-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cw1pbqThuWsI54nzcbZs8WWEB4pye8duJlGDb+iHDOoO6iL0Gm97EUg9Yi/gW49L AjgXp6aiLXMXbOdse5tXOQ== 0000950148-96-002968.txt : 19961224 0000950148-96-002968.hdr.sgml : 19961224 ACCESSION NUMBER: 0000950148-96-002968 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961223 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEFTEL BROADCASTING CORP CENTRAL INDEX KEY: 0000922503 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 990113417 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24516 FILM NUMBER: 96684531 BUSINESS ADDRESS: STREET 1: 6767 WEST TROPICANA AVE CITY: LAS VEGAS STATE: NV ZIP: 89603 BUSINESS PHONE: 7023673322 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the Transition period from to Commission file number 0-24516 HEFTEL BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) Delaware 99-0113417 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6767 West Tropicana Avenue, Suite 102 89103 Las Vegas, Nevada (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (702) 367-3322 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.001 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares outstanding of registrant's classes of common stock as of December 18, 1996: Class A Common Stock, $.001 Par Value - 11,547,731 shares Class B Common Stock, $.001 Par Value - None The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 18, 1996: Class A Common Stock, $.001 Par Value - $130,684,733 Class B Common Stock, $.001 Par Value - None 2 HEFTEL BROADCASTING CORPORATION September 30, 1996 INDEX
PART I PAGE Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Selected Financial Data 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 8. Financial Statements and Supplementary Data 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 PART III Item 10. Directors and Executive Officers of the Registrant 45 Item 11. Executive Compensation 46 Item 12. Security Ownership of Certain Beneficial Owners and Management 49 Item 13. Certain Relationships and Related Transactions 50 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 52
2 3 HEFTEL BROADCASTING CORPORATION PART I ITEM 1. BUSINESS GENERAL Heftel Broadcasting Corporation (the "Company") was incorporated in 1992 and is the successor by merger to Heftel Broadcasting Corporation, a Hawaii corporation, which was formed in 1974. The Company is the largest Spanish language radio broadcasting company in the United States and currently owns and programs 17 radio stations, 16 of which are located in five of the ten largest Hispanic markets in the United States, including Los Angeles, New York, Miami, Chicago, and Dallas/Ft. Worth. The Company has agreed to acquire Tichenor Media System, Inc. ("Tichenor"), the third largest Spanish language radio broadcasting company in the United States. Tichenor owns or programs 20 radio stations which serve six of the ten largest Hispanic markets in the United States, including San Francisco/San Jose, Chicago, Houston, San Antonio, McAllen/Brownsville/Harlingen and El Paso. Following the Tichenor acquisition, the Company will own or program 37 radio stations in 11 markets, including stations in each of the top ten Hispanic markets in the United States. See "Recent Developments -- Tichenor Merger." The Company's strategy is to own and program top performing radio stations, principally in the largest Spanish language radio markets in the United States. The top ten Hispanic markets account for approximately 17.2 million Hispanics, representing approximately 63% of the total Hispanic population in the United States. Upon completion of the Tichenor acquisition, the Company will have the largest Spanish language radio station combination, as measured by audience and revenue share, in eight of the top ten Hispanic markets. Additionally, the Company will have the highest rated radio station in any format in four of the top ten Hispanic markets. The Company intends to acquire or develop additional Spanish language radio stations in the leading Hispanic markets. When evaluating a potential acquisition, the Company considers the following factors: (i) the ability to generate satisfactory rates of return on its investment, (ii) the ability to increase operating cash flow at the station, (iii) the strategic importance of the station to the Company's overall business objectives, (iv) the size and projected rates of growth of the market's broadcasting revenues, Hispanic population and consumer spending and (v) the number of competitive stations in the market. The Company believes Spanish language broadcasting has significant growth potential for the following reasons: - The Hispanic population is the fastest growing population segment in the United States and is expected to grow from an estimated 27.2 million (approximately 10.3% of the total United States population) at the end of 1995 to an estimated 30.7 million (approximately 11.3% of the total United States population) by the year 2000. These estimates imply a growth rate of approximately three times the expected growth rate for the total United States population during the same period. - Advertisers have substantially increased their use of Spanish language media in recent years. Total advertising revenues from advertising in Spanish language media rose from $166 million in 1983 to $1.06 billion in 1995. This represents a compound annual growth rate of 16.7%, which is more than double the growth rate of total advertising over the same period. Although Hispanic consumers will spend an estimated $340 billion in 1997, or 6.5% of the total consumer spending 3 4 in the United States, Spanish language advertising currently represents less than 0.7% of the total advertising expenditures. - Advertisers have begun to target Hispanic households because they are younger and spend a greater percentage of their household income on consumer products than non-Hispanic households. Hispanic households in the United States average 3.5 persons, compared to an average of 2.5 persons for non-Hispanic households. In addition, 82% of Hispanic households in the United States are family units, compared to 71% of all households in the United States. During the 1990's, one in four new households in the United States is expected to be headed by a person of Hispanic origin. - Hispanics have maintained strong social and cultural ties to their countries of origin, particularly in their continued use of the Spanish language. An estimated 78% of Hispanics speak at least some Spanish and approximately 40% speak it exclusively. Spanish is expected to continue to be the language of preference for Hispanics. - The number of Spanish language media outlets is disproportionately lower than the number of similar English language outlets. In the radio segment, there are currently approximately 400 Spanish language commercial stations, which constitute only approximately 4% of all commercial radio stations in the United States, although the Hispanic population comprises approximately 10.3% of the United States population. RECENT DEVELOPMENTS Secondary Public Stock Offering On October 18, 1996, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission to register the sale of up to 4,025,000 shares of its Class A Common Stock in a secondary public offering. The net proceeds from this stock offering will be used to repay outstanding debt under the Company's existing credit agreement. The registration statement has not yet been declared effective by the Securities and Exchange Commission. Clear Channel Tender Offer Clear Channel Communications, Inc. (together with its wholly owned subsidiaries "Clear Channel") is a diversified publicly held broadcasting company that currently owns or programs 99 radio stations and 18 television stations in 33 markets. On August 5, 1996, Clear Channel completed a tender offer and a related private purchase of stock from existing stockholders of the Company (collectively, the "Tender Offer"). As a result of the Tender Offer, Clear Channel currently owns approximately 63% of the outstanding Class A Common Stock of the Company. Concurrent with completion of the Tender Offer, Mr. Cecil Heftel, former Chairman and Co-Chief Executive Officer, and Mr. Carl Parmer, former Co-Chief Executive Officer and President, each entered into agreements not to compete and employment settlement agreements (each, a "Settlement Agreement") with the Company. Pursuant to their respective Settlement Agreement, the employment by the Company of Mr. Heftel and Mr. Parmer terminated immediately following the purchase of their respective shares pursuant to the Tender Offer. An aggregate of approximately $25.8 million was paid to Messrs. Heftel and Parmer upon closing of the Tender Offer in exchange for releases from any claims resulting from termination of their respective employment agreements with the Company and as compensation for their respective agreements not to compete with the Company in certain specified markets for a period of five years from the date of closing of the Tender 4 5 Offer. In connection with the Tender Offer, the Company's Board of Directors was replaced with the current directors, all of whom were designated by Clear Channel. Tichenor Merger On July 9, 1996, Clear Channel and Tichenor entered into an Agreement and Plan of Merger, which was amended and restated on October 10, 1996 ("Merger Agreement"), which, subject to the terms and conditions thereof, provides for the acquisition of Tichenor by the Company (the "Tichenor Merger"). Pursuant to the Merger Agreement, a wholly owned subsidiary of the Company will merge with and into Tichenor, and Tichenor shall continue as the surviving corporation as a wholly owned subsidiary of the Company. At the time the Merger Agreement was executed, Clear Channel had commenced but not completed the Tender Offer. The then existing management and Board of Directors of the Company were not involved in the negotiations concerning the acquisition of Tichenor. On August 14, 1996, after the consummation of the Tender Offer, Clear Channel offered to assign the Merger Agreement to the Company in accordance with the Merger Agreement, and on October 10, 1996, the current Board of Directors of the Company approved the Tichenor Merger and the assignment to the Company of the Merger Agreement. In approving the Tichenor Merger, the Company considered, among other things, the strength of the combined management of the Company and Tichenor; the marketing and operating benefits of the expansion of the Company's presence into each of the top ten Hispanic markets; and the benefits of diversifying the Company's operations thereby reducing its reliance on any individual market. Under the terms of the Merger Agreement, the shareholders and warrant holders of Tichenor will receive an aggregate of 5,689,878 shares of the Company's Class A Common Stock and approximately $3.4 million in cash. The Company will also assume Tichenor's outstanding debt which was approximately $71.3 million on September 30, 1996. In addition, Clear Channel will convert all of its shares of the Company's Class A Common Stock and its shares of common stock of Tichenor into 7,428,235 shares of a redesignated Class B Common Stock ("Nonvoting Common Stock") that will not have any voting rights except as specifically provided for in the charter or as otherwise required by law. The Tichenor Merger requires the approval of the Federal Communications Commission ("FCC"). The FCC's cross-interest policy bars a party which holds an attributable interest in one or more radio stations in a market from having a "meaningful relationship" with another radio station in that market. A "meaningful relationship" is construed by the FCC to include a non-voting equity position in excess of 33 1/3% of the total outstanding common stock. Clear Channel has informed the Company that it is considering a number of alternatives to comply with FCC regulations upon consummation of the Tichenor Merger. In the event that no other alternative is approved by the FCC, Clear Channel has informed the Company it may place any remaining shares of Nonvoting Common Stock above the 33 1/3% maximum in a disposition trust for the purpose of sale, through negotiated block transactions or other type of sales. The use of a disposition trust, and the terms thereof, would be subject to the prior consent of the FCC. Upon consummation of the Tichenor Merger, the Company will enter into an employment agreement with McHenry T. Tichenor, Jr., pursuant to which Mr. Tichenor will serve as Chairman, President and Chief Executive Officer of the Company for a five year term. Mr. Tichenor is currently the President and Chief Executive Officer of Tichenor. The Tichenor Merger Agreement also provides that following the consummation of the Tichenor Merger, five designees of Tichenor shall