Capstar, nor for conducting
a physical inspection of the properties and facilities of Chancellor or Capstar.
For purposes of rendering our opinion, we have assumed, in all respects material
to our analysis, that the representations and warranties of each party contained
in the Merger Agreement are true and correct, that each party will perform all
of the covenants and agreements required to be performed by it under the Merger
Agreement and that all conditions to the consummation of the Merger will be
satisfied without waiver thereof. We have also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either Chancellor or Capstar is a party, as contemplated by
the Merger Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on the
contemplated benefits of the Merger.
Our opinion necessarily is based on market, economic and other conditions as
they exist and can be evaluated on the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion does not address
Chancellor's underlying business decision to effect the Merger or constitute a
recommendation to any holder of Common Stock as to how such holder should vote
with respect to the Merger. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for the Common Stock or the Parent
Common Stock following the announcement or consummation of the Merger, which may
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
As you are aware, Salomon Smith Barney Inc. has acted as financial advisor to
the Special Committee of the Board of Directors of Chancellor (the "Special
Committee") in connection with the Merger and will receive a fee for such
services, a portion of which will be received in connection with the delivery of
this opinion. In addition, Chancellor has agreed to indemnify us for certain
liabilities arising out of our engagement. We, in the ordinary course of
business, have from time to time provided, and in the future may continue to
provide, investment banking, financial advisory and other related services to
Chancellor, Capstar, Parent and/or their respective affiliates (including Hicks
Muse Tate & Furst, Inc.), as the case may be, for which we have or will receive
fees. In the ordinary course of business, we or our affiliates may trade in the
debt and equity securities of Chancellor, Capstar, Parent and/or their
respective affiliates, as the case may be, for our
II-3
own accounts and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Chancellor Exchange Ratio is fair, from a financial point of
view, to the Public Shareholders.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
-----------------------------------------
SALOMON SMITH BARNEY INC.
II-4
ANNEX III-A
[WASSERSTEIN PERELLA & CO. LETTERHEAD]
August 26, 1998
Special Committee of the Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard
Irving, TX 75039
Members of the Special Committee of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to Chancellor Media Corporation ("Chancellor") of the Chancellor
Exchange Ratio (as defined below) provided for pursuant to the terms of the
Agreement and Plan of Merger, dated as of August 26, 1998 (the "Merger
Agreement"), among Chancellor, Capstar Broadcasting Corporation ("Capstar"), and
CBC Acquisition Company, Inc., a wholly owned subsidiary of Capstar ("Sub").
Pursuant to the Merger Agreement, the name of Capstar will be changed to
"Chancellor Media Corporation" ("New Chancellor"). The Merger Agreement provides
for, among other things, a merger of Chancellor with and into Sub (the "Merger")
pursuant to which (i) each outstanding share of common stock, par value $0.01
per share, of Chancellor ("Chancellor Common Stock") (other than any such shares
held in the treasury of Chancellor) will be converted into a right to receive
one share of voting common stock, par value $0.01 per share, of New Chancellor
("New Chancellor Voting Common Stock") (the "Chancellor Exchange Ratio"), (ii)
each share of Class A common stock, par value $0.01 per share, and Class C
common stock, par value $0.01 per share, of Capstar will be converted into 0.480
shares of New Chancellor Voting Common Stock (the "Initial Capstar Exchange
Ratio"), and (iii) each share of Class B common stock, par value $0.01 per
share, of Capstar will be converted into shares of nonvoting common stock, par
value $0.01 per share, of New Chancellor equal to the Initial Capstar Exchange
Ratio. The Initial Capstar Exchange Ratio shall be adjusted (so adjusted, the
"Capstar Exchange Ratio") such that (i) in the event that the Adjusted BCF (as
defined in the Merger Agreement and hereinafter referred to as "Broadcast Cash
Flow") of Capstar is less than or equal to $245.5 million, the Capstar Exchange
Ratio shall equal 0.480, (ii) in the event that Broadcast Cash Flow of Capstar
is greater than $245.5 million but less than $270.5 million, the Capstar
Exchange Ratio shall equal (rounded to the nearest ten thousandth) (A) 0.480
plus (B) the product of (x) 0.0250 times (y) a fraction, the numerator of which
is equal to the amount of Broadcast Cash Flow minus 245,500,000 and the
denominator is 25,000,000, and (iii) in the event that the Broadcast Cash Flow
is equal to or greater than $270.5 million, then the Capstar Exchange Ratio
shall equal 0.505. The terms and conditions of the Merger are set forth in more
detail in the Merger Agreement.
In connection with rendering our opinion, we have reviewed the Merger Agreement.
We have also reviewed and analyzed certain publicly available business and
financial information relating to Capstar and Chancellor for recent years and
interim periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of Capstar and Chancellor and provided to us for purposes of our
analysis, and we have met with management of Capstar and
III-A-1
Chancellor to review and discuss such information and, among other matters,
Capstar's and Chancellor's business, operations, assets, financial condition and
future prospects.
We have reviewed and considered certain financial and stock market data relating
to Capstar and Chancellor, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to Capstar or
Chancellor or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions in the radio broadcasting industry
specifically, and in other industries generally, that we believe to be
reasonably comparable to the Merger or otherwise relevant to our inquiry. We
have also performed such other financial studies, analyses, and investigations
and reviewed such other information as we considered appropriate for purposes of
this opinion.
In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us
(including estimates of revenue synergies, cost savings and other operating
efficiencies expected to result from consummation of the Merger), and we have
assumed that such projections, forecasts and analyses were reasonably prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of Capstar's and Chancellor's management. We express no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, we have not reviewed any of the books and
records of Capstar or Chancellor, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of Capstar or Chancellor, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of Capstar or Chancellor, and no such independent valuation or
appraisal was provided to us. We note that the Merger is intended to qualify as
a tax free reorganization for United States Federal tax purposes, and we have
assumed that the Merger will so qualify. We also have assumed that obtaining all
regulatory and other approvals and third party consents required for
consummation of the Merger will not have an adverse impact on Chancellor or
Capstar or on the anticipated benefits of the Merger, and we have assumed that
the transactions described in the Merger Agreement will be consummated without
waiver or modification of any of the material terms or conditions contained
therein by any party thereto. Our opinion is necessarily based on economic and
market conditions and other circumstances as they exist and can be evaluated by
us as of the date hereof. We are not expressing any opinion herein as to the
prices at which any securities of Chancellor or Capstar will actually trade at
any time.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Capstar and Chancellor for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
WP&Co. advised Evergreen Media Corporation in its merger with Chancellor
Broadcasting Corporation, which transaction resulted in the formation of
Chancellor. WP&Co. advised Evergreen Media Corporation in its joint acquisition
with Chancellor Broadcasting Corporation of Viacom Radio Group. WP&Co. advised
the predecessor of LIN Television Corporation and the Independent Directors of
the Board of Directors of LIN Television
III-A-2
Corporation in its sale to Hicks Muse Tate & Furst, Incorporated. WP&Co. is
acting as financial advisor to the Special Committee of the Board of Directors
of Chancellor in its pending acquisition of LIN Television Corporation.
Our opinion addresses only the fairness, from a financial point of view, to
Chancellor and holders of Chancellor Common Stock who are not affiliated with
Hicks, Muse, Tate & Furst of the Chancellor Exchange Ratio provided for pursuant
to the Merger Agreement, and we do not express any views on any other terms of
the Merger. Specifically, our opinion does not address Chancellor's underlying
business decision to effect the transactions contemplated by the Merger
Agreement.
It is understood that this letter is for the benefit and use of the Special
Committee of the Board of Directors of Chancellor in its consideration of the
Merger, and except for inclusion in its entirety in any registration statement
or proxy statement required to be circulated to shareholders of Chancellor
relating to the Merger, may not be disseminated, quoted, referred to or
reproduced at any time or in any manner without our prior written consent. This
opinion does not constitute a recommendation to any shareholder as to how such
holder should vote with respect to the Merger, and should not be relied upon by
any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Chancellor Exchange Ratio provided for pursuant to the Merger Agreement is fair,
from a financial point of view, to Chancellor and holders of Chancellor Common
Stock who are not affiliated with Hicks, Muse, Tate & Furst.
Very truly yours,
/s/ WASSERSTEIN PERELLA & CO., INC.
-------------------------------------------
WASSERSTEIN PERELLA & CO., INC.
III-A-3
ANNEX III-B
[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]
June 7, 1999
Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard
Irving, TX 75039
Members of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to Chancellor Media Corporation ("Chancellor") of the Exchange
Ratio (as defined below) provided for pursuant to the terms of the Amended and
Restated Agreement and Plan of Merger, dated as of April 29, 1999 (the "Amended
and Restated Merger Agreement"), among Chancellor, Capstar Broadcasting
Corporation ("Capstar"), CBC Acquisition Company, Inc., a wholly owned
subsidiary of Capstar ("Old Sub") and CMC Merger Sub, Inc., a wholly owned
subsidiary of Chancellor ("Sub"). The Amended and Restated Merger Agreement
provides for, among other things, a merger of Sub with and into Capstar (the
"Merger") pursuant to which each issued and outstanding share of Class A common
stock, par value $0.01 per share, Class B common stock, par value $0.01 per
share and Class C common stock, par value $0.01 per share, of Capstar will be
converted into 0.4955 (the "Exchange Ratio") shares of Common Stock, par value
$0.01 per share, of Chancellor ("Chancellor Common Stock"). The terms and
conditions of the Merger are set forth in more detail in the Amended and
Restated Merger Agreement.
In connection with rendering our opinion, we have reviewed the Amended and
Restated Merger Agreement. We also have reviewed and analyzed certain publicly
available business and financial information relating to Capstar and Chancellor
for recent years and interim periods to date, as well as certain internal
financial and operating information, including financial forecasts, analyses and
projections prepared by or on behalf of Capstar and Chancellor and provided to
us for purposes of our analysis, and we have met with management of Capstar and
Chancellor to review and discuss such information and, among other matters,
Capstar's and Chancellor's business, operations, assets, financial condition and
future prospects. We have reviewed a copy of the Stock Purchase Agreement (not
including the exhibits thereto and other documents referred to therein), dated
as of June 1, 1999 (the "Lamar Agreement"), between Chancellor Media of Los
Angeles, an indirect wholly-owned subsidiary of Chancellor, and Lamar
Advertising Company ("Lamar") regarding the proposed sale by Chancellor to Lamar
of Chancellor's outdoor advertising business and have assumed that the
transactions contemplated in the Stock Purchase Agreement will be consummated
without waiver or modification of any of the material terms or conditions
contained therein by any party thereto.
We have reviewed and considered certain financial and stock market data relating
to Capstar and Chancellor, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to Capstar or
Chancellor or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of
III-B-1
certain recent acquisitions and business combination transactions in the radio
broadcasting industry specifically, and in other industries generally, that we
believe to be reasonably comparable to the Merger or otherwise relevant to our
inquiry. We also have performed such other financial studies, analyses, and
investigations and reviewed such other information as we considered appropriate
for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We also have assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us
(including estimates of revenue synergies, cost savings and other operating
efficiencies expected to result from consummation of the Merger), and we have
assumed that such projections, forecasts and analyses were reasonably prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of Capstar's and Chancellor's management. We express no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, we have not reviewed any of the books and
records of Capstar or Chancellor, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of Capstar or Chancellor, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of Capstar or Chancellor, and no such independent valuation or
appraisal was provided to us. We note that the Merger is intended to qualify as
a tax free reorganization for United States Federal tax purposes, and we have
assumed that the Merger will so qualify. We also have assumed that obtaining all
regulatory and other approvals and third party consents required for
consummation of the Merger will not have an adverse impact on Chancellor or
Capstar or on the anticipated benefits of the Merger, and we have assumed that
the transactions described in the Amended and Restated Merger Agreement will be
consummated without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. Our opinion is necessarily
based on economic and market conditions and other circumstances as they exist
and can be evaluated by us as of the date hereof. We are not expressing any
opinion herein as to the prices at which any securities of Chancellor or Capstar
will actually trade at any time.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Capstar and Chancellor for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We advised Evergreen Media Corporation in its merger with Chancellor
Broadcasting Corporation, which transaction resulted in the formation of
Chancellor. We advised Evergreen Media Corporation in its joint acquisition with
Chancellor Broadcasting Corporation of Viacom Radio Group. We advised the
predecessor of LIN Television Corporation and the Independent Directors of the
Board of Directors of LIN Television Corporation in its sale to Hicks Muse Tate
& Furst, Incorporated. We acted as financial advisor to a Special Committee of
the Board of Directors of Chancellor in its proposed acquisition of LIN
Television Corporation and in connection with the Merger.
Our opinion addresses only the fairness, from a financial point of view, to
Chancellor of the Exchange Ratio provided for pursuant to the Amended and
Restated Merger Agreement, and we do not express any views on any other terms of
the Merger.
III-B-2
Specifically, our opinion does not address Chancellor's underlying business
decision to effect the transactions contemplated by the Amended and Restated
Merger Agreement.
It is understood that this letter is for the benefit and use of the Board of
Directors of Chancellor in its consideration of the Merger, and except for
inclusion in its entirety in any registration statement or proxy statement
required to be circulated to shareholders of Chancellor relating to the Merger,
may not be disseminated, quoted, referred to or reproduced at any time or in any
manner without our prior written consent. This opinion does not constitute a
recommendation to any shareholder as to how such holder should vote with respect
to the Merger, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Exchange Ratio provided for pursuant to the Amended and Restated Merger
Agreement is fair to Chancellor from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
III-B-3
ANNEX IV
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
August 26, 1998
Board of Directors
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, TX 75201
Members of the Board:
We understand that Capstar Broadcasting Corporation ("Capstar" or the
"Company"), Chancellor Media Corporation ("Chancellor") and CBC Acquisition
Company, Inc., a wholly-owned subsidiary of Capstar ("Acquisition Sub"), entered
into an Agreement and Plan of Merger, dated August 26, 1998 (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Chancellor with and into Acquisition Sub. We also understand that prior to
the effective time of the Merger, Capstar will amend its certificate of
incorporation to change its name to Chancellor Media Corporation (as such, the
"Parent") and reclassify each share of the Class A Common Stock, par value $0.01
per share, of Capstar (the "Capstar Class A Common Stock") and of the Class C
Common Stock, par value $0.01 per share, of Capstar (the "Capstar Class C Common
Stock") into .48 shares (subject to adjustment in certain circumstances) of
Common Stock, par value $0.01 per share, of Parent (the "Parent Voting Common
Stock") and each share of Class B Common Stock, par value $.01 per share, of
Capstar (the "Capstar Class B Common Stock" and, together with the Capstar Class
A Common Stock and Capstar Class C Common Stock, the Capstar Common Stock) into
.48 shares (subject to adjustment in certain circumstances) of nonvoting Common
Stock, par value $.01 per share, of Parent. Pursuant to the Merger, Chancellor
will become a wholly-owned subsidiary of Parent, and each outstanding share of
common stock, par value $0.01 per share, of Chancellor (the "Chancellor Common
Stock"), other than shares held as treasury shares, will be converted into the
right to receive one share (the "Chancellor Exchange Ratio") of Parent Voting
Common Stock. We also understand that Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") currently owns approximately 60% of the Capstar Common Stock and
approximately 15% of the Chancellor Common Stock (assuming completion of the
previously announced merger with LIN Television Corp). The terms and conditions
of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Chancellor Exchange Ratio
pursuant to the Merger Agreement is fair from a financial point of view to
Chancellor.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Capstar and Chancellor;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Capstar and Chancellor prepared by the
managements of Capstar and Chancellor, respectively;
(iii) analyzed certain financial projections prepared by the management of
Capstar and its affiliates;
(iv) discussed the past and current operations and financial condition and the
prospects of Capstar with senior executives of Capstar;
(v) discussed with the senior managements of Chancellor and Capstar their
estimates of the synergies and cost savings expected to be derived from
the Merger;
(vi) discussed the past and current operations and financial condition and the
prospects of Chancellor with senior executives of Chancellor, and analyzed
the pro forma impact of the Merger on Parent's after-tax cash flow per
share, consolidated capitalization and financial ratios;
(vii) reviewed the reported prices and trading activity for the Capstar Class A
Common Stock and the Chancellor Common Stock;
(viii)compared the financial performance of Capstar and Chancellor and the
prices and trading activity of the Capstar Class A Common Stock and the
Chancellor Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
(x) participated in discussions and negotiations among representatives of
Capstar and Chancellor and their financial and legal advisors;
(xi) reviewed the draft Merger Agreement dated August 25, 1998, the Merger
Agreement and certain related documents; and
(xii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including the estimates of
the synergies and cost savings expected to be derived from the Merger, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of the Company and Chancellor. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or Chancellor, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Chancellor in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Capstar, Chancellor and Hicks Muse
and its affiliates and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Chancellor and may not be used for any other purpose without our
prior written consent. In addition, we express no opinion or recommendation as
to how the shareholders of Chancellor should vote at the shareholders meeting to
be held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Chancellor Exchange Ratio pursuant to the Merger Agreement is
fair from a financial point of view to Chancellor.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ PAUL J. TAUBMAN
--------------------------------------
Paul J. Taubman
Managing Director
ANNEX V
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
June 3, 1999
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, TX 78701
Dear Sirs:
We understand that Capstar Broadcasting Corporation ("Capstar") has entered into
an Amended and Restated Agreement and Plan of Merger (the "Amended Merger
Agreement") dated April 29, 1999, among Chancellor Media Corporation
("Chancellor"), CMC Merger Sub, Inc. ("Sub") and Capstar, pursuant to which Sub
will merge with and into Capstar, and Capstar will become a wholly-owned
subsidiary of Chancellor (the "Merger"). As a result of the Merger, each share
of Class A, Class B and Class C common stock of Capstar will be converted into
the right to receive 0.4955 (the "Exchange Ratio") of a share of common stock of
Chancellor. Immediately following the Merger, the former common stockholders
(including holders of common stock equivalents) of Capstar will own
approximately 24.5% of the fully-diluted common shares of Chancellor and the
current common stockholders (including holders of common stock equivalents) of
Chancellor will own approximately 75.5% of the fully-diluted common shares of
Chancellor.
On April 13, 1999, we rendered our opinion that the Exchange Ratio was fair,
from a financial point of view, to the public Class A common stockholders of
Capstar (excluding affiliates of Capstar or Chancellor). On June 1, 1999,
Chancellor announced that it was selling its outdoor advertising business to
Lamar Advertising Company ("Lamar") in consideration of $700 million of cash and
approximately 26.2 million shares of Lamar Class A Common Stock. We have been
advised that the cash proceeds of the transaction will be used to retire bank
indebtedness of Chancellor (the sale and use of proceeds is referred to
collectively herein as the "Lamar Transaction"). You have asked us to update our
opinion in light of the Lamar Transaction.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Amended Merger Agreement;
2. reviewed a draft of the Schedule 14A Combined Proxy Statement in
substantially final form ("Proxy Statement" upon its completion);
3. reviewed Capstar's initial public offering prospectus dated May 26,
1998, its Annual Report on Form 10-K for the period ended December
31, 1998, and its Quarterly Report on Form 10-Q for the period ended
March 31, 1999;
4. reviewed Chancellor's prospectus dated January 27, 1998 (relating to
the issuance of 19,000,000 shares of Chancellor common stock), its
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and its Quarterly Report on Form 10-Q for the period ended
March 31, 1999;
V-1
5. reviewed Triathlon Broadcasting Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998;
6. reviewed the Stock Purchase Agreement dated June 1, 1999, by and
between Lamar and Chancellor;
7. reviewed Lamar's Form 10-K dated December 31 1998, and its Form 10-Q
dated March 31, 1999;
8. reviewed certain operating and financial information of Capstar and
Chancellor, including updated projections, provided to us by
management of Capstar and Chancellor relating to their respective
businesses and prospects;
9. met with certain members of senior management of Capstar and
Chancellor to discuss their respective operations, historical
financial statements and future prospects;
10. reviewed the historical prices and trading volumes of the common
shares of Capstar and Chancellor;
11. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable
to Capstar and Chancellor;
12. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to Capstar; and
13. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Capstar
and Chancellor. With respect to Capstar's and Chancellor's updated projected
financial results (reflecting the Lamar Transaction and including updated
projected cost and interest savings and revenue and operating synergies
resulting from the Merger) we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Capstar and Chancellor as to the expected future
performance of Capstar and Chancellor, respectively. We have not assumed any
responsibility for the independent verification of information or updated
projections (reflecting the Lamar Transaction and including updated projected
cost and interest savings and revenue and operating synergies resulting from the
Merger), provided to us and we have further relied upon the assurances of the
managements of Capstar and Chancellor that they are unaware of any facts that
would make the information or updated projections (reflecting the Lamar
Transaction and including updated projected cost and interest savings and
revenue and operating synergies resulting from the Merger), provided to us
incomplete or misleading. In arriving at our opinion, we have not performed or
obtained any independent appraisal of the assets of Capstar, Chancellor or
Lamar, nor have we been provided with any appraisals. We have assumed, with your
permission, that the fair market value of the Lamar common stock to be received
by Chancellor in the Lamar Transaction will be equal to the market value as of
May 28, 1999. We have also assumed that the Merger will constitute a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. Our opinion is
V-2
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.
In the ordinary course of business, Bear, Stearns & Co. Inc. may make a market
and effect transactions or may have positions in the common stock of Capstar and
Chancellor (or options with respect thereto).
Our opinion as expressed below does not imply any conclusion as to the likely
trading range of any class of Capstar or Chancellor Common Stock either prior
or, in the case of Chancellor, subsequent to the consummation of the Merger,
which may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. Our opinion as expressed below
does not address Capstar's underlying business decision to effect the Merger,
and is not a recommendation to the Special Committee of the Board of Directors
or Capstar's directors or stockholders as to whether to approve or vote for the
Merger. Further, our opinion does not imply any conclusion as to the business
decision to effect the Lamar Transaction, the consideration received by
Chancellor in the Lamar Transaction or the value of the Lamar common stock to be
received upon completion of the Lamar Transaction.
It is understood that this letter is intended for the benefit and use of the
Special Committee of the Board of Capstar and is not to be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in whole
or in part, without our prior written consent; provided, however, that this
letter may be included in its entirety in the Proxy Statement. We have
considered the impact on Capstar and Chancellor, as appropriate, of the
consummation of all announced acquisitions or dispositions that have not closed.
Based on the foregoing, it is our opinion that the Exchange Ratio is fair, from
a financial point of view, to the public Class A common stockholders of Capstar
(excluding affiliates of Capstar or Chancellor).
We have acted as financial advisor to the Special Committee in connection with
the Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon consummation of the Merger.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ RICK A. LACHER
--------------------------------------
Managing Director
V-3
ANNEX VI
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
August 26, 1998
Board of Directors
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders of
the common stock of Capstar Broadcasting Corporation ("Capstar") from a
financial point of view of the consideration to be received by such holders
pursuant to the terms of the Agreement and Plan of Merger, dated as of August
26, 1998 (the "Merger Agreement"), by and among Chancellor Media Corporation
("Chancellor"), Capstar and CBC Acquisition Company, Inc., a wholly owned
subsidiary of Capstar ("Merger Sub"). The Merger Agreement provides, among other
things, for the merger of Chancellor with and into Merger Sub (the "Merger")
and, prior to the effective time of the Merger, for Capstar to amend its
certificate of incorporation and be renamed Chancellor Media Corporation
("Parent"). Pursuant to the Merger, (i) each outstanding share of Class A Common
Stock, par value $0.01 per share, of Capstar (the "Class A Stock") will be
converted into 0.4800 of a share (the "Class A Exchange Ratio") of the voting
common stock, par value $0.01 per share, of Parent (the "Parent Voting Common
Stock"), (ii) each outstanding share of Class B Common Stock, par value $0.01
per share, of Capstar (the "Class B Stock") will be converted into 0.4800 of a
share (the "Class B Exchange Ratio") of the non-voting common stock, par value
$0.01 per share, of Parent (the "Parent Non-Voting Common Stock"), (iii) each
outstanding share of Class C Common Stock, par value $0.01 per share, of Capstar
(the "Class C Stock" and, together with the Class A Stock and the Class B Stock,
the "Capstar Common Stock") will be converted into the right to receive 0.4800
of a share of Parent Voting Common Stock (the "Class C Exchange Ratio" and,
together with the Class A Exchange Ratio and the Class B Exchange Ratio, the
"Capstar Exchange Ratio"), (iv) each outstanding share of the common stock, par
value $0.01 per share, of Chancellor will be converted into the right to receive
one share of Parent Voting Common Stock, (v) each outstanding share of 7%
Convertible Preferred Stock, par value $0.01 per share, of Chancellor will be
converted into the right to receive one share of 7% Convertible Preferred Stock,
par value $0.01 per share, of Parent and (vi) each outstanding share of $3.00
Convertible Preferred Stock, par value $0.01 per share, of Chancellor will be
converted into the right to receive one share of $3.00 Convertible Preferred
Stock, par value $0.01 per share, of Parent. The Merger Agreement also provides
that the Capstar Exchange Ratio will be subject to upward adjustment if
Capstar's adjusted broadcasting cash flow meets certain specified thresholds, as
more fully described in the Merger Agreement.
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to Capstar and
Chancellor. We have also reviewed certain other information relating to Capstar
and Chancellor, including financial forecasts, provided to or discussed with us
by Capstar and Chancellor, and have
VI-1
Board of Directors
Capstar Broadcasting Corporation
August 26, 1998
Page 2
met with the managements of Capstar and Chancellor to discuss the businesses and
prospects of Capstar and Chancellor. We have also considered certain financial
and stock market data of Capstar and Chancellor, and we have compared those data
with similar data for other publicly held companies in businesses similar to
Capstar and Chancellor, and we have considered, to the extent publicly
available, the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, you have informed us, and we have assumed, that such
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Capstar and Chancellor
as to the future financial performance of Capstar and Chancellor and the
strategic benefits and potential synergies (including the amount, timing and
achievability thereof) anticipated to result from the Merger. In addition, you
have informed us, and we have assumed, that the per share economic value of the
Class A Stock, the Class B Stock and the Class C Stock is equivalent. We have
not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Capstar or
Chancellor, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon information available to us, and
financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing any opinion as to what the
value of the Parent Voting Common Stock or the Parent Non-Voting Common Stock
actually will be when issued pursuant to the Merger or the prices at which such
Common Stock will trade or otherwise be transferable subsequent to the Merger.
In connection with our engagement, we were not requested to, and we did not,
solicit third party indications of interest in acquiring all or any part of
Capstar.
We have acted as financial advisor to Capstar in connection with the Merger and
will receive a fee for such services, a significant portion of which is
contingent upon the consummation of the Merger. We have in the past provided
financial services to Capstar and Chancellor, for which services we have
received compensation. In the ordinary course of business, Credit Suisse First
Boston and its affiliates may actively trade the debt and equity securities of
both Capstar and Chancellor for their own accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in such
securities.
It is understood that this letter is for the information of the Board of
Directors of Capstar in connection with its evaluation of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Merger, and is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the
VI-2
Board of Directors
Capstar Broadcasting Corporation
August 26, 1998
Page 3
offering or sale of securities, nor shall this letter be used for any other
purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Capstar Exchange Ratio is fair to the holders of Capstar Common
Stock from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
VI-3
ANNEX VII
[LETTERHEAD OF BT WOLFENSOHN]
August 26, 1998
Board of Directors
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Gentlemen:
BT Wolfensohn has acted as a financial advisor to Capstar Broadcasting
Corporation ("Capstar") in connection with the proposed business combination of
Capstar and Chancellor Media Corporation ("Chancellor") pursuant to the
Agreement and Plan of Merger, dated August 26, 1998, among Chancellor, Capstar
and CBC Acquisition Company, Inc. a wholly-owned subsidiary of Capstar ("Merger
Sub") (the "Merger Agreement"). The Merger Agreement provides, among other
things, for the merger of Chancellor with and into Merger Sub (the
"Transaction") and, prior to the effective time of the Transaction, for Capstar
to amend its certificate of incorporation and to change its name to Chancellor
Media Corporation ("Parent"). Under the Merger Agreement, (i) each outstanding
share of Class A Common Stock, $0.01 par value per share (the "Class A Stock")
and of Class C Common Stock, $0.01 par value (the "Class C Stock") of Capstar
shall be reclassified and converted into 0.4800 of a share of the voting common
stock $0.01 par value of Parent ("Parent Voting Common Stock") and (ii) each
outstanding share of Class B Common Stock, $0.01 par value (the "Class B Stock";
collectively with the Class A Stock and the Class C Stock, the "Capstar Common
Stock") shall be reclassified and converted into 0.4800 of a share of the
non-voting common stock, $0.01 par value of Parent ("Parent Non-Voting Common
Stock"; collectively with the Parent Voting Stock, the "Parent Common Stock")
(the ratio for the foregoing reclassification and conversion of Class A Common
Stock, Class B Common Stock and Class C Common Stock, which is subject to upward
adjustment (but not above 0.5050) as more fully described in the Merger
Agreement, being referred to collectively as the "Capstar Exchange Ratio"),
(iii) each outstanding share of Common Stock, $0.01 par value of Chancellor will
be converted into the right to receive one share of Parent Voting Common Stock,
(iv) each outstanding share of 7% Convertible Preferred Stock, par value $0.01
per share of Chancellor will be converted into the right to receive one share of
7% Convertible Preferred Stock, par value $0.01 per share, of Parent, and (v)
each outstanding share of $3.00 Convertible Preferred Stock, par value $0.01 per
share of Chancellor will be converted into the right to receive one share of
$3.00 Convertible Preferred Stock, par value, $0.01 per share, of Parent. The
terms and conditions of the Transaction are more fully set forth in the Merger
Agreement.
You have requested BT Wolfensohn's opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Capstar Exchange Ratio to the
holders of Capstar Common Stock.
In connection with BT Wolfensohn's role as financial advisor to Capstar, and in
arriving at its opinion, BT Wolfensohn has reviewed certain publicly available
financial and other information concerning Chancellor and Capstar, including
without limitation analyst's
VII-1
forecasts and certain internal analyses and other information furnished to it by
Chancellor and Capstar. BT Wolfensohn has also held discussions with members of
the senior managements of Chancellor and Capstar regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, BT Wolfensohn has (i) reviewed the reported prices and
trading activity for Chancellor Common Stock and Capstar Class A Common Stock,
(ii) compared certain financial and stock market information for Chancellor and
Capstar with similar information for certain other companies whose securities
are publicly traded, (iii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part, (iv)
reviewed a summary of the financial terms of the Merger Agreement, and (v)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.
BT Wolfensohn has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning Chancellor or Capstar, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Wolfensohn has assumed and relied upon the accuracy and completeness
of all such information and BT Wolfensohn has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
Chancellor or Capstar. With respect to the financial forecasts and projections,
including the analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies expected by Capstar and
Chancellor to be achieved as a result of the Transaction (collectively, the
"Synergies"), made available to BT Wolfensohn and used in its analyses, BT
Wolfensohn has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Chancellor or Capstar, as the case may be, as to the matters
covered thereby. In rendering its opinion, BT Wolfensohn expresses no view as to
the reasonableness of such forecasts and projections, including the Synergies,
or the assumptions on which they are based. BT Wolfensohn's opinion is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to it as of, the date hereof and we undertake
no obligation to update our opinion to reflect any developments occurring after
the date hereof. In connection with our engagement, we have not been authorized
by Capstar or its Board of Directors to solicit, nor have we solicited, any
third party indications of interest for the acquisition of Capstar, nor have we
reviewed with Capstar and its Board of Directors any potential transactions in
lieu of the Transaction.
For purposes of rendering its opinion, BT Wolfensohn has assumed that, in all
respects material to its analysis, the representations and warranties of the
parties contained in the Merger Agreement are true and correct, the parties will
each perform all of the covenants and agreements to be performed by it under the
Merger Agreement and all conditions to the obligations of each of the parties to
consummate the Transaction will be satisfied without any waiver thereof. BT
Wolfensohn has also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either Capstar or Chancellor is a party or is subject or by which it is bound,
no limitations,
VII-2
restrictions or conditions will be imposed or amendments, modifications or
waivers made that would have a material adverse effect on Capstar or Chancellor
or materially reduce the contemplated benefits of the Transaction to Capstar. In
addition, you have informed BT Wolfensohn, and accordingly for purposes of
rendering its opinion BT Wolfensohn has assumed, that the Transaction will
qualify for a tax free reorganization for federal income tax purposes, and that
the Transaction will be accounted for as a purchase.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Capstar and is not a recommendation to the stockholders of Capstar
concerning as to how they should vote with respect to the Transaction. This
opinion is limited to the fairness, from a financial point of view, of the
Capstar Exchange Ratio to Capstar and accordingly to the holders of Capstar
Common Stock, and BT Wolfensohn expresses no opinion as to the merits of the
underlying decision by Capstar to engage in the Transaction. BT Wolfensohn
expresses no opinion as to the prices at which Capstar Common Stock or Parent
Common Stock will trade following the announcement or consummation of the
Transaction.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust (together with its affiliates the "BT Group") and, for
legal and regulatory purposes, is a division of BT Alex. Brown Incorporated, a
registered broker-dealer and member of the New York Stock Exchange. BT
Wolfensohn will be paid a fee for its services as financial advisor to Capstar
in connection with the Transaction, a substantial portion of which is contingent
upon consummation of the Transaction. One or more members of the BT Group have,
from time to time, provided investment banking, commercial banking (including
extension of credit) and other financial services to Capstar and Chancellor or
their affiliates for which it has received or will receive compensation, and is
currently providing investment banking services to Chancellor. In the ordinary
course of business, members of the BT Group may actively trade in the securities
and other instruments and obligations of Capstar and Chancellor for their own
accounts and for the accounts of their customers. Accordingly, the BT Group may
at any time hold a long or short position in such securities, instruments and
obligations.
Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that, as of the date hereof, the Capstar Exchange Ratio is
fair, from a financial point of view, to the holders of the Capstar Common
Stock.
Very truly yours,
BT WOLFENSOHN
VII-3
ANNEX VIII
SECTION 262
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Appraisal Rights. (a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
sec.228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this
title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof:
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market
VIII-1
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if
VIII-2
the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
VIII-3
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholder
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
VIII-4
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(1) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
VIII-5
ANNEX IX
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMFM INC.
(ORIGINALLY INCORPORATED ON JUNE 22, 1988)
Chancellor Media Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
A. The Corporation's original Certificate of Incorporation was filed under the
name Evergreen Media Corporation with the Secretary of State of the State of
Delaware on June 22, 1988.
B. The Corporation filed an Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware on September 5, 1997.
C. This Second Amended and Restated Certificate of Incorporation amends and
restates in its entirety the Amended and Restated Certificate of Incorporation
of the Corporation and has been duly adopted by the vote of the stockholders of
the Corporation in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
D. The text of the Corporation's Amended and Restated Certificate of
Incorporation is hereby further amended and restated in its entirety to read in
full as follows:
FIRST: The name of the corporation is AMFM Inc. (the "Corporation").
SECOND: The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in any
and all lawful acts and activity for which corporations may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 800,000,000 shares consisting of
(a) 50,000,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock"), and (b) 750,000,000 shares of Common Stock, par value $0.01
per share (the "Common Stock").
In addition to the designations, powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock set forth in Paragraph 1
below, the Corporation has authorized and outstanding its 7% Convertible
Preferred Stock and $3.00 Convertible Exchangeable Preferred Stock whose
Certificates of Designations, Preferences and Relative, Participating, Optional
and Other Special Rights are attached hereto as Exhibits
A and B, respectively. The designations, powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock and the
Common Stock are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations, powers, preferences and rights and such qualifications,
limitations and restrictions thereof as are stated and expressed herein
and in the resolution or resolutions providing for the issue of such
class or series adopted by the Board of Directors of the Corporation
(the "Board of Directors") as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the
Board of Directors to authorize the issuance of the Preferred Stock from
time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the
issuance thereof the following:
(i) whether or not the class or series is to have voting
rights, full, special or limited, or is to be without voting
rights, and whether or not such class or series is to be entitled
to vote as a separate class either alone or together with the
holders of one or more other classes or series of stock;
(ii) the number of shares to constitute the class or series
and the designations thereof;
(iii) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations
or restrictions thereof, if any, with respect to any class or
series;
(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof
or upon the happening of any specified event, and, if redeemable,
the redemption price or prices (which may be payable in the form of
cash, notes, securities or other property) and the time or times at
which, and the terms and conditions upon which, such shares shall
be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for
retirement, and, if such retirement or sinking fund or funds are to
be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash,
securities of the Corporation or other property, the conditions
upon which and the times when such dividends are payable, the
preference to or the relation to the payment of dividends payable
on any other class or classes or series of stock, whether or not
such dividends shall be cumulative or noncumulative and, if
cumulative, the date or dates from which such dividends shall
accumulate;
(vii) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to
receive upon the voluntary
or involuntary dissolution of, or upon any distribution of the
assets of, the Corporation;
(viii) whether or not the shares of any class or series, at
the option of the Corporation or the holder thereof or upon the
happening of any specified event, shall be convertible into or
exchangeable for the shares of any other class or classes or of any
other series of the same or any other class or classes of stock,
securities, or other property of the Corporation and the conversion
price or prices or ratio or ratios or the rate or rates at which
such exchange may be made, with such adjustments, if any, as shall
be stated and expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective provisions with
respect to any class or series as may to the Board of Directors
seem advisable.
(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all
of the foregoing respects. The Board of Directors may increase the
number of shares of the Preferred Stock designated for any existing
class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for
any other class or series. The Board of Directors may decrease the
number of shares of the Preferred Stock designated for any existing
class or series by a resolution subtracting from such class or series
authorized and unissued shares of the Preferred Stock designated for
such existing class or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of the Preferred Stock.
(d) The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
Common Stock without a vote of a majority of the holders of the
Preferred Stock, or of any class or series thereof, unless a vote of any
such holders is required pursuant to the certificate or certificates
establishing such class or series of Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares
of Common Stock shall be entitled to vote upon all matters submitted to
a vote of the stockholders of the Corporation and shall be entitled to
one vote for each share of Common Stock held.
(b) Subject to the prior rights and preferences, if any, applicable
to shares of the Preferred Stock or any series thereof, the holders of
shares of Common Stock shall be entitled to receive and participate
ratably in such dividends (payable in cash, stock, or otherwise) as may
be declared thereon by the board of directors at any time and from time
to time out of any funds of the Corporation legally available therefor.
(c) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in
full of the preferential amounts, if any, to be distributed to the
holders of shares of the Preferred Stock
or any series thereof, the holders of shares of the Common Stock shall
be entitled to receive all of the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to
the number of shares of the Common Stock held by them. A liquidation,
dissolution, or winding-up of the Corporation, as such terms are used in
this paragraph (c), shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any
other corporation or corporations or other entity or a sale, lease,
exchange or conveyance of all or a part of the assets of the
Corporation.
3. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred
Stock and Common Stock from time to time for such consideration
(not less than the par value thereof) as may be fixed by the Board
of Directors, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion subject to the foregoing
conditions. Shares so issued for which the consideration shall have
been paid or delivered to the Corporation shall be deemed fully
paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase shares of
the Corporation's capital stock of any class or series or other
securities of the Corporation, and such rights and options shall be
evidenced by instrument(s) approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price,
duration, times for exercise, and other terms of such options or
rights; provided, however, that the consideration to be received
for any shares of capital stock subject thereto shall not be less
than the par value thereof.
FIFTH: The number of directors constituting the Board of Directors shall be no
less than five and no more than fourteen, plus such number of directors as may
be elected from time to time by the holders of any class or series of Preferred
Stock. The directors of the Corporation shall be divided into three classes (the
"Classified Directors") with the first class ("Class I"), second class ("Class
II") and the third class ("Class III") each to consist as nearly as practicable
of an equal number of directors. The term of office of the Class III directors
shall expire at the 2000 annual meeting of stockholders, the term of office of
the Class I directors shall expire at the 2001 annual meeting of stockholders
and the term of office of the Class II directors shall expire at the 2002 annual
meeting of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. At each annual meeting of
stockholders, Classified Directors elected to succeed those Classified Directors
whose terms then expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election.
SIXTH: The directors of the Corporation need not be elected by written ballot
unless the bylaws of the Corporation otherwise provide.
SEVENTH: The following provisions are included for the purpose of ensuring that
control of the Corporation remains with loyal citizens of the United States
and/or corporations formed under the laws of the United States or any of the
states of the United States, as required by the Communications Act of 1934, as
the same may be amended from time to time:
(a) The Corporation shall not issue to (i) a person who is a citizen
of a country other than the United States; (ii) any entity organized under
the laws of a government other than the government of the United States or
any state, territory, or possession of the United States; (iii) a
government other than the government of the United States or of any state,
territory, or possession of the United States; or (iv) a representative of,
or an individual or entity controlled by, any of the foregoing
(individually, an "Alien"; collectively, "Aliens") in excess of 25% of the
total number of shares of capital stock of the Corporation outstanding at
any time and shall not permit the transfer on the books of the Corporation
of any capital stock to any Alien that would result in the total number of
shares of such capital stock held by Aliens exceeding such 25% limit.
(b) No Alien or Aliens shall be entitled to vote or direct or control
the vote of more than 25% of (i) the total number of shares of capital
stock of the Corporation outstanding and entitled to vote at any time and
from time to time, or (ii) the total voting power of all shares of capital
stock of the Corporation outstanding and entitled to vote at any time and
from time to time.
(c) The Board of Directors of the Corporation shall have all powers
necessary to implement the provisions of this Article Seventh.
EIGHTH: No contract or transaction between the Corporation and one or more of
its directors, officers, or stockholders or between the Corporation and any
Person (as hereinafter defined) in which one or more of its directors, officers,
or stockholders are directors, officers, or stockholders, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction. "Person" as used herein means any
corporation, partnership, association, firm, trust, joint venture, political
subdivision or instrumentality.
NINTH: The Corporation shall indemnify any Person who was, is, or is threatened
to be made a party to a proceeding (as hereinafter defined) by reason of the
fact that he or she
(i) is or was a director, officer, employee or agent of the Corporation, or (ii)
is or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended. Such right shall be a
contract right and as such shall run to the benefit of any director or officer
who is elected and accepts the position of director or officer of the
Corporation or elects to continue to serve as a director or officer of the
Corporation while this Article Ninth is in effect. Any repeal or amendment of
this Article Ninth shall be prospective only and shall not limit the rights of
any such director or officer or the obligations of the Corporation with respect
to any claim arising from or related to the services of such director or officer
in any of the foregoing capacities prior to any such repeal or amendment to this
Article Ninth. Such right shall include the right to be paid by the Corporation
expenses incurred in investigating or defending any such proceeding in advance
of its final disposition to the maximum extent permitted under the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended. To the extent that a director, officer, employee or agent of the
Corporation shall be successful on the merits or otherwise in defense of any
proceeding, or in defense of any claim, issue, or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense is not permitted under the
General Corporation Law of the State of Delaware, but the burden of proving such
defense shall be on the Corporation. None of (i) the failure of the Corporation
(including its board of directors or any committee thereof, independent legal
counsel, or stockholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances, (ii) an actual
determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible, or (iii) the termination of
any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall be a defense to the action or create a
presumption that such indemnification or advancement is not permissible. In the
event of the death of any Person having a right of indemnification under the
foregoing provisions, such right shall inure to the benefit of his or her heirs,
executors, administrators, and personal representatives. The rights conferred
above shall not be exclusive of any other right which any Person may have or
hereafter acquire under any statute, bylaw, resolution of stockholders or
directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
Without limiting the generality of the foregoing, to the extent permitted by
then applicable law, the grant of mandatory indemnification pursuant to this
Article Ninth shall extend to proceedings involving the negligence of such
Person.