constitute the entire Board of Directors of the Company. Tichenor has informed the Company its designees are McHenry T. Tichenor Jr., McHenry T. Tichenor Sr., Robert Hughes, James M. Raines, and Ernesto Cruz. 5 6 Business and Radio Station Asset Acquisitions In March 1996, the Company acquired the FCC license and certain broadcast and other equipment of WPAT-AM in the New York City market for approximately $19.5 million in cash. The acquisition was financed through additional borrowings under the Company's credit agreement. Viva Media Transaction On September 7, 1995, the Company, through a subsidiary, acquired from Mambisa Broadcasting Corporation (Mambisa) the remaining 51% interest in Viva America Media Group (Viva Media), a Florida partnership that owns WAQI-AM and WRTO-FM which serve the Miami market, for $19.8 million in cash. In addition, on September 7, 1995 the Company agreed to purchase from Mambisa real property in Miami, Florida on which the transmission tower for WAQI-AM is located for $1.5 million in cash and a $1.5 million non-interest bearing promissory note. The acquisition of the real property was completed in January 1996. The Company secured the $1.5 million promissory note with a mortgage on the purchased premises. Refinanced Credit Agreement New Credit Agreement On August 5, 1996, concurrent with the completion of the Tender Offer described under "Clear Channel Tender Offer", the Company borrowed $135 million under a new revolving credit agreement ("New Credit Agreement") with new lenders which provides a total credit facility of $155 million. The proceeds were used to retire all of the outstanding debt under the Company's old credit agreement and to pay certain noncompete and employment contract settlements plus certain transaction and other costs relating to the Tender Offer. The lenders have a security interest in the assets of the Company and the stock and partnership interests of the Company's subsidiaries. The New Credit Agreement restricts the payment of dividends and establishes limitations on, among other things, capital expenditures and additional borrowings. The Company is also required to maintain certain financial ratios, such as leverage and interest coverage ratios. Interest on borrowings under the New Credit Agreement is due monthly and the unpaid principal balance plus accrued interest is due in January 1998. Old Credit Agreement On March 13, 1996, the Company completed an Amended and Restated Credit Agreement ("Old Credit Agreement") under which the credit facilities were increased from $100 million to $175 million and the commencement of principal payments was deferred until December 1996. Other terms of the Old Credit Agreement remained substantially the same. On March 25, 1996, the Company borrowed an additional $20 million under the Old Credit Agreement to fund the acquisition of the assets of radio station WPAT-AM in New York. Discontinued Operations Effective August 5, 1996, the Company's Board of Directors approved a plan to discontinue the operations of the radio network owned by the Company's wholly owned subsidiary Spanish Coast-to-Coast, Ltd., dba Cadena Radio Centro (CRC). The loss relating to the discontinued operations of CRC for fiscal 1996 approximates $10 million, $8.1 million of which was recognized during the quarter ended September 30, 1996. CRC intends to fulfill its contractual program obligations and is expected to cease operating by December 31, 1996. 6 7 SPANISH LANGUAGE RADIO INDUSTRY Statistical information contained herein regarding the radio industry, population, consumer spending and advertising expenditures are taken from the Arbitron Company 1995-1996 radio metro ratings; 1990 U.S. Census; the Hispanic Consumer Market Report (DRI/McGraw Hill, June 1992); SRDS -- Standard Rate & Data Services (August 1996); Advertising Age (September 30, 1996); Sales and Marketing Management's Survey of Buying Power; Strategy Research Corporation -- 1996 U.S. Hispanic Market Study; Duncan's Radio Market Guide (1996 Edition); Hispanic Business (December 1995); Market Segment Research, Inc., and Paul Kagan Associates, Inc. PROGRAMMING Due to differences in origin, Hispanics are not a homogeneous group. The music, culture, customs and Spanish dialects vary from one radio market to another. Consequently, the Company programs its stations in a manner responsive to the local preferences of a target demographic audience in each of the markets it serves. A well researched mix of music and on-air programming at an individual station can attract a wide audience targeted by Spanish language advertisers. Programming is consistently monitored to maintain its quality and relevance to the target audience. Most music formats are primarily variations of Regional Mexican, Tropical, Tejano and Contemporary music styles. The local program director selects music from the various music styles that best reflects the music preferences of the local Hispanic audiences. A brief description of each music style follows: Regional Mexican. Regional Mexican consists of various types of music played in different regions of Mexico. Ranchera music, originating in Jalisco, Mexico, is a traditional folkloric sound commonly referred to as Mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who have lived in the country towns. Nortena means northern, and is representative of Northern Mexico. Featuring an accordion, Nortena has a Polka sound with a distinct Mexican flavor. Banda is a regional format from the state of Sinaloa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers. Regional Mexican also includes Cumbia music, which originates from Colombia. Contemporary. The Contemporary format includes pop, Latin rock, and ballads. This format is similar to English adult contemporary and contemporary hit radio stations. Tropical. The Tropical format primarily consists of Salsa, Merengue and Cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz. Salsa symbolizes music from Puerto Rico, Cuba, and the Dominican Republic and is popular with Hispanics living in New York, Miami and Chicago. Merengue music is also up-tempo dance music originating from the Dominican Republic. Tejano. Tejano music originated in Texas and is based on Mexican themes but is indigenous to Texas. It is a combination of contemporary rock, Ranchera, and country music. The lyrics are sung in both Spanish and English. The on-air talent speak in Spanish and English. Full service. The Full Service format includes all the traditional radio services: music, news, sports, traffic reports, special information programs and weather. News/Talk. News includes local, national, international reports and weather, business, traffic and sports. Talk includes commentary, analysis, discussion, interviews, call-ins and information shows. 7 8 STATIONS The following table sets forth selected information regarding Company owned radio stations:
GEOGRAPHIC RANKING BY PRIMARY STATION MARKET HISPANIC STATION DEMOGRAPHIC CALL LETTERS SERVED(1) POPULATION(2) FORMAT TARGET ------------ --------- --------------- ------- --------- KTNQ-AM Los Angeles 1 News/Talk Adults 25-54 KLVE-FM Los Angeles 1 Contemporary Adults 25-54 WADO-AM New York(3) 2 News/Talk Adults 25+ WPAT-AM New York 2 Brokered n/a WAMR-FM (4) Miami 3 Adult Contemporary Adults 25-54 WAQI-AM Miami 3 News/Talk Adults 35+ WRTO-FM Miami 3 Tropical Adults 18-34 WQBA-AM Miami 3 News/Talk/Sports Adults 35+ WLXX-AM Chicago 5 Tropical Adults 18-49 KESS-AM Dallas/Ft. Worth 9 Full Service Adults 18+ KINF-AM (5) Dallas/Ft. Worth 9 Talk Adults 18-49 KMRT-AM Dallas/Ft. Worth 9 Contemporary Adults 18-49 KMRT-FM Dallas/Ft. Worth 9 Contemporary Adults 18-49 KICI-FM Dallas/Ft. Worth 9 Tejano Adults 18-49 KHCK-FM Dallas/Ft. Worth 9 Tejano Adults 18-49 KLSQ-AM Las Vegas 33 Regional Mexican Adults 18-49
- ------------------------------------------------- (1) Actual city of license may differ from the metropolitan market served. (2) Ranking of the principal radio market served by the Company's station(s) among all U.S. radio markets by Hispanic population as reported by Strategy Research Corporation -- 1996 U.S. Hispanic Market Study. (3) The Company also owns WGLI-AM which currently is not broadcasting. (4) Formerly WQBA-FM (5) Formerly KICI-AM 8 9 The following table sets forth selected information with regard to Company owned radio stations:
Date License FCC Station/Location Acquired Expiration Date Frequency - ---------------- -------- --------------- --------- KTNQ-AM, Los Angeles, CA 10/85 12/1/97 1020 kHz KLVE-FM, Los Angeles, CA 10/85 12/1/97 107.5 MHZ WADO-AM, New York, NY 8/94 6/1/98 1280 kHz WPAT-AM, New York, NY 3/96 6/1/98 930 kHz WAQI-AM, Miami, FL 10/89 2/1/03 710 kHz WRTO-FM, Miami, FL 10/89 2/1/03 98.3 MHZ WQBA-AM, Miami, FL 8/94 2/1/03 1140 kHz WAMR-FM, Miami, FL 8/94 2/1/03 107.5 MHZ KESS-AM, Dallas/Ft. Worth, TX 8/94 8/1/97 1270 kHz KINF-AM, Dallas/Ft. Worth, TX 8/94 8/1/97 1440 kHz KMRT-AM, Dallas/Ft. Worth, TX 12/94 8/1/97 1480 kHz KICI-FM, Corsicana, TX 4/95 8/1/97 107.9 MHZ KMRT-FM, Dallas/Ft. Worth, TX 6/95 8/1/97 106.7 MHZ KHCK-FM, Dallas/Ft. Worth, TX 7/95 8/1/97 99.1 MHZ WLXX-AM, Chicago, IL 7/95 12/1/96 1200 kHz KLSQ-AM, Las Vegas, NV 8/95 10/1/97 870 kHz
The Company also owns WGLI-AM in Babylon, New York which currently is not broadcasting. COMPETITION Broadcasting is a highly competitive business. The Company's radio stations compete for audiences and advertising revenues with other radio stations of all formats, as well as with other media, such as newspapers, magazines, television, cable television, outdoor advertising and direct mail, within their respective markets. Audience ratings and market shares are subject to change and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. The radio broadcasting industry is also subject to competition from new media technologies being developed, such as the delivery of audio programming by cable and direct satellite television systems, which are already available in many markets, and satellite and terrestrial delivery of digital audio broadcasting and satellite radio. See "--Federal Regulation of Radio Broadcasting." There can be no assurance the development or introduction of any new media technology will not have an adverse effect on the radio broadcasting industry. Companies operating radio stations must always be alert to the possibility of another station changing its programming format to compete directly for listeners and advertisers. There are typically several other well-capitalized station operators competing in the same geographic markets as the Company. If one or more of these operators decide to convert one of their stations to a format similar to one of the Company's radio stations in the same geographic area, the result could be lower ratings and advertising revenue, increased 9 10 promotion and other expenses and consequently lower broadcast cash flow for the Company. FEDERAL REGULATION OF RADIO BROADCASTING Existing Regulation and Legislation. Radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of a radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. The Telecommunications Act of 1996 (the "1996 Act") represents the most comprehensive overhaul of the country's telecommunications laws in more than 60 years. The 1996 Act significantly changes both the broadcast ownership rules and the process for renewal of broadcast station licenses. The 1996 Act also relaxes local radio ownership restrictions. The FCC has already implemented some of these changes through Commission Orders. The 1996 Act establishes a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. Additionally, the 1996 Act substantially liberalizes the national broadcast ownership rules, eliminating the national radio limits. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading incumbents (i.e., existing networks and major station groups) has increased sharply the competition for, and the prices of, attractive stations. Multiple Ownership Restrictions. The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest, as defined more fully below) in broadcast stations, as well as other specified mass media entities. Prior to the passage of the 1996 Act, these rules included limits on the number of radio stations that could be owned on both a national and local basis. On a national basis, the rules generally precluded any individual or entity from having an attributable interest in more than 20 AM radio stations and 20 FM radio stations. The 1996 Act substantially relaxed the radio ownership limitations. The FCC began its implementation of the 1996 Act with several orders issued on March 8, 1996. The Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing a single entity to own nationally any number of AM or FM broadcast stations. The Act and the FCC's new rules also greatly eased local radio ownership restrictions. As with the old rules, the maximum allowable varies depending on the number of radio stations within a market. In markets with more than 45 stations, one company may own, operate or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets with 15- 29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. It should be noted, however, that the Department of Justice recently has precluded certain entities from acquiring the maximum number of radio stations allowed in a market under the 1996 Act because of concerns that antitrust laws would be violated. Thus, it is possible that the Company would, in certain instances, be unable to acquire the maximum number of stations allowed in a market under the 1996 Act. 10 11 In 1992, the FCC placed limitations on time brokerage (local marketing) agreements ("LMA") through which the licensee of one radio station provides the programming for another licensee's station in the same market. Stations operating in the same service (e.g., where both stations are AM) and in the same market are prohibited from simulcasting more than 25% of their programming. Moreover, in determining the number of stations that a single entity may control, an entity programming a station pursuant to an LMA is required, under certain circumstances, to count that station toward its maximum even though it does not own the station. A number of cross-ownership rules pertain to licensees of television and radio stations. FCC rules, the Communications Act or both generally prohibit an individual or entity from having an attributable interest in both a television station and a radio station, daily newspaper or cable television system that is located in the same local market area served by the television station. The FCC has employed a liberal waiver policy with respect to the TV/radio cross-ownership restriction (the so-called "one-to-a-market" rule), generally permitting common ownership of one AM, one FM, and one TV station in any of the 25 largest markets, provided there are at least 30 separately owned stations in the market. The 1996 Act directed the Commission to extend its one-to-a-market waiver policy to the top 50 markets, consistent with the public interest, convenience and necessity. On November 7, 1996, the FCC released a Second Further Notice of Proposed Rulemaking seeking comment on a number if issues relating to the local television ownership rules, including its tentative conclusion that it should extend the presumptive waiver of the one-to-a-market rule to the top 50 markets. The Commission also requested further comment on whether there is a continued need for the rule and, if there is, whether the rule should be further modified. In addition, on September 27, 1996, the FCC released a Notice of Inquiry seeking comment on whether it should relax its policy of granting waivers of the radio/newspaper cross-ownership restriction. Expansion of the Company's broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the Commission to review its remaining ownership rules biennially -- as part of its regulatory reform obligations -- to determine whether its various rules are still necessary. The Company cannot predict the impact of the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules. Further, the 1996 Act's relaxation of the FCC's ownership rules may increase the level of competition in one or more of the markets in which the Company's stations are located, particularly to the extent that any of the Company's competitors may have greater resources and thereby be in a better position to capitalize on such changes. Under the FCC's ownership rules, a direct or indirect purchaser of certain types of securities of the Company could violate FCC regulations if that purchaser owned or acquired an "attributable" or "meaningful" interest in other media properties in the same areas as stations owned by the Company or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee, as well as general partners, limited partners who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee (either directly or indirectly), generally will be deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to ten percent of such outstanding voting stock without being considered "attributable". Under current FCC regulations, debt instruments, non-voting stock, properly insulated limited partnership interests (as to which the licensee certifies that the limited partners are not "materially involved" in the management and operation of the subject media property) and voting stock held by minority stockholders in cases in which there is a single majority stockholder generally are not attributable. The FCC's "cross-interest" policy, which precludes an individual or entity from having a "meaningful" (even though not attributable) interest in one media property and an attributable interest in a broadcast, cable or newspaper property in the same area, may be invoked in certain circumstances to reach interests not expressly covered by the multiple ownership rules. 11 12 In January 1995, the FCC initiated a rulemaking proceeding designed to permit a "thorough review of [its] broadcast media attribution rules." Among the issues on which comment was sought were (i) whether to change the voting stock attribution benchmarks from five percent to ten percent and, for passive investors, from ten percent to twenty percent; (ii) whether there are any circumstances in which non-voting stock interests, which are currently considered non-attributable, should be considered attributable; (iii) whether the FCC should eliminate its single majority shareholder exception (pursuant to which voting interests in excess of five percent are not considered cognizable if a single shareholder owns more than fifty percent of the voting power); (iv) whether to relax insulation standards for business development companies and other widely-held limited partnerships; (v) how to treat limited liability companies and other new business forms for attribution purposes; (vi) whether to eliminate or codify the cross-interest policy; and (vii) whether to adopt a new policy which would consider whether multiple cross interests or other significant business relationships (such as time brokerage agreements, debt relationships or holdings of nonattributable interests), which individually do not raise concerns, raise issues with respect to diversity and competition. On November 7, 1996, the FCC released a Further Notice of Proposed Rulemaking in order to elicit further comment on several issues concerning its review of the broadcast attribution rules. In general, the FCC seeks comment as to whether the recent relaxation of the multiple ownership rules resulting from passage of the 1996 Act should affect the Commission's review of the rules, including whether a combination of debt and equity exceeding a certain threshold should be considered to be an attributable interest. The Company cannot predict with certainty when this proceeding will be concluded or whether any of these standards will be changed. Should the attribution rules be changed, the Company is unable to predict what effect, if any, such changes would have on the Company or its activities. License Grant and Renewal. Prior to the passage of the 1996 Act, radio broadcasting licenses generally were granted or renewed for a period of seven years upon a finding by the FCC that the "public interest, convenience, and necessity" would be served thereby. At the time an application is made for renewal of a radio license, parties in interest may file petitions to deny the application, and such parties, including members of the public, may comment upon the service the station has provided during the preceding license term. In addition, prior to passage of the 1996 Act, any person was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications or if issues raised by petitioners to deny such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of up to eight years, although the FCC has not yet implemented this provision. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (3) there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the Commission has denied an incumbent's application for renewal of license. By order dated April 12, 1996, the FCC modified its rules to implement the new two-step renewal procedure and to eliminate the right to file an application that is mutually exclusive with a renewal. This modification became effective prior to the filing of the license renewal application for WLXX-AM in Chicago which is currently pending. Also on April 12, 1996, the FCC issued a notice of Proposed Rulemaking to consider how to implement the new (longer) license term provision of the 1996 Act. 12 13 Although in the vast majority of cases broadcast licenses are granted by the FCC even when petitions to deny are filed against them, there can be no assurance that any of the Company's stations' licenses will be renewed. Alien Ownership Restrictions. The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. The Company, which serves as a holding company for subsidiaries that serve as licensees for the stations, therefore may be restricted from having more than one-fourth of its stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non-U.S. citizens or foreign governments, or foreign corporations. The Communications Act previously prohibited granting of a broadcast station license (i) to any corporation with an alien officer or director, or (ii) to any corporation controlled by another corporation with any alien officers or more than one-fourth alien directors. The restrictions on non-U.S. citizens serving as officers or directors of licensees and their parent corporations have been eliminated, however, by the 1996 Act. Other Regulations Affecting Radio Broadcasting Stations. The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. In 1990, the U.S. Supreme Court refused to review a lower court decision that upheld the FCC's 1987 action invalidating most aspects of the Fairness Doctrine, which had required broadcasters to present contrasting views on controversial issues of public importance. The FCC has, however, continued to regulate other aspects of fairness obligations in connection with certain types of broadcasts. In addition, there are FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as political advertising practices, equal employment opportunity, application procedures and other areas affecting the business or operations of broadcast stations. Recent Developments, Proposed Legislation and Regulation. The FCC presently is seeking comment on its policies designed to increase minority ownership of mass media facilities. Congress, however, has enacted legislation that eliminated the minority tax certificate program of the FCC, which gave favorable tax treatment to entities selling broadcast stations to entities controlled by an ethnic minority. In addition, a recent Supreme Court decision has cast into doubt the continued validity of other FCC programs designed to increase minority ownership of mass media facilities. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of the Company's broadcast properties. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, potential restrictions on the advertising of certain products (liquor, beer and wine, for example) and the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations. Other matters that could affect the Company's broadcast properties include technological 13 14 innovations and developments generally affecting competition in the mass communications industry. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act, or the 1996 Act, nor of the regulations and policies of the FCC thereunder. The 1996 Act also covers satellite and terrestrial delivery of digital audio radio service, and direct broadcast satellite systems. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. INDUSTRY SEGMENTS The Company considers radio broadcasting to be its only business segment. EMPLOYEES As of November 1, 1996, the Company employed 314 persons on a full-time basis, including 10 corporate employees and 13 employees (at WADO-AM, New York) who are subject to two collective bargaining agreements. The Company considers its employee relations to be good. ITEM 2. PROPERTIES The Company's corporate offices are located in a 3,560 square foot leased facility in Las Vegas, Nevada. The initial term of the lease expires in 1999 and the Company has two options to extend the lease for additional five-year terms. Subsequent to the consummation of the Tichenor Merger, the Company plans to relocate and combine its corporate office with Tichenor's corporate office in Dallas. The studios for both KTNQ-AM and KLVE-FM are located in a 27,638 square foot leased facility in Hollywood, California. The initial term of the lease expires in April 2003 and the Company has two options to extend the lease for additional five-year terms. The Company has a special permit from the United States Department of Forestry for the lease of its FM tower on top of Mt. Wilson in Los Angeles. This permit has been subject to renewal on an annual basis since it was granted in 1986 and has been renewed each year. Many other radio stations in Los Angeles have similar permits which are subject to the same or similar renewal requirements. The Company leases a tower site and an equipment room in City of Industry, California for broadcast of the KTNQ-AM signal. The lease expires in April 2080. The Company also leases another equipment room at the tower site under a lease which expires in December 2089. The Company owns the towers at the leased tower site. The Company owns a tower located in Miramar, Florida which broadcasts the signal for WAQI-AM. In January 1996, the Company acquired this land for $3.0 million. The Company leases a tower located in Miami, Florida for the broadcast of the signal for WRTO-FM under a lease which expires on August 31, 1997. The Company owns a tower located in Dade County, Florida which broadcasts the signal for WQBA-AM and leases a tower located in Dade County, Florida for the broadcast of the WAMR-FM signal. The initial term of this lease expires in April 2000, and the Company has two options to extend the lease for periods of five years each. 14 15 The broadcast studios for WQBA-AM , WAMR-FM, WAQI-AM, and WRTO-FM are located in a 15,563 square foot facility in Miami leased by the Company. This lease expires in April 2000. The administrative offices for WADO-AM are currently located in a 5,600 square foot facility in New York leased by the Company. The broadcast studios for WADO-AM are located in a 2,600 square foot facility owned by the Company. The Company owns a tower in Carlstadt, New Jersey which broadcasts the signal for WADO-AM. The ground radial system and guy wires for the tower are located on adjacent property leased from the State of New Jersey until March 2016. Studio, transmitter and office facilities of WPAT-AM are located in a 7,600 square foot building in Clifton, New Jersey. Adjacent to the building is the tower site. The related building, tower site and the towers are owned by the Company. The Company plans to relocate and combine the administrative offices and studios of WADO-AM with the facilities of WPAT-AM in early 1997. The Texas stations' offices are located in a 22,000 square foot facility in Dallas owned by the Company. The Company owns a tower in Ft. Worth for the broadcast of the signal for KESS-AM and leases the land on which such tower is located under a lease which expires in September 2001. The Company owns a tower located in Denton, Texas which broadcasts the signal for KICI-AM and a tower located in Dallas which broadcasts the signal for KMRT-AM. The Company also owns a tower located in Dallas which broadcasts the signal for KICI-FM. The Company leases land in Tarrant County and Wise County on which the towers that broadcast the signals for KMRT-FM and KHCK-FM, respectively, are located. These leases expire in September 2001 and July 2000, respectively, and provide for options to renew the leases through September 2006 and July 2005, respectively. The Company owns the towers and equipment buildings located on the leased land. The studio and administrative office for WLXX-AM relocated to a new facility in Chicago in September 1996. The Company subleases approximately 2,400 square feet for which the lease expires in 2006. The Company also leases land in Chicago on which a tower which broadcasts the signal for WLXX-AM is located. This lease expires in March 1998 and provides for four options to renew the lease for a term of ten years each. The studio and administrative office for KLSQ-AM occupy 1,500 square feet at the same facility as the Company's corporate office in Las Vegas, Nevada. The initial term of the lease expires in 1999 and the lease provides for two options to renew the lease for a term of five years each. The Company also leases land in Laughlin, Nevada and Henderson, Nevada, on which the towers that broadcast the signal for KLSQ-AM are located. These leases expire in 2019 and 2004, respectively. Each of the leases provides for renewal options which extend the expiration date of the respective leases. ITEM 3. LEGAL PROCEEDINGS On June 14, 1996, Levine v. Cecil Heftel, H. Carl Parmer, Madison Graves, Richard Heftel, John Mason, Heftel Broadcasting Corporation and Clear Channel Communications, Inc. (Case No. 15066) was filed in the Court of Chancery of the State of Delaware in the County of New Castle. This complaint is a purported class action complaint on behalf of Jeffrey Levine and all other stockholders of the Company to enjoin the defendants from effectuating the Tender Offer. The plaintiff also alleges that Cecil Heftel and Carl Parmer, former directors and executive officers of the Company, breached their fiduciary duties to the stockholders of the Company by negotiating a settlement of amounts which would be owed to them under their employment agreements upon a termination thereof by the Company at the closing of the Tender Offer. The suit seeks the rescission of the Tender Offer and/or the grant of rescissory damages. In addition, plaintiff seeks unspecified compensatory damages and an award of attorneys' fees and costs. The Company has tendered the claims 15 16 subject to this suit to its director and officer insurance carriers. The Tender Offer closed without any action by plaintiffs. The Company has filed a motion to dismiss the suit and has requested plaintiffs to dismiss the suit voluntary. No action has been taken on such motion or such request. The Company's management believes the disposition of this litigation will not have a materially adverse effect on the Company's consolidated financial position or results of operations. In the ordinary course of business, the Company becomes involved in certain other legal claims and litigation. In the opinion of management, based upon consultations with legal counsel, the disposition of such litigation pending against the Company will not have a materially adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of holders of Common Stock during the fourth quarter of fiscal 1996. 16 17 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock is traded in the over-the-counter market, and prices for the shares are quoted on the Nasdaq National Market under the symbol "HBCCA." The following table sets forth the high and low closing sale prices per share as reported on the Nasdaq National Market for each of the quarters in the fiscal years ended September 30, 1995 and 1996:
High Low ---- --- Fiscal Year Ended September 30, 1995: First Quarter $16 $ 9 1/2 Second Quarter 13 7/8 10 Third Quarter 15 3/4 10 1/8 Fourth Quarter 21 3/4 15 1/4 Fiscal Year Ended September 30, 1996: First Quarter 19 1/2 14 3/4 Second Quarter 21 15 1/4 Third Quarter 29 7/8 19 1/2 Fourth Quarter 43 5/8 28 1/4
As of December 18, 1996, the number of stockholders of record of the Company's Class A Common Stock was 14. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. There are no outstanding shares of the Company's Class B Common Stock. During the quarter ended September 30, 1996, the Company issued 5,000 shares of the Company's Class A Common Stock to a former director pursuant to the exercise and sale of an in-the-money stock option granted in December 1995. This issuance was not registered with the Securities and Exchange Commission. DIVIDEND POLICY The Series A Preferred Stock ("Preferred Stock") dividends have a cumulative annual rate of $0.08 per share. In January 1995, the Company redeemed 1,960,290 shares of Preferred Stock using proceeds of the Company's 1994 initial public offering. The Company declared and paid cash dividends on the Preferred Stock equal to the cumulative unpaid dividends through the date of redemption, which approximated $2.9 million. In 1992, the Company redeemed 2,115,468 shares of Preferred Stock owned by Cecil Heftel and agreed with Mr. Heftel to defer payment of cumulative unpaid dividends until dividends on the remaining shares of Preferred Stock were declared and paid. Such dividends relating to the 1992 Preferred Stock redemption, which totaled $1.1 million, are included in the $2.9 million of unpaid cumulative dividends described above. On August 5, 1996, in connection with the Tender Offer, the remaining 335,634 shares of Preferred Stock were redeemed and retired. Total dividends paid during fiscal 1996 relating to these retired shares were $42,961. Any future determination as to declaration of dividends on the common stock will be at the discretion of the Company's Board of Directors and will depend on the Company's results of operations, financial condition, capital requirements, lending agreements and other factors deemed relevant by the Board of Directors. 17 18 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data for Heftel Broadcasting Corporation and its subsidiaries for each of the five years ended September 30, 1996 (in thousands, except per share data):
Year ended September 30, 1992 1993 1994(1) 1995 1996 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Net broadcasting revenues $ 19,134 $ 20,932 $ 27,433 $ 64,160 $ 71,732 Revenues relating to Mi CASA 581 399 -- -- -- ------------ ------------ ------------ ------------ ------------ Total net revenues 19,715 21,331 27,433 64,160 71,732 Station operating expenses 10,520 10,479 15,345 43,643 48,896 Expenses relating to Mi CASA 768 1,470 -- -- -- Corporate expenses 3,671 2,530 3,454 4,720 5,072 Depreciation and amortization 2,050 1,760 1,906 3,344 5,140 ------------ ------------ ------------ ------------ ------------ Total operating expenses 17,009 16,239 20,705 51,707 59,108 ------------ ------------ ------------ ------------ ------------ Operating income 2,706 5,092 6,728 12,453 12,624 Other income (expense): Interest expense, net (2,192) (2,312) (2,997) (6,389) (11,034) Income (loss) in equity of joint venture(2) (991) 746 616 -- -- Loss on retirement of debt (1,936) -- (1,738) -- (7,461) Restructuring charges -- -- -- -- (29,011) Other expenses, net (921) (533) (1,407) (428) (1,671) ------------ ------------ ------------ ------------ ------------ Total other income (expense) (6,040) (2,099) (5,526) (6,817) (49,177) ------------ ------------ ------------ ------------ ------------ Income (loss) before minority interest and income taxes (3,334) 2,993 1,202 5,636 (36,553) Minority interest -- -- -- (351) (1,167) -- Provision for income tax -- (272) (100) (150) (65) ------------ ------------ ------------ ------------ ------------ Income (loss) from continuing operations (3,334) 2,721 751 4,319 (36,618) Discontinued operations: Loss on discontinued operations of CRC(3) -- -- (285) (626) (9,988) ------------ ------------ ------------ ------------ ------------ Net income (loss) $ (3,334) $ 2,721 $ 466 $ 3,693 $ (46,606) ============ ============ ============ ============ ============ Income (loss) from continuing operations per common and common equivalent share $ (.90) $ .65 $ .14 $ .40 $ (3.56) ============ ============ ============ ============ ============ Net income (loss) per common and common equivalent share $ (.90) $ .55 $ .05 $ .34 $ (4.53) ============ ============ ============ ============ ============ Weighted average shares outstanding 4,046,360 4,638,019 5,384,678 10,805,346 10,294,967 ============ ============ ============ ============ ============ OTHER OPERATING DATA: Broadcast cash flow(4) $ 8,614 $ 10,453 $ 12,088 $ 20,517 $ 22,836 BALANCE SHEET DATA (AT END OF PERIOD): Working capital $ (716) $ 715 $ 18,366 $ 14,967 $ 7,168 Net intangible assets 10,387 8,727 70,528 109,253 121,742 Total assets 23,347 25,770 113,353 151,637 165,751 Long-term debt, less current portion 24,995 25,779 58,472 95,937 136,126 Stockholders' equity (deficiency) $ (11,018) $ (10,164) $ 44,436 $ 43,581 $ 12,101