The Board of Directors may authorize, by a vote of a majority of a quorum of the
Board of Directors, the Corporation to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article Ninth.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
TENTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or amendment of this Article Tenth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article Tenth, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the General Corporation
Law of the State of Delaware.
ELEVENTH: All of the power of the Corporation, insofar as may be lawfully vested
by this Second Amended and Restated Certificate of Incorporation in the Board of
Directors of the Corporation, is hereby conferred upon the Board of Directors of
the Corporation. In furtherance of and not in limitation of that power or the
powers conferred by law, a majority of the directors then in office (or such
higher percentage as may be specified in the bylaws with respect to any
provision thereof) shall have the power to adopt, amend and repeal the bylaws of
the Corporation.
ANNEX X
CHANCELLOR MEDIA CORPORATION
1999 STOCK OPTION PLAN
TABLE OF CONTENTS
PAGE
----
1. Purpose..................................................... 1
2. Administration.............................................. 1
3. Shares Available and Maximum Individual Grants.............. 2
4. Eligibility and Bases of Participation...................... 3
5. Authority of Committee...................................... 3
6. Option Grants............................................... 5
7. Value Option Grants......................................... 8
8. Performance-Based Options................................... 12
9. Change of Control........................................... 12
10. Adjustment of Shares........................................ 12
11. Assignment or Transfer...................................... 13
12. Compliance with Securities Laws............................. 13
13. Withholding Taxes........................................... 14
14. Costs and Expenses.......................................... 14
15. Funding of Plan............................................. 14
16. Other Incentive Plans....................................... 14
17. Effect on Employment........................................ 14
18. Definitions................................................. 14
19. Amendment of Plan........................................... 17
20. Effective Date and Term..................................... 17
i
CHANCELLOR MEDIA CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE.
Chancellor Media Corporation, a Delaware corporation (herein, together with its
successors, referred to as the "Company"), by means of this 1999 Stock Option
Plan (the "Plan"), desires to afford certain key employees and other persons
performing services for the Company or any direct or indirect subsidiary or
parent corporation thereof now existing or hereafter formed or acquired (such
corporations sometimes referred to herein as "Related Entities") with an
opportunity to acquire a proprietary interest in the Company, and thus to create
in such persons an increased interest in and a greater concern for the success
of the Company and Related Entities. Certain definitions used herein are defined
in Section 18 of this Plan.
The stock options described in Sections 6 and 7 (collectively, the "Options"),
and the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options, are a matter of separate inducement and are not in
lieu of any salary or other compensation for services. Options may be incentive
stock options that are intended to qualify under Section 422 of the Code
("ISOs") or non-qualified stock options that are not intended to qualify under
such Section ("Non Qualified Options" or "NQOs"). An Option shall be evidenced
by one or more grant agreements between the Company and an optionee the terms of
which shall be deemed part of the applicable Option. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the meanings
contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company or the
Compensation Committee of the Board of Directors of the Company or any other
committee or sub-committee appointed by the Board of Directors of the Company to
administer this Plan (the "Committee"); provided, that the entire Board of
Directors of the Company (the "Board of Directors") may act as the Committee if
it chooses to do so; and provided, further, that (i) for purposes of determining
any Performance-Based Options (as hereinafter defined) applicable to Key
Employees (as hereinafter defined) who constitute "covered employees" within the
meaning of Section 162(m) of the Code, "Committee" shall mean only those members
thereof who qualify as "outside directors" within the meaning of Section 162(m)
of the Code, and such Performance-Based Options shall be subject to ratification
by unanimous approval of the members of the Board of Directors of the Company,
and (ii) for so long as the Company is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee shall be composed solely of two or more "Non-Employee Directors" as
defined in Rule 16b-3, as amended ("Rule 16b-3") promulgated thereunder. In no
event shall any Eligible Non-Employee then serving on the Committee (or such
other committee then administering the Plan) be granted Non-Qualified Options
hereunder if the grant would cause such Eligible Non-Employee to no longer be a
"Non-Employee Director" as set forth in this Section 2.
The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that
majority of the Board of Directors determines otherwise, shall be no less than
two individuals. A majority of the Committee shall constitute a quorum (or if
the Committee consists of only two members, then both members shall constitute a
quorum), and subject to the provisions of Section 5, the acts of a majority of
the members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee, shall be the acts of the
Committee. The Committee shall administer the Plan so as (i) to comply at all
times with the Exchange Act, and (ii) to seek to avoid the deduction limitation
imposed by Section 162(m) of the Code from applying to compensation attributable
to Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code.
The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or any other number that Rule 16b-3 or other applicable rules under
Section 16(b) of the Exchange Act, Section 162(m) of the Code, or any successor
or analogous rules or laws may require from time to time.
3. SHARES AVAILABLE AND MAXIMUM INDIVIDUAL GRANTS.
Subject to the adjustments provided in Section 10, the maximum aggregate number
of shares of common stock, par value $0.01 per share, of the Company ("Common
Stock") in respect of which Options may be granted for all purposes under the
Plan shall be ten million (10,000,000) shares, of which three million
(3,000,000) shares shall be available for grants of Options pursuant to Section
6 and seven million (7,000,000) shares shall be available for grants of Options
pursuant to Section 7. If any shares as to which any Option has been granted
cease to be subject to purchase for any reason (including the expiration of such
Option, the termination of such Option prior to exercise, or the forfeiture of
such Option), such shares shall thereafter be available for grants under the
same section of the Plan as such prior Option. Options granted under the Plan
may be fulfilled in accordance with the terms of the Plan with (i) authorized
and unissued shares of Common Stock or (ii) issued shares of Common Stock held
in the Company's treasury.
The maximum aggregate number of shares of Common Stock underlying all Options
that may be granted to any single Key Employee (as hereinafter defined),
including any Options that may have been granted to such Key Employee as an
Eligible Non-Employee (as hereinafter defined), during the Term (as hereinafter
defined) of the Plan shall be 2,000,000 shares, subject to the adjustments
provided in Section 10. For purposes of the preceding sentence, such Options
that are cancelled or repriced shall continue to be counted in determining such
maximum aggregate number of shares of Common Stock that may be granted to any
single Key Employee, including any Options that may have been granted to such
Key Employee as an Eligible Non-Employee, during the Term of the Plan.
2
4. ELIGIBILITY AND BASES OF PARTICIPATION.
Grants of Options may be made under the Plan, subject to and in accordance with
Section 6 or 7, to Key Employees and Eligible Non-Employees designated by the
Committee in its sole discretion. The adoption of this Plan shall not be deemed
to give any Person a right to be granted any Options.
As used herein, the term "Key Employee" shall mean any employee of the Company
or any Related Entity, including officers and directors of the Company or any
Related Entity who are also employees of the Company or any Related Entity, who
are regularly employed on a salaried basis and who are so employed on the date
of such grant, whom the Committee identifies as having a direct and significant
effect on the performance of the Company or any Related Entity. The Committee
shall specify whether an Option is intended to qualify as an ISO or as a NQO,
and any stock option grant shall be a NQO if not otherwise identified.
As used herein, the term "Eligible Non-Employee" shall mean any person or entity
of any nature whatsoever, specifically including an individual, a firm, a
company, a corporation, a partnership, a trust, or other entity (collectively, a
"Person"), that the Committee designates as eligible for a grant of
Non-Qualified Options pursuant to this Plan because such Person performs bona
fide consulting, advisory or other services for the Company or any Related
Entity (other than services in connection with the offer or sale of securities
in a capital-raising transaction) and the Committee determines that the Person
has a direct and significant effect on the performance of the Company or any
Related Entity.
5. AUTHORITY OF COMMITTEE.
Subject to and not inconsistent with the express provisions of the Plan, the
Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be granted, the
number of Options, the purchase price or exercise price of each Option, the
period(s) during which such Options shall be exercisable (whether in whole
or in part, including whether such Options shall become immediately
exercisable upon the consummation of a Change of Control), the restrictions
to be applicable to Options and all other terms and provisions thereof
(which need not be identical);
b. require, as a condition to the granting of any Option, that the
Person receiving such Option agree not to sell or otherwise dispose of such
Option, any Common Stock acquired pursuant to such Option, or any other
"derivative security" (as defined by Rule 16a-1(c) under the Exchange Act)
of the Company for a period of six months following the later of (i) the
date of the grant of such Option or (ii) the date when the exercise price
of such Option is fixed if such exercise price is not fixed at the date of
grant of such Option, or for such other period as the Committee may
determine;
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of Governors of
the Federal Reserve, for the purpose of assisting the optionee in the
exercise of an Option, such authority to include the payment by the Company
of the commissions of the broker-dealer;
3
d. provide the establishment of procedures for an optionee (i) to have
withheld from the total number of shares of Common Stock to be acquired
upon the exercise of an Option that number of shares having a Fair Market
Value which, together with such cash as shall be paid in respect of
fractional shares, shall equal the aggregate exercise price under such
Option for the number of shares then being acquired (including the shares
to be so withheld), and (ii) to exercise a portion of an Option by
delivering that number of shares of Common Stock already owned by such
optionee having an aggregate Fair Market Value which shall equal the
partial Option exercise price and to deliver the shares thus acquired by
such optionee in payment of shares to be received pursuant to the exercise
of additional portions of such Option, the effect of which shall be that
such optionee can in sequence utilize such newly acquired shares in payment
of the exercise price of the entire Option, together with such cash as
shall be paid in respect of fractional shares; provided, however, that (i)
in the case of an ISO, no shares shall be used to pay the exercise price
under this paragraph unless (A) such shares were not acquired through the
exercise of an ISO, or (B) if so acquired, (x) such shares have been held
for more than two years since the grant of such ISO and for more than one
year since the exercise of such ISO (the "Holding Period"), or (y) if such
shares do not meet the Holding Period, the optionee elects in writing to
use such shares to pay the exercise price under this paragraph, and (ii) no
such procedure shall be available if there is an opinion of the Company's
independent accounting firm that the use of such a procedure could
negatively affect the financial statements of the Company or a Related
Entity;
e. provide (in accordance with Section 13 or otherwise) the
establishment of a procedure whereby a number of shares of Common Stock or
other securities may be withheld from the total number of shares of Common
Stock or other securities to be issued upon exercise of an Option to meet
the obligation of withholding for income, social security and other taxes
incurred by an optionee upon such exercise or required to be withheld by
the Company or a Related Entity in connection with such exercise unless, as
determined by the Committee in the exercise of its discretion, such
procedure is not permitted by applicable law or would result in a charge to
earnings that otherwise would not have occurred;
f. prescribe, amend, modify and rescind rules relating to the Plan;
and
g. make all determinations permitted or deemed necessary, appropriate
or advisable for the administration of the Plan, interpret any Plan or
Option provision, perform all other acts, exercise all other powers, and
establish any other procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the conduct of
the Committee's business. Any act of the Committee, including
interpretations of the provisions of the Plan or any Option and
determinations under the Plan or any Option shall be final, conclusive and
binding on all parties.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any Person to whom it has delegated duties as aforesaid may employ one or
more Persons to render advice with respect to any responsibility the Committee
or such Person may have under the Plan; provided, however, that any such
delegation shall be in writing; and provided, however, that, any determination
of Performance-Based Options (as hereinafter defined)
4
applicable to Key Employees who constitute "covered employees" within the
meaning of Section 162(m) of the Code may not be delegated to a member of the
Board of Directors who, if elected to serve on the Committee, would not qualify
as an "outside director" within the meaning of Section 162(m) of the Code. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan and all members
and agents of the Committee shall be fully protected by the Company in respect
of any such action, determination or interpretation.
6. OPTION GRANTS.
Subject to the provisions of this Section 6 and the Plan, the Committee shall
have the authority to grant Options in respect of up to three million
(3,000,000) shares of Common Stock, including any shares of Common Stock that
have not been purchased and cease to be subject to purchase under any Option
granted under this Section, to Key Employees and Eligible Non-Employees. The
terms and conditions of the Options granted under this Section 6 shall be
determined from time to time by the Committee; provided, however, that such
Options shall be subject to and consistent with all terms and provisions of this
Section 6 and the Plan (other than Section 7). The Committee shall specify
whether an Option is intended to qualify as an ISO or as a NQO, and any stock
option grant shall be a NQO if not otherwise identified. In no event shall any
Eligible Non-Employee then serving on the Committee (or such other committee
then administering the Plan) be granted Non-Qualified Options hereunder if the
grant would cause such Eligible Non-Employee to no longer be a "Non-Employee
Director" as set forth in Section 2 hereof. The following provisions of this
Section shall apply only to Options granted under this Section and shall not
apply to Options granted under Section 7.
a. Option Exercise Price. The Committee shall establish the exercise
price per share of Common Stock at the time any Option is granted to a
optionee at such amount as the Committee shall determine; provided,
however, that the exercise price shall not be less than the Fair Market
Value of Common Stock on the grant date or, if earlier, the date on which
the Company or a Related Entity agrees to make such grant (notwithstanding
that such grant is subject to approval by the Committee) and provided,
further, that in the case of an ISO granted 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 the Company 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. The Option exercise price shall be
subject to adjustment in accordance with the provisions of Section 10 of
the Plan.
b. Payment. The price per share of Common Stock with respect to each
Option shall be payable at the time of exercise of such Option by the
optionee. Such price shall be payable in cash or by any other means
acceptable to the Committee, including delivery to the Company of shares of
Common Stock owned by the optionee or by the delivery or withholding of
shares pursuant to a procedure created pursuant to subsection 5(d) of the
Plan. Shares delivered to or withheld by the Company in
5
payment of the exercise price shall be valued at the Fair Market Value of
the Common Stock on the day preceding the date of the exercise of the
Option.
c. Term. The term of each Option shall be established by the Committee
and set forth at the time such Option is granted. The term of an Option
shall not exceed ten (10) years from the date of grant of such Option
except as provided in subsections 6(e) and (f). An Option may be terminated
prior to the expiration of its term in accordance with the provisions of
the Plan.
d. Vesting and Exercisability. Unless otherwise determined by the
Committee, and subject to the provisions of subsections 6(e), (f), (g) and
(h) below, Options granted to any Key Employee or Eligible Non-Employee
pursuant to this Section 6 shall vest and become exercisable in accordance
with and on the dates described in the schedule set forth below; provided,
however, that unless otherwise determined by the Committee, such Options
shall vest and become exercisable on any such date only if such Key
Employee or Eligible Non-Employee is employed or providing services to the
Company or any Related Entity on such date:
- one-fifth of the shares of Common Stock underlying such Option shall
vest and become exercisable on the first anniversary of the date of
grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the second anniversary of
the date of grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the third anniversary of
the date of grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the fourth anniversary of
the date of grant of such Option; and
- the final one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the fifth anniversary of
the date of grant of such Option.
No Option by its terms shall be exercisable after the expiration of ten years
from the date of grant of the Option, except in accordance with subsection 6(e)
or (f).
e. Death. The Committee may accelerate, in whole or in part, the
vesting and exercisability of any Options held by an optionee if such
optionee's employment by or services for the Company and its Related
Entities terminates due to the death of such optionee, and the remaining
non-vested portion, if any, of such Options shall be cancelled. Upon the
death of any optionee, the vested portion of any Option held by such
optionee may be exercised by the estate of such optionee or by any other
person who acquires the right to exercise such vested portion as a result
of the death of such optionee. Unless a shorter or longer period is
provided in any Option, the vested portion of such Option may be exercised
by the earlier of (i) the first anniversary of the date of termination of
the optionee's employment with or services for the Company and its Related
Entities, or (ii) the expiration of the term of such Option, but in no
event prior to the 90th day after the death of such optionee.
6
f. Disability. The Committee may accelerate, in whole or in part, the
vesting and exercisability of any Options held by an optionee if such
optionee's employment by or services for the Company and its Related
Entities terminates due to the Disability (as defined in Section 18) of
such optionee, and the remaining non-vested portion, if any, of such
Options shall be cancelled. Upon the Disability of any optionee, the vested
portion of any Option held by such optionee may be exercised by the
optionee or his or her legal representatives. Unless a shorter or longer
period is provided by the Committee in any Option, the vested portion of
such Option may be exercised by the earlier of (i) the first anniversary of
the date of termination of the optionee's employment with or services for
the Company and its Related Entities on account of Disability, or (ii) the
expiration of the term of such Option, but in no event prior to the 90th
day after the date of such termination of employment or services; provided,
however, that in the case of an exercise of an ISO, the optionee shall in
any event be required to exercise the vested portion of such Incentive
Option within one year after termination of the optionee's employment due
to his or her Disability.
g. Termination for Cause. Unless the Option granted to any Key
Employee expressly provides otherwise or the Committee determines
otherwise, such Key Employee shall immediately forfeit all rights under his
or her Options, except as to the shares of Common Stock already purchased
thereunder, if his or her employment is terminated by the Company or any
Related Entity for Cause (as defined below). If the retention by the
Company or any Related Entity of the services of any Eligible Non-Employee
is terminated (i) for Cause or (ii) as a result of removal of such optionee
from office as a director of the Company or of any Related Entity for cause
by action of the stockholders of the Company or such Related Entity in
accordance with the certificate of incorporation or the by-laws of the
Company or such Related Entity, as applicable, and the corporate law of the
jurisdiction of incorporation of the Company or such Related Entity, then
such optionee shall immediately forfeit his, her or its Options except as
to the shares of Common Stock already purchased. The determination that
there exists Cause for termination shall be made by the Committee (unless
otherwise agreed to in writing by the Company and the optionee) and any
decision in respect thereof by the Committee shall be final and binding on
all parties in interest.
h. Other Termination of Employment. If the employment or the retention
of the services of an optionee with the Company or a Related Entity
terminates for any reason other than those specified in subsections 6(e),
(f) or (g) above, such optionee shall have the right to exercise the vested
portion of his or her Option in accordance with its terms, within 90 days
after the date of such termination, unless a longer or shorter period is
expressly provided in such Option or established by the Committee (but in
no event after the expiration date of the Option), and thereafter such
Option shall lapse and no longer be exercisable; provided, and without
limiting the foregoing, that the Committee may, in the exercise of its
discretion, extend the exercise date of any Option upon termination of
employment for a period not to exceed six months plus one day (but in no
event after the expiration date of the Option) if the Committee determines
that the stated exercise date will have an inequitable result under Section
16(b) of the Exchange Act. The Committee may also accelerate the vesting
and exercisability of the non-vested portion of any Option in its
discretion,
7
whether expressly provided in such Option or determined by the Committee on
or about any termination of employment or services that is not specified in
subsections 6(e), (f) or (g) above.
i. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option)
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and any
Related Entity exceeds $100,000, such ISOs shall be treated as NQOs.
j. Continuation of Employment. Each ISO shall require the optionee to
remain in the continuous employ of the Company or any Related Entity from
the date of grant of the ISO until at least three months prior to the date
of exercise of the ISO.
k. Recharacterization of ISO. In the event that the exercise of any
ISO, or method of exercise or payment therefor, would not be in compliance
with this Section 6 and would consequently result in a violation of the
requirements of Section 422 of the Code governing the treatment of ISOs,
the Committee in the exercise of its discretion may recharacterize the
Option as a NQO.
7. VALUE OPTION GRANTS.
Subject to the express provisions of this Section 7 and the Plan, the Committee
shall have the authority to grant Non Qualified Options which become exercisable
upon the value of the underlying shares of such options attaining a specified
value ("Value Options") in respect of up to seven million (7,000,000) shares of
Common Stock, including any shares of Common Stock that have not been purchased
and cease to be subject to purchase under any Option granted under this Section,
to Key Employees and Eligible Non-Employees. The terms and conditions of the
Value Options granted under this Section 7 shall be determined from time to time
by the Committee; provided, however, that the Value Options granted under this
Section 7 shall be subject to and consistent with all terms and provisions of
the Plan (other than Section 6). In no event shall any Eligible Non-Employee
then serving on the Committee (or such other committee then administering the
Plan) be granted Value Options hereunder if such grant would cause such Eligible
Non-Employee to no longer be a "Non-Employee Director" as set forth in Section 2
hereof. The following provisions of this Section shall apply only to Value
Options granted under this Section and shall not apply to Options granted under
Section 6.
a. Exercise Price. The exercise price with respect to each underlying
share of Common Stock subject to any Value Option granted under this
Section 7 shall be equal to the Fair Market Value per share of Common Stock
on the date such Value Option is granted or, if earlier, the date on which
the Company or a Related Entity agrees to make such grant (notwithstanding
that such grant is subject to approval by the Committee) and provided,
further, that in the case of an ISO granted 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 the Company 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. The Option exercise price shall be
subject to adjustment in accordance with the provisions of Section 10 of
the Plan.
8
b. Payment. The price per share of Common Stock with respect to each
Value Option shall be payable at the time of exercise of such Option. Such
price shall be payable in cash or by any other means acceptable to the
Committee, including delivery to the Company of shares of Common Stock
owned by the optionee or by the delivery or withholding of shares pursuant
to a procedure created pursuant to subsection 5(d) of the Plan. Shares
delivered to or withheld by the Company in payment of the Value Option
exercise price shall be valued at the Fair Market Value of the Common Stock
on the day preceding the date of the exercise of the Value Option.
c. Term. The term of each Value Option shall be established by the
Committee and set forth at the time such Option is granted. The term of a
Value Option shall not exceed ten (10) years from the date of grant of such
Option except as provided in subsections 7(f) or (g). A Value Option may be
terminated prior to the expiration of its term in accordance with the
provisions of the Plan.
d. Vesting. Unless otherwise determined by the Committee, and subject
to subsections 7(f), (g), (h) and (i) below, any Value Option granted to
any Key Employee or Eligible Non-Employee hereunder shall vest, as
distinguished from becoming exercisable, on the dates and in accordance
with the vesting schedule set forth immediately below if such Key Employee
or Eligible Non-Employee is employed or providing services to the Company
or any Related Entity on such date:
- one-fifth of the shares of Common Stock underlying such Option shall
vest on the first anniversary of the date of grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest on the second anniversary of the date of grant of
such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest on the third anniversary of the date of grant of
such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option grant shall vest on the fourth anniversary of the date of grant
of such Option; and
- the final one-fifth of the shares of Common Stock underlying the
Option shall vest on the fifth anniversary of the date of grant of
such Option.
e. Exercisability. A Value Option granted prior to June 1, 1999 shall
become exercisable after the date on which the average Fair Market Value of
a share of Common Stock, calculated on a daily basis, equals or exceeds
$100.00 per share and a Value Option granted on or after June 1, 1999 shall
become exercisable after the date on which the average Fair Market Value of
a share of Common Stock, calculated on a daily basis, equals or exceeds the
greater of (i) $100.00 per share or (ii) two-hundred percent (200%) of the
exercise price for a share of Common Stock under such Option (the
"Exercisability Value"), for a period of 30 consecutive days (excluding
non-business days for this purpose) during the period from (and including)
the date of grant of such Option through (and including) the fifth
anniversary of the date of grant of such Option. No Value Option (whether
or not vested) shall become exercisable after 5:00 p.m., in Dallas, Texas,
on the fifth anniversary of the date of grant of such Option, and any Value
Option (whether or not vested) that is not
9
exercisable at such time shall automatically, and without notice, terminate
and become null and void at such time. In addition, the exercisability of a
Value Option shall be subject to subsections 7(f), (g), (h) and (i) and
Section 9.
f. Death. If any optionee's employment or retention of services by the
Company or a Related Entity is terminated due to the death of such
optionee, the Committee may accelerate, in whole or in part, the vesting of
any Value Options held by such optionee and the remaining non-vested
portion, if any, of such Value Options shall be cancelled.
Upon the termination of employment or services of any optionee on
account of the optionee's death, the vested portion of the Value Options
credited to such optionee shall, to the extent then exercisable, be
exercisable by the optionee's estate or any person who acquires rights
with respect to such optionee's Options until the later of (i) the 90th
day after the date of such termination of employment or services, or
(ii) the earlier of the expiration date of the term of such Option or
the first anniversary of the date of such termination of employment or
services, unless a shorter or longer period is provided for in the
Option or the Plan.
In the event the vested portion of any Option is not exercisable on
the date of an optionee's termination of employment or services on
account of his or her death, such vested portion shall remain in effect
and if it becomes exercisable on or prior to 5:00 p.m., Dallas, Texas,
on the fifth anniversary of the date of grant of such Option, the
optionee's estate or any person who acquires rights with respect to such
Option as a result of the optionee's death may exercise such Option
until the later of (i) the 90th day after the date such Option became
exercisable and (ii) the earlier of the expiration date of the term of
such Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan.
g. Disability. If any optionee's employment or retention of services
by the Company or a Related Entity is terminated due to the Disability of
such optionee, the Committee may accelerate, in whole or in part, the
vesting of any Value Options held by such optionee and the remaining
non-vested portion, if any, of such Value Options shall be cancelled.
Upon the termination of employment or services of any optionee on
account of the optionee's Disability, the vested portion of the Value
Options credited to such optionee shall, to the extent then exercisable,
be exercisable by the optionee's estate or any person who acquires
rights with respect to such optionee's Options until the later of (i)
the 90th day after the date of such termination of employment or
services, or (ii) the earlier of the expiration date of the term of such
Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan; provided, however, that in the case the
exercise of an ISO, the optionee shall in any event be required to
exercise the vested portion of such Incentive Option within one year
after termination of the optionee's employment due to his or her
Disability.
10
In the event the vested portion of any Option is not exercisable on
the date of an optionee's termination of employment or services on
account of his or her Disability, such vested portion shall remain in
effect and if it becomes exercisable on or prior to 5:00 p.m., Dallas,
Texas, on the fifth anniversary of the date of grant of such Option, the
optionee's estate or any person who acquires rights with respect to such
Option as a result of the optionee's Disability may exercise such Option
until the later of (i) the 90th day after the date such Option became
exercisable and (ii) the earlier of the expiration date of the term of
such Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan; provided, however, that in the case of
the exercise of an ISO, the optionee shall in any event be required to
exercise the vested portion of such Incentive Option within one year
after termination of the optionee's employment due to his or her
Disability.
h. Termination for Cause. If any optionee's employment or retention of
services by the Company or a Related Entity is terminated for Cause, the
optionee shall forfeit the Value Option, and the Value Option shall
automatically, and without notice, terminate and become null and void at
5:00 p.m., Dallas, Texas time, on the date of termination, unless otherwise
provided in the Option or determined by the Committee.
i. Other Termination of Employment. If any optionee's employment or
retention of services by the Company or a Related Entity is terminated for
any reason other than for Cause, death or Disability, the vested portion of
the Value Option shall, to the extent exercisable, remain exercisable until
the later of: (i) the expiration of 90 days from the date of such
termination, and (ii) the end of the Term of the Option. In the event the
vested portion of the Value Option is not exercisable on the date of any
such termination of employment or services, such portion shall remain in
effect and subject to becoming exercisable on or before 5:00 p.m., Dallas,
Texas, on the fifth anniversary of the grant date of such Option, the
optionee may, until the 90th day after the date such Option becomes
exercisable, exercise such Option. The Committee may accelerate vesting of
any non-vested portion of a Value Option on account of an optionee's
termination of employment or services for any reason other than Cause,
death or Disability and may provide for a shorter or longer period to
exercise any vested portion of such Option.
j. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option)
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and any
Related Entity exceeds $100,000, such ISOs shall be treated as NQOs.
k. Continuation of Employment. Each ISO shall require the optionee to
remain in the continuous employ of the Company or any Related Entity from
the date of grant of the ISO until at least three months prior to the date
of exercise of the ISO.
l. Recharacterization of ISO. In the event that the exercise of any
ISO, or method of exercise or payment therefor, would not be in compliance
with this Section 7 and would consequently result in a violation of the
requirements of Section 422 of the Code governing the treatment of ISOs,
the Committee in the exercise of its discretion may recharacterize the
Option as a NQO.
11
8. PERFORMANCE-BASED OPTIONS.
The Committee, in its sole discretion, may designate and design Options granted
under the Plan as Performance-Based Options (as hereinafter defined) if it
determines that compensation attributable to such Options might not otherwise be
tax deductible by the Company due to the deduction limitation imposed by Section
162(m) of the Code. Accordingly, Options granted under the Plan may be granted
in such a manner that the compensation attributable to such Options is intended
by the Committee to qualify as "performance-based compensation" as such term is
used in Section 162(m) of the Code and the regulations promulgated thereunder
and thus be exempt from the deduction limitation imposed by Section 162(m) of
the Code ("Performance-Based Options").
Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if the Option exercise price is not
less than the Fair Market Value per share of Common Stock at the date the Option
is granted; provided, that the Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 10 of the Plan.
9. CHANGE OF CONTROL.
Except as otherwise expressly provided in a particular Option, if (i) a Change
of Control shall occur or (ii) the Company shall enter into an agreement
providing for a Change of Control, then the Committee may declare any or all
Options granted and outstanding under the Plan to be vested and exercisable in
full at such time or times as the Committee shall determine and the Company may
purchase any or all such Options for an amount of cash equal to the amount that
could have been attained upon the exercise of such Options or the realization of
the optionee's rights had such option been currently exercisable. Each Option
accelerated by the Committee pursuant to the preceding sentence shall terminate,
notwithstanding any express provision thereof or any other provision of the
Plan, on such date (not later than the stated exercise date) as the Committee
shall determine.
10. ADJUSTMENT OF SHARES.
Except as otherwise contemplated in Section 9, and unless otherwise expressly
provided in a particular Option, in the event that, by reason of any merger,
consolidation, combination, liquidation, recapitalization, stock dividend, stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares
or other like change in capital structure of the Company (collectively, an
"Adjustment Event"), the Common Stock is substituted, combined, or changed into
any cash, property, or other securities, or the shares of Common Stock are
changed into a greater or lesser number of shares of Common Stock, the number
and/or kind of shares and/or interests subject to an Option and the per share
price, the value thereof or the Exercisability Value shall be appropriately
adjusted by the Committee to give appropriate effect to such Adjustment Event.
Any fractional shares or interests resulting from such adjustment shall be
eliminated.
Except as otherwise contemplated in Section 9, and unless otherwise expressly
provided in a particular Option, in the event the Company is not the surviving
entity of an Adjustment Event and, in connection with such Adjustment Event, any
optionee will hold Options issued pursuant to this Plan which have not been
exercised, cancelled, or terminated in connection therewith, the Company shall
cause such Options to be assumed (or cancelled
12
and replacement Options issued) by the surviving entity or a Related Entity with
such changes to the number and/or kind of shares and/or interests subject to an
Option and the per share price, the value thereof or the Exercisability Value as
the Committee determines is necessary to give appropriate effect to such
Adjustment Event. In the event of any perceived conflict between the provisions
of Section 9 and this Section 10, the Committee's determinations under Section 9
shall control.
11. ASSIGNMENT OR TRANSFER.
Except as otherwise expressly provided in any Option, no Option granted under
the Plan or any rights or interests therein shall be assignable or transferable
by an optionee except by will or the laws of descent and distribution, and
during the lifetime of an optionee, Options granted to him or her hereunder
shall be exercisable only by the optionee or, in the event that a legal
representative has been appointed in connection with the Disability of an
optionee, such legal representative.
12. COMPLIANCE WITH SECURITIES LAWS.
The Company shall not in any event be obligated to file any registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or any applicable state securities law to permit exercise of any Option or to
issue any Common Stock in violation of the Securities Act or any applicable
state securities law. Each optionee (or, in the event of his or her death or, in
the event a legal representative has been appointed in connection with his or
her Disability, the Person exercising the Option) shall, as a condition to his
or her right to exercise any Option, deliver to the Company an agreement or
certificate containing such representations, warranties and covenants as the
Company may deem necessary or appropriate to ensure that the issuance of shares
of Common Stock pursuant to such exercise is not required to be registered under
the Securities Act or any applicable state securities law.
Certificates for shares of Common Stock, when issued, may have substantially the
following legend, or statements of other applicable restrictions, endorsed
thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued pursuant to
an effective registration statement under the Securities Act and in accordance
with applicable state securities laws.
13
13. WITHHOLDING TAXES.
By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or Related Entity by which the optionee is employed for
any federal, state, or local taxes required by any government to be withheld or
otherwise deducted by such corporation in respect of the optionee's exercise of
all or a portion of the Option; (ii) authorize the Company or any Related Entity
by which the optionee is employed to withhold from any cash compensation paid to
the optionee or in the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Company, or the Related Entity by
which the optionee is employed, and which otherwise has not been reimbursed by
the optionee, in respect of the optionee's exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which the optionee is entitled upon exercise of the Option as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated, and may, in its
discretion, effect such withholding by retaining shares issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise which
is equal to the amount to be withheld.
14. COSTS AND EXPENSES.
The costs and expenses of administering the Plan shall be borne by the Company
and shall not be charged against any Option nor to any employee receiving an
Option.
15. FUNDING OF PLAN.
The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.
16. OTHER INCENTIVE PLANS.
The adoption of the Plan does not preclude the adoption by appropriate means of
any other incentive plan for employees.
17. EFFECT ON EMPLOYMENT.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.
18. DEFINITIONS.
In addition to the terms specifically defined elsewhere in the Plan, as used in
the Plan, the following terms shall have the respective meanings indicated
unless another definition is agreed to in writing by the Company and the
optionee in an option grant agreement with respect to such term or a similar
term:
"Adjustment Event" shall have the meaning set forth in Section 10
hereof.
"Board of Directors" shall have the meaning set forth in Section 2
hereof.
14
"Cause", with respect to any Key Employee, shall mean termination by
action of the Board of Directors because of: (A) the optionee's conviction
of, or plea of nolo contendere to, a felony or a crime involving moral
turpitude; (B) the optionee's personal dishonesty, willful misconduct,
willful violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or breach of fiduciary duty which involves
personal profit; (C) the optionee's willful commission of material
mismanagement in the conduct of his or her duties as assigned to him by the
Board of Directors or the optionee's supervising officer or officers of the
Company; (D) the optionee's willful failure to execute or comply with the
policies of the Company or his or her stated duties as established by the
Board of Directors or the optionee's supervising officer or officers of the
Company, or the optionee's intentional failure to perform the optionee's
stated duties; or (E) substance abuse or addiction on the part of the
optionee. "Cause", with respect to any Eligible Non-Employee, shall mean
termination by action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's willful
commission of material mismanagement in providing services to the Company
or any Related Entity; (D) the optionee's willful failure to comply with
the policies of the Company in providing services to the Company or any
Related Entity, or the optionee's intentional failure to perform the
services for which the optionee has been engaged; (E) substance abuse or
addiction on the part of the optionee; or (F) the optionee's willfully
making any material misrepresentation or willfully omitting to disclose any
material fact to the board of directors of the Company or any Related
Entity with respect to the business of the Company or any Related Entity.
"Change of Control" shall mean (a) the sale, lease or other transfer
of all or substantially all of the assets of the Company to any person or
group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the
Company of a plan relating to the liquidation or dissolution of the
Company; (c) the merger or consolidation of the Company with or into
another entity or the merger of another entity into the Company or any
subsidiary thereof with the effect that immediately after such transaction
the stockholders of the Company immediately prior to such transaction (or
their Related Parties) directly and indirectly hold less than fifty percent
(50%) of the total voting power of all securities generally entitled to
vote in the election of directors, managers or trustees of the entity
surviving such merger or consolidation; (d) the acquisition by any person
or group of more than fifty percent (50%) of the direct and indirect voting
power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and
(ii) were not approved by a majority of the Board at the time of their
election or appointment.
"Code" shall have the meaning set forth in Section 1 hereof.
"Committee" shall have the meaning set forth in Section 2 hereof.
"Common Stock" shall have the meaning set forth in Section 3 hereof.
15
"Company" shall have the meaning set forth in Section 1 hereof.
"Disability" shall mean permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis unless another
meaning shall be agreed to in writing by the Committee and the optionee.
"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
"Exchange Act" shall have the meaning set forth in Section 2 hereof.
"Fair Market Value" shall, as it relates to the Common Stock, mean, at
the option of the Committee, the average of the high and low prices or the
closing price of such Common Stock as reported on the principal national
securities exchange on which the shares of Common Stock are then listed or
the NASDAQ National Market, as applicable, on the date specified herein for
such a determination; or, if there were no sales on such date, on the next
succeeding day or immediately preceding day on which there were sales; or,
if such Common Stock is not listed on a national securities exchange, the
last reported bid price in the over-the-counter market; or, if such shares
are not traded in the over-the-counter market, the per share cash price for
which all of the outstanding Common Stock could be sold to a willing
purchaser in an arms length transaction (without regard to minority
discount, absence of liquidity, or transfer restrictions imposed by any
applicable law or agreement) at the date of the event giving rise to a need
for a determination. Except as may be otherwise expressly provided in a
particular Option, Fair Market Value shall be determined in good faith by
the Committee.
The term "including" when used herein shall mean "including, but not
limited to".
"Key Employee" shall have the meaning set forth in Section 4 hereof.
"Non Qualified Option" shall have the meaning set forth in Section 1
hereof.
"Options" shall have the meaning set forth in Section 1 hereof.
"Person" shall have the meaning set forth in Section 4 hereof.
"Performance-Based Options" shall have the meaning set forth in
Section 8 hereof.
"Plan" shall have the meaning set forth in Section 1 hereof.
"Related Entities" shall have the meaning set forth in Section 1
hereof.
"Related Parties" shall mean with respect to any person (a) the spouse
and lineal ascendants and descendants of such person, and any sibling of
any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest
of which consist of persons referred to in subsection (a) above.
"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.
16
"Securities Act" shall have the meaning set forth in Section 11
hereof. "Term" shall have the meaning set forth in Section 20 hereof.
"Value Option" shall have the meaning set forth in Section 7 hereof.
19. AMENDMENT OF PLAN.
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan, or modify the
provisions of the Plan relating to the number of shares subject to Section 7 and
the Exercisability Value of Value Options pursuant to subsection 7(e) unless
such amendment is made by or with the approval of the stockholders of the
Company. The Board of Directors shall be authorized to amend the Plan and the
Options granted thereunder to comply with Rule 16b-3 (or any successor rule)
under the Exchange Act (or any successor law) and the regulations (including any
temporary regulations) promulgated thereunder. No amendment, modification,
suspension or termination of the Plan shall materially impair the value of any
Options previously granted under the Plan, without the consent of the holder
thereof.
20. EFFECTIVE DATE AND TERM.
The Plan shall be effective as of April 8, 1999. Except with respect to
outstanding Options, the Plan shall terminate on the tenth anniversary of the
date of adoption of the Plan or the date of approval of the Plan by the
stockholders of the Company, whichever is earlier, unless sooner terminated by
the Board of Directors (the "Term").
17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
empowers a Delaware corporation to indemnify any person who is, or is threatened
to be made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which he actually and reasonably incurred in
connection therewith.
Chancellor Media's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
Chancellor Media or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
Chancellor Media's Amended and Restated Certificate of Incorporation provides
that Chancellor Media shall indemnify every person who is or was a party or is
or was threatened to be made a party to any action suit, or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or officer of the corporation or, while a director or
officer or employee of the corporation, is or was serving at the request of the
corporation as a director, officer, employee, agent or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonable incurred by him in connection
with such action, suit or proceeding, to the full extent permitted by applicable
law.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles (See
table of contents for list of omitted schedules).
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
II-2
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM) (See
table of contents for list of omitted exhibits and
schedules).
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (See table of
contents for list of omitted schedules).
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19,1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund 11, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
II-3
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/WBAV-FM/ WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between CMCLA
and Capstar Broadcasting Corporation.
2.44(yy) -- Amendment No. 1, dated May 19, 1998, to Letter Agreement
dated February 20, 1998, between CMCLA and Capstar
Broadcasting Corporation.
II-4
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.45(yy) -- Unit and Stock Purchase Agreement by and among CMCLA,
Martin Media, L.P., Martin & MacFarlane, Inc., Nevada
Outdoor Systems, Inc., MW Sign Corp. and certain sellers
named therein, dated as of June 19, 1998 (see table of
contents for list of omitted schedules and exhibits).
2.46(yy) -- Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation dated
as of July 7, 1998.
2.46A* -- Termination Agreement, dated as of March 15, 1999,
between Chancellor Media Corporation and Ranger Equity
Holdings Corporation.
2.47(yy) -- Asset Purchase Agreement: dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and
Independent Group Limited Partnership.
2.48(yy) -- Asset Purchase Agreement, dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and Zapis
Communications Corporation.
2.49(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, Young Ones,
Inc., Zebra Broadcasting Corporation and the Sellers
named therein.
2.50(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, ML Media
Partners LP., Wincom Broadcasting Corporation and WIN
Communications, Inc.
2.52(ddd) -- Agreement and Plan of Merger among Chancellor Media
Corporation, Capstar Broadcasting Corporation and CBC
Acquisition Company, Inc., dated as of August 26, 1998.
2.53(zz) -- Asset Purchase Agreement, dated August 30, 1998, by and
among Chancellor Media Corporation of Los Angeles,
Whiteco Industries Inc. and Metro Management Associates.
2.54(ggg) -- Asset Purchase Agreement, dated as of August 14, 1998, by
and among Chancellor Media Corporation of Illinois,
Chancellor Media Illinois License Corp. and ABC, Inc.
2.55(hhh) -- Amended and Restated Agreement and Plan of Merger, dated
as of April 29, 1999, among Chancellor Media Corporation,
Capstar Broadcasting Corporation, CBC Acquisition
Company, Inc. and CMC Merger Sub, Inc.
2.56(hhh) -- Asset Purchase Agreement, dated as of September 15, 1998,
by and between The Broadcast Group, Inc. and Chancellor
Media/ Shamrock Broadcasting, Inc.
2.57(iii) -- Stock Purchase Agreement, dated as of June 1, 1999, by
and between Lamar Advertising Company and Chancellor
Media Corporation of Los Angeles.
2.58(iii) -- Subscription Agreement, dated as of June 1, 1999, by and
between Lamar Advertising Company and Chancellor Media
Corporation of Los Angeles.
II-5
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.59(iii) -- Voting Agreement, dated as of June 1, 1999, by and among
Lamar Advertising Company, Chancellor Media Corporation
of Los Angeles and Reilly Family Limited Partnership.
3.1C(ss) -- Amended and Restated Certificate of Incorporation of
Chancellor Media Corporation.
3.2B(ss) -- Amended and Restated Bylaws of Chancellor Media.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of CMCLA.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of CMCLA.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of CMCLA.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of
CMCLA.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of CMCLA.
4.25(qq) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
II-6
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.27(qq) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.28(qq) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.29(qq) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.30(qq) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
CMCLA.
4.34(uu) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of CMCLA.
4.35(uu) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of CMCLA.
4.36(uu) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.37(uu) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.38(vv) -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of CMCLA.
4.39(ww) -- Fifth Amendment to Second Amended and Restated Loan
Agreement, dated May 1, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.40(yy) -- Sixth Amendment to Second Amended and Restated Loan
Agreement, dated July 31, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.41(zz) -- Indenture, dated as of September 30, 1998, governing the
9% Senior Subordinated Notes due 2008 of CMCLA.
4.42(aaa) -- Seventh Amendment to Second Amended and Restated Loan
Agreement, dated November 9, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.43(zz) -- Indenture, dated as of November 17, 1998, governing the
8% Notes due 2008 of CMCLA.
5.1* -- Opinion of Weil, Gotshal & Manges LLP.
8.1* -- Opinion regarding certain tax matters of Weil, Gotshal &
Manges LLP.
8.2* -- Opinion regarding certain tax matters of Vinson & Elkins
L.L.P.
II-7
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.23(xx) -- Amended and Restated Chancellor Media Corporation Stock
Option Plan for Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(qq) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(qq) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(qq) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(qq) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(qq) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neuman.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.44(vv) -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45(vv) -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
10.46(yy) -- Chancellor Media Corporation 1998 Stock Option Plan.
10.47(yy) -- Voting Agreement, among Chancellor Media Corporation and
Ranger Equity Partners, L.P. dated as of July 7, 1998.
10.48(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James E. de Castro.
II-8
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.49(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Matthew E. Devine.
10.50(zz) -- Employment Agreement, dated as of June 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Eric C. Neuman.
10.51(zz) -- Employment Agreement, dated as of August 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James A. McLaughlin, Jr.
10.52(bbb) -- Agreement, dated as of January 6, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles, Matthew E. Devine and Vicki Devine.
10.53(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Jeffrey A. Marcus.
10.54(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James E. de Castro.
10.55(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Eric C. Neuman.
10.56(ccc) -- Employment Agreement, dated as of October 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Thomas P. McMillin.
10.57(ccc) -- Amendment No. 1 to Employment Agreement, dated as of
January 6, 1999, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Thomas P. McMillin.
10.58(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James A. McLaughlin, Jr.
10.59(eee) -- Agreement, dated as of March 15, 1999, between Jeffrey A.
Marcus, Nancy Cain Marcus, Chancellor Media Corporation
and Chancellor Media Corporation of Los Angeles.
10.60(eee) -- Agreement, dated as of March 15, 1999, between Eric C.
Neuman, Elizabeth M. Neuman, Chancellor Media Corporation
and Chancellor Media Corporation of Los Angeles.
10.61(eee) -- Agreement, dated as of March 15, 1999, between Thomas P.
McMillin, Brigette McMillin, Chancellor Media Corporation
and Chancellor Media Corporation of Los Angeles.
10.62* -- Employment Agreement, dated as of April 29, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and R. Steven Hicks.
II-9
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.63* -- Employment Agreement, dated as of April 29, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and D. Geoffrey Armstrong.
10.64* -- Employment Agreement, dated as of April 29, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and William S. Banowsky.
10.65* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and
James E. de Castro.
10.66* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and
Kenneth J. O'Keefe.
10.67* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and R.
Steven Hicks.
10.68* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and D.
Geoffrey Armstrong.
10.69* -- Non-Qualified Stock Grant Agreement, effective as of
April 9, between Chancellor Media Corporation and William
S. Banowsky.
10.70* -- Amendment No. 1 to Amended and Restated Employment
Agreement, dated as of May 18, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and James E. de Castro.
10.71* -- Employment Agreement, dated as of May 18, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Kenneth J. O'Keefe.
10.72* -- Chancellor Media Corporation 1999 Stock Option Plan.
21.1(ccc) -- Subsidiaries of Chancellor Media Corporation.
23.1* -- Consent of Weil, Gotshal & Manges LLP (included as part
of their opinion listed as Exhibit 5.1).
23.2* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3* -- Consent of KPMG LLP, independent accountants.
23.4* -- Consent of BDO Seidman, LLP, independent accountants.
23.5* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.6* -- Consent of Ernst & Young LLP, independent accountants.
23.7* -- Consent of KPMG LLP, independent accountants.
23.8* -- Consent of Arthur Andersen LLP, independent accountants.
23.9* -- Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
23.10* -- Consent of Kleiman, Carney & Greenbaum, independent
accountants.
23.11* -- Consent of Vinson & Elkins L.L.P. (included as part of
its opinion listed as Exhibit 8.2).
24.1* -- Powers of Attorney (included on signature pages).
II-10
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
99.1(fff) -- Certificate of Incorporation of Capstar Broadcasting
Corporation.
99.2(fff) -- Bylaws of Capstar Broadcasting Corporation.
99.3* -- Consent of Salomon Smith Barney Inc., financial advisor
to the Special Committee of the Board of Directors of
Chancellor Media.
99.4* -- Consent of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee of the Board of
Directors of Chancellor Media.
99.5* -- Consent of Morgan Stanley & Co. Incorporated, financial
advisor to the Board of Directors of Chancellor Media.
99.6* -- Consent of Bear, Stearns & Co. Inc., financial advisor to
the Special Committee of the Board of Directors of
Capstar.
99.7* -- Consent of Credit Suisse First Boston Corporation,
financial advisor to the Board of Directors of Capstar.
99.8* -- Consent of BT Wolfensohn, financial advisor to the Board
of Directors of Capstar.
99.9* -- Opinion of Bear Stearns & Co. Inc. dated August 26, 1998.
99.10* -- Opinion of Bear Stearns & Co. Inc. dated April 13, 1999.
99.11* -- Consent of Person About to Become a Director from R.
Gerald Turner
* Filed herewith.
(h) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 1995.
(n) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Registration Statement on Form S-3, as amended (Reg.
No. 333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated February 16, 1997 and
filed March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated April 1, 1997 and
filed May 9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Chancellor Media's Registration Statement on Form S-4, filed August 1,
1997.
(z) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated July 7, 1997 and filed
July 31, 1997.
II-11
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended, of CMCLA.
(gg) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor Broadcasting
Company's Registration Statement on Form S-1 (Reg. No. 333-02782) filed
February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(qq) Incorporated by reference to the identically numbered exhibit to the
CMCLA's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
February 23, 1998 and filed as of February 27, 1998.
(uu) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor and CMCLA for the fiscal year
ended December 31, 1997.
II-12
(vv) Incorporated by reference to the identically numbered exhibit to CMCLA's
Registration Statement on Form S-4 (Reg. No. 333-50739), dated April 22,
1998, as amended.
(ww) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1998.
(xx) Incorporated by reference to Exhibit 4.41 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-53179), dated May 20,
1998.
(yy) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1998.
(zz) Incorporated by reference to Exhibit 4.41 to CMCLA's Registration
Statement on Form S-4 (Reg. No. 333-66971), initially filed November 9,
1998, as amended.
(aaa) Incorporated by reference to Exhibit 4.42 to the Quarterly Report on Form
10-Q of Chancellor Media and CMCLA for the quarterly period ending
September 30, 1998.
(bbb) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
January 7, 1999 and filed as of January 7, 1999.
(ccc) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Registration Statement on Form S-4 (Reg. No.
333-72481), dated as of February 17, 1999, as amended.
(ddd) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending September 30, 1998.
(eee) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and CMCLA for the fiscal
year ending December 31, 1998.
(fff) Incorporated by reference to Exhibits 3.1 and 3.2 to Capstar's Amendment
No. 3 to Registration Statement on Form S-1, dated May 19, 1998, File No.
333-48819.
(ggg) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media Corporation of Los Angeles,
as amended, filed on May 5, 1999.
(hhh) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1999.
(iii) Incorporated by reference to Exhibits 2.1, 2.2 and 2.3 to Chancellor
Media's Form 8-K, dated June 7, 1999 and filed on June 8, 1999.
B. Financial Statement Schedules
All schedules have been omitted since the required information is either not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
C. Fairness Opinions
See Annex II, III-A, III-B, IV, V, VI and VII of the joint proxy
statement/prospectus. See also exhibits 99.9 and 99.10 to this registration
statement.
II-13
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expense incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
B. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
C. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
D. (1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on June 4, 1999.
CHANCELLOR MEDIA CORPORATION
By: /s/ D. GEOFFREY ARMSTRONG
------------------------------------
D. Geoffrey Armstrong
Executive Vice President and
Chief Financial Officer
Each person whose signature appears below constitutes and appoints James E. de
Castro and D. Geoffrey Armstrong, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, to
sign any or all further amendment, including post-effective amendments, to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ THOMAS O. HICKS Chairman of the Board and June 4, 1999
--------------------------------------------- Chief Executive Officer
Thomas O. Hicks (Principal Executive
Officer)
/s/ JAMES E. DE CASTRO Vice Chairman and Chief June 4, 1999
--------------------------------------------- Executive Officer of the
James E. de Castro Chancellor Radio and
Outdoor Group
/s/ R. STEVEN HICKS Vice Chairman and Chief June 4, 1999
--------------------------------------------- Executive Officer of the
R. Steven Hicks Chancellor Media Services
Group
/s/ D. GEOFFREY ARMSTRONG Executive Vice President and June 4, 1999
--------------------------------------------- Chief Financial Officer
D. Geoffrey Armstrong (Principal Financial
Officer)
II-15
SIGNATURES TITLE DATE
---------- ----- ----
/s/ ANDREA ARCHER HULCY Vice President, Controller June 4, 1999
--------------------------------------------- (Principal Accounting
Andrea Archer Hulcy Officer)
/s/ ROBERT L. CRANDALL Director June 4, 1999
---------------------------------------------
Robert L. Crandall
/s/ THOMAS J. HODSON Director June 4, 1999
---------------------------------------------
Thomas J. Hodson
/s/ VERNON E. JORDAN, JR. Director June 4, 1999
---------------------------------------------
Vernon E. Jordan, Jr.
/s/ MICHAEL J. LEVITT Director June 4, 1999
---------------------------------------------
Michael J. Levitt
/s/ PERRY J. LEWIS Director June 4, 1999
---------------------------------------------
Perry J. Lewis
/s/ JEFFREY A. MARCUS Director June 4, 1999
---------------------------------------------
Jeffrey A. Marcus
/s/ JOHN H. MASSEY Director June 4, 1999
---------------------------------------------
John H. Massey
Director
---------------------------------------------
Lawrence D. Stuart, Jr.
/s/ J. OTIS WINTERS Director June 4, 1999
---------------------------------------------
J. Otis Winters
II-16
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles (See
table of contents for list of omitted schedules).
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM) (See
table of contents for list of omitted exhibits and
schedules).
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (See table of
contents for list of omitted schedules).
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19,1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund 11, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/WBAV-FM/ WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between CMCLA
and Capstar Broadcasting Corporation.
2.44(yy) -- Amendment No. 1, dated May 19, 1998, to Letter Agreement
dated February 20, 1998, between CMCLA and Capstar
Broadcasting Corporation.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.45(yy) -- Unit and Stock Purchase Agreement by and among CMCLA,
Martin Media, L.P., Martin & MacFarlane, Inc., Nevada
Outdoor Systems, Inc., MW Sign Corp. and certain sellers
named therein, dated as of June 19, 1998 (see table of
contents for list of omitted schedules and exhibits).
2.46(yy) -- Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation dated
as of July 7, 1998.
2.46A* -- Termination Agreement, dated as of March 15, 1999,
between Chancellor Media Corporation and Ranger Equity
Holdings Corporation.
2.47(yy) -- Asset Purchase Agreement: dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and
Independent Group Limited Partnership.
2.48(yy) -- Asset Purchase Agreement, dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and Zapis
Communications Corporation.
2.49(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, Young Ones,
Inc., Zebra Broadcasting Corporation and the Sellers
named therein.
2.50(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, ML Media
Partners LP., Wincom Broadcasting Corporation and WIN
Communications, Inc.
2.52(ddd) -- Agreement and Plan of Merger among Chancellor Media
Corporation, Capstar Broadcasting Corporation and CBC
Acquisition Company, Inc., dated as of August 26, 1998.
2.53(zz) -- Asset Purchase Agreement, dated August 30, 1998, by and
among Chancellor Media Corporation of Los Angeles,
Whiteco Industries Inc. and Metro Management Associates.
2.54(ggg) -- Asset Purchase Agreement, dated as of August 14, 1998, by
and among Chancellor Media Corporation of Illinois,
Chancellor Media Illinois License Corp. and ABC, Inc.
2.55(hhh) -- Amended and Restated Agreement and Plan of Merger, dated
as of April 29, 1999, among Chancellor Media Corporation,
Capstar Broadcasting Corporation, CBC Acquisition
Company, Inc. and CMC Merger Sub, Inc.
2.56(hhh) -- Asset Purchase Agreement, dated as of September 15, 1998,
by and between The Broadcast Group, Inc. and Chancellor
Media/ Shamrock Broadcasting, Inc.
2.57(iii) -- Stock Purchase Agreement, dated as of June 1, 1999, by
and between Lamar Advertising Company and Chancellor
Media Corporation of Los Angeles.
2.58(iii) -- Subscription Agreement, dated as of June 1, 1999, by and
between Lamar Advertising Company and Chancellor Media
Corporation of Los Angeles.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.59(iii) -- Voting Agreement, dated as of June 1, 1999, by and among
Lamar Advertising Company, Chancellor Media Corporation
of Los Angeles and Reilly Family Limited Partnership.
3.1C(ss) -- Amended and Restated Certificate of Incorporation of
Chancellor Media Corporation.
3.2B(ss) -- Amended and Restated Bylaws of Chancellor Media.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of CMCLA.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of CMCLA.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of CMCLA.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of
CMCLA.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of CMCLA.
4.25(qq) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.27(qq) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.28(qq) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.29(qq) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.30(qq) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
CMCLA.
4.34(uu) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of CMCLA.
4.35(uu) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of CMCLA.
4.36(uu) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.37(uu) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.38(vv) -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of CMCLA.
4.39(ww) -- Fifth Amendment to Second Amended and Restated Loan
Agreement, dated May 1, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.40(yy) -- Sixth Amendment to Second Amended and Restated Loan
Agreement, dated July 31, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.41(zz) -- Indenture, dated as of September 30, 1998, governing the
9% Senior Subordinated Notes due 2008 of CMCLA.
4.42(aaa) -- Seventh Amendment to Second Amended and Restated Loan
Agreement, dated November 9, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.43(zz) -- Indenture, dated as of November 17, 1998, governing the
8% Notes due 2008 of CMCLA.
5.1* -- Opinion of Weil, Gotshal & Manges LLP.
8.1* -- Opinion regarding certain tax matters of Weil, Gotshal &
Manges LLP.
8.2* -- Opinion regarding certain tax matters of Vinson & Elkins
L.L.P.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.23(xx) -- Amended and Restated Chancellor Media Corporation Stock
Option Plan for Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(qq) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(qq) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(qq) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(qq) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(qq) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neuman.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.44(vv) -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45(vv) -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
10.46(yy) -- Chancellor Media Corporation 1998 Stock Option Plan.
10.47(yy) -- Voting Agreement, among Chancellor Media Corporation and
Ranger Equity Partners, L.P. dated as of July 7, 1998.
10.48(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James E. de Castro.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.49(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Matthew E. Devine.
10.50(zz) -- Employment Agreement, dated as of June 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Eric C. Neuman.
10.51(zz) -- Employment Agreement, dated as of August 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James A. McLaughlin, Jr.
10.52(bbb) -- Agreement, dated as of January 6, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles, Matthew E. Devine and Vicki Devine.
10.53(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Jeffrey A. Marcus.
10.54(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James E. de Castro.
10.55(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Eric C. Neuman.
10.56(ccc) -- Employment Agreement, dated as of October 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Thomas P. McMillin.
10.57(ccc) -- Amendment No. 1 to Employment Agreement, dated as of
January 6, 1999, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Thomas P. McMillin.
10.58(ccc) -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James A. McLaughlin, Jr.
10.59(eee) -- Agreement, dated as of March 15, 1999, between Jeffrey A.
Marcus, Nancy Cain Marcus, Chancellor Media Corporation
and Chancellor Media Corporation of Los Angeles.
10.60(eee) -- Agreement, dated as of March 15, 1999, between Eric C.
Neuman, Elizabeth M. Neuman, Chancellor Media Corporation
and Chancellor Media Corporation of Los Angeles.
10.61(eee) -- Agreement, dated as of March 15, 1999, between Thomas P.
McMillin, Brigette McMillin, Chancellor Media Corporation
and Chancellor Media Corporation of Los Angeles.
10.62* -- Employment Agreement, dated as of April 29, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and R. Steven Hicks.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.63* -- Employment Agreement, dated as of April 29, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and D. Geoffrey Armstrong.
10.64* -- Employment Agreement, dated as of April 29, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and William S. Banowsky.
10.65* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and
James E. de Castro.
10.66* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and
Kenneth J. O'Keefe.
10.67* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and R.
Steven Hicks.
10.68* -- Non-Qualified Stock Option Grant Agreement, effective as
of April 9, between Chancellor Media Corporation and D.
Geoffrey Armstrong.
10.69* -- Non-Qualified Stock Grant Agreement, effective as of
April 9, between Chancellor Media Corporation and William
S. Banowsky.
10.70* -- Amendment No. 1 to Amended and Restated Employment
Agreement, dated as of May 18, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and James E. de Castro.
10.71* -- Employment Agreement, dated as of May 18, 1999, among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Kenneth J. O'Keefe.
10.72* -- Chancellor Media Corporation 1999 Stock Option Plan.
21.1(ccc) -- Subsidiaries of Chancellor Media Corporation.
23.1* -- Consent of Weil, Gotshal & Manges LLP (included as part
of their opinion listed as Exhibit 5.1).
23.2* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3* -- Consent of KPMG LLP, independent accountants.
23.4* -- Consent of BDO Seidman, LLP, independent accountants.
23.5* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.6* -- Consent of Ernst & Young LLP, independent accountants.
23.7* -- Consent of KPMG LLP, independent accountants.
23.8* -- Consent of Arthur Andersen LLP, independent accountants.
23.9* -- Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
23.10* -- Consent of Kleiman, Carney & Greenbaum, independent
accountants.
23.11* -- Consent of Vinson & Elkins L.L.P. (included as part of
its opinion listed as Exhibit 8.2).
24.1* -- Powers of Attorney (included on signature pages).
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
99.1(fff) -- Certificate of Incorporation of Capstar Broadcasting
Corporation.
99.2(fff) -- Bylaws of Capstar Broadcasting Corporation.
99.3* -- Consent of Salomon Smith Barney Inc., financial advisor
to the Special Committee of the Board of Directors of
Chancellor Media.
99.4* -- Consent of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee of the Board of
Directors of Chancellor Media.
99.5* -- Consent of Morgan Stanley & Co. Incorporated, financial
advisor to the Board of Directors of Chancellor Media.
99.6* -- Consent of Bear, Stearns & Co. Inc., financial advisor to
the Special Committee of the Board of Directors of
Capstar.
99.7* -- Consent of Credit Suisse First Boston Corporation,
financial advisor to the Board of Directors of Capstar.
99.8* -- Consent of BT Wolfensohn, financial advisor to the Board
of Directors of Capstar.
99.9* -- Opinion of Bear Stearns & Co. Inc. dated August 26, 1998.
99.10* -- Opinion of Bear Stearns & Co. Inc. dated April 13, 1999.
99.11* -- Consent of Person About to Become a Director from R.
Gerald Turner
* Filed herewith.
(h) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 1995.
(n) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Registration Statement on Form S-3, as amended (Reg.
No. 333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated February 16, 1997 and
filed March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated April 1, 1997 and
filed May 9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Chancellor Media's Registration Statement on Form S-4, filed August 1,
1997.
(z) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Current Report on Form 8-K dated July 7, 1997 and filed
July 31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended, of CMCLA.
(gg) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor Broadcasting
Company's Registration Statement on Form S-1 (Reg. No. 333-02782) filed
February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(qq) Incorporated by reference to the identically numbered exhibit to the
CMCLA's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
February 23, 1998 and filed as of February 27, 1998.
(uu) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor and CMCLA for the fiscal year
ended December 31, 1997.
(vv) Incorporated by reference to the identically numbered exhibit to CMCLA's
Registration Statement on Form S-4 (Reg. No. 333-50739), dated April 22,
1998, as amended.
(ww) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1998.
(xx) Incorporated by reference to Exhibit 4.41 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-53179), dated May 20,
1998.
(yy) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1998.
(zz) Incorporated by reference to Exhibit 4.41 to CMCLA's Registration
Statement on Form S-4 (Reg. No. 333-66971), initially filed November 9,
1998, as amended.
(aaa) Incorporated by reference to Exhibit 4.42 to the Quarterly Report on Form
10-Q of Chancellor Media and CMCLA for the quarterly period ending
September 30, 1998.
(bbb) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
January 7, 1999 and filed as of January 7, 1999.
(ccc) Incorporated by reference to the identically numbered exhibit to
Chancellor Media's Registration Statement on Form S-4 (Reg. No.
333-72481), dated as of February 17, 1999, as amended.
(ddd) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending September 30, 1998.
(eee) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and CMCLA for the fiscal
year ending December 31, 1998.
(fff) Incorporated by reference to Exhibits 3.1 and 3.2 to Capstar's Amendment
No. 3 to Registration Statement on Form S-1, dated May 19, 1998, File No.
333-48819.
(ggg) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media Corporation of Los Angeles,
as amended, filed on May 5, 1999.
(hhh) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1999.
(iii) Incorporated by reference to Exhibits 2.1, 2.2 and 2.3 to Chancellor
Media's Form 8-K, dated June 7, 1999 and filed on June 8, 1999.
EXHIBIT 2.46A
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Agreement") is made and entered into
effective as of March 15, 1999, by and between Chancellor Media Corporation, a
Delaware corporation ("Chancellor"), and Ranger Equity Holdings Corporation, a
Delaware corporation ("LIN").
RECITALS
WHEREAS, Chancellor and LIN are parties to that certain Agreement and
Plan of Merger (the "Merger Agreement") dated as of July 7, 1998, pursuant to
which, subject to the terms and conditions set forth therein, LIN would merge
with and into Chancellor;
WHEREAS, the Boards of Directors of each of Chancellor and LIN believe
it is in the best interests of their respective stockholders to terminate the
Merger Agreement and abandon the transactions contemplated thereby in accordance
with Section 7.1(a) of the Merger Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Termination of the Merger Agreement. Chancellor and LIN
hereby agree that, in accordance with Section 7.1(a) of the Merger Agreement,
the Merger Agreement is hereby terminated and the transactions contemplated by
the Merger Agreement are hereby abandoned, effective as of the date of this
Agreement.
SECTION 2. Effects of Termination. Notwithstanding anything in Section
7.2 of the Merger Agreement to the contrary, as a result of the termination of
the Merger Agreement pursuant to Section 1 hereof, the Merger Agreement and each
provision thereof (except for the provisions of the last sentence of Section 4.3
and Sections 2.10, 3.7, 7.2 and 10.2, each of which shall survive such
termination) shall be void and have no further force and effect on any of the
parties thereto, and Chancellor, on the one hand, and LIN, on the other hand,
release and discharge the other (and each of their respective past, present, or
future directors, officers, employees, stockholders, incorporators and partners)
from any claims, demands, liabilities, or obligations under or relating to such
Merger Agreement and such provisions thereof.
SECTION 3. Assignment. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of each party hereto.
SECTION 4. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which taken
together will constitute one and the same instrument.
SECTION 5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under the applicable principles of
conflicts of laws thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
2
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of Chancellor and LIN as of the date first
written above.
CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
-----------------------------------
Name: Thomas O. Hicks
---------------------------------
Title: Chairman and Chief Executive Officer
--------------------------------
RANGER EQUITY HOLDINGS CORPORATION
By: /s/ MICHAEL J. LEVITT
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
3
EXHIBIT 5.1
[LETTERHEAD OF WEIL, GOTSHAL & MANGES LLP]
June 7, 1999
Chancellor Media Corporation
1845 Woodall Rodgers Freeway, Suite 1300
Dallas, Texas 75201
Ladies and Gentlemen:
We have acted as counsel to Chancellor Media Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of a Registration
Statement on Form S-4 (No. 333-_________) (as amended, the "Registration
Statement") under the Securities Act of 1933, as amended, relating to the
proposed offering of up to 54,648,985 shares of the common stock, $0.01 par
value, of the Company (the "Shares"), pursuant to an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 29,
1999, by and among the Company, Capstar Broadcasting Corporation, a Delaware
corporation ("Capstar"), CBC Acquisition Company, Inc., a Delaware corporation,
and CMC Merger Sub, Inc., a Delaware corporation. The Shares are to be issued to
the stockholders of Capstar in accordance with terms of the Merger Agreement in
exchange for each such stockholder's shares of class A common stock, $0.01 par
value, class B common stock, $0.01 par value, and class C common stock, $0.01
par value (collectively, "Capstar Common Stock"), of Capstar.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Amended and Restated
Certificate of Incorporation of the Company, the form of the Second Amended and
Restated Certificate of Incorporation of the Company attached to the Merger
Agreement as Annex II, and such corporate records, agreements, documents and
other instruments, and such certificates or comparable documents of public
officials and of officers and representatives of the Company, and have made such
inquiries of such officers and representatives as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as
Chancellor Media Corporation
June __, 1999
Page 2
certified, conformed or photostatic copies and the authenticity of the originals
of such latter documents. As to all questions of fact material to this opinion
that have not been independently established, we have relied upon certificates
or comparable documents of officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware.
2. Assuming that the holders of a majority of the outstanding shares of
the Company's common stock, $0.01 par value, approve and adopt the Company's
Second Amended and Restated Certificate of Incorporation, in the form attached
to the Merger Agreement as Annex II, at a duly authorized annual or special
meeting of the Company's stockholders called and held for that purpose in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), and the Second Amended and Restated Certificate of Incorporation is
duly executed, acknowledged and filed with the Secretary of State of the State
of Delaware in accordance with Section 103 of the DGCL, the Shares will be duly
authorized and, when issued and delivered to the stockholders of Capstar in
exchange for shares of Capstar Common Stock in accordance with the terms of the
Merger Agreement, will be validly issued, fully paid and nonassessable.
The opinions expressed herein are limited to the corporate laws of the
State of Delaware and we express no opinion as to the effect on the matters
covered by this letter of the laws of any other jurisdiction.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
2
EXHIBIT 8.1
[LETTERHEAD OF WEIL, GOTSHAL & MANGES LLP]
June 8, 1999
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, Texas 75201
Ladies & Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of CMC Merger Sub, Inc. ("Sub"), a
Delaware corporation and direct wholly-owned subsidiary of Chancellor Media
Corporation, a Delaware corporation ("Parent") with and into Capstar
Broadcasting Corporation, a Delaware corporation ("Capstar").
In formulating our opinion, we have examined such documents as we
deemed appropriate, including the Amended and Restated Agreement and Plan of
Merger dated as of April 29, 1999 (the "Merger Agreement"), among Parent, Sub,
Capstar and CBC Acquisition Company, Inc., the Joint Proxy Statement (the "Proxy
Statement") filed by Parent and Capstar with the Securities and Exchange
Commission (the "SEC") and the Registration Statement filed on Form S-4, as
filed by Parent with the SEC on , 1999, in which the Proxy Statement
is included as a prospectus (with all the amendments thereto, the "Registration
Statement"). In addition, we have obtained such additional information as we
deemed relevant and necessary through consultation with various officers and
representatives of Parent and Capstar.
Our opinion set forth below assumes (1) the accuracy of the statements
and facts concerning the Merger set forth in the Merger Agreement, the Proxy
Statement and the Registration Statement, (2) the consummation of the Merger in
the manner contemplated by, and in accordance with the terms set forth in, the
Merger Agreement, the Proxy Statement and the Registration Statement, and (3)
the accuracy of (i) the representations made by Parent which are set forth in
the certificate delivered to us by Parent, dated the date hereof, (ii) the
representations made by Capstar which are set forth in the certificate delivered
to us by Capstar, dated the date hereof and (iii) the
Chancellor Media Corporation
Page 2
representations made by certain stockholders of Capstar which are set forth in
the certificates delivered to us by such stockholders, dated the date hereof.
Based upon the facts and statements set forth above, our examination
and review of the documents referred to above and subject to the assumptions set
forth above, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Parent, Sub and Capstar will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by Parent, Sub or Capstar as a
result of the Merger.
Our opinion is based on current provisions of the Code, the Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger or any inaccuracy of the statements, facts, assumptions
and representations on which we have relied, may affect the validity of the
opinions set forth herein. We assume no responsibility to inform you of any such
change or inaccuracy that may occur or come to our attention.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
EXHIBIT 8.2
[VINSON & ELKINS LETTERHEAD]
June 8, 1999
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences of the proposed merger (the "Merger") of CMC Merger Sub, Inc.
("Merger Sub"), a direct, wholly owned subsidiary of Chancellor Media
Corporation ("Chancellor"), with and into Capstar Broadcasting Corporation
("Capstar") pursuant to the Amended and Restated Agreement and Plan of Merger
dated as of April 29, 1999 (the "Merger Agreement") among Chancellor, Merger
Sub, Capstar and CBC Acquisition Company, Inc. Defined terms used in the Merger
Agreement have the same meaning when used herein, unless otherwise defined
herein.
In rendering this opinion, we have examined and are relying upon (without
any independent investigation or review thereof) the truth and accuracy at all
relevant times of the statements, covenants, and representations contained in
(i) the Merger Agreement, (ii) the Registration Statement on Form S-4, as filed
by Chancellor with the Securities Exchange Commission on June 8, 1999 with
respect to the Merger, (iii) the Amended and Restated Voting Agreement dated as
of April 29, 1999, among Chancellor, Thomas O. Hicks, R. Steven Hicks and
Capstar Broadcasting Partners, L.P., and (iv) the tax certificates dated the
date hereof provided to us by Chancellor, Capstar and certain shareholders of
Capstar. Any inaccuracy in any of the aforementioned statements,
representations, and assumptions or breach or failure of any of the
aforementioned covenants could adversely affect our opinion.
On the basis of the foregoing, and subject to the limitations set forth
below, it is our opinion that, under presently applicable federal income tax
law, the Merger will be treated as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and each of Chancellor, Merger Sub and Capstar will be a party to that
reorganization within the meaning of Section 368(b) of the Code. As a result,
the following U.S. federal income tax consequences will occur:
Capstar Broadcasting Corporation
June 8, 1999
Page 2
(a) no gain or loss will be recognized by holders of Capstar Common
Stock as a result of the exchange of such shares for shares of Chancellor
Common Stock pursuant to the Merger, except that gain or loss, if any, will
be recognized on the receipt of cash in lieu of fractional shares of
Chancellor Common Stock. A holder of Capstar Common Stock who receives cash
in lieu of a fractional share interest in Chancellor Common Stock will be
treated as having received such fractional share interest from Chancellor
in the Merger. The cash received by such shareholder in lieu of the
fractional share interest in Chancellor Common Stock will be treated as
received in exchange for such fractional share interest, and gain or loss
will be recognized measured by the difference between the amount of cash
received and the portion of the basis of the shares of Chancellor Common
Stock allocable to such fractional share interest; and
(b) cash received by a holder of Class B or Class C Capstar Common
Stock as a result of an exercise of dissenters' rights of appraisal will be
treated as having been received by such shareholder as a distribution in
redemption of such stock. Such holder will recognize gain or loss measured
by the difference between the amount of such cash received and the tax
basis of the Class B or Class C Capstar Common Stock redeemed.
Our opinion is based on our interpretation of the Code, applicable Treasury
regulations, judicial authority, and administrative rulings and practice, all as
in effect as of the date hereof. There can be no assurance that future
legislative, judicial or administrative changes or interpretations will not
adversely affect the accuracy or applicability of the conclusions set forth
herein. We do not undertake to advise you as to any such future changes or
interpretations unless we are specifically retained to do so. Our opinion will
not be binding upon the Internal Revenue Service or the courts, and neither will
be precluded from adopting a contrary position.
No opinion is expressed as to any matter not specifically addressed above,
including, without limitation, the tax consequences of the Merger under any
foreign, state, or local tax law. Moreover, tax consequences which are different
from or in addition to those described herein may apply to holders of Capstar
Common Stock who are subject to special treatment under the U.S. federal income
tax laws, such as persons who acquired their shares pursuant to the exercise of
employee stock options or otherwise as compensation or who are not citizens or
residents of the United States. Such persons are advised to consult their own
tax advisors with specific reference to their particular circumstances.
-2-
Capstar Broadcasting Corporation
June 8, 1999
Page 3
We hereby consent to the reference to us under the heading "Legal Matters" in
the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not hereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Vinson & Elkins L.L.P.
-3-
EXHIBIT 10.62
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 29th day of April, 1999 (the "Execution Date"), to be
effective as of March 15, 1999 (the "Effective Date"), between Chancellor Media
Corporation, a Delaware corporation (the "Company"), Chancellor Media
Corporation of Los Angeles, a Delaware corporation ("Los Angeles"), and R.
Steven Hicks (the "Executive"), residing at 1702 Windsor Road, Austin, Texas
78703.
W I T N E S S E T H:
WHEREAS, the Company has a need for executive management
services; and
WHEREAS, the Executive is qualified and willing to render such
services to the Company; and
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b)
$1,600,000.
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of a
wholly-owned subsidiary of the Company with and into Capstar.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board's being
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g., material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgment, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, internet related activities, and international media
opportunities, shall not constitute a Change in Operations. Any dispute as to
whether a Change of Operations has occurred shall be resolved pursuant to
Section 14.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
2
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Payments" shall have the meaning ascribed to such
term in Section 17.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"CPI Adjustment" shall have the meaning ascribed to such term
in Section 4.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof; (b) the Executive's no longer directly reporting to the
Chairman of the Board of the Company; (c) any material adverse change in the
Executive's job responsibilities, duties, functions, status, offices, title,
perquisites or support staff; (d) relocation of the Executive's regular work
address by more than twenty (20) miles without his consent; (e) a Change in
Operations; (f) the Executive's failure, at any time, to be permitted to serve
as a member of the Board; or (g) a Change in Control; provided, however, that
the Executive shall give the Company written notice of any actions (other than
those set out in subsections (e) or (g) above) alleged to constitute Good Reason
and the Company shall have a reasonable opportunity to cure any such alleged
Good Reason.
"Gross-Up Payment" shall have the meaning ascribed to such
term in Section 17.
"Indemnification Agreement" shall mean the Indemnification
Agreement between the Company, Los Angeles and the Executive, to be effective as
of the Effective Date.
"Option Agreement" shall mean the form of Non-Qualified Stock
Option Agreement attached hereto as Exhibit A to be entered into between the
Executive and the Company pursuant to which an Option is granted to the
Executive.
"Option Plan" shall mean the Chancellor Media Corporation 1999
Stock Option Plan, as amended from time to time, and any successor thereto.
3
"Options" shall mean the non-qualified stock options to be
granted to the Executive pursuant to Section 4(c) hereof.
"Other Payments" shall have the meaning ascribed to such term
in Section 17.
"Payments" shall have the meaning ascribed to such term in
Section 17.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
4
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to employ the Executive, and the Executive
agrees to provide services to the Company, from the date of this Agreement until
the close of business on the fifth anniversary of the Effective Date (the
"Expiration Date"), unless the Executive's employment is earlier terminated
pursuant to a Termination of Employment. The Executive will serve the Company
subject to the general supervision, advice and direction of the Board and the
Chairman of the Board of the Company and upon the terms and conditions set forth
in this Agreement.
3. TITLE AND DUTIES
(a) The Executive shall hold the positions of Vice Chairman of
the Company and Chief Executive Officer and President of Chancellor Media
Services Division. During the Employment Term, the Executive shall have such
authority and duties as are usual and customary for such positions, and shall
perform such additional services and duties as the Board may from time to time
designate consistent with such positions. Throughout the Employment Term, the
Company shall also nominate the Executive to serve as a member of the Board, and
upon such nomination the Executive shall agree so to serve.
(b) The Executive shall report solely to the Chairman of the
Board of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; provided, however, that the
Executive may devote reasonable time and attention to:
(i) serving as a director, or member of a committee
of the directors, of any not-for-profit organization, or
engaging in other charitable or community activities;
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future; and
(iii) serving as the Chairman of the Board, President
and Chief Executive Officer of Capstar pending the
consummation of the Capstar Merger; provided that Executive
makes a good faith effort to allocate his time reasonably
among his responsibilities at Capstar and the Company.
5
4. COMPENSATION AND BENEFITS
(a) Base Compensation.
(i) During the Employment Term, the Company shall pay
the Executive, in installments according to the Company's
regular payroll practice, Base Salary at the annual rate of
Nine Hundred Fifty Thousand Dollars ($950,000) for the first
(1st) Contract Year; and subject to increase for each
subsequent Contract Year to an amount equal to the product of
(X) the Base Salary for the immediately preceding
Contract Year; and
(Y) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year (the "CPI Adjustment");
provided, however, that in no event shall the Base Salary for
any subsequent Contract Year be less than the Base Salary in
the immediately preceding Contract Year.
(ii) Notwithstanding anything to the contrary
contained in the preceding sentence, the Base Salary to be
paid by the Company to the Executive shall be net of any base
salary paid to the Executive by Capstar in the applicable
Contract Year, provided that the Company reimburses Capstar
for 50% of the base salary paid by Capstar to the Executive in
such Contract Year. This Section 4(a)(ii) shall not apply to,
or in any way affect, the calculation of the CPI Adjustment.
(b) Annual Incentive Bonus. The Executive may receive an
Annual Bonus for each calendar year during which he is employed hereunder, with
the amount of each such Annual Bonus, if any, to be determined by, and to be in
the sole discretion of, the Compensation Committee, as recommended by the Chief
Executive Officer. The Executive's Annual Bonus awarded by the Compensation
Committee with respect to each calendar year shall be paid at the same time as
annual incentive bonuses with respect to that calendar year are paid to other
senior executives of the Company generally, but in no event later than March 31
of the following calendar year.
(c) Stock Options. The Executive has been granted Options, as
of April 9, 1999, to purchase One Million (1,000,000) shares of Common Stock at
an exercise price of $46.63. Such Options shall have the terms set forth in, and
shall be subject to, the Option Agreement and the Option Plan; provided,
however, that if the Option Plan is not approved by the stockholders of the
Company at the first annual stockholders' meeting after the date of grant, stock
options or other equity incentives shall be provided to the Executive on
mutually satisfactory terms that are no less favorable than the provisions of
the Option Agreement and the Option Plan.
6
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate,
on terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries thereof designated by the Executive; provided, however, that the
amount of any coverage to be provided to the Executive pursuant to this
provision shall be net of any such coverage concurrently being provided by
Capstar. Notwithstanding Section 9 of this Agreement, such life insurance policy
or policies may be assigned to a trust for the benefit of any beneficiary
designated by the Executive.
(h) Automobile; Other Benefits.
(i) During the Employment Term, the Executive shall
be entitled to receive a monthly automobile allowance equal to
$1,500, which shall be paid monthly in accordance with the
customary practices of the Company; provided, however, that
the automobile allowance to be paid to the Executive by the
Company shall be net of any automobile allowance paid to the
Executive by Capstar in the applicable month, provided that
the Company reimburses Capstar for 50% of the automobile
allowance paid by Capstar to the Executive in such month; and
(ii) During the Employment Term, the Company shall
provide the Executive and his spouse and dependent family
members with membership in an athletic club of the Executive's
choosing and in a country club of the Executive's choosing, or
shall pay or reimburse the
7
Executive for the costs incurred by the Executive in obtaining
and maintaining such memberships.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more favorable terms and conditions (on an aggregate basis)
as are granted to any other senior executive of the Company, the Executive shall
be provided such benefits in substantially comparable amount and/or under the
substantially comparable terms and conditions, as applicable, on an aggregate
basis.
(j) Benefits Pending Capstar Merger. Notwithstanding anything
to the contrary contained herein, pending the consummation or termination of the
Capstar Merger, the Executive shall not be entitled to participate in any
pension, profit sharing and other retirement plans of the Company, any incentive
compensation plans of the Company and any group health, hospitalization and
disability insurance plans of the Company and any other employee welfare benefit
plans in which other senior executives of the Company may participate, provided
that the Company shall reimburse Capstar for 50% of Capstar's cost of any and
all such plans provided by Capstar in which the Executive participates.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide to the Executive (or, in
the case of his death, his estate or other legal representative) (i) any Annual
Bonus awarded but not yet paid with respect to the preceding calendar year; (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies); (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination; and (iv) not later than ninety (90) days after
such termination, in a lump sum, any Annual Bonus awarded by the Compensation
Committee with respect to that portion of the calendar year prior to such
termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after
8
payment of any applicable Excise Tax with respect to such payment, and the
payment of any income taxes on the amount over $5,000,000 that is so grossed-up
and paid to the Executive on account of any applicable Excise Tax, shall equal
$5,000,000. Such payment shall be made at the time of any such termination
without Cause or within thirty (30) days of any such resignation for Good
Reason. Such payment shall be in full satisfaction of all obligations of the
Company to the Executive hereunder (other than those obligations set forth in
Sections 4(c) and 6(a)) and shall be conditioned on the Executive's giving a
general release of the Company and affiliates in the form used generally by the
Company in the case of the termination of employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good Reason,
the Company, in consideration for the Executive's agreement in
Section 7(b), shall continue to pay him his Base Salary as set
forth in Section 4(a) through the fifth (5th) anniversary of
the Effective Date.
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than fifteen
(15) days following his termination of employment, elect to
require the Executive to observe the provisions of Section
7(c) hereof. In such event, the Company shall, on the last day
of each calendar year through December 31, 2003, make a
payment to him equal to his Average Bonus, and on the last day
of the calendar year ending December 31, 2004 make a payment
to him equal to the product of his Average Bonus and the
fraction of such calendar year which precedes the Expiration
Date.
(d) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement, the Company shall make
a one (1) time cash payment to the Executive equal to two (2) times the amount
of his annual Base Salary payable for the Contract Year ending on (or in which
falls) the date of Termination of Employment. Such payment shall be made at the
time of such Termination of Employment. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder (other
than those obligations set forth in Sections 4(c) and 6(a)) and shall be
conditioned on the Executive's giving a general release of the Company and
affiliates in the form used generally by the Company in the case of the
termination of employment of senior executives.