See accompanying notes 18 19 NOTES TO SELECTED FINANCIAL DATA (1) During August 1994, the Company completed three separate business acquisitions and began consolidating a previously unconsolidated investment in a joint venture. Total net revenues and net income (loss), adjusted for interest expense on retired debt, relating to these acquisitions and transaction from the respective dates of these transactions to September 30, 1994 was approximately $5,488,000 and $(80,000), respectively. (2) See Note 1 of Notes to Consolidated Financial Statements of the Company. (3) The Company's Board of Directors approved a plan to discontinue the operations of the radio network owned by CRC, effective August 5, 1996. The total loss relating to the discontinued operations of CRC for fiscal 1996 was approximately $10 million, $8.1 million of which was recognized during the quarter ended September 30, 1996. The loss on disposal of CRC includes approximately $1.9 million of operating losses from the measurement date, August 5, 1996, through the planned disposal date, December 31, 1996. CRC intends to fulfill its contractual program obligations and is expected to cease operating by December 31, 1996. (4) Data on station operating income excluding depreciation and amortization (commonly referred to as "broadcast cash flow"), although not calculated in accordance with generally accepted accounting principles, is widely used in the broadcast industry as a measure of a broadcast company's operating performance. Nevertheless, this measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity which is calculated in accordance with generally accepted accounting principles. 19 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1995 During fiscal 1995, the Company completed several radio station acquisitions. Due to the financial effects of these transactions, the results of operations for 1996 reflect a full fiscal year of operations for these radio stations compared to a partial year in 1995. Consequently, the results of operations for the two years ended September 30, 1996 are not entirely comparable. Net revenues increased by $7.6 million, or 11.8%, to $71.7 million in the year ended September 30, 1996 from $64.2 million in the same period of 1995. Operating expenses increased by $7.4 million, or 14.3%, to $59.1 million in the year ended September 30, 1996 from $51.7 million in the same period of 1995. These increases were due primarily to the results of operations for the full fiscal year of additional radio stations acquired during fiscal 1995. Interest expense, net of interest income, increased by $4.6 million, or 72.7%, to $11.0 million in the year ended September 30, 1996 from $6.4 million in the same period of 1995 primarily due to increased borrowings totaling approximately $42.0 million resulting from radio station asset acquisitions and certain transaction costs related to the Tender Offer. Other expenses increased by $37.7 million to $38.1 million during the year ended September 30, 1996 as compared to $428,000 for the same period in 1995. For the year ended September 30, 1996, the Company incurred a non-cash loss of $7.5 million as a result of refinanced debt. In addition, in 1996 the Company incurred a loss of $29.0 million relating to certain one-time restructuring charges described further in the following paragraphs. During fiscal 1996, the Company incurred $1.4 million in cost related to unconsummated acquisitions as compared to $142,000 for fiscal 1995. In fiscal 1995, the Company recorded $1.2 million in minority interest relating to Viva Media. In 1996, the Company owned 100% of Viva Media; therefore no minority interest was recorded. Effective August 5, 1996, the Company's Board of Directors approved a plan to discontinue the operations of the radio network owned by CRC. The total loss relating to the discontinued operations of CRC for fiscal 1996 was approximately $10 million. The charge to operations during the quarter ended September 30, 1996 was approximately $8.1 million, of which $6.2 million relates to non-cash charges resulting from the write-off of goodwill. No income tax benefit was realized due to the Company's availability of net operating loss carryforwards. The loss on disposal of CRC includes approximately $1.9 million of operating losses from the measurement date, August 5, 1996, through the planned disposal date, December 31, 1996. CRC intends to fulfill its contractual program obligations and is expected to cease operating by December 31, 1996. In connection with the Tender Offer, the Company incurred certain one-time restructuring charges totaling approximately $29.0 million during the quarter ended September 30, 1996. The material components of the restructuring charges are $18.8 million in payments to former senior executives relating to employment contract settlements, $4.7 million in broker commissions and transaction costs, $2.5 million in costs relating to the planned closing of duplicate facilities, plus $1.9 million in severance relating to employee terminations resulting from the restructuring. During fiscal 1996, the Company incurred a net loss of $46.6 million compared to net income of $3.7 million in the same period of 1995. The change from net income in 1995 to the net loss in 1996 of $50.3 million consist primarily of the increase in interest expense, loss on retirement of debt, discontinued operations of CRC, and the restructuring charges related to the Tender Offer, all as described above. 20 21 RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1994 During fiscal 1995, the Company completed several radio station acquisitions. Additional stations were acquired in August 1994. Due to the financial effects of these transactions, the results of operations for 1995 reflect the operations of more radio stations than the results of operations for 1994. Consequently, the financial condition and results of operations for the two years ended September 30, 1995 are not entirely comparable. Net revenues increased by $36.7 million, or 133.9%, to $64.2 million in the year ended September 30, 1995 from $27.4 million in the same period of 1994. Operating expenses increased by $31.0 million, or 149.7%, to $51.7 million in the year ended September 30, 1995 from $20.7 million in the same period of 1994. These increases were due primarily to the results of operations of additional radio stations acquired in August 1994 and during fiscal 1995. Interest expense, net of interest income, increased by $3.4 million, or 113.2%, to $6.4 million for the year ended September 30, 1995 from $3.0 million in the same period of 1994 primarily due to increased borrowings resulting from new business acquisitions. Other expenses decreased by $2.7 million, or 86%, to $428,000 during the year ended September 30, 1995 as compared to $3.1 million for the same period in 1994. For the year ended September 30, 1994, the Company incurred a loss of $1.7 million as a result of refinanced debt. In addition, in 1995, the Company incurred $142,000 in costs relating to unconsummated acquisitions compared to $1.1 million in the prior year. Effective August 20, 1994, the Company began accounting for its 49% investment in Viva Media on a consolidated basis. Accordingly, the results of operations include the accounts of Viva Media from August 20, 1994 through September 30, 1994, and for the entire fiscal year ended September 30, 1995. Net income increased by $3.2 million to $3.7 million in the year ended September 30, 1995 from $466,000 in the same period of 1994. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the year ended September 30, 1996 was $20.1 million, compared to net cash provided by operations of $6.3 million for the same period in 1995. Excluding the effects of the loss on discontinued operations of CRC and the cash portion of certain restructuring charges related to the Tender Offer incurred during fiscal 1996, net cash provided by operating activities would have been $5.3 million as compared to net cash used of $20.1 million. Generally, capital expenditures are financed with cash provided by operations and long-term borrowings. On August 5, 1996, concurrent with the completion of the Tender Offer, the Company borrowed $135 million under the New Credit Agreement, which provides a total credit facility of $155 million. The proceeds were used to retire all of the outstanding debt under the Company's Old Credit Agreement (as hereafter defined) and to pay certain non-compete and employment contract settlements plus certain transaction and other costs relating to the Tender Offer. The lender has a security interest in substantially all the assets of the Company and its subsidiaries, including the stock and partnership interests of the Company's subsidiaries. The New Credit Agreement restricts the payment of dividends and establishes limitations on, among other things, capital expenditures and additional borrowings. The Company is also required to maintain certain financial ratios, such as leverage and interest coverage ratios. The entire principal balance outstanding plus unpaid interest is due in January 1998. 21 22 On March 13, 1996, the Company completed an Amended and Restated Credit Agreement ("Old Credit Agreement") resulting in an increase to the total credit facilities from $100 million to $175 million and the commencement of principal payments was deferred until December 31, 1996. Other terms of the Old Credit Agreement remained substantially the same. On March 25, 1996, the Company borrowed an additional $20 million under the Old Credit Agreement. The proceeds were used to fund the acquisition of the FCC license and certain broadcast and other equipment of WPAT-AM in New York. On January 10, 1996, the Company borrowed $1.5 million under its Old Credit Agreement and issued a $1.5 million non-interest promissory note in connection with the acquisition of real property in Miami on which an AM transmitting tower is located. During fiscal 1995, the Company borrowed $36,475,000 under the Old Credit Agreement. Proceeds of these borrowings were used primarily for business acquisitions, capital expenditures and working capital. On October 18, 1996, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission to register the sale of up to 4,025,000 shares of its Class A Common Stock in a secondary public offering. The net proceeds from this stock offering will be used to repay outstanding debt under the New Credit Agreement. The registration statement has not yet been declared effective by the Securities and Exchange Commission. Available cash on hand plus cash provided by operations were sufficient to pay interest due under the credit agreements and fund certain capital expenditures during the year ended September 30, 1996. The Company's management believes it will have sufficient cash flow to finance its operations and satisfy its debt service requirements. The Company regularly reviews potential acquisitions of additional radio stations. Future acquisitions are expected to be financed through additional borrowings under the New Credit Agreement and/or cash provided by operations. Following the Tichenor Merger, the Company may refinance all or a portion of the consolidated indebtedness. There can be no assurance, however, that any such refinancing will be consummated, or if consummated, what the terms of the new financing will be. NET OPERATING LOSS CARRYFORWARDS As of September 30, 1996, the Company had tax net operating loss carryforwards for federal and state tax purposes of approximately $21.9 million and $3.4 million, respectively. The loss carryforwards expire through the year 2011 if not used. NEW ACCOUNTING STANDARDS Beginning fiscal 1997, the Company will adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of this new accounting standard is not expected to have a material effect on the Company's financial statements. 22 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Report of Independent Auditors........................................... 24 Consolidated Balance Sheets as of September 30, 1996 and 1995............ 25 Consolidated Statements of Operations for each of the three years in the period ended September 30, 1996................................ 27 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30, 1996............. 28 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1996................................ 29 Notes to Consolidated Financial Statements............................... 30
23 24 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Heftel Broadcasting Corporation We have audited the accompanying consolidated balance sheets of Heftel Broadcasting Corporation as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Heftel Broadcasting Corporation at September 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Los Angeles, California November 7, 1996 24 25 HEFTEL BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 1996 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 5,131,960 $ 5,404,310 Accounts receivable, net of allowance of $1,657,860 in 1996 and $1,491,877 in 1995 17,015,323 15,501,811 Amounts receivable from officers and stockholders -- 2,357,932 Prepaid expenses and other current assets 1,012,232 2,243,445 ------------- -------------- Total current assets 23,159,515 25,507,498 Property and equipment, at cost: Land 6,662,690 648,690 Buildings and improvements 4,601,932 4,024,013 Broadcast and other equipment 12,620,463 10,238,010 Furniture and fixtures 2,970,813 2,669,401 ------------- ------------- 26,855,898 17,580,114 Less accumulated depreciation and amortization (7,019,970) (5,335,151) ------------- ------------- 19,835,928 12,244,963 Intangible assets: Broadcast licenses 98,725,706 83,725,706 Cost in excess of fair value of net assets acquired 24,135,219 30,665,219 Covenants not-to-compete 7,000,000 -- Other intangible assets 505,000 505,000 ------------- ------------- 130,365,925 114,895,925 Less accumulated amortization (8,624,020) (5,643,246) ------------- ------------- 121,741,905 109,252,679 Other non-current assets: Deferred charges, net 360,000 3,104,679 Notes receivable from related parties -- 803,303 Other 653,778 724,162 -------------- ------------- 1,013,778 4,632,144 ------------- ------------- Total assets $ 165,751,126 $ 151,637,284 ============= =============