(e) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make
9
available to the Executive confidential or proprietary information related to
the Company's business, including, without limitation, customer lists, ideas and
formatting and programming concepts and plans; that such confidential or
proprietary information has been developed and will be developed through the
Company's expenditure of substantial time and money; and that all such
confidential information could be used by the Executive and others to compete
with the Company. The Executive hereby agrees that all such confidential or
proprietary information shall constitute trade secrets, and further agrees to
use such confidential or proprietary information only for the purpose of
carrying out his duties with the Company and not to disclose such information
unless required to do so by subpoena or other legal process. No information
otherwise in the public domain (other than by an act of the Executive in
violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor, and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date, the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other person, firm, corporation or other
entity that is directly or indirectly engaged in any of the radio, television,
outdoor advertising, broadcasting or related business activities in which the
Company and its subsidiaries or the Protected Companies have significant
involvement (collectively, the "Competing Business Areas"), in each case at the
effective time of such termination of employment.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the radio or television broadcasting
stations owned by the Company or its subsidiaries or affiliates, or the
subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively,
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in connection with any business enterprise, that is directly or
indirectly engaged in any Competing Business Area, in each case at the effective
time of such Termination of Employment (other than beneficial ownership of up to
five percent (5%) of the outstanding voting stock of a publicly traded company
that owns such a competitor).
10
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate throughout the United States and that the effect of Section 7(c) may be
to prevent him from working in the Competing Business Areas after his
termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
accordance with this Section 10. Notices shall be deemed given when received.
11
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses),
and the Executive will be entitled to the protection of any insurance policies
that the Company may elect to maintain generally for the benefit of its
directors and officers ("Directors and Officers Insurance") against all costs,
charges and expenses incurred or sustained by him in connection with any action,
suit or proceeding to which he may be made a party by reason of his being or
having been a director, officer or employee of the Company or any of its
subsidiaries, or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company (other than any
dispute, claim or controversy arising under or relating to this Agreement). The
Company covenants to maintain during the Employment Term for the benefit of the
Executive (in his capacity as an officer and director of the Company) Directors
and Officers Insurance providing benefits to the Executive no less favorable,
taken as a whole, than the benefits provided to the other senior executives of
the Company by the Directors and Officers Insurance maintained by the Company on
the date hereof; provided, however, that the Board may elect to terminate
Directors and Officers Insurance for all officers and directors, including the
Executive, if the Board determines in good faith that such insurance is not
available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court
12
having jurisdiction thereof. The Company shall pay the costs and expenses of
such arbitration and the fees of the Executive's counsel and experts unless the
finder of fact determines that the Company is the prevailing party in such
arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement, the Option
Agreement and the Indemnification Agreement contain the entire agreement of the
parties relating to the subject matter hereof. This Agreement supersedes any
prior written or oral agreements or understandings between the parties relating
to the subject matter hereof. No modification or amendment of this Agreement
shall be valid unless in writing and signed by or on behalf of the parties
hereto. A waiver of the breach of any term or condition of this Agreement shall
not be deemed to constitute a waiver of any subsequent breach of the same or any
other term or condition. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent, be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof or the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
17. GROSS-UP FOR CERTAIN TAXES
(a) In the event that any part of any payment or benefit
received (including, without limitation, acceleration of vesting of stock
options) pursuant to the terms of this Agreement or the Option Agreement (the
"Contract Payments") or any part of any payment or benefit received or to be
received by the Executive or for the Executive's benefit pursuant to any other
plan, arrangement or agreement of the Company or any affiliate ("Other Payments"
and, together with the Contract Payments, the "Payments") would be subject to
the Excise Tax determined as provided below, the Company shall pay to the
Executive, at the time specified in Section 17(b) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of the Excise Tax on the Payments and any federal, state and
local income tax and the Excise Tax on the Gross-Up Payment, and any interest,
penalties or additions to tax payable by the Executive with respect thereto,
shall be equal to the
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total present value (using the applicable federal rate as defined in Section
1274(d) of the Code in such calculation) of the Payments at the time such
Payments are to be made. For purposes of determining whether any of the Payments
will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the
total amount of the Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, except to the extent that, in the opinion of independent
counsel selected by the Company and reasonably acceptable to the Executive
("Independent Counsel"), a Payment (in whole or in part) does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code, or
such "excess parachute payments" (in whole or in part) are not subject to the
Excise Tax, (2) the amount of the Payments that shall be treated as subject to
the Excise Tax shall be equal to the lesser of (A) the total amount of the
Payments or (B) the amount of "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the
value of any noncash benefits or any deferred payment or benefit shall be
determined by Independent Counsel in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rates of federal income taxation applicable to individuals
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of the Executive's
residence in the calendar year in which the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes that can be obtained from
deduction of such state and local taxes, taking into account any limitations
applicable to individuals subject to federal income tax at the highest marginal
rates.
(b) The Gross-Up Payments provided for in Section 17(a) hereof
shall be made upon the earlier of (i) the payment to the Executive of any
Payment or (ii) the imposition upon the Executive or payment by the Executive of
any Excise Tax.
(c) If it is established pursuant to a final determination of
a court or an Internal Revenue Service proceeding or the opinion of Independent
Counsel that the Excise Tax is less than the amount taken into account under
Section 17(a) hereof, the Executive shall repay to the Company within thirty
(30) days of the Executive's receipt of notice of such final determination or
opinion the portion of the Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax or a federal,
state and local income tax deduction) plus any interest received by the
Executive on the amount of such repayment. If it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding or the
opinion of Independent Counsel that the Excise Tax exceeds the amount taken into
account hereunder (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess within
thirty (30) days of the Company's receipt of notice of such final determination
or opinion.
14
(d) In the event of any change in, or further interpretation
of, Sections 280G or 4999 of the Code and the regulations promulgated
thereunder, the Executive shall be entitled, by written notice to the Company,
to request an opinion of Independent Counsel regarding the application of such
change or interpretation to any of the foregoing, and the Company shall use its
best efforts to cause such opinion to be rendered as promptly as practicable.
All fees and expenses of Independent Counsel incurred in connection with this
agreement shall be borne by the Company.
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ THOMAS O. HICKS
-------------------------------------
Thomas O. Hicks
Chairman and Chief Executive
Officer
/s/ R. STEVEN HICKS
----------------------------------------
R. Steven Hicks
EXHIBIT 10.63
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 18th day of May, 1999 (the "Execution Date"), to be effective
as of March 15, 1999 (the "Effective Date"), between Chancellor Media
Corporation, a Delaware corporation (the "Company"), Chancellor Media
Corporation of Los Angeles, a Delaware corporation ("Los Angeles"), and D.
Geoffrey Armstrong (the "Executive"), residing at 4301 Michaels Cove, Austin,
Texas 78746.
W I T N E S S E T H:
WHEREAS, the Company has a need for executive management
services;
WHEREAS, the Executive is qualified and willing to render such
services to the Company;
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board's being
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g., material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgment, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, internet related activities and international media
opportunities, shall not constitute a Change in Operations. Any dispute as to
whether a Change of Operations has occurred shall be resolved pursuant to
Section 14.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Payments" shall have the meaning ascribed to such
term in Section 17.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
2
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof; (b) the Executive's no longer directly reporting to the
Office of the Chairman; (c) any material adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff; (d) relocation of the Executive's regular work address by more
than twenty (20) miles without his consent; (e) a Change in Operations; or (f) a
Change in Control; provided, however, that the Executive shall give the Company
written notice of any actions (other than those set out in subsections (e) or
(f) above) alleged to constitute Good Reason and the Company shall have a
reasonable opportunity to cure any such alleged Good Reason.
"Gross-Up Payment" shall have the meaning ascribed to such
term in Section 17.
"Indemnification Agreement" shall mean the Indemnification
Agreement between the Company, Los Angeles and the Executive, to be effective as
of the Effective Date.
"Non-Solicitation Period" shall have the meaning ascribed to
such term in Section 6(c).
"Option Agreement" shall mean the form of Non-Qualified Stock
Option Agreement attached hereto as Exhibit A to be entered into between the
Executive and the Company pursuant to which an Option is granted to the
Executive.
"Option Plan" shall mean the Chancellor Media Corporation 1999
Stock Option Plan, as amended from time to time, and any successor thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive pursuant to Section 4(c) hereof.
"Other Payments" shall have the meaning ascribed to such term
in Section 17.
"Payments" shall have the meaning ascribed to such term in
Section 17.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
3
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to employ the Executive, and the Executive
agrees to provide services to the Company, from the date of this Agreement until
the close of business on the fifth anniversary of the Effective Date (the
"Expiration Date"), unless the Executive's employment is earlier terminated
pursuant to a Termination of Employment. The Executive will serve the Company
subject to the general supervision, advice and
4
direction of the Board and the Office of the Chairman and upon the terms and
conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive shall hold the positions of Executive Vice
President and Chief Financial Officer of the Company. During the Employment
Term, the Executive shall have such authority and duties as are usual and
customary for such positions, and shall perform such additional services and
duties as the Board may from time to time designate consistent with such
positions.
(b) The Executive shall report solely to the Office of the
Chairman.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; provided, however, that the
Executive may devote reasonable time and attention to:
(i) serving as a director, or member of a committee
of the directors, of any not-for-profit organization, or
engaging in other charitable or community activities; and
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Fifty Thousand
Dollars ($550,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year to an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year;
provided, however, that in no event shall the Base Salary for
any subsequent Contract Year be less than the Base Salary in
the immediately preceding Contract Year.
(b) Annual Incentive Bonus. The Executive may receive an
Annual Bonus for each calendar year during which he is employed hereunder, with
the amount of
5
each such Annual Bonus, if any, to be determined by, and to be in the sole
discretion of, the Compensation Committee, as recommended by the Chief Executive
Officer. The Executive's Annual Bonus awarded by the Compensation Committee with
respect to each calendar year shall be paid at the same time as annual incentive
bonuses with respect to that calendar year are paid to other senior executives
of the Company generally, but in no event later than March 31 of the following
calendar year.
(c) Stock Options. The Executive has been granted Options, as
of April 9, 1999, to purchase 500,000 shares of Common Stock at an exercise
price of $46.63. Such Options shall have the terms set forth in, and shall be
subject to, the Option Agreement and the Option Plan; provided, however, that if
the Option Plan is not approved by the stockholders of the Company at the first
annual stockholders' meeting after the date of grant, stock options or other
equity incentives shall be provided to the Executive on mutually satisfactory
terms that are no less favorable than the provisions of the Option Agreement and
the Option Plan.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate,
on terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit consistent with the death benefits generally provided to other
senior executives of the Company, subject to the Executive's insurability at
standard rates and with the beneficiary or beneficiaries thereof designated by
the Executive. Notwithstanding Section 9 of this Agreement, such life insurance
policy or policies may be assigned to a trust for the benefit of any beneficiary
designated by the Executive.
6
(h) Automobile; Other Benefits.
(i) During the Employment Term, the Executive shall
be entitled to receive a monthly automobile allowance equal to
$1,200, which shall be paid monthly in accordance with the
customary practices of the Company; and
(ii) During the Employment Term, the Company shall
reimburse the Executive for the reasonable membership dues for
the Executive to belong to the athletic club and country club
of the Executive's choosing. Such reimbursement shall be in
accordance with the Company's expense reimbursement policy.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more favorable terms and conditions (on an aggregate basis)
as are granted to any other executive vice president of the Company, the
Executive shall be provided such benefits in substantially comparable amount
and/or under the substantially comparable terms and conditions, as applicable,
on an aggregate basis.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide to the Executive (or, in
the case of his death, his estate or other legal representative) (i) any Annual
Bonus awarded but not yet paid with respect to the preceding calendar year; (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies); (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination; and (iv) not later than ninety (90) days after
such termination, in a lump sum, any Annual Bonus awarded by the Compensation
Committee with respect to that portion of the calendar year prior to such
termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive equal to two times the Executive's then current Base
Salary. Such payment shall be made at the time of any such termination without
Cause or within thirty (30) days
7
of any such resignation for Good Reason. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder (other
than those obligations set forth in Sections 4(c) and 6(a)) and shall be
conditioned on the Executive's giving a general release of the Company and
affiliates in the form used generally by the Company in the case of the
termination of employment of senior executives.
(c) The Company may, by written notice to the Executive given
no later than fifteen (15) days following his termination of employment, elect
to require the Executive to observe the provisions of Section 7(b) hereof for a
period of time not to extend beyond the fifth anniversary of the Effective Date
(such period of time to be set forth in the Company's notice to the Executive
and is referred to herein as the "Non-Solicitation Period"). In such event, the
Company shall continue to pay the Executive his Base Salary as set forth in
Section 4(a) through the Non-Solicitation Period (net of any other severance
payments made to the Executive pursuant to Section 6(b) hereof).
(d) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans; that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money; and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor, and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
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(b) Should the Company make the election set forth in Section
6(c) hereof, the Executive hereby agrees that after any Termination of
Employment, and through the Non-Solicitation Period, the Executive will not
directly or indirectly induce any employee of any of the Protected Companies (as
defined below) to terminate such employment or to become employed by any other
person, firm, corporation or other entity that is directly or indirectly engaged
in any of the radio, television, outdoor advertising, broadcasting or related
business activities in which the Company and its subsidiaries or the Protected
Companies have significant involvement (collectively, the "Competing Business
Areas"), in each case at the effective time of such termination of employment.
(c) During the Employment Term and for a period of ninety days
following his termination of employment (including, without limitation,
termination by reason of expiration or non-renewal of this Agreement), the
Executive agrees that he shall not be employed by or perform activities on
behalf of, or have an ownership interest in, (i) any radio or television
broadcasting station serving the same "Area of Dominant Influence" (as reported
by Arbitron) as any of the radio or television broadcasting stations owned by
the Company or its subsidiaries or affiliates, or the subsidiaries or affiliates
of any of the Company's direct or indirect stockholders owning more than twenty
percent (20%) of the Company (collectively, the "Protected Companies"), or (ii)
any person, firm, corporation or other entity, or in connection with any
business enterprise, that is directly or indirectly engaged in any Competing
Business Area, in each case at the effective time of such Termination of
Employment (other than beneficial ownership of up to five percent (5%) of the
outstanding voting stock of a publicly traded company that owns such a
competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate throughout the United States and that the effect of Section 7(c) may be
to prevent him from working in the Competing Business Areas after his
termination of employment hereunder.
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8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
accordance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses),
and the Executive will be entitled to the protection of any insurance policies
that the Company may elect to maintain generally for the benefit of its
directors and officers ("Directors and Officers Insurance") against all costs,
charges and expenses incurred or sustained by him in connection with any action,
suit or proceeding to which he may be made a party by reason of his being or
having been a director, officer or employee of the Company or any of its
subsidiaries, or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company (other than any
dispute, claim or controversy arising under or relating to this Agreement). The
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Company covenants to maintain during the Employment Term for the benefit of the
Executive (in his capacity as an officer and director of the Company) Directors
and Officers Insurance providing benefits to the Executive no less favorable,
taken as a whole, than the benefits provided to the other senior executives of
the Company by the Directors and Officers Insurance maintained by the Company on
the date hereof; provided, however, that the Board may elect to terminate
Directors and Officers Insurance for all officers and directors, including the
Executive, if the Board determines in good faith that such insurance is not
available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement, the Option
Agreement and the Indemnification Agreement contain the entire agreement of the
parties relating to the subject matter hereof. This Agreement supersedes any
prior written or oral agreements or understandings between the parties relating
to the subject matter hereof. No modification or amendment of this Agreement
shall be valid unless in writing and signed by or on behalf of the parties
hereto. A waiver of the breach of any term or condition of this Agreement shall
not be deemed to constitute a waiver of any subsequent breach of the same or any
other term or condition. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent, be held invalid or
11
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof or the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable under this Agreement to the Executive
after the death of the Executive shall be paid to the Executive's estate or
legal representative. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof.
17. GROSS-UP FOR CERTAIN TAXES
(a) In the event that any part of any payment or benefit
received (including, without limitation, acceleration of vesting of stock
options) pursuant to the terms of this Agreement or the Option Agreement (the
"Contract Payments") or any part of any payment or benefit received or to be
received by the Executive or for the Executive's benefit pursuant to any other
plan, arrangement or agreement of the Company or any affiliate ("Other Payments"
and, together with the Contract Payments, the "Payments") would be subject to
the Excise Tax determined as provided below, the Company shall pay to the
Executive, at the time specified in Section 17(b) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of the Excise Tax on the Payments and any federal, state and
local income tax and the Excise Tax on the Gross-Up Payment, and any interest,
penalties or additions to tax payable by the Executive with respect thereto,
shall be equal to the total present value (using the applicable federal rate as
defined in Section 1274(d) of the Code in such calculation) of the Payments at
the time such Payments are to be made. For purposes of determining whether any
of the Payments will be subject to the Excise Tax and the amounts of such Excise
Tax, (1) the total amount of the Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, except to the extent that, in the
opinion of independent counsel selected by the Company and reasonably acceptable
to the Executive ("Independent Counsel"), a Payment (in whole or in part) does
not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of
the Code, or such "excess parachute payments" (in whole or in part) are not
subject to the Excise Tax, (2) the amount of the Payments that shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Payments or (B) the amount of "excess parachute payments" within
the meaning of Section 280G(b)(1) of the Code (after applying clause (1)
hereof), and (3) the value of any noncash benefits or any deferred payment or
benefit shall be determined by Independent Counsel in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rates of federal income
taxation applicable to individuals in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation applicable to individuals as are in effect in the state and
locality of the Executive's residence in the calendar year in which the Gross-Up
Payment is to be made, net of the maximum reduction in federal income
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taxes that can be obtained from deduction of such state and local taxes, taking
into account any limitations applicable to individuals subject to federal income
tax at the highest marginal rates.
(b) The Gross-Up Payments provided for in Section 17(a) hereof
shall be made upon the earlier of (i) the payment to the Executive of any
Payment or (ii) the imposition upon the Executive or payment by the Executive of
any Excise Tax.
(c) If it is established pursuant to a final determination of
a court or an Internal Revenue Service proceeding or the opinion of Independent
Counsel that the Excise Tax is less than the amount taken into account under
Section 17(a) hereof, the Executive shall repay to the Company within thirty
(30) days of the Executive's receipt of notice of such final determination or
opinion the portion of the Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax or a federal,
state and local income tax deduction) plus any interest received by the
Executive on the amount of such repayment. If it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding or the
opinion of Independent Counsel that the Excise Tax exceeds the amount taken into
account hereunder (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess within
thirty (30) days of the Company's receipt of notice of such final determination
or opinion.
(d) In the event of any change in, or further interpretation
of, Sections 280G or 4999 of the Code and the regulations promulgated
thereunder, the Executive shall be entitled, by written notice to the Company,
to request an opinion of Independent Counsel regarding the application of such
change or interpretation to any of the foregoing, and the Company shall use its
best efforts to cause such opinion to be rendered as promptly as practicable.
All fees and expenses of Independent Counsel incurred in connection with this
agreement shall be borne by the Company.
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IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ THOMAS O. HICKS
------------------------------------------
Thomas O. Hicks
Chairman and Chief Executive
Officer
/s/ D. GEOFFREY ARMSTRONG
------------------------------------------
D. Geoffrey Armstrong
EXHIBIT 10.64
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 29th day of April, 1999 (the "Execution Date"), to be
effective as of March 15, 1999 (the "Effective Date"), between Chancellor Media
Corporation, a Delaware corporation (the "Company"), Chancellor Media
Corporation of Los Angeles, a Delaware corporation ("Los Angeles"), and William
S. Banowsky, Jr. (the "Executive"), residing at 2607 Jarratt Avenue, Austin,
Texas 78703.
W I T N E S S E T H:
WHEREAS, the Company has a need for the services of a general
counsel;
WHEREAS, the Executive is qualified and willing to render such
services to the Company;
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of a
wholly-owned subsidiary of the Company with and into Capstar.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board's being
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g., material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgment, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, internet related activities, and international media
opportunities, shall not constitute a Change in Operations. Any dispute as to
whether a Change of Operations has occurred shall be resolved pursuant to
Section 14.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
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"Contract Payments" shall have the meaning ascribed to such
term in Section 17.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"CPI Adjustment" shall have the meaning ascribed to such term
in Section 4.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof; (b) the Executive's no longer directly reporting to the
Office of the Chairman; (c) any material adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff; (d) relocation of the Executive's regular work address by more
than twenty (20) miles without his consent; (e) a Change in Operations; or (f) a
Change in Control; provided, however, that the Executive shall give the Company
written notice of any actions (other than those set out in subsections (e) or
(f) above) alleged to constitute Good Reason and the Company shall have a
reasonable opportunity to cure any such alleged Good Reason.
"Gross-Up Payment" shall have the meaning ascribed to such
term in Section 17.
"Indemnification Agreement" shall mean the Indemnification
Agreement between the Company, Los Angeles and the Executive, to be effective as
of the Effective Date.
"Non-Solicitation Period" shall have the meaning ascribed to
such term in Section 6(c).
"Option Agreement" shall mean the form of Non-Qualified Stock
Option Agreement attached hereto as Exhibit A to be entered into between the
Executive and the Company pursuant to which an Option is granted to the
Executive.
"Option Plan" shall mean the Chancellor Media Corporation 1999
Stock Option Plan, as amended from time to time, and any successor thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive pursuant to Section 4(c) hereof.
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"Other Payments" shall have the meaning ascribed to such term
in Section 17.
"Payments" shall have the meaning ascribed to such term in
Section 17.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
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"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. 1 EMPLOYMENT
The Company agrees to employ the Executive, and the Executive
agrees to provide services to the Company, from the date of this Agreement until
the close of business on the fifth anniversary of the Effective Date (the
"Expiration Date"), unless the Executive's employment is earlier terminated
pursuant to a Termination of Employment. The Executive will serve the Company
subject to the general supervision, advice and direction of the Board and the
Office of the Chairman and upon the terms and conditions set forth in this
Agreement.
3. TITLE AND DUTIES
(a) The Executive shall hold the positions of Executive Vice
President, Secretary and General Counsel of the Company. During the Employment
Term, the Executive shall have such authority and duties as are usual and
customary for such positions, and shall perform such additional services and
duties as the Board may from time to time designate consistent with such
positions.
(b) The Executive shall report solely to the Office of the
Chairman.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; provided, however, that the
Executive may devote reasonable time and attention to:
(i) serving as a director, or member of a committee
of the directors, of any not-for-profit organization, or
engaging in other charitable or community activities;
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future; and
(iii) serving as the Executive Vice President,
Secretary and General Counsel of Capstar pending the
consummation of the Capstar Merger; provided that Executive
makes a good faith effort to allocate his time reasonably
among his responsibilities at Capstar and the Company.
4. COMPENSATION AND BENEFITS
(a) Base Compensation.
(i) During the Employment Term, the Company shall pay
the Executive, in installments according to the Company's
regular payroll
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practice, Base Salary at the annual rate of Four Hundred
Thousand Dollars ($400,000) for the first (1st) Contract Year;
and subject to increase for each subsequent Contract Year to
an amount equal to the product of
(X) the Base Salary for the immediately preceding
Contract Year; and
(Y) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year (the "CPI Adjustment");
provided, however, that in no event shall the Base Salary for
any subsequent Contract Year be less than the Base Salary in
the immediately preceding Contract Year.
(ii) Notwithstanding anything to the contrary in the
preceding sentence, the Base Salary to be paid by the Company
to the Executive shall be net of any base salary paid to the
Executive by Capstar in the applicable Contract Year, provided
that the Company reimburses Capstar for 50% of the base salary
paid by Capstar to the Executive in such Contract Year. This
Section 4(a)(ii) shall not apply to, or in any way affect, the
calculation of the CPI Adjustment.
(b) Annual Incentive Bonus. The Executive may receive an
Annual Bonus for each calendar year during which he is employed hereunder, with
the amount of each such Annual Bonus, if any, to be determined by, and to be in
the sole discretion of, the Compensation Committee, as recommended by the Chief
Executive Officer. The Executive's Annual Bonus awarded by the Compensation
Committee with respect to each calendar year shall be paid at the same time as
annual incentive bonuses with respect to that calendar year are paid to other
senior executives of the Company generally, but in no event later than March 31
of the following calendar year.
(c) Stock Options. The Executive has been granted Options, as
of April 9, 1999, to purchase 400,000 shares of Common Stock at an exercise
price of $46.63. Such Options shall have the terms set forth in, and shall be
subject to, the Option Agreement and the Option Plan; provided, however, that if
the Option Plan is not approved by the stockholders of the Company at the first
annual stockholders' meeting after the date of grant, stock options or other
equity incentives shall be provided to the Executive on mutually satisfactory
terms that are no less favorable than the provisions of the Option Agreement and
the Option Plan.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid
6
vacation under the Company's generally applicable vacation policy, as determined
by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate,
on terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit consistent with the death benefits generally provided to other
senior executives of the Company, subject to the Executive's insurability at
standard rates and with the beneficiary or beneficiaries thereof designated by
the Executive; provided, however, that the amount of any coverage to be provided
to the Executive pursuant to this provision shall be net of any such coverage
concurrently being provided by Capstar. Notwithstanding Section 9 of this
Agreement, such life insurance policy or policies may be assigned to a trust for
the benefit of any beneficiary designated by the Executive.
(h) Automobile; Other Benefits.
(i) During the Employment Term, the Executive shall
be entitled to receive a monthly automobile allowance equal to
$1,200, which shall be paid monthly in accordance with the
customary practices of the Company; provided, however, that
the automobile allowance to be paid to the Executive by the
Company shall be net of any automobile allowance paid to the
Executive by Capstar in the applicable month, provided that
the Company reimburses Capstar for 50% of the automobile
allowance paid by Capstar to the Executive in such month; and
(ii) During the Employment Term, the Company shall
reimburse the Executive for the reasonable membership dues for
the Executive to belong to the athletic club and country club
of the Executive's choosing. Such reimbursement shall be in
accordance with the Company's expense reimbursement policy.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more
7
favorable terms and conditions (on an aggregate basis) as are granted to any
other executive vice president of the Company, the Executive shall be provided
such benefits in substantially comparable amount and/or under the substantially
comparable terms and conditions, as applicable, on an aggregate basis.
(j) Benefits Pending Capstar Merger. Notwithstanding anything
to the contrary contained herein, pending the consummation or termination of the
Capstar Merger, the Executive shall not be entitled to participate in any
pension, profit sharing and other retirement plans of the Company, any incentive
compensation plans of the Company and any group health, hospitalization and
disability insurance plans of the Company and any other employee welfare benefit
plans in which other senior executives of the Company may participate, provided,
that the Company shall reimburse Capstar for 50% of Capstar's cost of any and
all such plans provided by Capstar in which the Executive participates.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide to the Executive (or, in
the case of his death, his estate or other legal representative) (i) any Annual
Bonus awarded but not yet paid with respect to the preceding calendar year; (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies); (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination; and (iv) not later than ninety (90) days after
such termination, in a lump sum, any Annual Bonus awarded by the Compensation
Committee with respect to that portion of the calendar year prior to such
termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive equal to two times the Executive's then current Base
Salary. Such payment shall be made at the time of any such termination without
Cause or within thirty (30) days of any such resignation for Good Reason. Such
payment shall be in full satisfaction of all obligations of the Company to the
Executive hereunder (other than those obligations set forth in Sections 4(c) and
6(a)) and shall be conditioned on the Executive's giving a general release of
the Company and affiliates in the form used generally by the Company in the case
of the termination of employment of senior executives.
8
(c) The Company may, by written notice to the Executive given
no later than fifteen (15) days following his termination of employment, elect
to require the Executive to observe the provisions of Section 7(b) hereof for a
period of time not to extend beyond the fifth anniversary of the Effective Date
(such period of time to be set forth in the Company's notice to the Executive
and is referred to herein as the "Non-Solicitation Period"). In such event, the
Company shall continue to pay the Executive his Base Salary as set forth in
Section 4(a) through the Non-Solicitation Period (net of any other severance
payments made to the Executive pursuant to Section 6(b) hereof).
(d) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans; that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money; and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor, and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) Should the Company make the election set forth in Section
6(c) hereof, the Executive hereby agrees, that after any Termination of
Employment, and through the Non-Solicitation Period, the Executive will not
directly or indirectly induce any employee of any of the Protected Companies (as
defined below) to terminate such employment or to become employed by any other
person, firm, corporation or other entity that is directly or indirectly engaged
in any of the radio, television, outdoor advertising, broadcasting or related
business activities in which the Company and its
9
subsidiaries or the Protected Companies have significant involvement
(collectively, the "Competing Business Areas"), in each case at the effective
time of such termination of employment.
(c) During the Employment Term and for a period of ninety days
following his termination of employment (including without limitation
termination by reason of expiration or non-renewal of this Agreement), the
Executive agrees that he shall not be employed by or perform activities on
behalf of, or have an ownership interest in, (i) any radio or television
broadcasting station serving the same "Area of Dominant Influence" (as reported
by Arbitron) as any of the radio or television broadcasting stations owned by
the Company or its subsidiaries or affiliates, or the subsidiaries or affiliates
of any of the Company's direct or indirect stockholders owning more than twenty
percent (20%) of the Company (collectively, the "Protected Companies"), or (ii)
any person, firm, corporation or other entity, or in connection with any
business enterprise, that is directly or indirectly engaged in any Competing
Business Area, in each case at the effective time of such Termination of
Employment (other than beneficial ownership of up to five percent (5%) of the
outstanding voting stock of a publicly traded company that owns such a
competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate throughout the United States and that the effect of Section 7(c) may be
to prevent him from working in the Competing Business Areas after his
termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
10
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
accordance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses),
and the Executive will be entitled to the protection of any insurance policies
that the Company may elect to maintain generally for the benefit of its
directors and officers ("Directors and Officers Insurance") against all costs,
charges and expenses incurred or sustained by him in connection with any action,
suit or proceeding to which he may be made a party by reason of his being or
having been a director, officer or employee of the Company or any of its
subsidiaries, or his serving or having served any other enterprise as a
director, officer or employee at the request of the Company (other than any
dispute, claim or controversy arising under or relating to this Agreement). The
Company covenants to maintain during the Employment Term for the benefit of the
Executive (in his capacity as an officer and director of the Company) Directors
and Officers Insurance providing benefits to the Executive no less favorable,
taken as a whole, than the benefits provided to the other senior executives of
the Company by the Directors and Officers Insurance maintained by the Company on
the date hereof; provided, however, that the Board may elect to terminate
Directors and Officers Insurance for all officers and directors, including the
Executive, if the Board determines
11
in good faith that such insurance is not available or is available only at
unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement, the Option
Agreement and the Indemnification Agreement contain the entire agreement of the
parties relating to the subject matter hereof. This Agreement supersedes any
prior written or oral agreements or understandings between the parties relating
to the subject matter hereof. No modification or amendment of this Agreement
shall be valid unless in writing and signed by or on behalf of the parties
hereto. A waiver of the breach of any term or condition of this Agreement shall
not be deemed to constitute a waiver of any subsequent breach of the same or any
other term or condition. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent, be held invalid or unenforceable, such invalidity and
unenforceability shall not affect the remaining provisions hereof or the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted
12
for convenience of reference only and shall not be a part of or control or
affect the meaning of any provision hereof.
17. GROSS-UP FOR CERTAIN TAXES
(a) In the event that any part of any payment or benefit
received (including, without limitation, acceleration of vesting of stock
options) pursuant to the terms of this Agreement or the Option Agreement (the
"Contract Payments") or any part of any payment or benefit received or to be
received by the Executive or for the Executive's benefit pursuant to any other
plan, arrangement or agreement of the Company or any affiliate ("Other Payments"
and, together with the Contract Payments, the "Payments") would be subject to
the Excise Tax determined as provided below, the Company shall pay to the
Executive, at the time specified in Section 17(b) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of the Excise Tax on the Payments and any federal, state and
local income tax and the Excise Tax on the Gross-Up Payment, and any interest,
penalties or additions to tax payable by the Executive with respect thereto,
shall be equal to the total present value (using the applicable federal rate as
defined in Section 1274(d) of the Code in such calculation) of the Payments at
the time such Payments are to be made. For purposes of determining whether any
of the Payments will be subject to the Excise Tax and the amounts of such Excise
Tax, (1) the total amount of the Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, except to the extent that, in the
opinion of independent counsel selected by the Company and reasonably acceptable
to the Executive ("Independent Counsel"), a Payment (in whole or in part) does
not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of
the Code, or such "excess parachute payments" (in whole or in part) are not
subject to the Excise Tax, (2) the amount of the Payments that shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Payments or (B) the amount of "excess parachute payments" within
the meaning of Section 280G(b)(1) of the Code (after applying clause (1)
hereof), and (3) the value of any noncash benefits or any deferred payment or
benefit shall be determined by Independent Counsel in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rates of federal income
taxation applicable to individuals in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation applicable to individuals as are in effect in the state and
locality of the Executive's residence in the calendar year in which the Gross-Up
Payment is to be made, net of the maximum reduction in federal income taxes that
can be obtained from deduction of such state and local taxes, taking into
account any limitations applicable to individuals subject to federal income tax
at the highest marginal rates.
(b) The Gross-Up Payments provided for in Section 17(a) hereof
shall be made upon the earlier of (i) the payment to the Executive of any
Payment or (ii) the imposition upon the Executive or payment by the Executive of
any Excise Tax.
13
(c) If it is established pursuant to a final determination of
a court or an Internal Revenue Service proceeding or the opinion of Independent
Counsel that the Excise Tax is less than the amount taken into account under
Section 17(a) hereof, the Executive shall repay to the Company within thirty
(30) days of the Executive's receipt of notice of such final determination or
opinion the portion of the Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax or a federal,
state and local income tax deduction) plus any interest received by the
Executive on the amount of such repayment. If it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding or the
opinion of Independent Counsel that the Excise Tax exceeds the amount taken into
account hereunder (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess within
thirty (30) days of the Company's receipt of notice of such final determination
or opinion.
(d) In the event of any change in, or further interpretation
of, Sections 280G or 4999 of the Code and the regulations promulgated
thereunder, the Executive shall be entitled, by written notice to the Company,
to request an opinion of Independent Counsel regarding the application of such
change or interpretation to any of the foregoing, and the Company shall use its
best efforts to cause such opinion to be rendered as promptly as practicable.
All fees and expenses of Independent Counsel incurred in connection with this
agreement shall be borne by the Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
14
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ THOMAS O. HICKS
---------------------------------------
Thomas O. Hicks
Chairman and Chief Executive Officer
/s/ WILLIAM S. BANOWSKY, JR.
---------------------------------------
William S. Banowsky, Jr.
EXHIBIT 10.65
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: James E. de Castro
DATE OF GRANT: April 9, 1999
GRANTED PURSUANT TO: 1999 Chancellor Media Corporation
Stock Option Plan
NUMBER OF UNDERLYING SHARES: 1,000,000 shares
EXERCISE PRICE: $46.63 per share
VESTING SCHEDULE: As described in Paragraph 4 below
This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of April 9, 1999 (the "Date of Grant") between
Chancellor Media Corporation, a Delaware corporation (the "Company"), and James
E. de Castro (the "Employee"). It is the intent of the Company and the Employee
that the Option (as defined in Paragraph 1 below) will not qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code of 1986,
as amended from time to time. Terms not defined herein shall have the meanings
ascribed thereto in the Plan.
1. Grant. The Employee is granted an option to purchase 1,000,000
shares (the "Option Shares") of the Common Stock of the Company (the "Option").
The Option is granted under the 1999 Chancellor Media Corporation Stock Option
Plan, as it may be amended from time to time (the "Plan"), a copy of which is
enclosed herewith, and is subject to the terms of the Plan and of this
Agreement. The Option granted hereunder is a matter of separate inducement and
is not in lieu of salary or other compensation for the Employee's services. The
Employee acknowledges and understands that as of the Date of Grant the Plan has
not been approved by the stockholders of the Company and, as provided in
Paragraph 6, that the Option shall expire and no longer be exercisable if such
stockholder approval is not obtained at the first annual stockholders meeting
after the Date of Grant.
2. Exercise Price. The Option's exercise price is $46.63 per share (the
"Exercise Price").
3. Term. The Option, unless sooner terminated or exercised in full,
shall expire at 5:00 p.m., Dallas, Texas time, on the 10th anniversary of the
Date of Grant, and, except as expressly contained in this Agreement, no portion
of the Option may be exercised after such date.
4. Vesting and Exercisability.
(a) Except as otherwise provided in Paragraph 5, the Option
Shares shall become "Vested Option Shares" with respect to 20% of the Option
Shares on each anniversary of the Date of Grant, so that all of the Option
Shares shall be vested and become Vested Option Shares by the fifth anniversary
of the Date of Grant.
(b) Except as otherwise provided in Paragraph 6, the Option
shall become exercisable to acquire Vested Option Shares at any time or from
time to time after the first to occur of (i) a Change in Control (as defined in
Paragraph 18) or (ii) the date on which the average Fair Market Value of the
Common Stock, calculated on a daily basis (when added to any cash consideration
attributable to any prior Capital Reorganization (as defined in Paragraph 17),
equals or exceeds $100.00 per share (the "Exercisability Value") for a period of
30 consecutive days (excluding non-Business Days (as defined in Paragraph 18)
for purposes of calculating the average Fair Market Value during such 30-day
period) during the period from (and including) the Date of Grant through (and
including) the fifth anniversary of the Date of Grant. Upon the completion of a
Common Stock Reorganization (as defined in Paragraph 17), the Exercisability
Value shall be adjusted, effective immediately after the record date at which
the holders of shares of Common Stock are determined for purposes of such Common
Stock Reorganization, to a dollar amount determined by multiplying the
Exercisability Value in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such record date before giving effect to such Common Stock
Reorganization and the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock
Reorganization.
5. Termination of Employment. Notwithstanding Paragraph 4:
(a) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's death, the Option Shares shall
become Vested Option Shares on the date of the Employee's Termination of
Employment (as defined in Paragraph 18). If the Option has become exercisable on
or before the date of the Employee's Termination of Employment, then the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution may, until the
earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of
the Date of Grant or the first anniversary of the date of the Employee's
Termination of Employment, exercise the Option with respect to all or any part
of the Vested Option Shares; provided, however, that in no event will the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the executor or administrator of
the estate of the deceased Employee or the person or persons to whom the
deceased Employee's rights with respect to the Option shall pass by will or the
laws of descent and distribution may exercise the Option with respect
-2-
to all or any part of the Vested Option Shares until 5:00 p.m., Dallas, Texas
time, on the first anniversary of the date on which the Option becomes
exercisable.
(b) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's Permanent Disability (as defined
in Paragraph 18), the Option Shares shall become Vested Option Shares on the
date of the Employee's Termination of Employment. If the Option has become
exercisable on or before the date of the Employee's Termination of Employment,
then the Employee or the Employee's legal representatives may, until the earlier
to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date
of Grant or the first anniversary of the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares; provided, however, that in no event will the Employee or the
Employee's legal representatives have less than 90 days after the date of the
Employee's Termination of Employment to exercise the Option. If the Option has
not become exercisable on or before the date of the Employee's Termination of
Employment, then (i) the Option shall remain in full force and effect and (ii)
if the Option becomes exercisable on or before the fifth anniversary of the Date
of Grant, then the Employee or the Employee's legal representatives may exercise
the Option with respect to all or any part of the Vested Option Shares until
5:00 p.m., Dallas, Texas time, on the first anniversary of the date on which the
Option becomes exercisable.
(c) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment for
Cause (as defined in Paragraph 18) or the Employee's resignation for other than
Good Reason (as defined in Paragraph 18), no additional Option Shares shall vest
after the date of the Employee's Termination of Employment. If the Option has
become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee may, until the earlier to occur of 5:00 p.m.,
Dallas, Texas time, on the tenth anniversary of the Date of Grant or the 90th
day after the date of the Employee's Termination of Employment, exercise the
Option with respect to all or any part of the Vested Option Shares; provided,
however, that in no event will the Employee have less than 90 days after the
date of the Employee's Termination of Employment to exercise the Option. If the
Option has not become exercisable on or before the date of the Employee's
Termination of Employment, then (i) the Option shall remain in full force and
effect and (ii) if the Option becomes exercisable on or before the fifth
anniversary of the Date of Grant, then the Employee may exercise the Option with
respect to all or any part of the Vested Option Shares until 5:00 p.m., Dallas,
Texas time, on the 90th day after the date on which the Option becomes
exercisable.
(d) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment
without Cause or the Employee's resignation for Good Reason, the Option Shares
shall become Vested Option Shares on the date of the Employee's Termination of
Employment. If the Option has become exercisable on or before the date of the
Employee's Termination of Employment, then the Employee may, until the later to
occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date of
Grant or the 90th day after the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares. If the Option has not become exercisable on or before the date of
the Employee's Termination of Employment, then (i) the Option shall remain in
full force and effect and (ii) if the Option becomes exercisable on or before
the fifth anniversary of the Date of
-3-
Grant, then the Employee may exercise the Option with respect to all or any part
of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, until the tenth
anniversary of the Date of Grant.
(e) If, pursuant to Paragraph 6, the Option shall terminate
earlier than provided for in this Paragraph 5, then the provisions of Paragraph
6 shall prevail.
6. Termination of Option. Notwithstanding any provision of the Option
to the contrary, the Option shall expire and no longer be exercisable (a) on
April 9, 2004, if the Option Shares have not become exercisable by 5:00 p.m.,
Dallas, Texas time on such date, or (b) on the date of the first annual meeting
of the holders of Common Stock after the Date of Grant if the Plan has not been
approved by the requisite vote of the stockholders of the Company by 5:00 p.m.,
Dallas, Texas time on such date.
7. Option Not Transferable. During the Employee's lifetime, the Option
shall not be subject in any manner to alienation, anticipation, sale,
assignment, pledge, encumbrance or other transfer and shall be exercisable only
by the Employee. Upon the death of the Employee, (a) the Option shall be
exercisable only by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights with
respect to the Option shall pass by will or the laws of descent and
distribution, and (b) the Option shall be exercisable as specified in this
Agreement.
8. Impact of Other Options. The Employee may exercise the exercisable
portion of the Option regardless of whether any other stock option that the
Employee has been granted by the Company remains unexercised. In no event may
the Employee exercise the Option for a fraction of a share of Common Stock.
9. Method of Exercise. Any exercise of the Option shall be in writing
addressed to the Corporate Secretary of the Company at the principal business
office of the Company, specifying the Option being exercised and the number of
shares of Common Stock to be purchased, and specifying a business day not more
than 10 days from the date such notice is given for the payment of the purchase
price against delivery of the shares of Common Stock being purchased. Subject to
the terms of the Plan and this Agreement, the Company shall cause certificates
for the shares of Common Stock so purchased to be delivered at the principal
business office of the Company, against payment of the full purchase price, on
the date specified in the notice of exercise. The Option's Exercise Price shall
be paid by the Employee in cash or, if permitted by the Committee in its sole
discretion at the time of exercise, in shares of Common Stock currently held by
the Employee at the time of exercise, or by a combination of cash and such
currently held shares. Any shares of Common Stock delivered in payment of the
Exercise Price shall be valued at their then Fair Market Value.
10. Taxes. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares of Common Stock subject to the Option. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the Employee. The
Company may, in its discretion, hold the stock certificate or certificates to
which the Employee is entitled upon the
-4-
exercise of the Option as security for the payment of such withholding tax
liability until cash sufficient to pay that liability has been accumulated. In
addition, at any time that the Company becomes subject to a withholding
obligation under applicable law with respect to the Option (the "Tax Date"),
except as set forth below, the Employee may elect to satisfy, in whole or in
part, the Employee's related personal tax liabilities (an "Election") by (a)
directing the Company to withhold from shares of Common Stock issuable in the
related exercise either a specified number of shares of Common Stock or shares
of Common Stock having a specified value (in each case not in excess of the
related personal tax liabilities), (b) tendering shares of Common Stock
previously issued pursuant to the exercise of a stock option or other shares of
Common Stock owned by the Employee, or (c) combining any or all of the foregoing
Elections in any fashion. An Election shall be irrevocable. The withheld shares
and other shares of Common Stock and other shares of Common Stock tendered in
payment shall be valued at their Fair Market Value on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to make
Elections or provide that the right to make Elections shall not apply to
particular shares of Common Stock or exercises. The Committee may impose any
additional conditions or restrictions on the right to make an Election as it
shall deem appropriate, including any limitations necessary to comply with
Section 16 of the Exchange Act.
11. No Rights as a Stockholder. The Employee shall not have any of the
rights of a stockholder with respect to the shares of Common Stock underlying
the Option until the Option is exercised and the Employee receives such shares.
12. Restrictive Legend. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the shares of Common Stock purchased
pursuant to the exercise of the Option shall bear an appropriate legend in form
and substance, as determined by the Company, giving notice of applicable
restrictions on transfer under or with respect to such laws.
13. Employee Certification. The Employee covenants and agrees with the
Company that if, at the time of exercise of the Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act (as
defined in Paragraph 18), which Registration Statement shall have become
effective and shall include a prospectus that is current with respect to the
shares subject to the Option, then the Employee shall execute and deliver a
certificate to the Company indicating (a) that he is purchasing the shares for
his own account and not with a view to the resale or distribution thereof, (b)
that any subsequent offer for sale or sale of any such shares shall be made
either pursuant to (i) a Registration Statement on an appropriate form under the
Securities Act, which Registration Statement shall have become effective and
shall be current with respect to the shares being offered and sold, or (ii) a
specific exemption from the registration requirements of the Securities Act and
any rules and regulations thereunder and applicable state securities laws and
regulations, but in claiming such exemption, the Employee shall, prior to any
offer for sale or sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Company as to the applicability of such
exemption, and (c) that the Employee agrees that the certificate or certificates
evidencing such shares shall bear a legend to the effect of the foregoing.
-5-
14. Plan is Controlling. This Agreement is subject to all terms,
conditions, limitations and restrictions contained in the Plan, which shall be
controlling in the event of any conflicting or inconsistent provisions.
15. Not a Contract of Employment. This Agreement is not a contract of
employment and the terms of the Employee's employment shall not be affected
hereby or by any agreement referred to herein except to the extent specifically
so provided herein or therein. Nothing herein shall be construed to impose any
obligation on the Company to continue the Employee's employment, and it shall
not impose any obligation on the Employee's part to remain in the employ of the
Company.
16. No Duty to Disclose. The Employee acknowledges and agrees that
neither the Company, its stockholders nor its directors and officers, has any
duty or obligation to disclose to the Employee any material information
regarding the business of the Company or affecting the value of the Common Stock
before or at the time of a termination of the employment of the Employee by the
Company, including, without limitation, any information concerning plans for the
Company to make a public offering of its securities or to be acquired by or
merged with or into another firm or entity.
17. Anti-Dilution Provisions.
(a) Adjustments Generally. The Exercise Price and the number
of shares of Common Stock (or other securities or property) issuable upon
exercise of the Option shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Paragraph 17.
(b) Common Stock Reorganization. If the Company shall after
the date of issuance of the Option subdivide its outstanding shares of Common
Stock into a greater number of shares or consolidate its outstanding shares of
Common Stock into a lesser number of shares (any such event being called a
"Common Stock Reorganization"), then (i) the Exercise Price shall be adjusted,
effective immediately after the record date at which the holders of shares of
Common Stock are determined for purposes of such Common Stock Reorganization, to
a price determined by multiplying the Exercise Price in effect immediately prior
to such record date by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date before giving effect to
such Common Stock Reorganization and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such Common
Stock Reorganization, and (ii) the number of shares of Common Stock subject to
purchase upon exercise of the Option shall be adjusted, effective at such time,
to a number determined by multiplying the number of shares of Common Stock
subject to purchase immediately before such Common Stock Reorganization by a
fraction, the numerator of which shall be the number of shares outstanding after
giving effect to such Common Stock Reorganization and the denominator of which
shall be the number of shares of Common Stock outstanding immediately before
such Common Stock Reorganization.
(c) Capital Reorganization. If after the date of issuance of
the Option there shall be any consolidation or merger to which the Company is a
party (whether or not the Company is the surviving entity), other than a
consolidation or a merger in which the Company is a continuing
-6-
corporation and which does not result in any reclassification of, or change
(other than a Common Stock Reorganization or a change in par value), in,
outstanding shares of Common Stock, or any sale, assignment, lease, exchange,
conveyance or other transfer (in one transaction or series of related
transactions) of the property of the Company as an entirety or substantially as
an entirety or all or substantially all of the outstanding equity securities of
the Company to any person or group of related persons for the purposes of
Section 13(d) of the Exchange Act (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Employee shall have the right to purchase, upon exercise of
the Option, the kind and amount of shares of stock and other securities and
property (including cash) which the Employee would have owned or have been
entitled to receive after such Capital Reorganization if the Option had been
exercised immediately prior to such Capital Reorganization. As a condition to
effecting any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to the Employee an
agreement as to the Employee's rights in accordance with this Paragraph 17(c),
providing for subsequent adjustments as nearly equivalent as may be practicable
to the adjustments provided for in this Paragraph 17(c). The provisions of this
Paragraph 17(c) shall similarly apply to successive Capital Reorganizations.
(d) Certain Other Events. If any event occurs after the date of
issuance of the Option as to which the foregoing provisions of this Paragraph 17
are not strictly applicable or, if strictly applicable, would not, in the good
faith judgment of the Committee, fairly protect the purchase rights of the
Employee in accordance with the essential intent and principles of such
provisions, then the Committee shall make such adjustments in the application of
such provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of the Committee, to
protect such purchase rights as aforesaid.
(e) Adjustment Rules. (i) Any adjustments pursuant to this Paragraph 17
shall be made successively whenever an event referred to herein shall occur.
(ii) If the Company shall set a record date to
determine the holders of shares of Common Stock for purposes of a Common Stock
Reorganization or Capital Reorganization, and shall legally abandon such action
prior to effecting such action, then no adjustment shall be made pursuant to
this Paragraph 17 in respect of such action.
(iii) Any other adjustments provided for in the Plan
shall also be applicable to the Option.
(iv) No adjustment in the amount of shares
purchasable upon exercise of the Option or in the Exercise Price shall be made
hereunder unless such adjustment increases or decreases such amount or price by
one percent or more, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall serve to adjust such
amount or price by one percent or more.
-7-
(v) No adjustment in the Exercise Price shall be made
hereunder if such adjustment would reduce the exercise price to an amount below
par value of the Common Stock, which par value shall initially be $.01 per share
of Common Stock.
(f) Notice of Adjustment. The Company shall give the Employee
reasonable notice of the record date or effective date, as the case may be, of
any action which requires or might require an adjustment or readjustment
pursuant to this Paragraph 17. Such notice shall describe such event in
reasonable detail and specify the record date or effective date, as the case may
be, and, if determinable, the required adjustment and the computation thereof.
If the required adjustment is not determinable at the time of such notice, the
Company shall give reasonable notice to the Employee of such adjustment and
computation promptly after such adjustment becomes determinable.
18. Certain Defined Terms. The following terms, as used in this
Agreement, have the following respective meanings:
(a) "Affiliate" means, with respect to any Person, any Person
who, directly or indirectly, controls, is controlled by or is under common
control with that Person.
(b) "Business Day" means (i) if any class of common stock of
the Company is listed or admitted to trading on a national securities exchange,
a day on which the principal national securities exchange on which such class of
common stock is listed or admitted to trading is open for business or (ii) if no
class of common stock of the Company is so listed or admitted to trading, a day
on which the New York Stock Exchange is open for business.
(c) "Capital Reorganization" shall have the meaning set forth
in Paragraph 17(c).
(d) "Cause" shall have the meaning set forth in Section 1 of
the Employment Agreement.
(e) "Change in Control" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(f) "Common Stock Reorganization" shall have the meaning set
forth in Paragraph 17(b).
(g) "Employment Agreement" means that certain Amended and
Restated Employment Agreement dated as of October 1, 1998, as it may be amended
from time to time, by and between the Company and the Employee.
(h) "Exercisability Value" shall have the meaning set forth in
Paragraph 4(b).
(i) "Good Reason" shall have the meaning set forth in Section
1 of the Employment Agreement.
-8-
(j) "Permanent Disability" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(k) "Person" or "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
(l) "Securities Act" shall mean the Securities Act of 1933 and
any similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
(m) "Termination of Employment" shall have the meaning set
forth in Section 1 of the Employment Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-9-
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date written below.
DATED: May 18, 1999 CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
---------------------------------
Thomas O. Hicks
Chief Executive Officer
ACCEPTED BY:
/s/ JAMES E. DE CASTRO
-----------------------------------
Signature of Employee
Name and Address of Optionee:
James E. de Castro
1025 Seneca Road
Wilmette, Illinois 60091
Optionee Taxpayer Identification Number
-10-
EXHIBIT 10.66
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: Kenneth J. O'Keefe
DATE OF GRANT: April 9, 1999
GRANTED PURSUANT TO: 1999 Chancellor Media Corporation
Stock Option Plan
NUMBER OF UNDERLYING SHARES: 500,000 shares
EXERCISE PRICE: $46.63 per share
VESTING SCHEDULE: As described in Paragraph 4 below
This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of April 9, 1999 (the "Date of Grant") between
Chancellor Media Corporation, a Delaware corporation (the "Company"), and
Kenneth J. O'Keefe (the "Employee"). It is the intent of the Company and the
Employee that the Option (as defined in Paragraph 1 below) will not qualify as
an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended from time to time. Terms not defined herein shall have the
meanings ascribed thereto in the Plan.
1. Grant. The Employee is granted an option to purchase 500,000 shares
(the "Option Shares") of the Common Stock of the Company (the "Option"). The
Option is granted under the 1999 Chancellor Media Corporation Stock Option Plan,
as it may be amended from time to time (the "Plan"), a copy of which is enclosed
herewith, and is subject to the terms of the Plan and of this Agreement. The
Option granted hereunder is a matter of separate inducement and is not in lieu
of salary or other compensation for the Employee's services. The Employee
acknowledges and understands that as of the Date of Grant the Plan has not been
approved by the stockholders of the Company and, as provided in Paragraph 6,
that the Option shall expire and no longer be exercisable if such stockholder
approval is not obtained at the first annual stockholders meeting after the Date
of Grant.
2. Exercise Price. The Option's exercise price is $46.63 per share (the
"Exercise Price").
3. Term. The Option, unless sooner terminated or exercised in full,
shall expire at 5:00 p.m., Dallas, Texas time, on the 10th anniversary of the
Date of Grant, and, except as expressly contained in this Agreement, no portion
of the Option may be exercised after such date.
4. Vesting and Exercisability.
(a) Except as otherwise provided in Paragraph 5, the Option
Shares shall become "Vested Option Shares" with respect to 20% of the Option
Shares on each anniversary of the Date of Grant, so that all of the Option
Shares shall be vested and become Vested Option Shares by the fifth anniversary
of the Date of Grant.
(b) Except as otherwise provided in Paragraph 6, the Option
shall become exercisable to acquire Vested Option Shares at any time or from
time to time after the first to occur of (i) a Change in Control (as defined in
Paragraph 18) or (ii) the date on which the average Fair Market Value of the
Common Stock, calculated on a daily basis (when added to any cash consideration
attributable to any prior Capital Reorganization (as defined in Paragraph 17),
equals or exceeds $100.00 per share (the "Exercisability Value") for a period of
30 consecutive days (excluding non-Business Days (as defined in Paragraph 18)
for purposes of calculating the average Fair Market Value during such 30-day
period) during the period from (and including) the Date of Grant through (and
including) the fifth anniversary of the Date of Grant. Upon the completion of a
Common Stock Reorganization (as defined in Paragraph 17), the Exercisability
Value shall be adjusted, effective immediately after the record date at which
the holders of shares of Common Stock are determined for purposes of such Common
Stock Reorganization, to a dollar amount determined by multiplying the
Exercisability Value in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such record date before giving effect to such Common Stock
Reorganization and the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock
Reorganization.
5. Termination of Employment. Notwithstanding Paragraph 4:
(a) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's death, the Option Shares shall
become Vested Option Shares on the date of the Employee's Termination of
Employment (as defined in Paragraph 18). If the Option has become exercisable on
or before the date of the Employee's Termination of Employment, then the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution may, until the
earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of
the Date of Grant or the first anniversary of the date of the Employee's
Termination of Employment, exercise the Option with respect to all or any part
of the Vested Option Shares; provided, however, that in no event will the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the executor or administrator of
the estate of the deceased Employee or the person or persons to whom the
deceased Employee's rights with respect to the Option shall pass by will or the
laws of descent and distribution may exercise the Option with respect
-2-
to all or any part of the Vested Option Shares until 5:00 p.m., Dallas, Texas
time, on the first anniversary of the date on which the Option becomes
exercisable.
(b) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's Permanent Disability (as defined
in Paragraph 18), the Option Shares shall become Vested Option Shares on the
date of the Employee's Termination of Employment. If the Option has become
exercisable on or before the date of the Employee's Termination of Employment,
then the Employee or the Employee's legal representatives may, until the earlier
to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date
of Grant or the first anniversary of the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares; provided, however, that in no event will the Employee or the
Employee's legal representatives have less than 90 days after the date of the
Employee's Termination of Employment to exercise the Option. If the Option has
not become exercisable on or before the date of the Employee's Termination of
Employment, then (i) the Option shall remain in full force and effect and (ii)
if the Option becomes exercisable on or before the fifth anniversary of the Date
of Grant, then the Employee or the Employee's legal representatives may exercise
the Option with respect to all or any part of the Vested Option Shares until
5:00 p.m., Dallas, Texas time, on the first anniversary of the date on which the
Option becomes exercisable.
(c) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment for
Cause (as defined in Paragraph 18) or the Employee's resignation for other than
Good Reason (as defined in Paragraph 18), no additional Option Shares shall vest
after the date of the Employee's Termination of Employment. If the Option has
become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee may, until the earlier to occur of 5:00 p.m.,
Dallas, Texas time, on the tenth anniversary of the Date of Grant or the 90th
day after the date of the Employee's Termination of Employment, exercise the
Option with respect to all or any part of the Vested Option Shares; provided,
however, that in no event will the Employee have less than 90 days after the
date of the Employee's Termination of Employment to exercise the Option. If the
Option has not become exercisable on or before the date of the Employee's
Termination of Employment, then (i) the Option shall remain in full force and
effect and (ii) if the Option becomes exercisable on or before the fifth
anniversary of the Date of Grant, then the Employee may exercise the Option with
respect to all or any part of the Vested Option Shares until 5:00 p.m., Dallas,
Texas time, on the 90th day after the date on which the Option becomes
exercisable.
(d) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment
without Cause or the Employee's resignation for Good Reason, the Option Shares
shall become Vested Option Shares on the date of the Employee's Termination of
Employment. If the Option has become exercisable on or before the date of the
Employee's Termination of Employment, then the Employee may, until the later to
occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date of
Grant or the 90th day after the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares. If the Option has not become exercisable on or before the date of
the Employee's Termination of Employment, then (i) the Option shall remain in
full force and effect and (ii) if the Option becomes exercisable on or before
the fifth anniversary of the Date of
-3-
Grant, then the Employee may exercise the Option with respect to all or any part
of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, until the tenth
anniversary of the Date of Grant.
(e) If, pursuant to Paragraph 6, the Option shall terminate
earlier than provided for in this Paragraph 5, then the provisions of Paragraph
6 shall prevail.
6. Termination of Option. Notwithstanding any provision of the Option
to the contrary, the Option shall expire and no longer be exercisable (a) on
April 9, 2004, if the Option Shares have not become exercisable by 5:00 p.m.,
Dallas, Texas time on such date, or (b) on the date of the first annual meeting
of the holders of Common Stock after the Date of Grant if the Plan has not been
approved by the requisite vote of the stockholders of the Company by 5:00 p.m.,
Dallas, Texas time on such date.
7. Option Not Transferable. During the Employee's lifetime, the Option
shall not be subject in any manner to alienation, anticipation, sale,
assignment, pledge, encumbrance or other transfer and shall be exercisable only
by the Employee. Upon the death of the Employee, (a) the Option shall be
exercisable only by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights with
respect to the Option shall pass by will or the laws of descent and
distribution, and (b) the Option shall be exercisable as specified in this
Agreement.
8. Impact of Other Options. The Employee may exercise the exercisable
portion of the Option regardless of whether any other stock option that the
Employee has been granted by the Company remains unexercised. In no event may
the Employee exercise the Option for a fraction of a share of Common Stock.
9. Method of Exercise. Any exercise of the Option shall be in writing
addressed to the Corporate Secretary of the Company at the principal business
office of the Company, specifying the Option being exercised and the number of
shares of Common Stock to be purchased, and specifying a business day not more
than 10 days from the date such notice is given for the payment of the purchase
price against delivery of the shares of Common Stock being purchased. Subject to
the terms of the Plan and this Agreement, the Company shall cause certificates
for the shares of Common Stock so purchased to be delivered at the principal
business office of the Company, against payment of the full purchase price, on
the date specified in the notice of exercise. The Option's Exercise Price shall
be paid by the Employee in cash or, if permitted by the Committee in its sole
discretion at the time of exercise, in shares of Common Stock currently held by
the Employee at the time of exercise, or by a combination of cash and such
currently held shares. Any shares of Common Stock delivered in payment of the
Exercise Price shall be valued at their then Fair Market Value.
10. Taxes. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares of Common Stock subject to the Option. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the Employee. The
Company may, in its discretion, hold the stock certificate or certificates to
which the Employee is entitled upon the
-4-
exercise of the Option as security for the payment of such withholding tax
liability until cash sufficient to pay that liability has been accumulated. In
addition, at any time that the Company becomes subject to a withholding
obligation under applicable law with respect to the Option (the "Tax Date"),
except as set forth below, the Employee may elect to satisfy, in whole or in
part, the Employee's related personal tax liabilities (an "Election") by (a)
directing the Company to withhold from shares of Common Stock issuable in the
related exercise either a specified number of shares of Common Stock or shares
of Common Stock having a specified value (in each case not in excess of the
related personal tax liabilities), (b) tendering shares of Common Stock
previously issued pursuant to the exercise of a stock option or other shares of
Common Stock owned by the Employee, or (c) combining any or all of the foregoing
Elections in any fashion. An Election shall be irrevocable. The withheld shares
and other shares of Common Stock and other shares of Common Stock tendered in
payment shall be valued at their Fair Market Value on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to make
Elections or provide that the right to make Elections shall not apply to
particular shares of Common Stock or exercises. The Committee may impose any
additional conditions or restrictions on the right to make an Election as it
shall deem appropriate, including any limitations necessary to comply with
Section 16 of the Exchange Act.
11. No Rights as a Stockholder. The Employee shall not have any of the
rights of a stockholder with respect to the shares of Common Stock underlying
the Option until the Option is exercised and the Employee receives such shares.
12. Restrictive Legend. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the shares of Common Stock purchased
pursuant to the exercise of the Option shall bear an appropriate legend in form
and substance, as determined by the Company, giving notice of applicable
restrictions on transfer under or with respect to such laws.
13. Employee Certification. The Employee covenants and agrees with the
Company that if, at the time of exercise of the Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act (as
defined in Paragraph 18), which Registration Statement shall have become
effective and shall include a prospectus that is current with respect to the
shares subject to the Option, then the Employee shall execute and deliver a
certificate to the Company indicating (a) that he is purchasing the shares for
his own account and not with a view to the resale or distribution thereof, (b)
that any subsequent offer for sale or sale of any such shares shall be made
either pursuant to (i) a Registration Statement on an appropriate form under the
Securities Act, which Registration Statement shall have become effective and
shall be current with respect to the shares being offered and sold, or (ii) a
specific exemption from the registration requirements of the Securities Act and
any rules and regulations thereunder and applicable state securities laws and
regulations, but in claiming such exemption, the Employee shall, prior to any
offer for sale or sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Company as to the applicability of such
exemption, and (c) that the Employee agrees that the certificate or certificates
evidencing such shares shall bear a legend to the effect of the foregoing.
-5-
14. Plan is Controlling. This Agreement is subject to all terms,
conditions, limitations and restrictions contained in the Plan, which shall be
controlling in the event of any conflicting or inconsistent provisions.
15. Not a Contract of Employment. This Agreement is not a contract of
employment and the terms of the Employee's employment shall not be affected
hereby or by any agreement referred to herein except to the extent specifically
so provided herein or therein. Nothing herein shall be construed to impose any
obligation on the Company to continue the Employee's employment, and it shall
not impose any obligation on the Employee's part to remain in the employ of the
Company.
16. No Duty to Disclose. The Employee acknowledges and agrees that
neither the Company, its stockholders nor its directors and officers, has any
duty or obligation to disclose to the Employee any material information
regarding the business of the Company or affecting the value of the Common Stock
before or at the time of a termination of the employment of the Employee by the
Company, including, without limitation, any information concerning plans for the
Company to make a public offering of its securities or to be acquired by or
merged with or into another firm or entity.
17. Anti-Dilution Provisions.
(a) Adjustments Generally. The Exercise Price and the number
of shares of Common Stock (or other securities or property) issuable upon
exercise of the Option shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Paragraph 17.
(b) Common Stock Reorganization. If the Company shall after
the date of issuance of the Option subdivide its outstanding shares of Common
Stock into a greater number of shares or consolidate its outstanding shares of
Common Stock into a lesser number of shares (any such event being called a
"Common Stock Reorganization"), then (i) the Exercise Price shall be adjusted,
effective immediately after the record date at which the holders of shares of
Common Stock are determined for purposes of such Common Stock Reorganization, to
a price determined by multiplying the Exercise Price in effect immediately prior
to such record date by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date before giving effect to
such Common Stock Reorganization and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such Common
Stock Reorganization, and (ii) the number of shares of Common Stock subject to
purchase upon exercise of the Option shall be adjusted, effective at such time,
to a number determined by multiplying the number of shares of Common Stock
subject to purchase immediately before such Common Stock Reorganization by a
fraction, the numerator of which shall be the number of shares outstanding after
giving effect to such Common Stock Reorganization and the denominator of which
shall be the number of shares of Common Stock outstanding immediately before
such Common Stock Reorganization.
(c) Capital Reorganization. If after the date of issuance of
the Option there shall be any consolidation or merger to which the Company is a
party (whether or not the Company is the surviving entity), other than a
consolidation or a merger in which the Company is a continuing
-6-
corporation and which does not result in any reclassification of, or change
(other than a Common Stock Reorganization or a change in par value), in,
outstanding shares of Common Stock, or any sale, assignment, lease, exchange,
conveyance or other transfer (in one transaction or series of related
transactions) of the property of the Company as an entirety or substantially as
an entirety or all or substantially all of the outstanding equity securities of
the Company to any person or group of related persons for the purposes of
Section 13(d) of the Exchange Act (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Employee shall have the right to purchase, upon exercise of
the Option, the kind and amount of shares of stock and other securities and
property (including cash) which the Employee would have owned or have been
entitled to receive after such Capital Reorganization if the Option had been
exercised immediately prior to such Capital Reorganization. As a condition to
effecting any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to the Employee an
agreement as to the Employee's rights in accordance with this Paragraph 17(c),
providing for subsequent adjustments as nearly equivalent as may be practicable
to the adjustments provided for in this Paragraph 17(c). The provisions of this
Paragraph 17(c) shall similarly apply to successive Capital Reorganizations.
(d) Certain Other Events. If any event occurs after the date
of issuance of the Option as to which the foregoing provisions of this Paragraph
17 are not strictly applicable or, if strictly applicable, would not, in the
good faith judgment of the Committee, fairly protect the purchase rights of the
Employee in accordance with the essential intent and principles of such
provisions, then the Committee shall make such adjustments in the application of
such provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of the Committee, to
protect such purchase rights as aforesaid.
(e) Adjustment Rules. (i) Any adjustments pursuant to this
Paragraph 17 shall be made successively whenever an event referred to herein
shall occur.
(ii) If the Company shall set a record date to
determine the holders of shares of Common Stock for purposes of a Common Stock
Reorganization or Capital Reorganization, and shall legally abandon such action
prior to effecting such action, then no adjustment shall be made pursuant to
this Paragraph 17 in respect of such action.
(iii) Any other adjustments provided for in the Plan
shall also be applicable to the Option.
(iv) No adjustment in the amount of shares
purchasable upon exercise of the Option or in the Exercise Price shall be made
hereunder unless such adjustment increases or decreases such amount or price by
one percent or more, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall serve to adjust such
amount or price by one percent or more.
-7-
(v) No adjustment in the Exercise Price shall be made
hereunder if such adjustment would reduce the exercise price to an amount below
par value of the Common Stock, which par value shall initially be $.01 per share
of Common Stock.
(f) Notice of Adjustment. The Company shall give the Employee
reasonable notice of the record date or effective date, as the case may be, of
any action which requires or might require an adjustment or readjustment
pursuant to this Paragraph 17. Such notice shall describe such event in
reasonable detail and specify the record date or effective date, as the case may
be, and, if determinable, the required adjustment and the computation thereof.
If the required adjustment is not determinable at the time of such notice, the
Company shall give reasonable notice to the Employee of such adjustment and
computation promptly after such adjustment becomes determinable.
18. Certain Defined Terms. The following terms, as used in this
Agreement, have the following respective meanings:
(a) "Affiliate" means, with respect to any Person, any Person
who, directly or indirectly, controls, is controlled by or is under common
control with that Person.
(b) "Business Day" means (i) if any class of common stock of
the Company is listed or admitted to trading on a national securities exchange,
a day on which the principal national securities exchange on which such class of
common stock is listed or admitted to trading is open for business or (ii) if no
class of common stock of the Company is so listed or admitted to trading, a day
on which the New York Stock Exchange is open for business.
(c) "Capital Reorganization" shall have the meaning set forth
in Paragraph 17(c).
(d) "Cause" shall have the meaning set forth in Section 1 of
the Employment Agreement.
(e) "Change in Control" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(f) "Common Stock Reorganization" shall have the meaning set
forth in Paragraph 17(b).
(g) "Employment Agreement" means that certain Employment
Agreement dated as of May ___, 1999, as it may be amended from time to time, by
and between the Company and the Employee.
(h) "Exercisability Value" shall have the meaning set forth in
Paragraph 4(b).
(i) "Good Reason" shall have the meaning set forth in Section
1 of the Employment Agreement.
-8-
(j) "Permanent Disability" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(k) "Person" or "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
(l) "Securities Act" shall mean the Securities Act of 1933 and
any similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
(m) "Termination of Employment" shall have the meaning set
forth in Section 1 of the Employment Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date written below.
DATED: May 18, 1999 CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
------------------------------
Thomas O. Hicks
Chief Executive Officer
ACCEPTED BY:
/s/ KENNETH J. O'KEEFE
------------------------------------------
Signature of Employee
Name and Address of Optionee:
Kenneth J. O'Keefe
76 Royalston Road
Wellesley, Massachusetts 02181
Optionee Taxpayer Identification Number
-10-
EXHIBIT 10.67
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: R. Steven Hicks
DATE OF GRANT: April 9, 1999
GRANTED PURSUANT TO: 1999 Chancellor Media Corporation
Stock Option Plan
NUMBER OF UNDERLYING SHARES: 1,000,000 shares
EXERCISE PRICE: $46.63 per share
VESTING SCHEDULE: As described in Paragraph 4 below
This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of April 9, 1999 (the "Date of Grant") between
Chancellor Media Corporation, a Delaware corporation (the "Company"), and R.
Steven Hicks (the "Employee"). It is the intent of the Company and the Employee
that the Option (as defined in Paragraph 1 below) will not qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended from time to time. Terms not defined herein shall have the
meanings ascribed thereto in the Plan.
1. Grant. The Employee is granted an option to purchase 1,000,000
shares (the "Option Shares") of the Common Stock of the Company (the "Option").
The Option is granted under the 1999 Chancellor Media Corporation Stock Option
Plan, as it may be amended from time to time (the "Plan"), a copy of which is
enclosed herewith, and is subject to the terms of the Plan and of this
Agreement. The Option granted hereunder is a matter of separate inducement and
is not in lieu of salary or other compensation for the Employee's services. The
Employee acknowledges and understands that as of the Date of Grant the Plan has
not been approved by the stockholders of the Company and, as provided in
Paragraph 6, that the Option shall expire and no longer be exercisable if such
stockholder approval is not obtained at the first annual stockholders meeting
after the Date of Grant.
2. Exercise Price. The Option's exercise price is $46.63 per share
(the "Exercise Price").
3. Term. The Option, unless sooner terminated or exercised in full,
shall expire at 5:00 p.m., Dallas, Texas time, on the 10th anniversary of the
Date of Grant, and, except as expressly contained in this Agreement, no portion
of the Option may be exercised after such date.
4. Vesting and Exercisability.
(a) Except as otherwise provided in Paragraph 5, the Option Shares
shall become "Vested Option Shares" with respect to 20% of the Option Shares on
each anniversary of the Date
of Grant, so that all of the Option Shares shall be vested and become Vested
Option Shares by the fifth anniversary of the Date of Grant.
(b) Except as otherwise provided in Paragraph 6, the Option shall
become exercisable to acquire Vested Option Shares at any time or from time to
time after the first to occur of (i) a Change in Control (as defined in
Paragraph 18) or (ii) the date on which the average Fair Market Value of the
Common Stock, calculated on a daily basis (when added to any cash consideration
attributable to any prior Capital Reorganization (as defined in Paragraph 17),
equals or exceeds $100.00 per share (the "Exercisability Value") for a period
of 30 consecutive days (excluding non-Business Days (as defined in Paragraph
18) for purposes of calculating the average Fair Market Value during such
30-day period) during the period from (and including) the Date of Grant through
(and including) the fifth anniversary of the Date of Grant. Upon the completion
of a Common Stock Reorganization (as defined in Paragraph 17), the
Exercisability Value shall be adjusted, effective immediately after the record
date at which the holders of shares of Common Stock are determined for purposes
of such Common Stock Reorganization, to a dollar amount determined by
multiplying the Exercisability Value in effect immediately prior to such record
date by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such record date before giving effect to such
Common Stock Reorganization and the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization.
5. Termination of Employment. Notwithstanding Paragraph 4:
(a) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's death, the Option Shares shall
become Vested Option Shares on the date of the Employee's Termination of
Employment (as defined in Paragraph 18). If the Option has become exercisable
on or before the date of the Employee's Termination of Employment, then the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution may, until the
earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of
the Date of Grant or the first anniversary of the date of the Employee's
Termination of Employment, exercise the Option with respect to all or any part
of the Vested Option Shares; provided, however, that in no event will the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the executor or administrator of
the estate of the deceased Employee or the person or persons to whom the
deceased Employee's rights with respect to the Option shall pass by will or the
laws of descent and distribution may exercise the Option with respect to all or
any part of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, on
the first anniversary of the date on which the Option becomes exercisable.
-2-
(b) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's Permanent Disability (as
defined in Paragraph 18), the Option Shares shall become Vested Option Shares
on the date of the Employee's Termination of Employment. If the Option has
become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee or the Employee's legal representatives may,
until the earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth
anniversary of the Date of Grant or the first anniversary of the date of the
Employee's Termination of Employment, exercise the Option with respect to all
or any part of the Vested Option Shares; provided, however, that in no event
will the Employee or the Employee's legal representatives have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the Employee or the Employee's
legal representatives may exercise the Option with respect to all or any part
of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, on the first
anniversary of the date on which the Option becomes exercisable.
(c) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment for
Cause (as defined in Paragraph 18) or the Employee's resignation for other than
Good Reason (as defined in Paragraph 18), no additional Option Shares shall
vest after the date of the Employee's Termination of Employment. If the Option
has become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee may, until the earlier to occur of 5:00 p.m.,
Dallas, Texas time, on the tenth anniversary of the Date of Grant or the 90th
day after the date of the Employee's Termination of Employment, exercise the
Option with respect to all or any part of the Vested Option Shares; provided,
however, that in no event will the Employee have less than 90 days after the
date of the Employee's Termination of Employment to exercise the Option. If the
Option has not become exercisable on or before the date of the Employee's
Termination of Employment, then (i) the Option shall remain in full force and
effect and (ii) if the Option becomes exercisable on or before the fifth
anniversary of the Date of Grant, then the Employee may exercise the Option
with respect to all or any part of the Vested Option Shares until 5:00 p.m.,
Dallas, Texas time, on the 90th day after the date on which the Option becomes
exercisable.
(d) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment
without Cause or the Employee's resignation for Good Reason, the Option Shares
shall become Vested Option Shares on the date of the Employee's Termination of
Employment. If the Option has become exercisable on or before the date of the
Employee's Termination of Employment, then the Employee may, until the later to
occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date of
Grant or the 90th day after the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares. If the Option has not become exercisable on or before the date
of the Employee's Termination of Employment, then (i) the Option shall remain
in full force and effect and (ii) if the Option becomes exercisable on or
before the fifth anniversary of the Date of Grant, then the Employee may
exercise the Option with respect to all or any part of the Vested Option Shares
until 5:00 p.m., Dallas, Texas time, until the tenth anniversary of the Date of
Grant.
-3-
(e) If, pursuant to Paragraph 6, the Option shall terminate earlier
than provided for in this Paragraph 5, then the provisions of Paragraph 6 shall
prevail.
6. Termination of Option. Notwithstanding any provision of the Option
to the contrary, the Option shall expire and no longer be exercisable (a) on
April 9, 2004, if the Option Shares have not become exercisable by 5:00 p.m.,
Dallas, Texas time on such date, or (b) on the date of the first annual meeting
of the holders of Common Stock after the Date of Grant if the Plan has not been
approved by the requisite vote of the stockholders of the Company by 5:00 p.m.,
Dallas, Texas time on such date.
7. Option Not Transferable. During the Employee's lifetime, the Option
shall not be subject in any manner to alienation, anticipation, sale,
assignment, pledge, encumbrance or other transfer and shall be exercisable only
by the Employee. Upon the death of the Employee, (a) the Option shall be
exercisable only by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights with
respect to the Option shall pass by will or the laws of descent and
distribution, and (b) the Option shall be exercisable as specified in this
Agreement.
8. Impact of Other Options. The Employee may exercise the exercisable
portion of the Option regardless of whether any other stock option that the
Employee has been granted by the Company remains unexercised. In no event may
the Employee exercise the Option for a fraction of a share of Common Stock.
9. Method of Exercise. Any exercise of the Option shall be in writing
addressed to the Corporate Secretary of the Company at the principal business
office of the Company, specifying the Option being exercised and the number of
shares of Common Stock to be purchased, and specifying a business day not more
than 10 days from the date such notice is given for the payment of the purchase
price against delivery of the shares of Common Stock being purchased. Subject
to the terms of the Plan and this Agreement, the Company shall cause
certificates for the shares of Common Stock so purchased to be delivered at the
principal business office of the Company, against payment of the full purchase
price, on the date specified in the notice of exercise. The Option's Exercise
Price shall be paid by the Employee in cash or, if permitted by the Committee
in its sole discretion at the time of exercise, in shares of Common Stock
currently held by the Employee at the time of exercise, or by a combination of
cash and such currently held shares. Any shares of Common Stock delivered in
payment of the Exercise Price shall be valued at their then Fair Market Value.
10. Taxes. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld
or otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares of Common Stock subject to the Option. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the Employee. The
Company may, in its discretion, hold the stock certificate or certificates to
which the Employee is entitled upon the exercise of the Option as security for
the payment of such withholding tax liability until cash sufficient to pay that
liability has been accumulated. In addition, at any time that the Company
becomes subject to a withholding obligation under applicable law with respect
to the Option (the
-4-
"Tax Date"), except as set forth below, the Employee may elect to satisfy, in
whole or in part, the Employee's related personal tax liabilities (an
"Election") by (a) directing the Company to withhold from shares of Common
Stock issuable in the related exercise either a specified number of shares of
Common Stock or shares of Common Stock having a specified value (in each case
not in excess of the related personal tax liabilities), (b) tendering shares of
Common Stock previously issued pursuant to the exercise of a stock option or
other shares of Common Stock owned by the Employee, or (c) combining any or all
of the foregoing Elections in any fashion. An Election shall be irrevocable.
The withheld shares and other shares of Common Stock and other shares of Common
Stock tendered in payment shall be valued at their Fair Market Value on the Tax
Date. The Committee may disapprove of any Election, suspend or terminate the
right to make Elections or provide that the right to make Elections shall not
apply to particular shares of Common Stock or exercises. The Committee may
impose any additional conditions or restrictions on the right to make an
Election as it shall deem appropriate, including any limitations necessary to
comply with Section 16 of the Exchange Act.
11. No Rights as a Stockholder. The Employee shall not have any of the
rights of a stockholder with respect to the shares of Common Stock underlying
the Option until the Option is exercised and the Employee receives such shares.
12. Restrictive Legend. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the shares of Common Stock purchased
pursuant to the exercise of the Option shall bear an appropriate legend in form
and substance, as determined by the Company, giving notice of applicable
restrictions on transfer under or with respect to such laws.
13. Employee Certification. The Employee covenants and agrees with the
Company that if, at the time of exercise of the Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act (as
defined in Paragraph 18), which Registration Statement shall have become
effective and shall include a prospectus that is current with respect to the
shares subject to the Option, then the Employee shall execute and deliver a
certificate to the Company indicating (a) that he is purchasing the shares for
his own account and not with a view to the resale or distribution thereof, (b)
that any subsequent offer for sale or sale of any such shares shall be made
either pursuant to (i) a Registration Statement on an appropriate form under
the Securities Act, which Registration Statement shall have become effective
and shall be current with respect to the shares being offered and sold, or (ii)
a specific exemption from the registration requirements of the Securities Act
and any rules and regulations thereunder and applicable state securities laws
and regulations, but in claiming such exemption, the Employee shall, prior to
any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption, and (c) that the Employee agrees that the certificate or
certificates evidencing such shares shall bear a legend to the effect of the
foregoing.
14. Plan is Controlling. This Agreement is subject to all terms,
conditions, limitations and restrictions contained in the Plan, which shall be
controlling in the event of any conflicting or inconsistent provisions.
-5-
15. Not a Contract of Employment. This Agreement is not a contract of
employment and the terms of the Employee's employment shall not be affected
hereby or by any agreement referred to herein except to the extent specifically
so provided herein or therein. Nothing herein shall be construed to impose any
obligation on the Company to continue the Employee's employment, and it shall
not impose any obligation on the Employee's part to remain in the employ of the
Company.
16. No Duty to Disclose. The Employee acknowledges and agrees that
neither the Company, its stockholders nor its directors and officers, has any
duty or obligation to disclose to the Employee any material information
regarding the business of the Company or affecting the value of the Common
Stock before or at the time of a termination of the employment of the Employee
by the Company, including, without limitation, any information concerning plans
for the Company to make a public offering of its securities or to be acquired
by or merged with or into another firm or entity.
17. Anti-Dilution Provisions.
(a) Adjustments Generally. The Exercise Price and the number of
shares of Common Stock (or other securities or property) issuable upon exercise
of the Option shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Paragraph 17.
(b) Common Stock Reorganization. If the Company shall after the
date of issuance of the Option subdivide its outstanding shares of Common Stock
into a greater number of shares or consolidate its outstanding shares of Common
Stock into a lesser number of shares (any such event being called a "Common
Stock Reorganization"), then (i) the Exercise Price shall be adjusted,
effective immediately after the record date at which the holders of shares of
Common Stock are determined for purposes of such Common Stock Reorganization,
to a price determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such record date before giving
effect to such Common Stock Reorganization and the denominator of which shall
be the number of shares of Common Stock outstanding after giving effect to such
Common Stock Reorganization, and (ii) the number of shares of Common Stock
subject to purchase upon exercise of the Option shall be adjusted, effective at
such time, to a number determined by multiplying the number of shares of Common
Stock subject to purchase immediately before such Common Stock Reorganization
by a fraction, the numerator of which shall be the number of shares outstanding
after giving effect to such Common Stock Reorganization and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
before such Common Stock Reorganization.
(c) Capital Reorganization. If after the date of issuance of the
Option there shall be any consolidation or merger to which the Company is a
party (whether or not the Company is the surviving entity), other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a
Common Stock Reorganization or a change in par value), in, outstanding shares
of Common Stock, or any sale, assignment, lease, exchange, conveyance or other
transfer (in one transaction or series of related transactions) of the property
of the Company as an entirety or substantially as an entirety or all or
-6-
substantially all of the outstanding equity securities of the Company to any
person or group of related persons for the purposes of Section 13(d) of the
Exchange Act (any such event being called a "Capital Reorganization"), then,
effective upon the effective date of such Capital Reorganization, the Employee
shall have the right to purchase, upon exercise of the Option, the kind and
amount of shares of stock and other securities and property (including cash)
which the Employee would have owned or have been entitled to receive after such
Capital Reorganization if the Option had been exercised immediately prior to
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, the Company or the successor or surviving corporation, as the
case may be, shall execute and deliver to the Employee an agreement as to the
Employee's rights in accordance with this Paragraph 17(c), providing for
subsequent adjustments as nearly equivalent as may be practicable to the
adjustments provided for in this Paragraph 17(c). The provisions of this
Paragraph 17(c) shall similarly apply to successive Capital Reorganizations.
(d) Certain Other Events. If any event occurs after the date of
issuance of the Option as to which the foregoing provisions of this Paragraph
17 are not strictly applicable or, if strictly applicable, would not, in the
good faith judgment of the Committee, fairly protect the purchase rights of the
Employee in accordance with the essential intent and principles of such
provisions, then the Committee shall make such adjustments in the application
of such provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of the Committee, to
protect such purchase rights as aforesaid.
(e) Adjustment Rules. (i) Any adjustments pursuant to this
Paragraph 17 shall be made successively whenever an event referred to herein
shall occur.
(ii) If the Company shall set a record date to determine the
holders of shares of Common Stock for purposes of a Common Stock Reorganization
or Capital Reorganization, and shall legally abandon such action prior to
effecting such action, then no adjustment shall be made pursuant to this
Paragraph 17 in respect of such action.