See accompanying notes. 25 26 HEFTEL BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 1996 1995 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and other non-current obligations (Note 5) $ 1,859,301 $ 795,758 Accounts payable 707,967 1,191,625 Accrued expenses (Note 10) 13,423,891 7,714,844 Amounts payable to officers and stockholders -- 838,241 ------------- ------------- Total current liabilities 15,991,159 10,540,468 Long-term debt, less current portion (Note 5) 136,126,364 95,936,528 Other non-current obligations, less current portion (Note 5) 1,532,214 1,579,133 Commitments and contingencies (Note 6) Stockholders' equity (Note 8): Series A Preferred Stock, cumulative, $.001 par value, 2,600,000 shares authorized, none issued or outstanding in 1996, 335,634 shares issued and outstanding in 1995. Liquidation preference of $355,772 in 1995 -- 336 Undesignated series preferred stock, $.001 par value, 2,400,000 shares authorized, none issued or outstanding -- -- Class A Common Stock, $.001 par value, 30,000,000 shares authorized, 11,547,731 issued and outstanding in 1996 and 6,191,799 shares in 1995 11,548 6,192 Class B Common Stock, $.001 par value, 7,000,000 shares authorized, none issued and outstanding in 1996 and 4,679,763 shares in 1995 -- 4,680 Additional paid-in capital 102,578,149 95,693,269 Accumulated deficit (90,488,308) (43,839,535) Less treasury stock at cost, 810,587 shares in 1995 -- (4,019,735) Notes receivable from stockholders related to purchase of stock -- (4,264,052) ------------- ------------- Net stockholders' equity 12,101,389 43,581,155 ------------- ------------- Total liabilities and stockholders' equity $ 165,751,126 $ 151,637,284 ============= =============
See accompanying notes. 26 27 HEFTEL BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30 ------------------------ 1996 1995 1994 ------------ ------------ ----------- Revenues: Broadcasting revenues $81,242,695 $72,577,882 $31,344,144 Less agency commissions (9,510,663) (8,418,340) (3,911,414) ------------ ------------ ----------- Net revenues 71,732,032 64,159,542 27,432,730 Operating expenses: Selling 12,363,883 10,393,242 3,857,446 Programming 12,185,339 10,174,717 3,080,245 Promotion and market research 8,608,195 10,099,402 3,619,097 Engineering 2,666,454 1,842,711 535,609 General and administrative 13,072,385 11,132,437 4,252,718 Corporate expenses 5,071,859 4,720,380 3,453,839 Depreciation and amortization 5,140,131 3,344,419 1,905,864 ------------ ------------ ----------- Total operating expenses 59,108,246 51,707,308 20,704,818 ------------ ------------ ----------- Operating income 12,623,786 12,452,234 6,727,912 Other income (expense): Interest income 206,605 217,830 183,060 Interest expense (11,240,835) (6,607,180) (3,180,272) Net income in equity of joint venture (Note 1) -- -- 616,390 Costs relating to unconsummated acquisitions (1,383,187) (141,988) (1,099,701) Loss on retirement of debt (Note 5) (7,461,267) -- (1,737,707) Restructuring charges (Note 3) (29,011,237) -- -- Miscellaneous, net (287,140) (285,568) (307,577) ------------ ------------ ----------- (49,177,061) (6,816,906) (5,525,807) ------------ ------------ ----------- Income (loss) before minority interest and provision for income taxes (36,553,275) 5,635,328 1,202,105 Minority interest (Note 1) -- (1,166,780) (351,502) Provision for income taxes (Note 7) (65,000) (150,000) (100,000) ------------ ------------ ----------- Income (loss) from continuing operations (36,618,275) 4,318,548 750,603 Discontinued operations (Note 3): Loss on operations of CRC (1,844,939) (625,970) (284,709) Loss on disposal of CRC (8,142,598) -- -- ------------ ------------ ----------- Total loss on discontinued operations (9,987,537) (625,970) (284,709) ------------ ------------ ----------- Net income (loss) $(46,605,812) $ 3,692,578 $ 465,894 ============ ============ =========== Income (loss) from continuing operations per common and common equivalent share $(3.56) $0.40 $0.14 ============ ============ =========== Net income (loss) per common and common equivalent share $(4.53) $0.34 $0.05 ============ ============ =========== Weighted average common shares outstanding 10,294,967 10,805,346 5,384,678 ============ ============ ===========
See accompanying notes. 27 28 HEFTEL BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
NOTES NET COMMON STOCK ADDITIONAL RECEIVABLE STOCKHOLDERS' --------------- PREFERRED PAID-IN ACCUMULATED TREASURY FROM EQUITY CLASS A CLASS B STOCK CAPITAL DEFICIT STOCK STOCKHOLDERS (DEFICIENCY) ------- ------ ------- ------------ ----------- ---------- ----------- ----------- Balance at September 30, 1993 $-- $ 4,194 $ 2,296 $ 36,697,744 $(45,136,729) $(1,000,000) $ (732,000) $(10,164,495) Reissuance of treasury stock -- -- -- -- -- 1,000,000 (1,000,000) -- Purchase of treasury stock, at cost -- -- -- -- -- (4,019,735) -- (4,019,735) Common stock issued in connection with: Public offering 3,875 -- -- 33,933,625 -- -- -- 33,937,500 Private sale of stock 1,240 -- -- 11,498,760 -- -- -- 11,500,000 Conversion of Class B to Class A Common Stock 216 (216) -- -- -- -- -- -- Acquisitions 701 513 -- 12,281,305 -- -- -- 12,282,519 Exercise of warrants -- 189 -- 851,863 -- -- (852,052) -- Issuance of stock options -- -- -- 434,808 -- -- -- 434,808 1994 net income -- -- -- -- 465,894 -- -- 465,894 ------- ------ ------- ------------ ----------- ---------- ----------- ------------ Balance at September 30, 1994 6,032 4,680 2,296 95,698,105 (44,670,835) (4,019,735) (2,584,052) 44,436,491 Repurchase of preferred stock -- -- (1,960) (1,958,330) -- -- -- (1,960,290) Preferred stock dividends -- -- -- -- (2,861,278) -- -- (2,861,278) Common stock issued in connection with exercise of warrants 160 -- -- 1,679,840 -- -- (1,680,000) -- Issuance of stock options -- -- -- 273,654 -- -- -- 273,654 1995 net income -- -- -- -- 3,692,578 -- -- 3,692,578 ------- ------ ------- ------------ ----------- ---------- ----------- ------------ Balance at September 30, 1995 6,192 4,680 336 95,693,269 (43,839,535) (4,019,735) (4,264,052) 43,581,155 Repurchase of preferred stock -- -- (336) (335,298) -- -- -- (335,634) Preferred stock dividends -- -- -- -- (42,961) -- -- (42,961) Retirement of treasury stock -- (811) -- (4,018,924) -- 4,019,735 -- -- Payment on stockholder notes -- -- -- -- -- -- 4,264,052 4,264,052 Common stock issued in connection with: Conversion of Class B to Class A Common Stock 3,869 (3,869) -- -- -- -- -- -- Exercise of warrants and options 1,442 -- -- 10,546,817 -- -- -- 10,548,259 Business Acquisition 45 -- -- 692,285 -- -- -- 692,330 1996 net loss -- -- -- -- (46,605,812) -- -- (46,605,812) ------- ------ ------- ------------ ----------- ---------- ----------- ------------ Balance at September 30, 1996 $11,548 $-- $-- $ 102,578,149 $(90,488,308) $ -- $ -- $ 12,101,389 ======= ====== ======= ============ =========== ========== =========== ============
See accompanying notes. 28 29 HEFTEL BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30 ----------------------- 1996 1995 1994 ---- ---- ---- OPERATING ACTIVITIES: Net income (loss) $ (46,605,812) $ 3,692,578 $ 465,894 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 5,140,131 3,587,341 1,947,646 Provision for losses on accounts receivable 2,871,700 1,522,235 855,220 Income in equity of joint venture -- -- (616,390) Loss on retirement of debt, net of cash paid 7,461,267 -- 1,061,207 Non-cash loss on restructuring charges 1,219,048 -- -- Non-cash interest and stock compensation expense 993,674 925,740 434,808 Changes in operating assets and liabilities, net of effect from acquisitions and discontinued operations: Accounts receivable (4,711,197) (3,545,065) (2,505,996) Prepaid expenses and other current assets 1,175,118 (327,714) (555,749) Accounts payable (421,251) (1,331,888) (537,997) Accrued expenses 4,087,219 2,433,390 199,874 Other, net 297,960 (393,245) (225,420) Discontinued operations: Non-cash charges and working capital changes 8,393,531 (283,385) 242,927 ------------- ------------ ------------ Net cash (used in) provided by operating activities (20,098,612) 6,279,987 766,024 INVESTING ACTIVITIES: Purchases of property and equipment (3,687,780) (4,011,331) (402,730) Purchase of businesses and radio station assets (20,150,000) (37,600,000) (6,980,000) Payment of noncompete agreements (7,000,000) -- -- Advances/loans to related parties 2,357,932 (623,838) (1,915,230) Payments received on notes receivable -- 222,586 199,035 ------------- ------------ ------------ Net cash used in investing activities (28,479,848) (42,012,583) (9,098,925) FINANCING ACTIVITIES: Proceeds from public and private stock issuances 10,548,259 -- 45,437,500 Repurchase of Preferred and Common Stock (335,634) (1,960,290) (2,687,735) Payment of Series A Preferred Stock dividends (42,961) (2,861,278) -- Proceeds from borrowings under credit agreements 163,459,267 36,475,000 59,565,733 Payment of costs related to new financing (5,799,878) (82,411) (4,301,039) Repayment of long-term debt and other non-current obligations (123,752,057) (653,026) (80,709,589) Payment on notes receivable from stockholders 4,229,114 -- -- ------------ ------------ Net cash provided by financing activities 48,306,110 30,917,995 17,304,870 ------------- ------------ ------------ Net (decrease) increase in cash and cash equivalents (272,350) (4,814,601) 8,971,969 Cash and cash equivalents at beginning of year 5,404,310 10,218,911 1,246,942 ------------- ------------ ------------ Cash and cash equivalents at end of year $ 5,131,960 $ 5,404,310 $ 10,218,911 ============= ============ ============ Supplemental disclosure of cash flow information: Interest paid $ 10,124,821 $ 5,117,883 $ 3,627,863 ============= ============ ============ Taxes paid $ 65,000 $ 78,800 $ 339,282 ============= ============ ============
See accompanying notes 29 30 HEFTEL BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Heftel Broadcasting Corporation (HBC or the Company), through its subsidiaries, owns and operates seventeen Spanish language radio stations serving the Los Angeles, Miami, New York City, Dallas/Ft. Worth, Chicago and Las Vegas markets. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Heftel Broadcasting Corporation and subsidiaries (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year end is September 30. Cash and Cash Equivalents The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. Accounts Receivable The Company sells broadcast time to a diverse customer base including advertising agencies and other direct customers. The Company performs credit evaluations of its customers and generally does not require collateral. The Company maintains allowances for potential losses and such losses have been within management's expectations. Investment in Joint Venture/Minority Interest Until August 19, 1994, the Company's investment in its joint venture was accounted for using the equity method of accounting. In connection with certain agreements entered into between the Company and its joint venture partner, management considered it appropriate to consolidate the accounts of the joint venture and therefore such accounts and results of operations have been consolidated and are included in the accompanying consolidated financial statements effective August 20, 1994. On September 7, 1995, the Company, through a subsidiary, acquired the remaining 51% interest in this joint venture (Note 4). Depreciation and Amortization Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 40 years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease terms or the useful lives of the improvements. Expenditures for repairs and maintenance are charged to expense as incurred. 