(iii) Any other adjustments provided for in the Plan shall
also be applicable to the Option.
(iv) No adjustment in the amount of shares purchasable upon
exercise of the Option or in the Exercise Price shall be made hereunder unless
such adjustment increases or decreases such amount or price by one percent or
more, but any such lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together
with any adjustments so carried forward shall serve to adjust such amount or
price by one percent or more.
(v) No adjustment in the Exercise Price shall be made
hereunder if such adjustment would reduce the exercise price to an amount below
par value of the Common Stock, which par value shall initially be $.01 per
share of Common Stock.
(f) Notice of Adjustment. The Company shall give the Employee
reasonable notice of the record date or effective date, as the case may be, of
any action which requires or might
-7-
require an adjustment or readjustment pursuant to this Paragraph 17. Such
notice shall describe such event in reasonable detail and specify the record
date or effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, the Company shall give reasonable
notice to the Employee of such adjustment and computation promptly after such
adjustment becomes determinable.
18. Certain Defined Terms. The following terms, as used in this
Agreement, have the following respective meanings:
(a) "Affiliate" means, with respect to any Person, any Person who,
directly or indirectly, controls, is controlled by or is under common control
with that Person.
(b) "Business Day" means (i) if any class of common stock of the
Company is listed or admitted to trading on a national securities exchange, a
day on which the principal national securities exchange on which such class of
common stock is listed or admitted to trading is open for business or (ii) if
no class of common stock of the Company is so listed or admitted to trading, a
day on which the New York Stock Exchange is open for business.
(c) "Capital Reorganization" shall have the meaning set forth in
Paragraph 17(c).
(d) "Cause" shall have the meaning set forth in Section 1 of the
Employment Agreement.
(e) "Change in Control" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(f) "Common Stock Reorganization" shall have the meaning set forth
in Paragraph 17(b).
(g) "Employment Agreement" means that certain Employment Agreement
dated as of April 29, 1999, as it may be amended from time to time, by and
between the Company and the Employee.
(h) "Exercisability Value" shall have the meaning set forth in
Paragraph 4(b).
(i) "Good Reason" shall have the meaning set forth in Section 1 of
the Employment Agreement.
(j) "Permanent Disability" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(k) "Person" or "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
-8-
(l) "Securities Act" shall mean the Securities Act of 1933 and any
similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
(m) "Termination of Employment" shall have the meaning set forth
in Section 1 of the Employment Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date written below.
DATED: May 18, 1999 CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
-------------------------------------
Thomas O. Hicks
Chief Executive Officer
ACCEPTED BY:
/s/ R. STEVEN HICKS
-----------------------------------
Signature of Employee
Name and Address of Optionee:
R. Steven Hicks
1702 Windsor Road
Austin, Texas 78703
Optionee Taxpayer Identification Number
-10-
EXHIBIT 10.68
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: D. Geoffrey Armstrong
DATE OF GRANT: April 9, 1999
GRANTED PURSUANT TO: 1999 Chancellor Media Corporation
Stock Option Plan
NUMBER OF UNDERLYING SHARES: 500,000 shares
EXERCISE PRICE: $46.63 per share
VESTING SCHEDULE: As described in Paragraph 4 below
This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of April 9, 1999 (the "Date of Grant") between
Chancellor Media Corporation, a Delaware corporation (the "Company"), and D.
Geoffrey Armstrong (the "Employee"). It is the intent of the Company and the
Employee that the Option (as defined in Paragraph 1 below) will not qualify as
an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended from time to time. Terms not defined herein shall have the
meanings ascribed thereto in the Plan.
1. Grant. The Employee is granted an option to purchase 500,000 shares
(the "Option Shares") of the Common Stock of the Company (the "Option"). The
Option is granted under the 1999 Chancellor Media Corporation Stock Option
Plan, as it may be amended from time to time (the "Plan"), a copy of which is
enclosed herewith, and is subject to the terms of the Plan and of this
Agreement. The Option granted hereunder is a matter of separate inducement and
is not in lieu of salary or other compensation for the Employee's services. The
Employee acknowledges and understands that as of the Date of Grant the Plan has
not been approved by the stockholders of the Company and, as provided in
Paragraph 6, that the Option shall expire and no longer be exercisable if such
stockholder approval is not obtained at the first annual stockholders meeting
after the Date of Grant.
2. Exercise Price. The Option's exercise price is $46.63 per share
(the "Exercise Price").
3. Term. The Option, unless sooner terminated or exercised in full,
shall expire at 5:00 p.m., Dallas, Texas time, on the 10th anniversary of the
Date of Grant, and, except as expressly contained in this Agreement, no portion
of the Option may be exercised after such date.
4. Vesting and Exercisability.
(a) Except as otherwise provided in Paragraph 5, the Option Shares
shall become "Vested Option Shares" with respect to 20% of the Option Shares on
each anniversary of the Date
of Grant, so that all of the Option Shares shall be vested and become Vested
Option Shares by the fifth anniversary of the Date of Grant.
(b) Except as otherwise provided in Paragraph 6, the Option shall
become exercisable to acquire Vested Option Shares at any time or from time to
time after the first to occur of (i) a Change in Control (as defined in
Paragraph 18) or (ii) the date on which the average Fair Market Value of the
Common Stock, calculated on a daily basis (when added to any cash consideration
attributable to any prior Capital Reorganization (as defined in Paragraph 17),
equals or exceeds $100.00 per share (the "Exercisability Value") for a period
of 30 consecutive days (excluding non-Business Days (as defined in Paragraph
18) for purposes of calculating the average Fair Market Value during such
30-day period) during the period from (and including) the Date of Grant through
(and including) the fifth anniversary of the Date of Grant. Upon the completion
of a Common Stock Reorganization (as defined in Paragraph 17), the
Exercisability Value shall be adjusted, effective immediately after the record
date at which the holders of shares of Common Stock are determined for purposes
of such Common Stock Reorganization, to a dollar amount determined by
multiplying the Exercisability Value in effect immediately prior to such record
date by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such record date before giving effect to such
Common Stock Reorganization and the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization.
5. Termination of Employment. Notwithstanding Paragraph 4:
(a) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's death, the Option Shares shall
become Vested Option Shares on the date of the Employee's Termination of
Employment (as defined in Paragraph 18). If the Option has become exercisable
on or before the date of the Employee's Termination of Employment, then the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution may, until the
earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of
the Date of Grant or the first anniversary of the date of the Employee's
Termination of Employment, exercise the Option with respect to all or any part
of the Vested Option Shares; provided, however, that in no event will the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the executor or administrator of
the estate of the deceased Employee or the person or persons to whom the
deceased Employee's rights with respect to the Option shall pass by will or the
laws of descent and distribution may exercise the Option with respect to all or
any part of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, on
the first anniversary of the date on which the Option becomes exercisable.
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(b) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's Permanent Disability (as
defined in Paragraph 18), the Option Shares shall become Vested Option Shares
on the date of the Employee's Termination of Employment. If the Option has
become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee or the Employee's legal representatives may,
until the earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth
anniversary of the Date of Grant or the first anniversary of the date of the
Employee's Termination of Employment, exercise the Option with respect to all
or any part of the Vested Option Shares; provided, however, that in no event
will the Employee or the Employee's legal representatives have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the Employee or the Employee's
legal representatives may exercise the Option with respect to all or any part
of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, on the first
anniversary of the date on which the Option becomes exercisable.
(c) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment for
Cause (as defined in Paragraph 18) or the Employee's resignation for other than
Good Reason (as defined in Paragraph 18), no additional Option Shares shall
vest after the date of the Employee's Termination of Employment. If the Option
has become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee may, until the earlier to occur of 5:00 p.m.,
Dallas, Texas time, on the tenth anniversary of the Date of Grant or the 90th
day after the date of the Employee's Termination of Employment, exercise the
Option with respect to all or any part of the Vested Option Shares; provided,
however, that in no event will the Employee have less than 90 days after the
date of the Employee's Termination of Employment to exercise the Option. If the
Option has not become exercisable on or before the date of the Employee's
Termination of Employment, then (i) the Option shall remain in full force and
effect and (ii) if the Option becomes exercisable on or before the fifth
anniversary of the Date of Grant, then the Employee may exercise the Option
with respect to all or any part of the Vested Option Shares until 5:00 p.m.,
Dallas, Texas time, on the 90th day after the date on which the Option becomes
exercisable.
(d) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment
without Cause or the Employee's resignation for Good Reason, the Option Shares
shall become Vested Option Shares on the date of the Employee's Termination of
Employment. If the Option has become exercisable on or before the date of the
Employee's Termination of Employment, then the Employee may, until the later to
occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date of
Grant or the 90th day after the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares. If the Option has not become exercisable on or before the date
of the Employee's Termination of Employment, then (i) the Option shall remain
in full force and effect and (ii) if the Option becomes exercisable on or
before the fifth anniversary of the Date of Grant, then the Employee may
exercise the Option with respect to all or any part of the Vested Option Shares
until 5:00 p.m., Dallas, Texas time, until the tenth anniversary of the Date of
Grant.
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(e) If, pursuant to Paragraph 6, the Option shall terminate earlier
than provided for in this Paragraph 5, then the provisions of Paragraph 6 shall
prevail.
6. Termination of Option. Notwithstanding any provision of the Option
to the contrary, the Option shall expire and no longer be exercisable (a) on
April 9, 2004, if the Option Shares have not become exercisable by 5:00 p.m.,
Dallas, Texas time on such date, or (b) on the date of the first annual meeting
of the holders of Common Stock after the Date of Grant if the Plan has not been
approved by the requisite vote of the stockholders of the Company by 5:00 p.m.,
Dallas, Texas time on such date.
7. Option Not Transferable. During the Employee's lifetime, the Option
shall not be subject in any manner to alienation, anticipation, sale,
assignment, pledge, encumbrance or other transfer and shall be exercisable only
by the Employee. Upon the death of the Employee, (a) the Option shall be
exercisable only by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights with
respect to the Option shall pass by will or the laws of descent and
distribution, and (b) the Option shall be exercisable as specified in this
Agreement.
8. Impact of Other Options. The Employee may exercise the exercisable
portion of the Option regardless of whether any other stock option that the
Employee has been granted by the Company remains unexercised. In no event may
the Employee exercise the Option for a fraction of a share of Common Stock.
9. Method of Exercise. Any exercise of the Option shall be in writing
addressed to the Corporate Secretary of the Company at the principal business
office of the Company, specifying the Option being exercised and the number of
shares of Common Stock to be purchased, and specifying a business day not more
than 10 days from the date such notice is given for the payment of the purchase
price against delivery of the shares of Common Stock being purchased. Subject
to the terms of the Plan and this Agreement, the Company shall cause
certificates for the shares of Common Stock so purchased to be delivered at the
principal business office of the Company, against payment of the full purchase
price, on the date specified in the notice of exercise. The Option's Exercise
Price shall be paid by the Employee in cash or, if permitted by the Committee
in its sole discretion at the time of exercise, in shares of Common Stock
currently held by the Employee at the time of exercise, or by a combination of
cash and such currently held shares. Any shares of Common Stock delivered in
payment of the Exercise Price shall be valued at their then Fair Market Value.
10. Taxes. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld
or otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares of Common Stock subject to the Option. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the Employee. The
Company may, in its discretion, hold the stock certificate or certificates to
which the Employee is entitled upon the exercise of the Option as security for
the payment of such withholding tax liability until cash sufficient to pay that
liability has been accumulated. In addition, at any time that the Company
becomes subject to a withholding obligation under applicable law with respect
to the Option (the
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"Tax Date"), except as set forth below, the Employee may elect to satisfy, in
whole or in part, the Employee's related personal tax liabilities (an
"Election") by (a) directing the Company to withhold from shares of Common
Stock issuable in the related exercise either a specified number of shares of
Common Stock or shares of Common Stock having a specified value (in each case
not in excess of the related personal tax liabilities), (b) tendering shares of
Common Stock previously issued pursuant to the exercise of a stock option or
other shares of Common Stock owned by the Employee, or (c) combining any or all
of the foregoing Elections in any fashion. An Election shall be irrevocable.
The withheld shares and other shares of Common Stock and other shares of Common
Stock tendered in payment shall be valued at their Fair Market Value on the Tax
Date. The Committee may disapprove of any Election, suspend or terminate the
right to make Elections or provide that the right to make Elections shall not
apply to particular shares of Common Stock or exercises. The Committee may
impose any additional conditions or restrictions on the right to make an
Election as it shall deem appropriate, including any limitations necessary to
comply with Section 16 of the Exchange Act.
11. No Rights as a Stockholder. The Employee shall not have any of the
rights of a stockholder with respect to the shares of Common Stock underlying
the Option until the Option is exercised and the Employee receives such shares.
12. Restrictive Legend. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the shares of Common Stock purchased
pursuant to the exercise of the Option shall bear an appropriate legend in form
and substance, as determined by the Company, giving notice of applicable
restrictions on transfer under or with respect to such laws.
13. Employee Certification. The Employee covenants and agrees with the
Company that if, at the time of exercise of the Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act (as
defined in Paragraph 18), which Registration Statement shall have become
effective and shall include a prospectus that is current with respect to the
shares subject to the Option, then the Employee shall execute and deliver a
certificate to the Company indicating (a) that he is purchasing the shares for
his own account and not with a view to the resale or distribution thereof, (b)
that any subsequent offer for sale or sale of any such shares shall be made
either pursuant to (i) a Registration Statement on an appropriate form under
the Securities Act, which Registration Statement shall have become effective
and shall be current with respect to the shares being offered and sold, or (ii)
a specific exemption from the registration requirements of the Securities Act
and any rules and regulations thereunder and applicable state securities laws
and regulations, but in claiming such exemption, the Employee shall, prior to
any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption, and (c) that the Employee agrees that the certificate or
certificates evidencing such shares shall bear a legend to the effect of the
foregoing.
14. Plan is Controlling. This Agreement is subject to all terms,
conditions, limitations and restrictions contained in the Plan, which shall be
controlling in the event of any conflicting or inconsistent provisions.
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15. Not a Contract of Employment. This Agreement is not a contract of
employment and the terms of the Employee's employment shall not be affected
hereby or by any agreement referred to herein except to the extent specifically
so provided herein or therein. Nothing herein shall be construed to impose any
obligation on the Company to continue the Employee's employment, and it shall
not impose any obligation on the Employee's part to remain in the employ of the
Company.
16. No Duty to Disclose. The Employee acknowledges and agrees that
neither the Company, its stockholders nor its directors and officers, has any
duty or obligation to disclose to the Employee any material information
regarding the business of the Company or affecting the value of the Common
Stock before or at the time of a termination of the employment of the Employee
by the Company, including, without limitation, any information concerning plans
for the Company to make a public offering of its securities or to be acquired
by or merged with or into another firm or entity.
17. Anti-Dilution Provisions.
(a) Adjustments Generally. The Exercise Price and the number of
shares of Common Stock (or other securities or property) issuable upon exercise
of the Option shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Paragraph 17.
(b) Common Stock Reorganization. If the Company shall after the
date of issuance of the Option subdivide its outstanding shares of Common Stock
into a greater number of shares or consolidate its outstanding shares of Common
Stock into a lesser number of shares (any such event being called a "Common
Stock Reorganization"), then (i) the Exercise Price shall be adjusted,
effective immediately after the record date at which the holders of shares of
Common Stock are determined for purposes of such Common Stock Reorganization,
to a price determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such record date before giving
effect to such Common Stock Reorganization and the denominator of which shall
be the number of shares of Common Stock outstanding after giving effect to such
Common Stock Reorganization, and (ii) the number of shares of Common Stock
subject to purchase upon exercise of the Option shall be adjusted, effective at
such time, to a number determined by multiplying the number of shares of Common
Stock subject to purchase immediately before such Common Stock Reorganization
by a fraction, the numerator of which shall be the number of shares outstanding
after giving effect to such Common Stock Reorganization and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
before such Common Stock Reorganization.
(c) Capital Reorganization. If after the date of issuance of the
Option there shall be any consolidation or merger to which the Company is a
party (whether or not the Company is the surviving entity), other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a
Common Stock Reorganization or a change in par value), in, outstanding shares
of Common Stock, or any sale, assignment, lease, exchange, conveyance or other
transfer (in one transaction or series of related transactions) of the property
of the Company as an entirety or substantially as an entirety or all or
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substantially all of the outstanding equity securities of the Company to any
person or group of related persons for the purposes of Section 13(d) of the
Exchange Act (any such event being called a "Capital Reorganization"), then,
effective upon the effective date of such Capital Reorganization, the Employee
shall have the right to purchase, upon exercise of the Option, the kind and
amount of shares of stock and other securities and property (including cash)
which the Employee would have owned or have been entitled to receive after such
Capital Reorganization if the Option had been exercised immediately prior to
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, the Company or the successor or surviving corporation, as the
case may be, shall execute and deliver to the Employee an agreement as to the
Employee's rights in accordance with this Paragraph 17(c), providing for
subsequent adjustments as nearly equivalent as may be practicable to the
adjustments provided for in this Paragraph 17(c). The provisions of this
Paragraph 17(c) shall similarly apply to successive Capital Reorganizations.
(d) Certain Other Events. If any event occurs after the date of
issuance of the Option as to which the foregoing provisions of this Paragraph
17 are not strictly applicable or, if strictly applicable, would not, in the
good faith judgment of the Committee, fairly protect the purchase rights of the
Employee in accordance with the essential intent and principles of such
provisions, then the Committee shall make such adjustments in the application
of such provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of the Committee, to
protect such purchase rights as aforesaid.
(e) Adjustment Rules. (i) Any adjustments pursuant to this
Paragraph 17 shall be made successively whenever an event referred to herein
shall occur.
(ii) If the Company shall set a record date to determine the
holders of shares of Common Stock for purposes of a Common Stock Reorganization
or Capital Reorganization, and shall legally abandon such action prior to
effecting such action, then no adjustment shall be made pursuant to this
Paragraph 17 in respect of such action.
(iii) Any other adjustments provided for in the Plan shall
also be applicable to the Option.
(iv) No adjustment in the amount of shares purchasable upon
exercise of the Option or in the Exercise Price shall be made hereunder unless
such adjustment increases or decreases such amount or price by one percent or
more, but any such lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together
with any adjustments so carried forward shall serve to adjust such amount or
price by one percent or more.
(v) No adjustment in the Exercise Price shall be made
hereunder if such adjustment would reduce the exercise price to an amount below
par value of the Common Stock, which par value shall initially be $.01 per
share of Common Stock.
(f) Notice of Adjustment. The Company shall give the Employee
reasonable notice of the record date or effective date, as the case may be, of
any action which requires or might
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require an adjustment or readjustment pursuant to this Paragraph 17. Such
notice shall describe such event in reasonable detail and specify the record
date or effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, the Company shall give reasonable
notice to the Employee of such adjustment and computation promptly after such
adjustment becomes determinable.
18. Certain Defined Terms. The following terms, as used in this
Agreement, have the following respective meanings:
(a) "Affiliate" means, with respect to any Person, any Person who,
directly or indirectly, controls, is controlled by or is under common control
with that Person.
(b) "Business Day" means (i) if any class of common stock of the
Company is listed or admitted to trading on a national securities exchange, a
day on which the principal national securities exchange on which such class of
common stock is listed or admitted to trading is open for business or (ii) if
no class of common stock of the Company is so listed or admitted to trading, a
day on which the New York Stock Exchange is open for business.
(c) "Capital Reorganization" shall have the meaning set forth in
Paragraph 17(c).
(d) "Cause" shall have the meaning set forth in Section 1 of the
Employment Agreement.
(e) "Change in Control" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(f) "Common Stock Reorganization" shall have the meaning set forth
in Paragraph 17(b).
(g) "Employment Agreement" means that certain Employment Agreement
dated as of May ___, 1999, as it may be amended from time to time, by and
between the Company and the Employee.
(h) "Exercisability Value" shall have the meaning set forth in
Paragraph 4(b).
(i) "Good Reason" shall have the meaning set forth in Section 1 of
the Employment Agreement.
(j) "Permanent Disability" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(k) "Person" or "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
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(l) "Securities Act" shall mean the Securities Act of 1933 and any
similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
(m) "Termination of Employment" shall have the meaning set forth
in Section 1 of the Employment Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date written below.
DATED: May 18, 1999 CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
-------------------------------------
Thomas O. Hicks
Chief Executive Officer
ACCEPTED BY:
/s/ D. GEOFFREY ARMSTRONG
-----------------------------------
Signature of Employee
Name and Address of Optionee:
D. Geoffrey Armstrong
4301 Michaels Cove
Austin, Texas 78746
Optionee Taxpayer Identification Number
-10-
EXHIBIT 10.69
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: William S. Banowsky, Jr.
DATE OF GRANT: April 9, 1999
GRANTED PURSUANT TO: 1999 Chancellor Media Corporation
Stock Option Plan
NUMBER OF UNDERLYING SHARES: 400,000 shares
EXERCISE PRICE: $46.63 per share
VESTING SCHEDULE: As described in Paragraph 4 below
This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of April 9, 1999 (the "Date of Grant") between
Chancellor Media Corporation, a Delaware corporation (the "Company"), and
William S. Banowsky, Jr. (the "Employee"). It is the intent of the Company and
the Employee that the Option (as defined in Paragraph 1 below) will not qualify
as an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended from time to time. Terms not defined herein shall have the
meanings ascribed thereto in the Plan.
1. Grant. The Employee is granted an option to purchase 400,000 shares
(the "Option Shares") of the Common Stock of the Company (the "Option"). The
Option is granted under the 1999 Chancellor Media Corporation Stock Option Plan,
as it may be amended from time to time (the "Plan"), a copy of which is enclosed
herewith, and is subject to the terms of the Plan and of this Agreement. The
Option granted hereunder is a matter of separate inducement and is not in lieu
of salary or other compensation for the Employee's services. The Employee
acknowledges and understands that as of the Date of Grant the Plan has not been
approved by the stockholders of the Company and, as provided in Paragraph 6,
that the Option shall expire and no longer be exercisable if such stockholder
approval is not obtained at the first annual stockholders meeting after the Date
of Grant.
2. Exercise Price. The Option's exercise price is $46.63 per share (the
"Exercise Price").
3. Term. The Option, unless sooner terminated or exercised in full,
shall expire at 5:00 p.m., Dallas, Texas time, on the 10th anniversary of the
Date of Grant, and, except as expressly contained in this Agreement, no portion
of the Option may be exercised after such date.
4. Vesting and Exercisability.
(a) Except as otherwise provided in Paragraph 5, the Option Shares
shall become "Vested Option Shares" with respect to 20% of the Option Shares on
each anniversary of the Date
of Grant, so that all of the Option Shares shall be vested and become Vested
Option Shares by the fifth anniversary of the Date of Grant.
(b) Except as otherwise provided in Paragraph 6, the Option
shall become exercisable to acquire Vested Option Shares at any time or from
time to time after the first to occur of (i) a Change in Control (as defined in
Paragraph 18) or (ii) the date on which the average Fair Market Value of the
Common Stock, calculated on a daily basis (when added to any cash consideration
attributable to any prior Capital Reorganization (as defined in Paragraph 17),
equals or exceeds $100.00 per share (the "Exercisability Value") for a period of
30 consecutive days (excluding non-Business Days (as defined in Paragraph 18)
for purposes of calculating the average Fair Market Value during such 30-day
period) during the period from (and including) the Date of Grant through (and
including) the fifth anniversary of the Date of Grant. Upon the completion of a
Common Stock Reorganization (as defined in Paragraph 17), the Exercisability
Value shall be adjusted, effective immediately after the record date at which
the holders of shares of Common Stock are determined for purposes of such Common
Stock Reorganization, to a dollar amount determined by multiplying the
Exercisability Value in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such record date before giving effect to such Common Stock
Reorganization and the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock
Reorganization.
5. Termination of Employment. Notwithstanding Paragraph 4:
(a) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's death, the Option Shares shall
become Vested Option Shares on the date of the Employee's Termination of
Employment (as defined in Paragraph 18). If the Option has become exercisable on
or before the date of the Employee's Termination of Employment, then the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution may, until the
earlier to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of
the Date of Grant or the first anniversary of the date of the Employee's
Termination of Employment, exercise the Option with respect to all or any part
of the Vested Option Shares; provided, however, that in no event will the
executor or administrator of the estate of the deceased Employee or the person
or persons to whom the deceased Employee's rights with respect to the Option
shall pass by will or the laws of descent and distribution have less than 90
days after the date of the Employee's Termination of Employment to exercise the
Option. If the Option has not become exercisable on or before the date of the
Employee's Termination of Employment, then (i) the Option shall remain in full
force and effect and (ii) if the Option becomes exercisable on or before the
fifth anniversary of the Date of Grant, then the executor or administrator of
the estate of the deceased Employee or the person or persons to whom the
deceased Employee's rights with respect to the Option shall pass by will or the
laws of descent and distribution may exercise the Option with respect to all or
any part of the Vested Option Shares until 5:00 p.m., Dallas, Texas time, on the
first anniversary of the date on which the Option becomes exercisable.
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(b) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's Permanent Disability (as defined
in Paragraph 18), the Option Shares shall become Vested Option Shares on the
date of the Employee's Termination of Employment. If the Option has become
exercisable on or before the date of the Employee's Termination of Employment,
then the Employee or the Employee's legal representatives may, until the earlier
to occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date
of Grant or the first anniversary of the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares; provided, however, that in no event will the Employee or the
Employee's legal representatives have less than 90 days after the date of the
Employee's Termination of Employment to exercise the Option. If the Option has
not become exercisable on or before the date of the Employee's Termination of
Employment, then (i) the Option shall remain in full force and effect and (ii)
if the Option becomes exercisable on or before the fifth anniversary of the Date
of Grant, then the Employee or the Employee's legal representatives may exercise
the Option with respect to all or any part of the Vested Option Shares until
5:00 p.m., Dallas, Texas time, on the first anniversary of the date on which the
Option becomes exercisable.
(c) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment for
Cause (as defined in Paragraph 18) or the Employee's resignation for other than
Good Reason (as defined in Paragraph 18), no additional Option Shares shall vest
after the date of the Employee's Termination of Employment. If the Option has
become exercisable on or before the date of the Employee's Termination of
Employment, then the Employee may, until the earlier to occur of 5:00 p.m.,
Dallas, Texas time, on the tenth anniversary of the Date of Grant or the 90th
day after the date of the Employee's Termination of Employment, exercise the
Option with respect to all or any part of the Vested Option Shares; provided,
however, that in no event will the Employee have less than 90 days after the
date of the Employee's Termination of Employment to exercise the Option. If the
Option has not become exercisable on or before the date of the Employee's
Termination of Employment, then (i) the Option shall remain in full force and
effect and (ii) if the Option becomes exercisable on or before the fifth
anniversary of the Date of Grant, then the Employee may exercise the Option with
respect to all or any part of the Vested Option Shares until 5:00 p.m., Dallas,
Texas time, on the 90th day after the date on which the Option becomes
exercisable.
(d) Upon the termination of the Employee's employment with the
Company or any Subsidiary due to the Employee's termination of employment
without Cause or the Employee's resignation for Good Reason, the Option Shares
shall become Vested Option Shares on the date of the Employee's Termination of
Employment. If the Option has become exercisable on or before the date of the
Employee's Termination of Employment, then the Employee may, until the later to
occur of 5:00 p.m., Dallas, Texas time, on the tenth anniversary of the Date of
Grant or the 90th day after the date of the Employee's Termination of
Employment, exercise the Option with respect to all or any part of the Vested
Option Shares. If the Option has not become exercisable on or before the date of
the Employee's Termination of Employment, then (i) the Option shall remain in
full force and effect and (ii) if the Option becomes exercisable on or before
the fifth anniversary of the Date of Grant, then the Employee may exercise the
Option with respect to all or any part of the Vested Option Shares until 5:00
p.m., Dallas, Texas time, until the tenth anniversary of the Date of Grant.
-3-
(e) If, pursuant to Paragraph 6, the Option shall terminate
earlier than provided for in this Paragraph 5, then the provisions of Paragraph
6 shall prevail.
6. Termination of Option. Notwithstanding any provision of the Option
to the contrary, the Option shall expire and no longer be exercisable (a) on
April 9, 2004, if the Option Shares have not become exercisable by 5:00 p.m.,
Dallas, Texas time on such date, or (b) on the date of the first annual meeting
of the holders of Common Stock after the Date of Grant if the Plan has not been
approved by the requisite vote of the stockholders of the Company by 5:00 p.m.,
Dallas, Texas time on such date.
7. Option Not Transferable. During the Employee's lifetime, the Option
shall not be subject in any manner to alienation, anticipation, sale,
assignment, pledge, encumbrance or other transfer and shall be exercisable only
by the Employee. Upon the death of the Employee, (a) the Option shall be
exercisable only by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights with
respect to the Option shall pass by will or the laws of descent and
distribution, and (b) the Option shall be exercisable as specified in this
Agreement.
8. Impact of Other Options. The Employee may exercise the exercisable
portion of the Option regardless of whether any other stock option that the
Employee has been granted by the Company remains unexercised. In no event may
the Employee exercise the Option for a fraction of a share of Common Stock.
9. Method of Exercise. Any exercise of the Option shall be in writing
addressed to the Corporate Secretary of the Company at the principal business
office of the Company, specifying the Option being exercised and the number of
shares of Common Stock to be purchased, and specifying a business day not more
than 10 days from the date such notice is given for the payment of the purchase
price against delivery of the shares of Common Stock being purchased. Subject to
the terms of the Plan and this Agreement, the Company shall cause certificates
for the shares of Common Stock so purchased to be delivered at the principal
business office of the Company, against payment of the full purchase price, on
the date specified in the notice of exercise. The Option's Exercise Price shall
be paid by the Employee in cash or, if permitted by the Committee in its sole
discretion at the time of exercise, in shares of Common Stock currently held by
the Employee at the time of exercise, or by a combination of cash and such
currently held shares. Any shares of Common Stock delivered in payment of the
Exercise Price shall be valued at their then Fair Market Value.
10. Taxes. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares of Common Stock subject to the Option. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the Employee. The
Company may, in its discretion, hold the stock certificate or certificates to
which the Employee is entitled upon the exercise of the Option as security for
the payment of such withholding tax liability until cash sufficient to pay that
liability has been accumulated. In addition, at any time that the Company
becomes subject to a withholding obligation under applicable law with respect to
the Option (the
-4-
"Tax Date"), except as set forth below, the Employee may elect to satisfy, in
whole or in part, the Employee's related personal tax liabilities (an
"Election") by (a) directing the Company to withhold from shares of Common Stock
issuable in the related exercise either a specified number of shares of Common
Stock or shares of Common Stock having a specified value (in each case not in
excess of the related personal tax liabilities), (b) tendering shares of Common
Stock previously issued pursuant to the exercise of a stock option or other
shares of Common Stock owned by the Employee, or (c) combining any or all of the
foregoing Elections in any fashion. An Election shall be irrevocable. The
withheld shares and other shares of Common Stock and other shares of Common
Stock tendered in payment shall be valued at their Fair Market Value on the Tax
Date. The Committee may disapprove of any Election, suspend or terminate the
right to make Elections or provide that the right to make Elections shall not
apply to particular shares of Common Stock or exercises. The Committee may
impose any additional conditions or restrictions on the right to make an
Election as it shall deem appropriate, including any limitations necessary to
comply with Section 16 of the Exchange Act.
11. No Rights as a Stockholder. The Employee shall not have any of the
rights of a stockholder with respect to the shares of Common Stock underlying
the Option until the Option is exercised and the Employee receives such shares.
12. Restrictive Legend. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the shares of Common Stock purchased
pursuant to the exercise of the Option shall bear an appropriate legend in form
and substance, as determined by the Company, giving notice of applicable
restrictions on transfer under or with respect to such laws.
13. Employee Certification. The Employee covenants and agrees with the
Company that if, at the time of exercise of the Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act (as
defined in Paragraph 18), which Registration Statement shall have become
effective and shall include a prospectus that is current with respect to the
shares subject to the Option, then the Employee shall execute and deliver a
certificate to the Company indicating (a) that he is purchasing the shares for
his own account and not with a view to the resale or distribution thereof, (b)
that any subsequent offer for sale or sale of any such shares shall be made
either pursuant to (i) a Registration Statement on an appropriate form under the
Securities Act, which Registration Statement shall have become effective and
shall be current with respect to the shares being offered and sold, or (ii) a
specific exemption from the registration requirements of the Securities Act and
any rules and regulations thereunder and applicable state securities laws and
regulations, but in claiming such exemption, the Employee shall, prior to any
offer for sale or sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Company as to the applicability of such
exemption, and (c) that the Employee agrees that the certificate or certificates
evidencing such shares shall bear a legend to the effect of the foregoing.
14. Plan is Controlling. This Agreement is subject to all terms,
conditions, limitations and restrictions contained in the Plan, which shall be
controlling in the event of any conflicting or inconsistent provisions.
-5-
15. Not a Contract of Employment. This Agreement is not a contract of
employment and the terms of the Employee's employment shall not be affected
hereby or by any agreement referred to herein except to the extent specifically
so provided herein or therein. Nothing herein shall be construed to impose any
obligation on the Company to continue the Employee's employment, and it shall
not impose any obligation on the Employee's part to remain in the employ of the
Company.
16. No Duty to Disclose. The Employee acknowledges and agrees that
neither the Company, its stockholders nor its directors and officers, has any
duty or obligation to disclose to the Employee any material information
regarding the business of the Company or affecting the value of the Common Stock
before or at the time of a termination of the employment of the Employee by the
Company, including, without limitation, any information concerning plans for the
Company to make a public offering of its securities or to be acquired by or
merged with or into another firm or entity.
17. Anti-Dilution Provisions.
(a) Adjustments Generally. The Exercise Price and the number
of shares of Common Stock (or other securities or property) issuable upon
exercise of the Option shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Paragraph 17.
(b) Common Stock Reorganization. If the Company shall after
the date of issuance of the Option subdivide its outstanding shares of Common
Stock into a greater number of shares or consolidate its outstanding shares of
Common Stock into a lesser number of shares (any such event being called a
"Common Stock Reorganization"), then (i) the Exercise Price shall be adjusted,
effective immediately after the record date at which the holders of shares of
Common Stock are determined for purposes of such Common Stock Reorganization, to
a price determined by multiplying the Exercise Price in effect immediately prior
to such record date by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date before giving effect to
such Common Stock Reorganization and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such Common
Stock Reorganization, and (ii) the number of shares of Common Stock subject to
purchase upon exercise of the Option shall be adjusted, effective at such time,
to a number determined by multiplying the number of shares of Common Stock
subject to purchase immediately before such Common Stock Reorganization by a
fraction, the numerator of which shall be the number of shares outstanding after
giving effect to such Common Stock Reorganization and the denominator of which
shall be the number of shares of Common Stock outstanding immediately before
such Common Stock Reorganization.
(c) Capital Reorganization. If after the date of issuance of
the Option there shall be any consolidation or merger to which the Company is a
party (whether or not the Company is the surviving entity), other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a Common
Stock Reorganization or a change in par value), in, outstanding shares of Common
Stock, or any sale, assignment, lease, exchange, conveyance or other transfer
(in one transaction or series of related transactions) of the property of the
Company as an entirety or substantially as an entirety or all or
-6-
substantially all of the outstanding equity securities of the Company to any
person or group of related persons for the purposes of Section 13(d) of the
Exchange Act (any such event being called a "Capital Reorganization"), then,
effective upon the effective date of such Capital Reorganization, the Employee
shall have the right to purchase, upon exercise of the Option, the kind and
amount of shares of stock and other securities and property (including cash)
which the Employee would have owned or have been entitled to receive after such
Capital Reorganization if the Option had been exercised immediately prior to
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, the Company or the successor or surviving corporation, as the
case may be, shall execute and deliver to the Employee an agreement as to the
Employee's rights in accordance with this Paragraph 17(c), providing for
subsequent adjustments as nearly equivalent as may be practicable to the
adjustments provided for in this Paragraph 17(c). The provisions of this
Paragraph 17(c) shall similarly apply to successive Capital Reorganizations.
(d) Certain Other Events. If any event occurs after the date of
issuance of the Option as to which the foregoing provisions of this Paragraph 17
are not strictly applicable or, if strictly applicable, would not, in the good
faith judgment of the Committee, fairly protect the purchase rights of the
Employee in accordance with the essential intent and principles of such
provisions, then the Committee shall make such adjustments in the application of
such provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of the Committee, to
protect such purchase rights as aforesaid.
(e) Adjustment Rules. (i) Any adjustments pursuant to this Paragraph 17
shall be made successively whenever an event referred to herein shall occur.
(ii) If the Company shall set a record date to
determine the holders of shares of Common Stock for purposes of a Common Stock
Reorganization or Capital Reorganization, and shall legally abandon such action
prior to effecting such action, then no adjustment shall be made pursuant to
this Paragraph 17 in respect of such action.
(iii) Any other adjustments provided for in the Plan
shall also be applicable to the Option.
(iv) No adjustment in the amount of shares
purchasable upon exercise of the Option or in the Exercise Price shall be made
hereunder unless such adjustment increases or decreases such amount or price by
one percent or more, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall serve to adjust such
amount or price by one percent or more.
(v) No adjustment in the Exercise Price shall be made
hereunder if such adjustment would reduce the exercise price to an amount below
par value of the Common Stock, which par value shall initially be $.01 per share
of Common Stock.
(f) Notice of Adjustment. The Company shall give the Employee
reasonable notice of the record date or effective date, as the case may be, of
any action which requires or might
-7-
require an adjustment or readjustment pursuant to this Paragraph 17. Such notice
shall describe such event in reasonable detail and specify the record date or
effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, the Company shall give reasonable
notice to the Employee of such adjustment and computation promptly after such
adjustment becomes determinable.
18. Certain Defined Terms. The following terms, as used in this
Agreement, have the following respective meanings:
(a) "Affiliate" means, with respect to any Person, any Person
who, directly or indirectly, controls, is controlled by or is under common
control with that Person.
(b) "Business Day" means (i) if any class of common stock of
the Company is listed or admitted to trading on a national securities exchange,
a day on which the principal national securities exchange on which such class of
common stock is listed or admitted to trading is open for business or (ii) if no
class of common stock of the Company is so listed or admitted to trading, a day
on which the New York Stock Exchange is open for business.
(c) "Capital Reorganization" shall have the meaning set forth
in Paragraph 17(c).
(d) "Cause" shall have the meaning set forth in Section 1 of
the Employment Agreement.
(e) "Change in Control" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(f) "Common Stock Reorganization" shall have the meaning set
forth in Paragraph 17(b).
(g) "Employment Agreement" means that certain Employment
Agreement dated as of April 29, 1999, as it may be amended from time to time, by
and between the Company and the Employee.
(h) "Exercisability Value" shall have the meaning set forth in
Paragraph 4(b).
(i) "Good Reason" shall have the meaning set forth in Section
1 of the Employment Agreement.
(j) "Permanent Disability" shall have the meaning set forth in
Section 1 of the Employment Agreement.
(k) "Person" or "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
-8-
(l) "Securities Act" shall mean the Securities Act of 1933 and
any similar or successor federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
(m) "Termination of Employment" shall have the meaning set
forth in Section 1 of the Employment Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-9-
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date written below.
DATED: May 18, 1999 CHANCELLOR MEDIA CORPORATION
By: /s/ THOMAS O. HICKS
--------------------------------
Thomas O. Hicks
Chief Executive Officer
ACCEPTED BY:
/s/ WILLIAM S. BANOWSKY, JR.
------------------------------------
Signature of Employee
Name and Address of Optionee:
William S. Banowsky, Jr.
2607 Jarratt Avenue
Austin, Texas 78703
Optionee Taxpayer Identification Number
-10-
EXHIBIT 10.70
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is made and entered into this
18th day of May, 1999, to be effective as of March 15, 1999 (the "Effective
Date"), between Chancellor Media Corporation, a Delaware corporation (the
"Company"), Chancellor Media Corporation of Los Angeles, a Delaware corporation
("Los Angeles") and James E. de Castro (the "Executive"), residing at 1025
Seneca Road, Wilmette, Illinois 60091.
W I T N E S S E T H:
WHEREAS, the Company, Los Angeles and the Executive are parties to an
Employment Agreement dated October 1, 1998 (the "Employment Agreement"); and
WHEREAS, the Company, Los Angeles and the Executive desire to amend
the Employment Agreement in certain respects;
WHEREAS, all capitalized terms used herein without definition shall
have the meaning assigned to such terms in the Employment Agreement;
NOW, THEREFORE, the parties hereby agree to amend the Employment
Agreement as follows:
1. As of the Effective Date, Section 1 of the Employment Agreement
is hereby amended as follows:
(a) The reference to, and definition of, "Options" in Section 1
is hereby amended in whole to read as follows:
""Options" shall mean the non-qualified stock options to be granted to
the Executive pursuant to Section 4(c) hereof.";
(b) The reference to, and definition of, "Option Plan" is hereby
amended in whole to read as follows:
""Option Plan" shall mean the Chancellor Media Corporation 1999 Stock
Option Plan, as amended from time to time, and any successor
thereto.";
(c) The reference to, and definition of, "Option Agreement" is
hereby amended in whole to read as follows:
""Option Agreement" shall mean the form of Non-Qualified Stock Option
Agreement attached hereto as Exhibit A to be entered into between the
Executive and the Company pursuant to which an Option is granted to
the Executive.";
(d) The following defined terms shall be inserted in Section 1 of
the Employment Agreement in their correct alphabetical order:
"Contract Payments" shall have the meaning ascribed to such term in
Section 18.
"Gross-Up Payment" shall have the meaning ascribed to such term in
Section 18.
"Other Payments" shall have the meaning ascribed to such term in
Section 18.
"Payments" shall have the meaning ascribed to such term in Section 18.
2. As of the Effective Date, the first sentence of Section 3(a) of
the Employment Agreement is hereby amended in whole to read as follows:
"The Executive's job titles shall be Vice-Chairman of the Company and
President and Chief Executive Officer of Chancellor Radio and Outdoor
Division."
3. As of the Effective Date, Sections 4(a), 4(b) and 4(c) of the
Employment Agreement are hereby amended in whole to read as follows:
"(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's
regular payroll practice, Base Salary at the annual rate of Nine
Hundred Fifty Thousand Dollars ($950,000) for the portion of the
Contract Year beginning March 15, 1999; and subject to increase for
each subsequent Contract Year an amount equal to the product of
(i) the Base Salary in effect at the end of the immediately
preceding Contract Year; and
(ii) the ratio of the Consumer Price Index for the last complete
calendar month in such preceding Contract Year to the Consumer Price
Index for the same month in the year preceding such preceding Contract
Year;
provided, however, that in no event shall the Base Salary for any
subsequent Contract Year be less than the Base Salary in effect at the
end of the immediately preceding Contract Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to an
Annual Bonus for each calendar year during which he is employed
hereunder, with the amount of each such Annual
2
Bonus to be determined by, and to be in the sole discretion of,
the Compensation Committee, as recommended by the Chief Executive
Officer of the Company. The Executive's Annual Bonus awarded by the
Compensation Committee with respect to each calendar year shall be
paid at the same time as annual incentive bonuses with respect to that
calendar year are paid to other senior executives of the Company
generally, but in no event later than March 31 of the following
calendar year.
(c) Stock Options. The Executive has been granted Options, as of
April 9, 1999, to purchase One Million (1,000,000) shares of Common
Stock at an exercise price of $46.63. Such Options shall have the
terms set forth in, and shall be subject to, the Option Agreement and
the Option Plan; provided, however, that if the Option Plan is not
approved by the stockholders of the Company at the first annual
stockholders' meeting after the date of grant, stock options or other
equity incentives shall be provided to the Executive on mutually
satisfactory terms that are no less favorable than the provisions of
the Option Agreement and the Option Plan."
4. As of the Effective Date, a new Section 18 shall be inserted
following Section 17 of the Employment Agreement, which shall read as follows:
"18. GROSS-UP FOR CERTAIN TAXES
(a) In the event that any part of any payment or benefit received
(including, without limitation, acceleration of vesting of stock
options) pursuant to the terms of this Agreement or the Option
Agreement (the "Contract Payments") or any part of any payment or
benefit received or to be received by the Executive or for the
Executive's benefit pursuant to any other plan, arrangement or
agreement of the Company or any affiliate ("Other Payments" and,
together with the Contract Payments, the "Payments") would be subject
to the Excise Tax determined as provided below, the Company shall pay
to the Executive, at the time specified in Section 18(b) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of the Excise Tax on the
Payments and any federal, state and local income tax and the Excise
Tax on the Gross-Up Payment, and any interest, penalties or additions
to tax payable by the Executive with respect thereto, shall be equal
to the total present value (using the applicable federal rate as
defined in Section 1274(d) of the Code in such calculation) of the
Payments at the time such Payments are to be made. For purposes of
determining whether any of the Payments will be subject to the Excise
Tax and the amounts of such Excise Tax, (1) the total
3
amount of the Payments shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax, except to the
extent that, in the opinion of independent counsel selected by the
Company and reasonably acceptable to the Executive ("Independent
Counsel"), a Payment (in whole or in part) does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the
Code, or such "excess parachute payments" (in whole or in part) are
not subject to the Excise Tax, (2) the amount of the Payments that
shall be treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Payments or (B) the amount of
"excess parachute payments" within the meaning of Section 280G(b)(1)
of the Code (after applying clause (1) hereof), and (3) the value of
any noncash benefits or any deferred payment or benefit shall be
determined by Independent Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rates of federal
income taxation applicable to individuals in the calendar year in
which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of the
Executive's residence in the calendar year in which the Gross-Up
Payment is to be made, net of the maximum reduction in federal income
taxes that can be obtained from deduction of such state and local
taxes, taking into account any limitations applicable to individuals
subject to federal income tax at the highest marginal rates.
(b) The Gross-Up Payments provided for in Section 18(a) hereof
shall be made upon the earlier of (i) the payment to the Executive of
any Payment or (ii) the imposition upon the Executive or payment by
the Executive of any Excise Tax.
(c) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding or the opinion of
Independent Counsel that the Excise Tax is less than the amount taken
into account under Section 18(a) hereof, the Executive shall repay to
the Company within thirty (30) days of the Executive's receipt of
notice of such final determination or opinion the portion of the
Gross-Up Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and federal, state
and local income tax imposed on the Gross-Up Payment being repaid by
the Executive if such repayment results in a reduction in Excise Tax
or a federal, state and local income tax
4
deduction) plus any interest received by the Executive on the amount
of such repayment. If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding or
the opinion of Independent Counsel that the Excise Tax exceeds the
amount taken into account hereunder (including by reason of any
payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess within thirty (30) days of
the Company's receipt of notice of such final determination or
opinion.
(d) In the event of any change in, or further interpretation of,
Sections 280G or 4999 of the Code and the regulations promulgated
thereunder, the Executive shall be entitled, by written notice to the
Company, to request an opinion of Independent Counsel regarding the
application of such change or interpretation to any of the foregoing,
and the Company shall use its best efforts to cause such opinion to be
rendered as promptly as practicable. All fees and expenses of
Independent Counsel incurred in connection with this agreement shall
be borne by the Company."
5. As to the remaining 640,000 Options that as of the Effective Date
were to be granted to the Executive pursuant to Section 4(c) of the Employment
Agreement, the grant of all such Options were accelerated as of April 9, 1999
(the "Accelerated Options"). Such Accelerated Options shall have an exercise
price of $46.63 and one-quarter of such Accelerated Options shall vest on each
of April 17, 1999, 2000, 2001 and 2002, provided that in the event of a
Termination of Employment by the Executive for Good Reason or a Termination of
Employment by the Company other than for Cause, all such Accelerated Options
shall vest and become exercisable on the date of such Termination of
Employment. Except as modified by the preceding sentence, such Accelerated
Options shall remain subject to the terms and conditions set forth in Section
4(c) of the Employment Agreement.
6. Except as modified hereby, all of the terms of the Employment
Agreement shall remain in full force and effect.
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5
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ THOMAS O. HICKS
---------------------------------
Thomas O. Hicks
Chairman and Chief Executive Officer
/s/ JAMES E. DE CASTRO
---------------------------------
James E. de Castro
EXHIBIT 10.71
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into this
18th day of May, 1999 (the "Execution Date"), to be effective as of March 15,
1999 (the "Effective Date"), between Chancellor Media Corporation, a Delaware
corporation (the "Company"), Chancellor Media Corporation of Los Angeles, a
Delaware corporation ("Los Angeles"), and Kenneth J. O'Keefe (the "Executive"),
residing at 76 Royalston Road, Wellesley, Massachusetts 02181.
W I T N E S S E T H:
WHEREAS, the Company, Los Angeles and the Executive are parties to an
existing Employment Agreement dated September 4, 1999, effective January 1,
1998 (the "Existing Employment Agreement");
WHEREAS, the parties desire that the Executive continue to be employed by
the Company but under the terms and conditions set forth in this Agreement;
WHEREAS, the parties hereto desire that the Existing Employment Agreement
expire as of March 14, 1999 and desire to enter into a new employment agreement
effective as of March 15, 1999 for the services of the Executive on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the meaning
specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable to the
Executive described in Section 4.
"Base Salary" shall mean the annual base salary payable to the Executive
at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean the Executive's (a) habitual neglect of his material
duties or failure to perform his material obligations under this Agreement, (b)
refusal or failure to follow lawful directives of the Board, (c) commission of
an act of fraud, theft or embezzlement, or (d) conviction of a felony or other
crime involving moral turpitude; provided, however, that the Company shall give
the Executive written notice of any actions alleged to constitute Cause under
subsections (a) and (b) above, and the Executive
shall have a reasonable opportunity (as specified by the Compensation
Committee) to cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other transfer of
all or substantially all of the assets of the Company to any person or group
(as such term is used in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended); (b) the adoption by the stockholders of the Company of a
plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees
of the entity surviving such merger or consolidation; (d) the acquisition by
any person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board's being
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Change in Operations" shall mean a change in the business operating
strategies of the Company (e.g., material cost controls or other material
restrictions on the Company's ability to increase its gross revenues) which are
imposed upon the Executive without his consent, and, in his reasonable
judgment, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion
of the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, internet related activities and international media
opportunities, shall not constitute a Change in Operations. Any dispute as to
whether a Change of Operations has occurred shall be resolved pursuant to
Section 14.
"Common Stock" shall mean $0.01 par value common stock of the Company.
"Compensation Committee" shall mean the Compensation Committee of the
Board.
"Consumer Price Index" shall mean the Consumer Price Index for All Urban
Consumers (1982-84=100) for all cities as reported by the United States Bureau
of Labor Statistics.
"Contract Payments" shall have the meaning ascribed to such term in
Section 17.
"Contract Year" shall mean each twelve (12) consecutive month period
during the Employment Term which begins on the Effective Date and each annual
anniversary thereof.
2
"Employment Term" shall mean the period beginning on the Effective Date
and ending on the close of business on the effective date of the Executive's
termination of employment with the Company.
"Expiration Date" shall have the meaning ascribed to such term in Section
2.
"Good Reason" shall mean (a) the Company's material breach of any
provision hereof; (b) the Executive's no longer directly reporting to the Chief
Executive Officer of Chancellor Radio and Outdoor Division; (c) any material
adverse change in the Executive's job responsibilities, duties, functions,
status, offices, title, perquisites or support staff; (d) relocation of the
Executive's regular work address by more than twenty (20) miles without his
consent; (e) a Change in Operations; or (f) a Change in Control; provided,
however, that the Executive shall give the Company written notice of any
actions (other than those set out in subsections (e) or (f) above) alleged to
constitute Good Reason and the Company shall have a reasonable opportunity to
cure any such alleged Good Reason.
"Gross-Up Payment" shall have the meaning ascribed to such term in Section
17.
"Indemnification Agreement" shall mean the Indemnification Agreement
between the Company, Los Angeles and the Executive, to be effective as of the
Effective Date.
"Non-Solicitation Period" shall have the meaning ascribed to such term in
Section 6(c).
"Option Agreement" shall mean the form of Non-Qualified Stock Option
Agreement attached hereto as Exhibit A to be entered into between the Executive
and the Company pursuant to which an Option is granted to the Executive.
"Option Plan" shall mean the Chancellor Media Corporation 1999 Stock
Option Plan, as amended from time to time, and any successor thereto.
"Options" shall mean the non-qualified stock options to be granted to the
Executive pursuant to Section 4(c) hereof.
"Other Payments" shall have the meaning ascribed to the such term in
Section 17.
"Payments" shall have the meaning ascribed to such term in Section 17.
"Permanent Disability" shall mean the Executive's inability to perform the
duties contemplated by this Agreement by reason of a physical or mental
disability or infirmity which has continued for more than ninety (90) working
days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The
3
Executive agrees to submit such medical evidence regarding such disability or
infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a) the spouse and
lineal ascendants and descendants of such person, and any sibling of any of
such persons and (b) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or persons beneficially holding
an eighty percent (80%) or more controlling interest of which consist of
persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of the following
events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's written notice to
the Executive of the termination of his employment as a result of his
Permanent Disability, which effective date shall not be earlier than the
ninety-first (91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his duties hereunder;
(c) the effective date specified in the Company's written notice to
the Executive of the Company's termination of his employment without
Cause;
(d) the effective date specified in the Company's written notice to
the Executive of the Company's termination of his employment for Cause;
(e) the effective date specified in the Executive's written notice to
the Company of the Executive's termination of his employment for Good
Reason;
(f) the effective date specified in the Executive's written notice to
the Company of the Executive's termination of his employment without Good
Reason; and
(g) the date the Executive's employment terminates pursuant to
Section 2.
"Termination without Cause" shall mean a termination by the Company of the
Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to employ the Executive, and the Executive agrees to
provide services to the Company, from the date of this Agreement until the
close of business on the fifth anniversary of the Effective Date (the
"Expiration Date"), unless the
4
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
of Chancellor Radio and Outdoor Division and upon the terms and conditions set
forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive shall hold the positions of Executive Vice President of
the Company and Chief Operating Officer of Chancellor Radio Division. During
the Employment Term, the Executive shall have such authority and duties as are
usual and customary for such positions, and shall perform such additional
services and duties as the Board may from time to time designate consistent
with such positions.
(b) The Executive shall report solely to the Chief Executive Officer of
Chancellor Radio and Outdoor Division.
(c) The Executive shall devote his full business time and best efforts to
the business affairs of the Company; provided, however, that the Executive may
devote reasonable time and attention to:
(i) serving as a director, or member of a committee of the directors,
of any not-for-profit organization, or engaging in other charitable or
community activities; and
(ii) serving as a director of, or member of a committee of the
directors of, the corporations or organizations for which the Executive
presently serves in such capacity, and such other corporations and
organizations that the Board may from time to time approve in the future.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company shall pay
the Executive, in installments according to the Company's regular payroll
practice, Base Salary at the annual rate of Five Hundred Fifty Thousand Dollars
($550,000) for the first (1st) Contract Year; and subject to increase for each
subsequent Contract Year to an amount equal to the product of
(i) the Base Salary for the immediately preceding Contract Year; and
(ii) the ratio of the Consumer Price Index for the last complete
calendar month in such preceding Contract Year to the Consumer Price Index
for the same month in the year preceding such preceding Contract Year;
provided, however, that in no event shall the Base Salary for any subsequent
Contract Year be less than the Base Salary in the immediately preceding
Contract Year.
5
(b) Annual Incentive Bonus. The Executive may receive an Annual Bonus for
each calendar year during which he is employed hereunder, with the amount of
each such Annual Bonus, if any, to be determined by, and to be in the sole
discretion of, the Compensation Committee, as recommended by the Chief
Executive Officer. The Executive's Annual Bonus awarded by the Compensation
Committee with respect to each calendar year shall be paid at the same time as
annual incentive bonuses with respect to that calendar year are paid to other
senior executives of the Company generally, but in no event later than March 31
of the following calendar year.
(c) Stock Options. The Executive has been granted Options, as of April 9,
1999, to purchase 500,000 shares of Common Stock at an exercise price of
$46.63. Such Options shall have the terms set forth in, and shall be subject
to, the Option Agreement and the Option Plan; provided, however, that if the
Option Plan is not approved by the stockholders of the Company at the first
annual stockholders' meeting after the date of grant, stock options or other
equity incentives shall be provided to the Executive on mutually satisfactory
terms that are no less favorable than the provisions of the Option Agreement
and the Option Plan.
(d) Vacation. During each complete twelve (12) month period of the
Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater
number of weeks of paid vacation under the Company's generally applicable
vacation policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the Executive
shall be entitled to participate in all pension, profit sharing and other
retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate,
on terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the Employment
Term, the Company shall pay the amount of premiums or other cost incurred for
coverage of the Executive and his eligible spouse and dependent family members
under the applicable Company health benefits arrangement (consistent with the
terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance coverage
contemplated by Section 4(e), during the Employment Term, the Company shall
maintain in effect term life insurance coverage for the Executive with a death
benefit consistent with the death benefits generally provided to other senior
executives of the Company, subject to the Executive's insurability at standard
rates and with the beneficiary or beneficiaries thereof designated by the
Executive. Notwithstanding Section 9 of this Agreement, such life insurance
policy or policies may be assigned to a trust for the benefit of any
beneficiary designated by the Executive.
6
(h) Automobile; Other Benefits.
(i) During the Employment Term, the Executive shall be entitled to
receive a monthly automobile allowance equal to $1,200, which shall be
paid monthly in accordance with the customary practices of the Company;
and
(ii) During the Employment Term, the Company shall reimburse the
Executive for the reasonable membership dues for the Executive to belong
to the athletic club and country club of the Executive's choosing. Such
reimbursement shall be in accordance with the Company's expense
reimbursement policy.
(i) Most Favored Benefits. If the Company shall provide employment related
benefits (including, without limitation, benefits of the type referred to by
clauses (a) through (h) of this Section 4) in an aggregate amount greater than
or on more favorable terms and conditions (on an aggregate basis) as are
granted to any other executive vice president of the Company, the Executive
shall be provided such benefits in substantially comparable amount and/or under
the substantially comparable terms and conditions, as applicable, on an
aggregate basis.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4 hereof, upon
submission of proper vouchers, the Company will pay or reimburse the Executive
for all normal and reasonable travel and entertainment expenses incurred by the
Executive during the Employment Term in connection with the Executive's
responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with the Company
for any reason, the Company shall provide to the Executive (or, in the case of
his death, his estate or other legal representative) (i) any Annual Bonus
awarded but not yet paid with respect to the preceding calendar year; (ii) all
benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies); (iii) not later than
ninety (90) days after such termination, in a lump sum, all Base Salary earned
through the date of such termination; and (iv) not later than ninety (90) days
after such termination, in a lump sum, any Annual Bonus awarded by the
Compensation Committee with respect to that portion of the calendar year prior
to such termination.
(b) In the event that the Executive's employment hereunder is terminated
by the Company without Cause or by the Executive for Good Reason (but not by
reason of expiration or non-renewal of this Agreement), and subject to the last
sentence of this subsection (b), the Company shall make a one-time cash payment
to the Executive equal to two times the Executive's then current Base Salary.
Such payment shall be made at the time of any such termination without Cause or
within thirty (30) days
7
of any such resignation for Good Reason. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder
(other than those obligations set forth in Sections 4(c) and 6(a)) and shall be
conditioned on the Executive's giving a general release of the Company and
affiliates in the form used generally by the Company in the case of the
termination of employment of senior executives.
(c) The Company may, by written notice to the Executive given no later
than fifteen (15) days following his termination of employment, elect to
require the Executive to observe the provisions of Section 7(b) hereof for a
period of time not to extend beyond the fifth anniversary of the Effective Date
(such period of time to be set forth in the Company's notice to the Executive
and is referred to herein as the "Non-Solicitation Period"). In such event, the
Company shall continue to pay the Executive his Base Salary as set forth in
Section 4(a) through the Non-Solicitation Period (net of any other severance
payments made to the Executive pursuant to Section 6(b) hereof).
(d) In the event of any Termination of Employment, the Executive shall not
be required to seek other employment to mitigate damages, and any income earned
by the Executive from other employment or self-employment shall not be offset
against any obligations of the Company to the Executive under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that during the
course of his employment by the Company, the Company will furnish, disclose or
make available to the Executive confidential or proprietary information related
to the Company's business, including, without limitation, customer lists, ideas
and formatting and programming concepts and plans; that such confidential or
proprietary information has been developed and will be developed through the
Company's expenditure of substantial time and money; and that all such
confidential information could be used by the Executive and others to compete
with the Company. The Executive hereby agrees that all such confidential or
proprietary information shall constitute trade secrets, and further agrees to
use such confidential or proprietary information only for the purpose of
carrying out his duties with the Company and not to disclose such information
unless required to do so by subpoena or other legal process. No information
otherwise in the public domain (other than by an act of the Executive in
violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices, files, records
and other documents concerning the business of the Company, made or compiled by
the Executive during the period of his employment or made available to him,
shall be the Company's property and shall be delivered to the Company upon its
request therefor, and in any event upon the termination of the Executive's
employment with the Company, provided, however, that the Executive shall be
permitted to retain copies of personal correspondence generated or received by
him during the Employment Term, subject to the use restrictions of this Section
7(a).
8
(b) Should the Company make the election set forth in Section 6(c) hereof,
the Executive hereby agrees that after any Termination of Employment, and
through the Non-Solicitation Period, the Executive will not directly or
indirectly induce any employee of any of the Protected Companies (as defined
below) to terminate such employment or to become employed by any other person,
firm, corporation or other entity that is directly or indirectly engaged in any
of the radio, television, outdoor advertising, broadcasting or related business
activities in which the Company and its subsidiaries or the Protected Companies
have significant involvement (collectively, the "Competing Business Areas"), in
each case at the effective time of such termination of employment.
(c) During the Employment Term and for a period of ninety days following
his termination of employment (including, without limitation, termination by
reason of expiration or non-renewal of this Agreement), the Executive agrees
that he shall not be employed by or perform activities on behalf of, or have an
ownership interest in, (i) any radio or television broadcasting station serving
the same "Area of Dominant Influence" (as reported by Arbitron) as any of the
radio or television broadcasting stations owned by the Company or its
subsidiaries or affiliates, or the subsidiaries or affiliates of any of the
Company's direct or indirect stockholders owning more than twenty percent (20%)
of the Company (collectively, the "Protected Companies"), or (ii) any person,
firm, corporation or other entity, or in connection with any business
enterprise, that is directly or indirectly engaged in any Competing Business
Area, in each case at the effective time of such Termination of Employment
(other than beneficial ownership of up to five percent (5%) of the outstanding
voting stock of a publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent applicable, shall
survive the termination of this Agreement and shall be in addition to any
restrictions imposed upon the Executive by statute or at common law.
(e) The parties hereby acknowledge that the restrictions in this Section 7
have been specifically negotiated and agreed to by the parties hereto and are
limited only to those restrictions necessary to protect the Protected Companies
from unfair competition. The parties hereby agree that if the scope or
enforceability of any provision, paragraph or subparagraph of this Section 7 is
in any way disputed at any time, and should a court find that such restrictions
are overly broad, the court may modify and enforce the covenant to the extent
that it believes to be reasonable under the circumstances. Each provision,
paragraph and subparagraph of this Section 7 is separable from every other
provision, paragraph, and subparagraph and constitutes a separate and distinct
covenant. The Executive acknowledges that the Protected Companies operate
throughout the United States and that the effect of Section 7(c) may be to
prevent him from working in the Competing Business Areas after his termination
of employment hereunder.
9
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or threatened
breach by the Executive of any of the terms set forth in Section 7 of this
Agreement may result in significant and continuing injury to the Company, the
monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs and his
personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other
than by will or by the laws of descent and distribution.
10. NOTICES
Any notice required or permitted by this Agreement shall be in writing,
sent by registered or certified mail, return receipt requested, addressed to
the Board and the Company at its then principal office, or to the Executive at
the address set forth in the preamble, as the case may be, or to such other
address or addresses as any party hereto may from time to time specify in
writing for the purpose in a notice given to the other parties in accordance
with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest extent permitted
by the laws of the State of Delaware, as in effect at the time of the subject
act or omission, and shall advance to the Executive reasonable attorneys' fees
and expenses as such fees and expenses are incurred (subject to an undertaking
from the Executive to repay such advances if it shall be finally determined by
a judicial decision which is not subject to further appeal that the Executive
was not entitled to the reimbursement of such fees and expenses), and the
Executive will be entitled to the protection of any insurance policies that the
Company may elect to maintain generally for the benefit of its directors and
officers ("Directors and Officers Insurance") against all costs, charges and
expenses incurred or sustained by him in connection with any action, suit or
proceeding to which he may be made a party by reason of his being or having
been a director, officer or employee of the Company or any of its subsidiaries,
or his serving or having served any other enterprise as a director, officer or
employee at the request of the Company (other than any dispute, claim or
controversy arising under or relating to this Agreement). The
10
Company covenants to maintain during the Employment Term for the benefit of the
Executive (in his capacity as an officer and director of the Company) Directors
and Officers Insurance providing benefits to the Executive no less favorable,
taken as a whole, than the benefits provided to the other senior executives of
the Company by the Directors and Officers Insurance maintained by the Company
on the date hereof; provided, however, that the Board may elect to terminate
Directors and Officers Insurance for all officers and directors, including the
Executive, if the Board determines in good faith that such insurance is not
available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a) the
Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder
or the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in connection with or in
relation to this Agreement shall, at the election and upon written demand of
either the Executive or the Company, be finally determined and settled by
arbitration in the city of the Company's headquarters in accordance with the
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof. The Company
shall pay the costs and expenses of such arbitration and the fees of the
Executive's counsel and experts unless the finder of fact determines that the
Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of the
Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination of the
Executive's employment with the Company. This Agreement, the Option Agreement
and the Indemnification Agreement contain the entire agreement of the parties
relating to the subject matter hereof. This Agreement supersedes any prior
written or oral agreements or understandings between the parties relating to
the subject matter hereof. No modification or amendment of this Agreement shall
be valid unless in writing and signed by or on behalf of the parties hereto. A
waiver of the breach of any term or condition of this Agreement shall not be
deemed to constitute a waiver of any subsequent breach of the same or any other
term or condition. This Agreement is intended to be performed in accordance
with, and only to the extent permitted by, all applicable laws, ordinances,
rules and regulations. If any provision of this Agreement, or the application
thereof to any person or circumstance, shall, for any reason and to any extent,
be held invalid or
11
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof or the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable under this Agreement to the Executive
after the death of the Executive shall be paid to the Executive's estate or
legal representative. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof.
17. GROSS-UP FOR CERTAIN TAXES
(a) In the event that any part of any payment or benefit received
(including, without limitation, acceleration of vesting of stock options)
pursuant to the terms of this Agreement or the Option Agreement (the "Contract
Payments") or any part of any payment or benefit received or to be received by
the Executive or for the Executive's benefit pursuant to any other plan,
arrangement or agreement of the Company or any affiliate ("Other Payments" and,
together with the Contract Payments, the "Payments") would be subject to the
Excise Tax determined as provided below, the Company shall pay to the
Executive, at the time specified in Section 17(b) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of the Excise Tax on the Payments and any federal, state and
local income tax and the Excise Tax on the Gross-Up Payment, and any interest,
penalties or additions to tax payable by the Executive with respect thereto,
shall be equal to the total present value (using the applicable federal rate as
defined in Section 1274(d) of the Code in such calculation) of the Payments at
the time such Payments are to be made. For purposes of determining whether any
of the Payments will be subject to the Excise Tax and the amounts of such
Excise Tax, (1) the total amount of the Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, except to the extent that, in the
opinion of independent counsel selected by the Company and reasonably
acceptable to the Executive ("Independent Counsel"), a Payment (in whole or in
part) does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in
part) are not subject to the Excise Tax, (2) the amount of the Payments that
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Payments or (B) the amount of "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code (after applying
clause (1) hereof), and (3) the value of any noncash benefits or any deferred
payment or benefit shall be determined by Independent Counsel in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed
to pay federal income taxes at the highest marginal rates of federal income
taxation applicable to individuals in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation applicable to individuals as are in effect in the state and
locality of the Executive's residence in the calendar year in which the
Gross-Up Payment is to be made, net of the maximum reduction in federal income
12
taxes that can be obtained from deduction of such state and local taxes, taking
into account any limitations applicable to individuals subject to federal
income tax at the highest marginal rates.
(b) The Gross-Up Payments provided for in Section 17(a) hereof shall be
made upon the earlier of (i) the payment to the Executive of any Payment or
(ii) the imposition upon the Executive or payment by the Executive of any
Excise Tax.
(c) If it is established pursuant to a final determination of a court or
an Internal Revenue Service proceeding or the opinion of Independent Counsel
that the Excise Tax is less than the amount taken into account under Section
17(a) hereof, the Executive shall repay to the Company within thirty (30) days
of the Executive's receipt of notice of such final determination or opinion the
portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax or a federal,
state and local income tax deduction) plus any interest received by the
Executive on the amount of such repayment. If it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding or the
opinion of Independent Counsel that the Excise Tax exceeds the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such excess
within thirty (30) days of the Company's receipt of notice of such final
determination or opinion.
(d) In the event of any change in, or further interpretation of, Sections
280G or 4999 of the Code and the regulations promulgated thereunder, the
Executive shall be entitled, by written notice to the Company, to request an
opinion of Independent Counsel regarding the application of such change or
interpretation to any of the foregoing, and the Company shall use its best
efforts to cause such opinion to be rendered as promptly as practicable. All
fees and expenses of Independent Counsel incurred in connection with this
agreement shall be borne by the Company.
18. EXISTING EMPLOYMENT AGREEMENT
As of the Effective Date, the Existing Employment Agreement shall be of no
further force and effect.
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION
OF LOS ANGELES
By: /s/ THOMAS O. HICKS
---------------------------------
Thomas O. Hicks
Chairman and Chief Executive
Officer
/s/ KENNETH J. O'KEEFE
-------------------------------------
Kenneth J. O'Keefe
EXHIBIT 10.72
CHANCELLOR MEDIA CORPORATION
1999 STOCK OPTION PLAN
TABLE OF CONTENTS
PAGE
----
1. Purpose..................................................... 1
2. Administration.............................................. 1
3. Shares Available and Maximum Individual Grants.............. 2
4. Eligibility and Bases of Participation...................... 3
5. Authority of Committee...................................... 3
6. Option Grants............................................... 5
7. Value Option Grants......................................... 8
8. Performance-Based Options................................... 12
9. Change of Control........................................... 12
10. Adjustment of Shares........................................ 12
11. Assignment or Transfer...................................... 13
12. Compliance with Securities Laws............................. 13
13. Withholding Taxes........................................... 14
14. Costs and Expenses.......................................... 14
15. Funding of Plan............................................. 14
16. Other Incentive Plans....................................... 14
17. Effect on Employment........................................ 14
18. Definitions................................................. 14
19. Amendment of Plan........................................... 17
20. Effective Date and Term..................................... 17
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CHANCELLOR MEDIA CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE.
Chancellor Media Corporation, a Delaware corporation (herein, together with its
successors, referred to as the "Company"), by means of this 1999 Stock Option
Plan (the "Plan"), desires to afford certain key employees and other persons
performing services for the Company or any direct or indirect subsidiary or
parent corporation thereof now existing or hereafter formed or acquired (such
corporations sometimes referred to herein as "Related Entities") with an
opportunity to acquire a proprietary interest in the Company, and thus to create
in such persons an increased interest in and a greater concern for the success
of the Company and Related Entities. Certain definitions used herein are defined
in Section 18 of this Plan.
The stock options described in Sections 6 and 7 (collectively, the "Options"),
and the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options, are a matter of separate inducement and are not in
lieu of any salary or other compensation for services. Options may be incentive
stock options that are intended to qualify under Section 422 of the Code
("ISOs") or non-qualified stock options that are not intended to qualify under
such Section ("Non Qualified Options" or "NQOs"). An Option shall be evidenced
by one or more grant agreements between the Company and an optionee the terms of
which shall be deemed part of the applicable Option. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the meanings
contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company or the
Compensation Committee of the Board of Directors of the Company or any other
committee or sub-committee appointed by the Board of Directors of the Company to
administer this Plan (the "Committee"); provided, that the entire Board of
Directors of the Company (the "Board of Directors") may act as the Committee if
it chooses to do so; and provided, further, that (i) for purposes of determining
any Performance-Based Options (as hereinafter defined) applicable to Key
Employees (as hereinafter defined) who constitute "covered employees" within the
meaning of Section 162(m) of the Code, "Committee" shall mean only those members
thereof who qualify as "outside directors" within the meaning of Section 162(m)
of the Code, and such Performance-Based Options shall be subject to ratification
by unanimous approval of the members of the Board of Directors of the Company,
and (ii) for so long as the Company is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee shall be composed solely of two or more "Non-Employee Directors" as
defined in Rule 16b-3, as amended ("Rule 16b-3") promulgated thereunder. In no
event shall any Eligible Non-Employee then serving on the Committee (or such
other committee then administering the Plan) be granted Non-Qualified Options
hereunder if the grant would cause such Eligible Non-Employee to no longer be a
"Non-Employee Director" as set forth in this Section 2.
The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that
majority of the Board of Directors determines otherwise, shall be no less than
two individuals. A majority of the Committee shall constitute a quorum (or if
the Committee consists of only two members, then both members shall constitute a
quorum), and subject to the provisions of Section 5, the acts of a majority of
the members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee, shall be the acts of the
Committee. The Committee shall administer the Plan so as (i) to comply at all
times with the Exchange Act, and (ii) to seek to avoid the deduction limitation
imposed by Section 162(m) of the Code from applying to compensation attributable
to Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code.
The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or any other number that Rule 16b-3 or other applicable rules under
Section 16(b) of the Exchange Act, Section 162(m) of the Code, or any successor
or analogous rules or laws may require from time to time.
3. SHARES AVAILABLE AND MAXIMUM INDIVIDUAL GRANTS.
Subject to the adjustments provided in Section 10, the maximum aggregate number
of shares of common stock, par value $0.01 per share, of the Company ("Common
Stock") in respect of which Options may be granted for all purposes under the
Plan shall be ten million (10,000,000) shares, of which three million
(3,000,000) shares shall be available for grants of Options pursuant to Section
6 and seven million (7,000,000) shares shall be available for grants of Options
pursuant to Section 7. If any shares as to which any Option has been granted
cease to be subject to purchase for any reason (including the expiration of such
Option, the termination of such Option prior to exercise, or the forfeiture of
such Option), such shares shall thereafter be available for grants under the
same section of the Plan as such prior Option. Options granted under the Plan
may be fulfilled in accordance with the terms of the Plan with (i) authorized
and unissued shares of Common Stock or (ii) issued shares of Common Stock held
in the Company's treasury.
The maximum aggregate number of shares of Common Stock underlying all Options
that may be granted to any single Key Employee (as hereinafter defined),
including any Options that may have been granted to such Key Employee as an
Eligible Non-Employee (as hereinafter defined), during the Term (as hereinafter
defined) of the Plan shall be 2,000,000 shares, subject to the adjustments
provided in Section 10. For purposes of the preceding sentence, such Options
that are cancelled or repriced shall continue to be counted in determining such
maximum aggregate number of shares of Common Stock that may be granted to any
single Key Employee, including any Options that may have been granted to such
Key Employee as an Eligible Non-Employee, during the Term of the Plan.
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4. ELIGIBILITY AND BASES OF PARTICIPATION.
Grants of Options may be made under the Plan, subject to and in accordance with
Section 6 or 7, to Key Employees and Eligible Non-Employees designated by the
Committee in its sole discretion. The adoption of this Plan shall not be deemed
to give any Person a right to be granted any Options.
As used herein, the term "Key Employee" shall mean any employee of the Company
or any Related Entity, including officers and directors of the Company or any
Related Entity who are also employees of the Company or any Related Entity, who
are regularly employed on a salaried basis and who are so employed on the date
of such grant, whom the Committee identifies as having a direct and significant
effect on the performance of the Company or any Related Entity. The Committee
shall specify whether an Option is intended to qualify as an ISO or as a NQO,
and any stock option grant shall be a NQO if not otherwise identified.
As used herein, the term "Eligible Non-Employee" shall mean any person or entity
of any nature whatsoever, specifically including an individual, a firm, a
company, a corporation, a partnership, a trust, or other entity (collectively, a
"Person"), that the Committee designates as eligible for a grant of
Non-Qualified Options pursuant to this Plan because such Person performs bona
fide consulting, advisory or other services for the Company or any Related
Entity (other than services in connection with the offer or sale of securities
in a capital-raising transaction) and the Committee determines that the Person
has a direct and significant effect on the performance of the Company or any
Related Entity.
5. AUTHORITY OF COMMITTEE.
Subject to and not inconsistent with the express provisions of the Plan, the
Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be granted, the
number of Options, the purchase price or exercise price of each Option, the
period(s) during which such Options shall be exercisable (whether in whole
or in part, including whether such Options shall become immediately
exercisable upon the consummation of a Change of Control), the restrictions
to be applicable to Options and all other terms and provisions thereof
(which need not be identical);
b. require, as a condition to the granting of any Option, that the
Person receiving such Option agree not to sell or otherwise dispose of such
Option, any Common Stock acquired pursuant to such Option, or any other
"derivative security" (as defined by Rule 16a-1(c) under the Exchange Act)
of the Company for a period of six months following the later of (i) the
date of the grant of such Option or (ii) the date when the exercise price
of such Option is fixed if such exercise price is not fixed at the date of
grant of such Option, or for such other period as the Committee may
determine;
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of Governors of
the Federal Reserve, for the purpose of assisting the optionee in the
exercise of an Option, such authority to include the payment by the Company
of the commissions of the broker-dealer;
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d. provide the establishment of procedures for an optionee (i) to have
withheld from the total number of shares of Common Stock to be acquired
upon the exercise of an Option that number of shares having a Fair Market
Value which, together with such cash as shall be paid in respect of
fractional shares, shall equal the aggregate exercise price under such
Option for the number of shares then being acquired (including the shares
to be so withheld), and (ii) to exercise a portion of an Option by
delivering that number of shares of Common Stock already owned by such
optionee having an aggregate Fair Market Value which shall equal the
partial Option exercise price and to deliver the shares thus acquired by
such optionee in payment of shares to be received pursuant to the exercise
of additional portions of such Option, the effect of which shall be that
such optionee can in sequence utilize such newly acquired shares in payment
of the exercise price of the entire Option, together with such cash as
shall be paid in respect of fractional shares; provided, however, that (i)
in the case of an ISO, no shares shall be used to pay the exercise price
under this paragraph unless (A) such shares were not acquired through the
exercise of an ISO, or (B) if so acquired, (x) such shares have been held
for more than two years since the grant of such ISO and for more than one
year since the exercise of such ISO (the "Holding Period"), or (y) if such
shares do not meet the Holding Period, the optionee elects in writing to
use such shares to pay the exercise price under this paragraph, and (ii) no
such procedure shall be available if there is an opinion of the Company's
independent accounting firm that the use of such a procedure could
negatively affect the financial statements of the Company or a Related
Entity;
e. provide (in accordance with Section 13 or otherwise) the
establishment of a procedure whereby a number of shares of Common Stock or
other securities may be withheld from the total number of shares of Common
Stock or other securities to be issued upon exercise of an Option to meet
the obligation of withholding for income, social security and other taxes
incurred by an optionee upon such exercise or required to be withheld by
the Company or a Related Entity in connection with such exercise unless, as
determined by the Committee in the exercise of its discretion, such
procedure is not permitted by applicable law or would result in a charge to
earnings that otherwise would not have occurred;
f. prescribe, amend, modify and rescind rules relating to the Plan;
and
g. make all determinations permitted or deemed necessary, appropriate
or advisable for the administration of the Plan, interpret any Plan or
Option provision, perform all other acts, exercise all other powers, and
establish any other procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the conduct of
the Committee's business. Any act of the Committee, including
interpretations of the provisions of the Plan or any Option and
determinations under the Plan or any Option shall be final, conclusive and
binding on all parties.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any Person to whom it has delegated duties as aforesaid may employ one or
more Persons to render advice with respect to any responsibility the Committee
or such Person may have under the Plan; provided, however, that any such
delegation shall be in writing; and provided, however, that, any determination
of Performance-Based Options (as hereinafter defined)
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applicable to Key Employees who constitute "covered employees" within the
meaning of Section 162(m) of the Code may not be delegated to a member of the
Board of Directors who, if elected to serve on the Committee, would not qualify
as an "outside director" within the meaning of Section 162(m) of the Code. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan and all members
and agents of the Committee shall be fully protected by the Company in respect
of any such action, determination or interpretation.
6. OPTION GRANTS.
Subject to the provisions of this Section 6 and the Plan, the Committee shall
have the authority to grant Options in respect of up to three million
(3,000,000) shares of Common Stock, including any shares of Common Stock that
have not been purchased and cease to be subject to purchase under any Option
granted under this Section, to Key Employees and Eligible Non-Employees. The
terms and conditions of the Options granted under this Section 6 shall be
determined from time to time by the Committee; provided, however, that such
Options shall be subject to and consistent with all terms and provisions of this
Section 6 and the Plan (other than Section 7). The Committee shall specify
whether an Option is intended to qualify as an ISO or as a NQO, and any stock
option grant shall be a NQO if not otherwise identified. In no event shall any
Eligible Non-Employee then serving on the Committee (or such other committee
then administering the Plan) be granted Non-Qualified Options hereunder if the
grant would cause such Eligible Non-Employee to no longer be a "Non-Employee
Director" as set forth in Section 2 hereof. The following provisions of this
Section shall apply only to Options granted under this Section and shall not
apply to Options granted under Section 7.
a. Option Exercise Price. The Committee shall establish the exercise
price per share of Common Stock at the time any Option is granted to a
optionee at such amount as the Committee shall determine; provided,
however, that the exercise price shall not be less than the Fair Market
Value of Common Stock on the grant date or, if earlier, the date on which
the Company or a Related Entity agrees to make such grant (notwithstanding
that such grant is subject to approval by the Committee) and provided,
further, that in the case of an ISO granted 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 the Company 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. The Option exercise price shall be
subject to adjustment in accordance with the provisions of Section 10 of
the Plan.
b. Payment. The price per share of Common Stock with respect to each
Option shall be payable at the time of exercise of such Option by the
optionee. Such price shall be payable in cash or by any other means
acceptable to the Committee, including delivery to the Company of shares of
Common Stock owned by the optionee or by the delivery or withholding of
shares pursuant to a procedure created pursuant to subsection 5(d) of the
Plan. Shares delivered to or withheld by the Company in
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payment of the exercise price shall be valued at the Fair Market Value of
the Common Stock on the day preceding the date of the exercise of the
Option.
c. Term. The term of each Option shall be established by the Committee
and set forth at the time such Option is granted. The term of an Option
shall not exceed ten (10) years from the date of grant of such Option
except as provided in subsections 6(e) and (f). An Option may be terminated
prior to the expiration of its term in accordance with the provisions of
the Plan.
d. Vesting and Exercisability. Unless otherwise determined by the
Committee, and subject to the provisions of subsections 6(e), (f), (g) and
(h) below, Options granted to any Key Employee or Eligible Non-Employee
pursuant to this Section 6 shall vest and become exercisable in accordance
with and on the dates described in the schedule set forth below; provided,
however, that unless otherwise determined by the Committee, such Options
shall vest and become exercisable on any such date only if such Key
Employee or Eligible Non-Employee is employed or providing services to the
Company or any Related Entity on such date:
- one-fifth of the shares of Common Stock underlying such Option shall
vest and become exercisable on the first anniversary of the date of
grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the second anniversary of
the date of grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the third anniversary of
the date of grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the fourth anniversary of
the date of grant of such Option; and
- the final one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the fifth anniversary of
the date of grant of such Option.
No Option by its terms shall be exercisable after the expiration of ten years
from the date of grant of the Option, except in accordance with subsection 6(e)
or (f).
e. Death. The Committee may accelerate, in whole or in part, the
vesting and exercisability of any Options held by an optionee if such
optionee's employment by or services for the Company and its Related
Entities terminates due to the death of such optionee, and the remaining
non-vested portion, if any, of such Options shall be cancelled. Upon the
death of any optionee, the vested portion of any Option held by such
optionee may be exercised by the estate of such optionee or by any other
person who acquires the right to exercise such vested portion as a result
of the death of such optionee. Unless a shorter or longer period is
provided in any Option, the vested portion of such Option may be exercised
by the earlier of (i) the first anniversary of the date of termination of
the optionee's employment with or services for the Company and its Related
Entities, or (ii) the expiration of the term of such Option, but in no
event prior to the 90th day after the death of such optionee.