30 31 Intangible Assets Intangible assets are stated at cost. Broadcast licenses are amortized over 40 years using the straight-line method. Other intangible assets, including cost in excess of fair value of net assets acquired, are amortized over the expected period of benefit, ranging from 5 to 40 years, using the straight-line method. The carrying value of intangible assets is reviewed if the facts and circumstances suggest that such value may have been impaired. If this review indicates that the carrying value of an intangible asset will not be recoverable, as determined based on the undiscounted cash flows of the Company over the remaining amortization period, the carrying value of the intangible asset is reduced by the estimated shortfall of cash flows. Beginning fiscal 1997, the Company will adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of this new accounting standard is not expected to have a material effect on the Company's financial position or results of operations. Income Taxes The Company accounts for income taxes using Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, income taxes for financial reporting purposes are determined using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Revenue Recognition Revenue is recognized as commercials are broadcast. The Company also enters into barter transactions in which advertising time is traded for merchandise or services used principally for promotional and other business purposes. Barter revenue is recorded as commercials are broadcast at the estimated fair value of the merchandise or services received. If merchandise or services are received prior to the broadcast of commercials, recognition of the related revenue is deferred and recognized as the commercials are broadcast. Barter revenues accounted for approximately 6%, 7% and 7% of broadcasting revenues in 1996, 1995 and 1994, respectively. Earnings Per Share Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares (if dilutive) outstanding during each year. For purpose of this computation, cumulative preferred stock dividends are deducted from net income (loss) whether or not preferred stock dividends have been declared or paid. 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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 31 32 Stock-Based Compensation The Company accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock Issued to Employees," and intends to continue to do so. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), SFAS 123 established a fair value-based method of accounting for compensation cost related to stock options and other forms of stock-based compensation plans. However, SFAS 123 allows an entity to continue to measure compensation costs using the principles of APB 25 if certain pro forma disclosures are made. SFAS 123 is effective for fiscal years beginning after December 15, 1995. The Company intends to adopt the provisions for pro forma disclosure requirements of SFAS 123 in fiscal 1997. Reclassifications Certain reclassifications have been made to the prior years' balances to conform to the current year presentation. 2. RECENT DEVELOPMENTS Change in Control of Company On August 5, 1996, Clear Channel Radio, Inc., a wholly owned subsidiary of Clear Channel Communications, Inc. (Clear Channel), completed a stock purchase and tender offer of the Company's Class A and B Common Stock for $23 per share. The consummation of these transactions, as more fully described below, increased Clear Channel's investment in the Company from a previously owned 21% interest to 63%. Clear Channel is a diversified radio and television broadcasting company. Pursuant to a Stockholder Purchase Agreement dated June 1, 1996 between Clear Channel and Mr. Cecil Heftel, former Chairman and Co-Chief Executive Officer, Mr. Carl Parmer, former President and Co-Chief Executive officer and members of the Heftel family, Clear Channel acquired 160,000 shares of the Company's Class A Common Stock and 3,356,529 shares of the Company's Class B Common Stock on August 5, 1996 (each share of Class B Common Stock converts automatically into one share of Class A Common Stock upon sale). An additional 1,156,017 shares of Class A Common Stock were acquired by Clear Channel upon the exercise of stock options and warrants held by the selling stockholders. Under a separate Tender Offer Agreement dated June 1, 1996 between the Company and Clear Channel, Clear Channel also acquired 231,776 shares of the Company's Class A Common Stock, of which an aggregate of 199,167 shares were tendered by employees of the Company upon the exercise of their stock options on August 5, 1996. An additional 236,700 shares of Class A Common Stock were tendered to Clear Channel by public shareholders. In connection with the change in control of the Company, the employment of Mr. Cecil Heftel and Mr. Carl Parmer was terminated pursuant to employment contract settlement agreements with each which provided for a lump sum payment upon termination (Note 3). In addition, Mr. Heftel and Mr. Parmer entered into five-year noncompete agreements with the Company in exchange for the payment of $2.5 million and $4.5 million, respectively. Further, the entire Board of Directors was replaced with five new members effective August 5, 1996. Proposed Merger Plan On July 10, 1996, Clear Channel issued a press release announcing its plans to submit to the Company's Board of Directors a proposal and plan to have the Company acquire Tichenor Media System, Inc. (Tichenor). Tichenor is a Dallas-based Spanish language broadcaster with twenty radio stations in six markets. Under the terms of the merger plan, Tichenor shareholders would exchange their capital stock for approximately 5.68 million shares of the Company's Class A Common Stock plus approximately $3.4 million in cash. The completion of this acquisition, which is scheduled to close during the first quarter of calendar 1997, is subject to approval by the Federal Trade Commission and Federal Communications Commission. 32 33 3. DISCONTINUED OPERATIONS / RESTRUCTURING CHARGES Discontinued Operations - CRC The Company's Board of Directors approved a plan to discontinue the operations of the radio network owned by the Company's wholly owned subsidiary Spanish Coast-to-Coast, Ltd., dba, Cadena Radio Centro (CRC) effective August 5, 1996. The charge to operations during the quarter ended September 30, 1996 was approximately $8.1 million, of which $6.2 million relates to non-cash charges resulting from the write-off of goodwill. No income tax benefit was realized due to the Company's availability of net operating loss carryforwards. The loss on disposal of CRC includes approximately $1.9 million of operating losses from the measurement date, August 5, 1996, through the disposal date, December 31, 1996. CRC intends to fulfill its contractual program obligations through the disposal date, December 31, 1996. CRC's net assets will be used to satisfy outstanding obligations and remaining property and equipment, which is not material, will be transferred to other subsidiaries after the disposal date. Restructuring Charges In connection with the change in control of ownership described in Note 2, the Company incurred certain one-time restructuring charges totaling approximately $29.0 million during the quarter ended September 30, 1996. The material components of the restructuring charges are $18.8 million in payments to former senior executives relating to employment contract settlements, $4.7 million in broker commissions and transaction costs, $2.5 million in costs relating to the planned closing of duplicate facilities, plus $1.9 million in severance relating to employee terminations resulting from the restructuring. 4. BUSINESS AND ASSET ACQUISITIONS 1996 ASSET ACQUISITION New York On March 25, 1996, the Company acquired the assets of radio station WPAT-AM which serves the New York City market for approximately $19.5 million. The asset acquisition was financed through additional borrowings under the Company's credit agreement. 1995 AND 1994 ACQUISITIONS During fiscal years 1995 and 1994, the Company acquired several businesses as described further in the following paragraphs. The aggregate purchase price of these acquisitions, including acquisition costs, was approximately $42 million in 1995 and $52.7 million in 1994 and consisted of the following:
FISCAL YEAR ENDED ---------------------------- 1995 1994 ----------- ----------- Cash paid $37,600,000 $ 6,980,000 Common stock, issued at fair value -- 12,283,000 Long-term debt and liabilities assumed 3,521,000 33,437,000 Cancellation of note receivable 900,000 -- ----------- ----------- Total fair value of acquisitions $42,021,000 $52,700,000 =========== ===========
All of the business acquisitions made by the Company during fiscal year 1995 and 1994 were accounted for using the purchase method of accounting. Accordingly, the accompanying financial statements 33 34 include the accounts of the acquired businesses since the respective dates of acquisition. 1995 ACQUISITIONS In December 1994, the Company acquired station KMRT-AM, which serves the Dallas/Ft. Worth market, for approximately $1.5 million. From August 1994 through the date of acquisition, the Company programmed KMRT-AM under a Local Marketing Agreement (LMA). In April 1995, the Company acquired station KICI-FM, which serves the Dallas/Ft. Worth market, in exchange for cancellation of a note for $900,000 payable by the seller to a subsidiary of the Company. From August 1994 through the date of acquisition, the Company programmed KICI-FM under an LMA. In June 1995, the Company acquired the assets of the radio station KCYT-FM (serving the Dallas/Ft. Worth market) for approximately $2.0 million. The acquisition was financed through additional borrowings under the Company's credit agreement and the issuance of notes payable to the sellers. From February 1995 through the date of acquisition, the Company programmed KCYT-FM under an LMA. Subsequent to the acquisition, the station call letters were changed to KMRT-FM. In July 1995, the Company acquired the assets of radio station KDZR-FM, which serves the Dallas/Ft. Worth market, for approximately $4.7 million. This acquisition was financed through additional borrowings under the Company's credit agreement. From February 1995 through the date of acquisition, the Company programmed KDZR-FM under an LMA. Subsequent to the acquisition, the station call letters were changed to KHCK-FM. In July 1995, the Company acquired the assets of radio station WOPA-AM, which serves the Chicago market, for approximately $4.5 million plus 44,811 shares of Class A Common Stock with a fair value of approximately $692,000. This acquisition was financed through additional borrowings under the Company's credit agreement. Subsequent to the acquisition, the station call letters were changed to WLXX-AM. In August 1995, the Company acquired the assets of radio station KOWA-AM, which serves the Las Vegas market, for approximately $900,000. The acquisition was financed through additional borrowings under the Company's credit agreement. Subsequent to the acquisition, the station call letters were changed to KLSQ- AM. On September 7, 1995, the Company acquired the previously unowned 51% interest in Viva America Media Group (Viva Media), a partnership that owns WAQI-AM and WRTO-FM, which serve the Miami market, for $19.8 million in cash. The acquisition was financed through additional borrowings under the Company's credit agreement. Under the terms of an Amended and Restated Agreement and Plan of Reorganization, and in connection with this transaction, the following contractual arrangements were terminated for no additional consideration: (i) a warrant to purchase up to 237,600 shares of Class B Common Stock held by a former officer of the Company and the employment relationship between the Company and that officer and (ii) certain agreements regarding the management of the Miami stations. 