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f. Disability. The Committee may accelerate, in whole or in part, the
vesting and exercisability of any Options held by an optionee if such
optionee's employment by or services for the Company and its Related
Entities terminates due to the Disability (as defined in Section 18) of
such optionee, and the remaining non-vested portion, if any, of such
Options shall be cancelled. Upon the Disability of any optionee, the vested
portion of any Option held by such optionee may be exercised by the
optionee or his or her legal representatives. Unless a shorter or longer
period is provided by the Committee in any Option, the vested portion of
such Option may be exercised by the earlier of (i) the first anniversary of
the date of termination of the optionee's employment with or services for
the Company and its Related Entities on account of Disability, or (ii) the
expiration of the term of such Option, but in no event prior to the 90th
day after the date of such termination of employment or services; provided,
however, that in the case of an exercise of an ISO, the optionee shall in
any event be required to exercise the vested portion of such Incentive
Option within one year after termination of the optionee's employment due
to his or her Disability.
g. Termination for Cause. Unless the Option granted to any Key
Employee expressly provides otherwise or the Committee determines
otherwise, such Key Employee shall immediately forfeit all rights under his
or her Options, except as to the shares of Common Stock already purchased
thereunder, if his or her employment is terminated by the Company or any
Related Entity for Cause (as defined below). If the retention by the
Company or any Related Entity of the services of any Eligible Non-Employee
is terminated (i) for Cause or (ii) as a result of removal of such optionee
from office as a director of the Company or of any Related Entity for cause
by action of the stockholders of the Company or such Related Entity in
accordance with the certificate of incorporation or the by-laws of the
Company or such Related Entity, as applicable, and the corporate law of the
jurisdiction of incorporation of the Company or such Related Entity, then
such optionee shall immediately forfeit his, her or its Options except as
to the shares of Common Stock already purchased. The determination that
there exists Cause for termination shall be made by the Committee (unless
otherwise agreed to in writing by the Company and the optionee) and any
decision in respect thereof by the Committee shall be final and binding on
all parties in interest.
h. Other Termination of Employment. If the employment or the retention
of the services of an optionee with the Company or a Related Entity
terminates for any reason other than those specified in subsections 6(e),
(f) or (g) above, such optionee shall have the right to exercise the vested
portion of his or her Option in accordance with its terms, within 90 days
after the date of such termination, unless a longer or shorter period is
expressly provided in such Option or established by the Committee (but in
no event after the expiration date of the Option), and thereafter such
Option shall lapse and no longer be exercisable; provided, and without
limiting the foregoing, that the Committee may, in the exercise of its
discretion, extend the exercise date of any Option upon termination of
employment for a period not to exceed six months plus one day (but in no
event after the expiration date of the Option) if the Committee determines
that the stated exercise date will have an inequitable result under Section
16(b) of the Exchange Act. The Committee may also accelerate the vesting
and exercisability of the non-vested portion of any Option in its
discretion,
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whether expressly provided in such Option or determined by the Committee on
or about any termination of employment or services that is not specified in
subsections 6(e), (f) or (g) above.
i. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option)
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and any
Related Entity exceeds $100,000, such ISOs shall be treated as NQOs.
j. Continuation of Employment. Each ISO shall require the optionee to
remain in the continuous employ of the Company or any Related Entity from
the date of grant of the ISO until at least three months prior to the date
of exercise of the ISO.
k. Recharacterization of ISO. In the event that the exercise of any
ISO, or method of exercise or payment therefor, would not be in compliance
with this Section 6 and would consequently result in a violation of the
requirements of Section 422 of the Code governing the treatment of ISOs,
the Committee in the exercise of its discretion may recharacterize the
Option as a NQO.
7. VALUE OPTION GRANTS.
Subject to the express provisions of this Section 7 and the Plan, the Committee
shall have the authority to grant Non Qualified Options which become exercisable
upon the value of the underlying shares of such options attaining a specified
value ("Value Options") in respect of up to seven million (7,000,000) shares of
Common Stock, including any shares of Common Stock that have not been purchased
and cease to be subject to purchase under any Option granted under this Section,
to Key Employees and Eligible Non-Employees. The terms and conditions of the
Value Options granted under this Section 7 shall be determined from time to time
by the Committee; provided, however, that the Value Options granted under this
Section 7 shall be subject to and consistent with all terms and provisions of
the Plan (other than Section 6). In no event shall any Eligible Non-Employee
then serving on the Committee (or such other committee then administering the
Plan) be granted Value Options hereunder if such grant would cause such Eligible
Non-Employee to no longer be a "Non-Employee Director" as set forth in Section 2
hereof. The following provisions of this Section shall apply only to Value
Options granted under this Section and shall not apply to Options granted under
Section 6.
a. Exercise Price. The exercise price with respect to each underlying
share of Common Stock subject to any Value Option granted under this
Section 7 shall be equal to the Fair Market Value per share of Common Stock
on the date such Value Option is granted or, if earlier, the date on which
the Company or a Related Entity agrees to make such grant (notwithstanding
that such grant is subject to approval by the Committee) and provided,
further, that in the case of an ISO granted 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 the Company 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. The Option exercise price shall be
subject to adjustment in accordance with the provisions of Section 10 of
the Plan.
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b. Payment. The price per share of Common Stock with respect to each
Value Option shall be payable at the time of exercise of such Option. Such
price shall be payable in cash or by any other means acceptable to the
Committee, including delivery to the Company of shares of Common Stock
owned by the optionee or by the delivery or withholding of shares pursuant
to a procedure created pursuant to subsection 5(d) of the Plan. Shares
delivered to or withheld by the Company in payment of the Value Option
exercise price shall be valued at the Fair Market Value of the Common Stock
on the day preceding the date of the exercise of the Value Option.
c. Term. The term of each Value Option shall be established by the
Committee and set forth at the time such Option is granted. The term of a
Value Option shall not exceed ten (10) years from the date of grant of such
Option except as provided in subsections 7(f) or (g). A Value Option may be
terminated prior to the expiration of its term in accordance with the
provisions of the Plan.
d. Vesting. Unless otherwise determined by the Committee, and subject
to subsections 7(f), (g), (h) and (i) below, any Value Option granted to
any Key Employee or Eligible Non-Employee hereunder shall vest, as
distinguished from becoming exercisable, on the dates and in accordance
with the vesting schedule set forth immediately below if such Key Employee
or Eligible Non-Employee is employed or providing services to the Company
or any Related Entity on such date:
- one-fifth of the shares of Common Stock underlying such Option shall
vest on the first anniversary of the date of grant of such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest on the second anniversary of the date of grant of
such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest on the third anniversary of the date of grant of
such Option; and
- an additional one-fifth of the shares of Common Stock underlying such
Option grant shall vest on the fourth anniversary of the date of grant
of such Option; and
- the final one-fifth of the shares of Common Stock underlying the
Option shall vest on the fifth anniversary of the date of grant of
such Option.
e. Exercisability. A Value Option granted prior to June 1, 1999 shall
become exercisable after the date on which the average Fair Market Value of
a share of Common Stock, calculated on a daily basis, equals or exceeds
$100.00 per share and a Value Option granted on or after June 1, 1999 shall
become exercisable after the date on which the average Fair Market Value of
a share of Common Stock, calculated on a daily basis, equals or exceeds the
greater of (i) $100.00 per share or (ii) two-hundred percent (200%) of the
exercise price for a share of Common Stock under such Option (the
"Exercisability Value"), for a period of 30 consecutive days (excluding
non-business days for this purpose) during the period from (and including)
the date of grant of such Option through (and including) the fifth
anniversary of the date of grant of such Option. No Value Option (whether
or not vested) shall become exercisable after 5:00 p.m., in Dallas, Texas,
on the fifth anniversary of the date of grant of such Option, and any Value
Option (whether or not vested) that is not
9
exercisable at such time shall automatically, and without notice, terminate
and become null and void at such time. In addition, the exercisability of a
Value Option shall be subject to subsections 7(f), (g), (h) and (i) and
Section 9.
f. Death. If any optionee's employment or retention of services by the
Company or a Related Entity is terminated due to the death of such
optionee, the Committee may accelerate, in whole or in part, the vesting of
any Value Options held by such optionee and the remaining non-vested
portion, if any, of such Value Options shall be cancelled.
Upon the termination of employment or services of any optionee on
account of the optionee's death, the vested portion of the Value Options
credited to such optionee shall, to the extent then exercisable, be
exercisable by the optionee's estate or any person who acquires rights
with respect to such optionee's Options until the later of (i) the 90th
day after the date of such termination of employment or services, or
(ii) the earlier of the expiration date of the term of such Option or
the first anniversary of the date of such termination of employment or
services, unless a shorter or longer period is provided for in the
Option or the Plan.
In the event the vested portion of any Option is not exercisable on
the date of an optionee's termination of employment or services on
account of his or her death, such vested portion shall remain in effect
and if it becomes exercisable on or prior to 5:00 p.m., Dallas, Texas,
on the fifth anniversary of the date of grant of such Option, the
optionee's estate or any person who acquires rights with respect to such
Option as a result of the optionee's death may exercise such Option
until the later of (i) the 90th day after the date such Option became
exercisable and (ii) the earlier of the expiration date of the term of
such Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan.
g. Disability. If any optionee's employment or retention of services
by the Company or a Related Entity is terminated due to the Disability of
such optionee, the Committee may accelerate, in whole or in part, the
vesting of any Value Options held by such optionee and the remaining
non-vested portion, if any, of such Value Options shall be cancelled.
Upon the termination of employment or services of any optionee on
account of the optionee's Disability, the vested portion of the Value
Options credited to such optionee shall, to the extent then exercisable,
be exercisable by the optionee's estate or any person who acquires
rights with respect to such optionee's Options until the later of (i)
the 90th day after the date of such termination of employment or
services, or (ii) the earlier of the expiration date of the term of such
Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan; provided, however, that in the case the
exercise of an ISO, the optionee shall in any event be required to
exercise the vested portion of such Incentive Option within one year
after termination of the optionee's employment due to his or her
Disability.
10
In the event the vested portion of any Option is not exercisable on
the date of an optionee's termination of employment or services on
account of his or her Disability, such vested portion shall remain in
effect and if it becomes exercisable on or prior to 5:00 p.m., Dallas,
Texas, on the fifth anniversary of the date of grant of such Option, the
optionee's estate or any person who acquires rights with respect to such
Option as a result of the optionee's Disability may exercise such Option
until the later of (i) the 90th day after the date such Option became
exercisable and (ii) the earlier of the expiration date of the term of
such Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan; provided, however, that in the case of
the exercise of an ISO, the optionee shall in any event be required to
exercise the vested portion of such Incentive Option within one year
after termination of the optionee's employment due to his or her
Disability.
h. Termination for Cause. If any optionee's employment or retention of
services by the Company or a Related Entity is terminated for Cause, the
optionee shall forfeit the Value Option, and the Value Option shall
automatically, and without notice, terminate and become null and void at
5:00 p.m., Dallas, Texas time, on the date of termination, unless otherwise
provided in the Option or determined by the Committee.
i. Other Termination of Employment. If any optionee's employment or
retention of services by the Company or a Related Entity is terminated for
any reason other than for Cause, death or Disability, the vested portion of
the Value Option shall, to the extent exercisable, remain exercisable until
the later of: (i) the expiration of 90 days from the date of such
termination, and (ii) the end of the Term of the Option. In the event the
vested portion of the Value Option is not exercisable on the date of any
such termination of employment or services, such portion shall remain in
effect and subject to becoming exercisable on or before 5:00 p.m., Dallas,
Texas, on the fifth anniversary of the grant date of such Option, the
optionee may, until the 90th day after the date such Option becomes
exercisable, exercise such Option. The Committee may accelerate vesting of
any non-vested portion of a Value Option on account of an optionee's
termination of employment or services for any reason other than Cause,
death or Disability and may provide for a shorter or longer period to
exercise any vested portion of such Option.
j. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option)
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and any
Related Entity exceeds $100,000, such ISOs shall be treated as NQOs.
k. Continuation of Employment. Each ISO shall require the optionee to
remain in the continuous employ of the Company or any Related Entity from
the date of grant of the ISO until at least three months prior to the date
of exercise of the ISO.
l. Recharacterization of ISO. In the event that the exercise of any
ISO, or method of exercise or payment therefor, would not be in compliance
with this Section 7 and would consequently result in a violation of the
requirements of Section 422 of the Code governing the treatment of ISOs,
the Committee in the exercise of its discretion may recharacterize the
Option as a NQO.
11
8. PERFORMANCE-BASED OPTIONS.
The Committee, in its sole discretion, may designate and design Options granted
under the Plan as Performance-Based Options (as hereinafter defined) if it
determines that compensation attributable to such Options might not otherwise be
tax deductible by the Company due to the deduction limitation imposed by Section
162(m) of the Code. Accordingly, Options granted under the Plan may be granted
in such a manner that the compensation attributable to such Options is intended
by the Committee to qualify as "performance-based compensation" as such term is
used in Section 162(m) of the Code and the regulations promulgated thereunder
and thus be exempt from the deduction limitation imposed by Section 162(m) of
the Code ("Performance-Based Options").
Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if the Option exercise price is not
less than the Fair Market Value per share of Common Stock at the date the Option
is granted; provided, that the Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 10 of the Plan.
9. CHANGE OF CONTROL.
Except as otherwise expressly provided in a particular Option, if (i) a Change
of Control shall occur or (ii) the Company shall enter into an agreement
providing for a Change of Control, then the Committee may declare any or all
Options granted and outstanding under the Plan to be vested and exercisable in
full at such time or times as the Committee shall determine and the Company may
purchase any or all such Options for an amount of cash equal to the amount that
could have been attained upon the exercise of such Options or the realization of
the optionee's rights had such option been currently exercisable. Each Option
accelerated by the Committee pursuant to the preceding sentence shall terminate,
notwithstanding any express provision thereof or any other provision of the
Plan, on such date (not later than the stated exercise date) as the Committee
shall determine.
10. ADJUSTMENT OF SHARES.
Except as otherwise contemplated in Section 9, and unless otherwise expressly
provided in a particular Option, in the event that, by reason of any merger,
consolidation, combination, liquidation, recapitalization, stock dividend, stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares
or other like change in capital structure of the Company (collectively, an
"Adjustment Event"), the Common Stock is substituted, combined, or changed into
any cash, property, or other securities, or the shares of Common Stock are
changed into a greater or lesser number of shares of Common Stock, the number
and/or kind of shares and/or interests subject to an Option and the per share
price, the value thereof or the Exercisability Value shall be appropriately
adjusted by the Committee to give appropriate effect to such Adjustment Event.
Any fractional shares or interests resulting from such adjustment shall be
eliminated.
Except as otherwise contemplated in Section 9, and unless otherwise expressly
provided in a particular Option, in the event the Company is not the surviving
entity of an Adjustment Event and, in connection with such Adjustment Event, any
optionee will hold Options issued pursuant to this Plan which have not been
exercised, cancelled, or terminated in connection therewith, the Company shall
cause such Options to be assumed (or cancelled
12
and replacement Options issued) by the surviving entity or a Related Entity with
such changes to the number and/or kind of shares and/or interests subject to an
Option and the per share price, the value thereof or the Exercisability Value as
the Committee determines is necessary to give appropriate effect to such
Adjustment Event. In the event of any perceived conflict between the provisions
of Section 9 and this Section 10, the Committee's determinations under Section 9
shall control.
11. ASSIGNMENT OR TRANSFER.
Except as otherwise expressly provided in any Option, no Option granted under
the Plan or any rights or interests therein shall be assignable or transferable
by an optionee except by will or the laws of descent and distribution, and
during the lifetime of an optionee, Options granted to him or her hereunder
shall be exercisable only by the optionee or, in the event that a legal
representative has been appointed in connection with the Disability of an
optionee, such legal representative.
12. COMPLIANCE WITH SECURITIES LAWS.
The Company shall not in any event be obligated to file any registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or any applicable state securities law to permit exercise of any Option or to
issue any Common Stock in violation of the Securities Act or any applicable
state securities law. Each optionee (or, in the event of his or her death or, in
the event a legal representative has been appointed in connection with his or
her Disability, the Person exercising the Option) shall, as a condition to his
or her right to exercise any Option, deliver to the Company an agreement or
certificate containing such representations, warranties and covenants as the
Company may deem necessary or appropriate to ensure that the issuance of shares
of Common Stock pursuant to such exercise is not required to be registered under
the Securities Act or any applicable state securities law.
Certificates for shares of Common Stock, when issued, may have substantially the
following legend, or statements of other applicable restrictions, endorsed
thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued pursuant to
an effective registration statement under the Securities Act and in accordance
with applicable state securities laws.
13
13. WITHHOLDING TAXES.
By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or Related Entity by which the optionee is employed for
any federal, state, or local taxes required by any government to be withheld or
otherwise deducted by such corporation in respect of the optionee's exercise of
all or a portion of the Option; (ii) authorize the Company or any Related Entity
by which the optionee is employed to withhold from any cash compensation paid to
the optionee or in the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Company, or the Related Entity by
which the optionee is employed, and which otherwise has not been reimbursed by
the optionee, in respect of the optionee's exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which the optionee is entitled upon exercise of the Option as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated, and may, in its
discretion, effect such withholding by retaining shares issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise which
is equal to the amount to be withheld.
14. COSTS AND EXPENSES.
The costs and expenses of administering the Plan shall be borne by the Company
and shall not be charged against any Option nor to any employee receiving an
Option.
15. FUNDING OF PLAN.
The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.
16. OTHER INCENTIVE PLANS.
The adoption of the Plan does not preclude the adoption by appropriate means of
any other incentive plan for employees.
17. EFFECT ON EMPLOYMENT.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.
18. DEFINITIONS.
In addition to the terms specifically defined elsewhere in the Plan, as used in
the Plan, the following terms shall have the respective meanings indicated
unless another definition is agreed to in writing by the Company and the
optionee in an option grant agreement with respect to such term or a similar
term:
"Adjustment Event" shall have the meaning set forth in Section 10
hereof.
"Board of Directors" shall have the meaning set forth in Section 2
hereof.
14
"Cause", with respect to any Key Employee, shall mean termination by
action of the Board of Directors because of: (A) the optionee's conviction
of, or plea of nolo contendere to, a felony or a crime involving moral
turpitude; (B) the optionee's personal dishonesty, willful misconduct,
willful violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or breach of fiduciary duty which involves
personal profit; (C) the optionee's willful commission of material
mismanagement in the conduct of his or her duties as assigned to him by the
Board of Directors or the optionee's supervising officer or officers of the
Company; (D) the optionee's willful failure to execute or comply with the
policies of the Company or his or her stated duties as established by the
Board of Directors or the optionee's supervising officer or officers of the
Company, or the optionee's intentional failure to perform the optionee's
stated duties; or (E) substance abuse or addiction on the part of the
optionee. "Cause", with respect to any Eligible Non-Employee, shall mean
termination by action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's willful
commission of material mismanagement in providing services to the Company
or any Related Entity; (D) the optionee's willful failure to comply with
the policies of the Company in providing services to the Company or any
Related Entity, or the optionee's intentional failure to perform the
services for which the optionee has been engaged; (E) substance abuse or
addiction on the part of the optionee; or (F) the optionee's willfully
making any material misrepresentation or willfully omitting to disclose any
material fact to the board of directors of the Company or any Related
Entity with respect to the business of the Company or any Related Entity.
"Change of Control" shall mean (a) the sale, lease or other transfer
of all or substantially all of the assets of the Company to any person or
group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the
Company of a plan relating to the liquidation or dissolution of the
Company; (c) the merger or consolidation of the Company with or into
another entity or the merger of another entity into the Company or any
subsidiary thereof with the effect that immediately after such transaction
the stockholders of the Company immediately prior to such transaction (or
their Related Parties) directly and indirectly hold less than fifty percent
(50%) of the total voting power of all securities generally entitled to
vote in the election of directors, managers or trustees of the entity
surviving such merger or consolidation; (d) the acquisition by any person
or group of more than fifty percent (50%) of the direct and indirect voting
power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and
(ii) were not approved by a majority of the Board at the time of their
election or appointment.
"Code" shall have the meaning set forth in Section 1 hereof.
"Committee" shall have the meaning set forth in Section 2 hereof.
"Common Stock" shall have the meaning set forth in Section 3 hereof.
15
"Company" shall have the meaning set forth in Section 1 hereof.
"Disability" shall mean permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis unless another
meaning shall be agreed to in writing by the Committee and the optionee.
"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
"Exchange Act" shall have the meaning set forth in Section 2 hereof.
"Fair Market Value" shall, as it relates to the Common Stock, mean, at
the option of the Committee, the average of the high and low prices or the
closing price of such Common Stock as reported on the principal national
securities exchange on which the shares of Common Stock are then listed or
the NASDAQ National Market, as applicable, on the date specified herein for
such a determination; or, if there were no sales on such date, on the next
succeeding day or immediately preceding day on which there were sales; or,
if such Common Stock is not listed on a national securities exchange, the
last reported bid price in the over-the-counter market; or, if such shares
are not traded in the over-the-counter market, the per share cash price for
which all of the outstanding Common Stock could be sold to a willing
purchaser in an arms length transaction (without regard to minority
discount, absence of liquidity, or transfer restrictions imposed by any
applicable law or agreement) at the date of the event giving rise to a need
for a determination. Except as may be otherwise expressly provided in a
particular Option, Fair Market Value shall be determined in good faith by
the Committee.
The term "including" when used herein shall mean "including, but not
limited to".
"Key Employee" shall have the meaning set forth in Section 4 hereof.
"Non Qualified Option" shall have the meaning set forth in Section 1
hereof.
"Options" shall have the meaning set forth in Section 1 hereof.
"Person" shall have the meaning set forth in Section 4 hereof.
"Performance-Based Options" shall have the meaning set forth in
Section 8 hereof.
"Plan" shall have the meaning set forth in Section 1 hereof.
"Related Entities" shall have the meaning set forth in Section 1
hereof.
"Related Parties" shall mean with respect to any person (a) the spouse
and lineal ascendants and descendants of such person, and any sibling of
any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest
of which consist of persons referred to in subsection (a) above.
"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.
16
"Securities Act" shall have the meaning set forth in Section 11
hereof. "Term" shall have the meaning set forth in Section 20 hereof.
"Value Option" shall have the meaning set forth in Section 7 hereof.
19. AMENDMENT OF PLAN.
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan, or modify the
provisions of the Plan relating to the number of shares subject to Section 7 and
the Exercisability Value of Value Options pursuant to subsection 7(e) unless
such amendment is made by or with the approval of the stockholders of the
Company. The Board of Directors shall be authorized to amend the Plan and the
Options granted thereunder to comply with Rule 16b-3 (or any successor rule)
under the Exchange Act (or any successor law) and the regulations (including any
temporary regulations) promulgated thereunder. No amendment, modification,
suspension or termination of the Plan shall materially impair the value of any
Options previously granted under the Plan, without the consent of the holder
thereof.
20. EFFECTIVE DATE AND TERM.
The Plan shall be effective as of April 8, 1999. Except with respect to
outstanding Options, the Plan shall terminate on the tenth anniversary of the
date of adoption of the Plan or the date of approval of the Plan by the
stockholders of the Company, whichever is earlier, unless sooner terminated by
the Board of Directors (the "Term").
17
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We hereby consent to the use in this Registration Statement on Form S-4 of
Chancellor Media Corporation and Subsidiaries of 1) our report dated February
10, 1999, except for Note 16 as to which the date is March 15, 1999, relating to
the consolidated financial statements and financial statement schedule of
Chancellor Media Corporation and Subsidiaries; 2) our report dated February 13,
1997, except for Note 15 as to which the date is February 19, 1997, relating to
the consolidated financial statements of Chancellor Radio Broadcasting Company
and Subsidiaries; 3) our report dated February 16, 1999 relating to the
statement of assets acquired and the related statements of revenues and direct
operating expenses of KODA-FM; and 4) our report dated February 16, 1999
relating to the combined statement of assets acquired and the related combined
statements of revenues and direct operating expenses of KBIG-FM, KLDE-FM and
WBIX-FM (formerly WNSR-FM), each of which of the aforementioned financial
statements are those that appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
June 3, 1999
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation:
We consent to the use of our reports on the following financial statements: 1)
the consolidated statements of operations, stockholders' equity and cash flows
of Chancellor Media Corporation and Subsidiaries for the year ended December 31,
1996; 2) the statements of earnings and cash flows of WLIT Inc. for the year
ended December 31, 1996; and 3) the combined statements of operations and cash
flows of KYSR Inc. and KIBB Inc. for the year ended December 31, 1996. We also
consent to the reference to our firm under the heading "Experts" in the
Registration Statement on Form S-4.
KPMG LLP
Dallas, Texas
June 3, 1999
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting a part of Chancellor Media Corporation's Registration Statement on
Form S-4 of our report dated September 17, 1998, relating to the financial
statements of the Outdoor Advertising Division of Whiteco Industries, Inc.,
which are contained in the Joint Proxy Statement/Prospectus.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/Prospectus.
BDO Seidman, LLP
Chicago, Illinois
June 3, 1999
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We hereby consent to the use in this Registration Statement on Form S-4 of
Chancellor Media Corporation and Subsidiaries of 1) our report dated February
26, 1999, except for Note 3 as to which the date is March 15, 1999, relating to
the consolidated financial statements of Capstar Broadcasting Corporation and
Subsidiaries; and 2) our report dated February 26, 1999, except for Note 2 as to
which the date is March 15, 1999, relating to the consolidated financial
statements of Capstar Communications, Inc. and Subsidiaries, each of which of
the aforementioned financial statements are those that appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
June 3, 1999
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated (i) February 10, 1997 with respect to the consolidated
statements of operations and cash flows of Commodore Media, Inc. and
Subsidiaries and (ii) March 5, 1998, except for Note 1 as to which the date is
April 27, 1998 with respect to the consolidated financial statements of Capstar
Communications, Inc. and Subsidiaries (formerly known as SFX Broadcasting, Inc.
and Subsidiaries), both included in the Registration Statement (Form S-4) and
related Prospectus of Chancellor Media Corporation to approve and adopt the
Agreement and Plan of Merger between Chancellor Media Corporation and Capstar
Broadcasting Corporation.
Ernst & Young LLP
New York, New York
June 3, 1999
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lamar Advertising Company:
We consent to the use of our report dated February 5, 1999, with respect to the
consolidated balance sheets of Lamar Advertising Company and subsidiaries as of
December 31, 1998, and December 31, 1997, and the related consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997, the two months ended
December 31, 1996, and the year ended October 31, 1996, which report appears in
the Registration Statement on Form S-4 of Chancellor Media Corporation. We also
consent to the reference to our firm under the heading "Experts" in the Joint
Proxy Statement/Prospectus.
KPMG LLP
New Orleans, Louisiana
June 3, 1999
EXHIBIT 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our reports
dated February 13, 1998 (and to all references to our Firm) included in this
Joint Proxy Statement/Prospectus of Chancellor Media Corporation.
Arthur Andersen LLP
Bakersfield, California
June 3, 1999
EXHIBIT 23.9
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our report
dated August 25, 1995 (and to all references to our Firm) included in this Joint
Proxy Statement/Prospectus of Chancellor Media Corporation.
Barbich Longcrier Hooper & King
/s/ GEOFFREY B. KING
------------------------------------
By: Geoffrey B. King, CPA
Bakersfield, California
June 3, 1999
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 18, 1999 and April 23,
1999 on our audits of the financial statements of The Broadcast Group, Inc. as
of December 31, 1998 and 1997 and for the years then ended. We also consent to
the reference to our firm under the caption "Experts."
KLEIMAN, CARNEY &
GREENBAUM
Farmington Hills, Michigan
June 3, 1999
EXHIBIT 99.3
Form of Consent of Salomon Smith Barney Inc.
We hereby consent to the use of our name and to the description of our
opinion letter, dated August 26, 1998, in the Joint Proxy Statement/Prospectus
of Chancellor Media Corporation and Capstar Broadcasting Corporation which
forms a part of the Registration Statement on Form S-4 of Chancellor Media
Corporation and to the inclusion of such opinion letter as Annex II to such
Joint Proxy Statement/Prospectus. In giving such consent, we do not admit that
we come within the category of persons whose consent is required under, and we
do not admit that we are "experts" for the purposes of, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
Salomon Smith Barney Inc.
/s/ SALOMON SMITH BARNEY INC.
New York, New York
June 4, 1999
EXHIBIT 99.4
[WASSERSTEIN PERELLA & CO LETTERHEAD]
June 7, 1999
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to (i) the use of our opinion letters, dated August 26, 1998
and the date hereof, respectively, to the Special Committee of the Board of
Directors of Chancellor Media Corporation ("Chancellor Media"), included as
Annexes III-A and III-B to the Joint Proxy Statement/Prospectus which forms a
part of the Registration Statement on Form S-4 relating to the proposed merger
of a wholly owned subsidiary of Chancellor Media with and into Capstar
Broadcasting Corporation, and (ii) the references to such opinions and our
opinion letter dated April 29, 1999 in such Proxy Statement/Prospectus. In
providing such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we hereby admit that we are "experts" as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Wasserstein Perella & Co., Inc.
/s/ WASSERSTEIN PERELLA & CO., INC.
EXHIBIT 99.5
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
We hereby consent to the use of Annex IV containing our opinion letter
dated August 26, 1998 (the "Opinion") to the Board of Directors of Chancellor
Media Corporation ("Chancellor") in the Joint Proxy Statement/Prospectus
constituting a part of the registration statement on Form S-4 of Chancellor
relating to the proposed business combination of Chancellor and Capstar
Broadcasting Corporation and to the references to our firm name in the Joint
Proxy Statement/Prospectus in connection with references to the Opinion. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder (collectively, the "Act"), nor do we admit that we are
experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
Dated: June 4, 1999
Morgan Stanley & Co. Incorporated
By: /s/ LANCE L. HIRT
-----------------------------
Name: Lance L. Hirt
Title: Vice President
EXHIBIT 99.6
CONSENT
OF
Bear, Stearns & Co. Inc.
We hereby consent to (i) the inclusion of our opinion letters, dated August 26,
1998, April 13, 1999, and June 3, 1999, to the Special Committee of the Board
of Directors of Capstar Broadcasting Corporation as Annex V to the Joint Proxy
Statement/Prospectus forming part of this Registration Statement on Form S-4,
and (ii) references made to our firm and such opinion in such Joint Proxy
Statement/Prospectus under the captions entitled "THE MERGER -- Background of
The Merger; -- Opinions of Financial Advisors to the Capstar Special Committee
and Capstar Board of Directors". In giving such consent, we do not admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and we do not admit that we are experts with respect to
any part of the Registration Statement within the meaning of the term "expert"
as used in the Securities Act of 1933, as amended, or the rules and regulations
of the Securities and Exchange Commission promulgated thereunder.
Bear, Stearns & Co. Inc.
By: /s/ RICK A. LACHER
--------------------------------
June 7, 1999
EXHIBIT 99.7
[CREDIT SUISSE FIRST BOSTON CORPORATION LETTERHEAD]
Board of Directors
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Members of the Board:
We hereby consent to the inclusion of the our opinion letter to the
Board of Directors of Capstar Broadcasting Corporation ("Capstar") as Annex VI
to the Joint Proxy Statement/Prospectus of Capstar and Chancellor Media
Corporation ("Chancellor") relating to the proposed merger transaction
involving Capstar and Chancellor and references thereto in such Joint Proxy
Statement/Prospectus under the caption "THE MERGER -- Opinions of Financial
Advisors to the Capstar Special Committee and Capstar Board of Directors --
Opinions of Financial Advisors to the Capstar Board of Directors -- Opinion of
Credit Suisse First Boston." In giving such consent, we do not admit that we
come within the category of persons whose consent is required under, and we do
not admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
By: /s/ CREDIT SUISSE FIRST BOSTON CORPORATION
------------------------------------------
CREDIT SUISSE FIRST BOSTON CORPORATION
New York, New York
June 4, 1999
EXHIBIT 99.8
CONSENT
OF
BT WOLFENSOHN
We hereby consent to (i) the inclusion of our opinion letter, dated August 26,
1998, to the Board of Directors of Capstar Broadcasting Corporation as Annex
VII to the Joint Proxy Statement/Prospectus forming part of this Registration
Statement on Form S-4, and (ii) references made to our firm and such opinion in
such Joint Proxy Statement/Prospectus under the captions entitled "THE MERGER
-- Background of The Merger; -- Opinions of Financial Advisors to the Capstar
Special Committee and Capstar Board of Directors." In giving such consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, and we do not admit that we are
experts with respect to any part of the Registration Statement within the
meaning of the term "expert" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust and, for legal and regulatory purposes, is a division
of BT Alex. Brown Incorporated, a registered broker-dealer and member of the
New York Stock Exchange.
BT WOLFENSOHN
June 7, 1999
EXHIBIT 99.9
August 26, 1998
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, TX 78701
Dear Sirs:
We understand that Capstar Broadcasting Corporation ("Capstar") has
entered into an Agreement and Plan of Merger (the "Merger Agreement") dated
August 25, 1998 among Chancellor Media Corporation ("Chancellor"), Chancellor
Merger Subsidiary, Inc. ("Sub") and Capstar, pursuant to which Chancellor will
be merged into Sub, and the merged entity will become a wholly-owned subsidiary
of Capstar (the "Merger"). As a result of the Merger, (i) each share of Class A
common stock of Capstar will be reclassified, changed and converted into a
range of not less than 0.48 and not more than 0.505 (the "Exchange Ratio") of a
share of common stock of Capstar, (ii) each share of Class B non-voting common
stock of Capstar will be reclassified, changed and converted into a fraction of
a share of non-voting common stock of Capstar based on the Exchange Ratio,
(iii) each share of Class C common stock of Capstar will be reclassified,
changed and converted into fraction of a share of common stock of Capstar based
on the Exchange Ratio and (iv) each share of common stock of Chancellor will be
converted into one share of Capstar common stock. The final Exchange Ratio will
be determined based on the Cash Flow (as defined in the Merger Agreement) of
the Designated Capstar Assets (as defined in the Merger Agreement) in calendar
year 1998. Immediately following the Merger, the former common stockholders of
Chancellor will own, depending on the final Exchange Ratio, approximately 77%
to 78% of the common shares of Capstar (including non-voting common shares) and
the former common stockholders of Capstar will own approximately 22% to 23% of
the common shares of Capstar (including non-voting common shares).
You have asked us to render our opinion as to whether the Exchange
Ratio is fair, from a financial point of view, to the public Class A common
stockholders of Capstar (excluding affiliates of Capstar or Chancellor).
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed Capstar's initial public offering
prospectus dated May 26, 1998 and its Quarterly Report
on Form 10-Q for the period ended June 30, 1998;
3. reviewed Chancellor's prospectus dated January
27, 1998 (relating to the issuance of 19,000,000
shares of Chancellor common stock), its Annual Report
on Form 10-K for the fiscal year ended December 31,
1997, and its
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
August 26, 1998
Page 2
Quarterly Reports on Form 10-Q for the periods ended
March 31 and June 30, 1998;
4. reviewed SFX Broadcasting Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
and its Quarterly Report on Form 10-Q for the period
ended March 31, 1998;
5. reviewed Triathlon Broadcasting Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997 and its Quarterly Reports on Form 10-Q for
the periods ended March 31 and June 30, 1998;
6. reviewed Lin Acquisition Company's and Lin
Holding Corp.'s Offering Memorandum dated February 18,
1998 relating to the issuance of $300,000,000 of
Senior Subordinated Notes and $325,000,000 of Senior
Discount Notes;
7. reviewed certain operating and financial
information of Capstar and Chancellor, including
projections, provided to us by management of Capstar
and Chancellor relating to their respective businesses
and prospects;
8. met with certain members of senior management of
Capstar and Chancellor to discuss their respective
operations, historical financial statements and future
prospects;
9. reviewed the historical prices and trading
volumes of the common shares of Capstar and
Chancellor;
10. reviewed publicly available financial data and
stock market performance data of companies which we
deemed generally comparable to Capstar and Chancellor;
11. reviewed the terms of recent acquisitions of
companies which we deemed generally comparable to
Capstar; and
12. conducted such other studies, analyses, inquiries
and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed the
accuracy and
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
August 26, 1998
Page 3
completeness of the financial and other information provided to us by Capstar
and Chancellor. With respect to Capstar's and Chancellor's projected financial
results (including projected cost and interest savings and revenue and
operating synergies resulting from the merger) we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of Capstar and Chancellor as to the
expected future performance of Capstar and Chancellor, respectively. We have
not assumed any responsibility for the independent verification of information
or projections (including projected cost and interest savings and revenue and
operating synergies resulting from the merger), provided to us and we have
further relied upon the assurances of the managements of Capstar and Chancellor
that they are unaware of any facts that would make the information or
projections (including projected cost and interest savings and revenue and
operating synergies resulting from the merger), provided to us incomplete or
misleading. In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets of Capstar and Chancellor, nor have we been
provided with any appraisals. We have assumed that the Merger will constitute a
tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended. Our opinion is necessarily based on economic,
market and other conditions, and the information made available to us, as of
the date hereof.
In the ordinary course of business, Bear, Stearns & Co. Inc. may make
a market and effect transactions or may have positions in the common stock of
Capstar and Chancellor (or options with respect thereto).
Our opinion as expressed below does not imply any conclusion as to the
likely trading range of any class of Capstar Common Stock either prior or
subsequent to the consummation of the Merger, which may very depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion as expressed below does not
address Capstar's underlying business decision to effect the Merger, and is not
a recommendation to the Special Committee of the Board of Directors or
Capstar's directors or stockholders as to whether to approve or vote for the
Merger. We have not reviewed any proxy statement or similar document that may
be distributed in connection with the Merger as such materials have not yet
been completed.
It is understood that this letter is intended for the benefit and use
of the Special Committee of the Board of Capstar and is not to be used for any
other purpose, or reproduced, disseminated, quoted or referred to at any time,
in whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any joint proxy
statement/prospectus to be distributed to the holders of Capstar and Chancellor
common stock in connection with the Merger. We note that we have not taken into
consideration, or reviewed any information with respect to, any pending or
future acquisition by Capstar or Chancellor that has not been announced
publicly. We have, however, considered the impact on Capstar and Chancellor, as
appropriate, of the consummation of all announced acquisitions that have not
closed.
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
August 26, 1998
Page 4
Based on the foregoing, it is our opinion that the Exchange Ratio is
fair, from a financial point of view, to the public Class A common stockholders
of Capstar (excluding affiliates of Capstar or Chancellor).
We have acted as financial advisor to the Special Committee in
connection with the merger and will receive a fee for such advisory services,
including the rendering of this opinion, payment of a significant portion of
which is contingent upon consummation of the merger.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ SHELDON STEIN
Managing Director
EXHIBIT 99.10
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
April 13, 1999
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, TX 78701
Dear Sirs:
We understand that Capstar Broadcasting Corporation ("Capstar") intends to enter
into an Amended and Restated Agreement and Plan of Merger (the "Amended Merger
Agreement") among Chancellor Media Corporation ("Chancellor"), CMC Merger Sub,
Inc. ("Sub") and Capstar, pursuant to which Sub will merge with and into
Capstar, and Capstar will become a wholly-owned subsidiary of Chancellor (the
"Merger"). As a result of the Merger, each share of Class A, Class B and Class C
common stock of Capstar will be converted into the right to receive 0.4955 (the
"Exchange Ratio") of a share of common stock of Chancellor. Immediately
following the Merger, the former common stockholders (including holders of
common stock equivalents) of Capstar will own approximately 24.5% of the
fully-diluted common shares of Chancellor and the current common stockholders
(including holders of common stock equivalents) of Chancellor will own
approximately 75.5% of the fully-diluted common shares of Chancellor.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the public Class A common stockholders
of Capstar (excluding affiliates of Capstar or Chancellor).
In the course of our analyses for rendering this opinion, we have:
1. reviewed a draft of the Amended Merger Agreement in substantially
final form;
2. reviewed a draft of the Schedule 14A Combined Proxy Statement in
substantially final form ("Proxy Statement" upon its completion);
3. reviewed Capstar's initial public offering prospectus dated May 26,
1998, its Annual Report on Form 10-K for the period ended December 31,
1998, and its Quarterly Reports on Form 10-Q for the periods ended June 30
and September 30, 1998;
4. reviewed Chancellor's prospectus dated January 27, 1998 (relating
to the issuance of 19,000,000 shares of Chancellor common stock), its
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
its Quarterly Reports on Form 10-Q for the periods ended March 31, June 30
and September 30, 1998;
5. reviewed Triathlon Broadcasting Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and its Quarterly Reports
on Form 10-Q for the periods ended March 31, June 30 and September 30,
1998;
1
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
April 13, 1999
Page 2
6. reviewed Chancellor's Form 8-K dated December 1, 1998 (and the
Amendment dated December 10, 1998), which set forth financial information
regarding Whiteco Industries, Inc.;
7. reviewed certain operating and financial information of Capstar and
Chancellor, including updated projections, provided to us by management of
Capstar and Chancellor relating to their respective businesses and
prospects;
8. met with certain members of senior management of Capstar and
Chancellor to discuss their respective operations, historical financial
statements and future prospects;
9. reviewed the historical prices and trading volumes of the common
shares of Capstar and Chancellor;
10. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Capstar and Chancellor;
11. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to Capstar; and
12. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Capstar
and Chancellor. With respect to Capstar's and Chancellor's updated projected
financial results (including updated projected cost and interest savings and
revenue and operating synergies resulting from the Merger) we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Capstar and Chancellor
as to the expected future performance of Capstar and Chancellor, respectively.
We have not assumed any responsibility for the independent verification of
information or updated projections (including updated projected cost and
interest savings and revenue and operating synergies resulting from the Merger),
provided to us and we have further relied upon the assurances of the managements
of Capstar and Chancellor that they are unaware of any facts that would make the
information or updated projections (including updated projected cost and
interest savings and revenue and operating synergies resulting from the Merger),
provided to us incomplete or misleading. In arriving at our opinion, we have not
performed or obtained any independent appraisal of the assets of Capstar and
Chancellor, nor have we been provided with any appraisals. We have assumed that
the Merger will constitute a tax-free "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.
In the ordinary course of business, Bear, Stearns & Co. Inc. may make a market
and effect transactions or may have positions in the common stock of Capstar and
Chancellor (or options with respect thereto).
2
Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
April 13, 1999
Page 3
Our opinion as expressed below does not imply any conclusion as to the likely
trading range of any class of Capstar or Chancellor Common Stock either prior
or, in the case of Chancellor, subsequent to the consummation of the Merger,
which may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. Our opinion as expressed below
does not address Capstar's underlying business decision to effect the Merger,
and is not a recommendation to the Special Committee of the Board of Directors
or Capstar's directors or stockholders as to whether to approve or vote for the
Merger.
It is understood that this letter is intended for the benefit and use of the
Special Committee of the Board of Capstar and is not to be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in whole
or in part, without our prior written consent; provided, however, that this
letter may be included in its entirety in the Proxy Statement. We have
considered the impact on Capstar and Chancellor, as appropriate, of the
consummation of all announced acquisitions that have not closed.
Based on the foregoing, it is our opinion that the Exchange Ratio is fair, from
a financial point of view, to the public Class A common stockholders of Capstar
(excluding affiliates of Capstar or Chancellor).
We have acted as financial advisor to the Special Committee in connection with
the Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon consummation of the merger.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ SHELDON STEIN
--------------------------------------
Managing Director
3
EXHIBIT 99.11
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, R. Gerald Turner, hereby consent to the use in the Registration Statement on
Form S-4 of Chancellor Media Corporation, a Delaware corporation ("Chancellor
Media"), to which this Consent is filed as an exhibit, of my name as a person
about to become a Director of Chancellor Media.
/s/ R. GERALD TURNER
--------------------------
R. Gerald Turner
June 8, 1999
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