1994 ACQUISITIONS Cadena Radio Centro In August 1994, the Company acquired Spanish Coast-to-Coast, Ltd., dba Cadena Radio Centro (CRC) in exchange for 700,938 shares of HBC Class A Common Stock valued at $6.5 million. In connection with this transaction, CRC's parent company purchased 1,240,181 shares of HBC Class A Common Stock for $11.5 34 35 million in cash. CRC is a Los Angeles based Spanish language news broadcasting service which provides news services to Spanish language radio broadcasting companies including HBC subsidiaries. On September 9, 1996, the Company's Board of Directors elected to discontinue the operations of CRC (Note 3). New York/Miami Radio Stations In August 1994, the Company acquired Radio WADO, Inc. (WADO), Broadcast Investment, Inc. (BII) and SRN Texas, Inc. (STI) for approximately $31.7 million. WADO, BII and STI collectively owned 100% of Spanish Radio Network (SRN), a Florida general partnership, which owned and operated two Spanish language radio stations in Miami (WQBA-AM/FM), and one Spanish language radio station in New York City (WADO- AM). The call letters for WQBA-FM have since changed to WAMR-FM. SRN also owned WGLI-AM in Babylon, New York which is currently not operating. The purchase price included the assumption of approximately $25.8 million in long-term debt, $850,000 in current liabilities, a payment of approximately $3.5 million in cash and 137,762 shares of HBC Class B Common Stock valued at approximately $1.4 million. The acquisitions of these companies are hereafter referred to as the "New York/Miami Radio Stations." Dallas/Ft. Worth Radio Stations In August 1994, the Company acquired Rodriguez Broadcasting, Inc. (RBI) for $1.5 million in cash. RBI owned two Spanish language radio stations (KICI-AM and KICI-FM) which serves the Dallas/Ft. Worth market. Immediately prior to the closing of this transaction, RBI transferred the license for KICI-FM to Corsicana Communications, Inc. (Corsicana), an entity owned by the former shareholder of RBI, for a $900,000 note receivable and therefore the Company did not purchase this station. However, on August 19, 1994, the Company and Corsicana entered into an LMA to program KICI-FM and obtained an option, exercisable after November 17, 1994, to purchase KICI-FM in exchange for cancellation of the note receivable. The acquisition of KICI-FM was completed in April 1995. Prior to August 19, 1994, RBI had entered into an Asset Purchase Agreement to acquire a license for KMRT-AM, which serves the Dallas/Ft. Worth market, and also entered into an LMA regarding KMRT which permitted RBI to program the station pending its acquisition. On August 19, 1994, RBI assigned its rights under this LMA to a subsidiary of the Company. The acquisition of KMRT-AM was completed in December 1994. On August 19, 1994, HBC also acquired Mark Rodriguez, Jr. Broadcasting, Inc. (MRB) in exchange for 374,885 shares of HBC Class B Common Stock valued at approximately $4.4 million plus the assumption of approximately $6.5 million in long-term debt. MRB owned and operated a Spanish language radio station (KESS-AM) in Ft. Worth, Texas. Pro Forma Financial Information The following unaudited pro forma financial information presents the consolidated results of operations as if the above acquisitions had occurred at the beginning of the periods presented, after giving effect to certain adjustments including depreciation and amortization of assets acquired and interest expense on acquisition debt. This pro forma information is presented for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisitions been made as of those dates or results which may occur in the future (in thousands, except per share data). 35 36
YEAR ENDED SEPTEMBER 30 1995 1994 ---- ---- (UNAUDITED) Net broadcasting revenue $68,218 $63,535 Net income $ 3,251 $ 722 Net income per common share $ 0.29 $ 0.08
5. LONG-TERM DEBT AND OTHER NON-CURRENT OBLIGATIONS Long-term debt at September 30 consists of the following:
1996 1995 ------------- ------------- NewCredit Agreement, variable interest rate (7.32% at September 30, 1996), interest payable monthly, principal payable in January 1998 $ 135,000,000 $ -- Old Credit Agreement, variable interest rate (ranging from 8.13% to 9.75%), interest payable quarterly, principal repaid in August 1996 -- 93,040,733 Note payable to stockholder, interest at 4.5%, payable in monthly installments of $10,000, balance repaid in August 1996 -- 1,257,835 Noncompete agreements, interest at 12%, payable to former officers and stockholders in variable monthly installments, repaid in May 1996 -- 215,359 Non-interest bearing note payable to former Viva Media partners due February 1997 1,499,250 -- Various notes payable, interest at 10%, payable in varying installments, due 1996 through 2015 1,439,514 2,154,229 ------------- ------------- 137,938,764 96,668,156 Less current portion (1,812,400) (731,628) ------------- ------------- $ 136,126,364 $ 95,936,528 ============= =============
New Credit Agreement On August 5, 1996, concurrent with the completion of the transactions described in Note 2, the Company borrowed $135 million under a new credit agreement (New Credit Agreement) with new lenders which provides a total credit facility of $155 million. The proceeds were used to retire all of the outstanding debt under the Company's old credit agreement and to pay certain noncompete and employment contract settlements plus certain transaction and other costs relating to the Stockholder Purchase Agreement and Tender Offer. In connection with the retirement of debt outstanding under the Old Credit Agreement, the Company expensed $7,461,267 relating to unamortized financing costs. The lenders have a security interest in assets of the Company and the stock and partnership interests of the Company's subsidiaries. The New Credit Agreement restricts the payment of dividends and establishes limitations on, among other things, capital expenditures and additional borrowings. The Company is also required to maintain certain financial ratios, such as leverage and interest coverage ratios. The entire principal balance outstanding plus unpaid interest is due in January 1998. The interest rate on the Company's New Credit Agreement varies and is based on quoted market prices. Consequently, the carrying value of the debt 36 37 approximates fair value. Old Credit Agreement On March 13, 1996, the Company completed an Amended and Restated Credit Agreement (Old Credit Agreement) resulting in an increase to the total credit facilities from $100 million to $175 million and the commencement of principal payments was deferred until December 31, 1996. Other terms of the Old Credit Agreement remained substantially the same. On March 25, 1996, the Company borrowed an additional $20 million under the Old Credit Agreement. The proceeds were used to fund the acquisition of the assets of WPAT-AM in New York. On January 10, 1996, the Company borrowed $1.5 million under its Old Credit Agreement and issued a $1.5 million non-interest bearing promissory note in connection with the acquisition of real property in Miami on which an AM transmitting tower is located. During fiscal 1995, the Company borrowed $36.5 million under the Old Credit Agreement. Proceeds of these borrowings were used primarily for business acquisitions, capital expenditures and working capital. Other Non-current Obligations In connection with radio program promotions, the Company has, from time to time, awarded several $1,000,000 prizes. Such prizes are payable to program prize winners in annual non-interest bearing installments generally ranging from 40 to 50 years. As of September 30, 1996 and 1995, the long-term portion of the remaining unpaid balance totaled $1,532,214 and $1,579,133, respectively, net of discount of $4,815,867 and $4,991,737, respectively, and is included in other non-current obligations in the accompanying consolidated balance sheets. The imputed interest rates used range from 10% to 12%. Principal maturities of long-term debt and other non-current obligations, net of imputed interest, during the next five years and thereafter are as follows:
OTHER LONG-TERM NON-CURRENT DEBT OBLIGATIONS TOTAL ------------ ------------ ------------ Year ending September 30: 1997 $ 1,812,400 $ 46,901 $ 1,859,301 1998 135,316,892 42,498 135,359,390 1999 284,411 27,566 311,977 2000 278,536 30,837 309,373 2001 176,275 34,496 210,771 Thereafter 70,250 1,396,817 1,467,067 ------------ ------------ ------------ $137,938,764 $ 1,579,115 $139,517,879 ============ ============ ============
6. COMMITMENTS AND CONTINGENCIES Leases The Company leases real properties and equipment under operating leases expiring on various dates through 2089. Future minimum payments due under noncancelable operating leases that have initial or remaining terms in excess of one year are as follows: 37 38 Year ending September 30: 1997 $1,186,552 1998 1,183,537 1999 1,158,644 2000 849,549 2001 556,494 Thereafter 989,081 ------------ $5,923,857 ============
Management expects that, in the normal course of business, leases that expire will be renewed or replaced by leases on other properties. All real property leases require the payment of property taxes, maintenance, insurance and other incidental expenses. Rent expense for the years ended September 30, 1996, 1995 and 1994 was $1,655,506, $1,345,376 and $590,210, respectively. Litigation On June 14, 1996, Levine v. Cecil Heftel, H. Carl Parmer, Madison Graves, Richard Heftel, John Mason, Heftel Broadcasting Corporation and Clear Channel Communications, Inc. (Case No. 15066) was filed in the Court of Chancery of the State of Delaware in the County of New Castle. This complaint is a purported class action complaint on behalf of Jeffrey Levine and all other stockholders of the Company to enjoin the defendants from effectuating the Tender Offer. The plaintiff also alleges that Cecil Heftel and Carl Parmer, former directors and executive officers of the Company, breached their fiduciary duties to the stockholders of the Company by negotiating a settlement of amounts which would be owed to them under their employment agreements upon a termination thereof by the Company at the closing of the Tender Offer. The suit seeks the rescission of the Tender Offer and/or the grant of rescissory damages. In addition, plaintiff seeks unspecified compensatory damages and an award of attorneys' fees and costs. The Company has tendered the claims subject to this suit to its director and officer insurance carriers. The Tender Offer closed without any action by plaintiffs. The Company has filed a motion to dismiss the suit and has requested plaintiffs to dismiss the suit voluntary. No action has been taken on such motion or such request. The Company's management believes the disposition of this litigation will not have a materially adverse effect on the Company's consolidated financial position or results of operations. In the ordinary course of business, the Company becomes involved in certain other legal claims and litigation. In the opinion of management, based upon consultations with legal counsel, the disposition of such litigation pending against the Company will not have a materially adverse effect on its consolidated financial position or results of operations. 7. INCOME TAXES The provision for income taxes for the years ended September 30, 1996, 1995 and 1994 consists of the following:
1996 1995 1994 -------- -------- -------- Current: Federal $ -- $100,000 $ 19,000 State 65,000 50,000 12,000 -------- -------- -------- 65,000 150,000 31,000 Deferred: Federal -- -- 69,000 -------- -------- -------- $ 65,000 $150,000 $100,000 ======== ======== ========
38 39 Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and available tax net operating loss carryforwards. Temporary differences and carryforwards at September 30 which give rise to a significant portion of deferred tax assets and liabilities are as follows:
1996 1995 ------------ ------------ Deferred tax assets: Net operating loss carryforward $ 7,934,000 $ 4,685,000 Deferred prizes payable 640,000 657,000 Allowance for doubtful accounts receivable 663,000 597,000 Depreciation 145,000 469,000 Other accrued liabilities 5,401,000 132,000 ------------ ------------ Total deferred tax assets 14,783,000 6,540,000 Valuation allowance (14,579,000) (5,700,000) ------------ ------------ Net deferred tax assets 204,000 840,000 Deferred tax liabilities: Equity in earnings of Joint Venture -- 810,000 Other 273,000 99,000 ------------ ------------ Total deferred tax liabilities 273,000 909,000 ------------ ------------ Net deferred tax asset (liability) $ (69,000) $ (69,000) ============ ============
The increase in the valuation allowance of $8,879,000 from prior year is primarily due to the increase in net operating loss carryforwards and restructuring charges not currently deductible for tax purposes. The reconciliation of income tax computed at the federal statutory tax rate to the Company's effective tax rate for the years ended September 30, 1996, 1995 and 1994 is as follows:
1996 1995 1994 ------------ ----------- --------- Federal income tax at statutory rate $(15,918,000) $ 1,345,000 $ 192,000 Benefit of net operating loss carryforwards -- (1,494,000) (281,000) Net operating loss carryforward not benefitted 7,201,000 -- -- State and local income tax, net of federal tax benefit 42,000 33,000 8,000 Non-deductible and non-taxable items, net 8,740,000 266,000 181,000 ------------ ----------- --------- $ 65,000 $ 150,000 $ 100,000 ============ =========== =========
As of September 30, 1996, the Company had tax net operating loss carryforwards for federal and state tax purposes of approximately $21,949,000 and $3,389,000, respectively. The loss carryforwards expire through the year 2011 if not used. 8. STOCKHOLDERS' EQUITY Common Stock The Company is authorized to issue 30,000,000 and 7,000,000 shares of Class A and Class B Common Stock, respectively, each with a par value of $.001 per share. The rights of these classes of common stock are identical except that the Class A stock is entitled to one vote per share and the Class B stock is entitled to ten votes per share on certain matters. As of September 30, 1996, there were no Class B shares outstanding. 39 40 On January 2, 1996 the Company issued 44,811 shares of common stock to one of the parties to the acquisition of WLXX-AM in Chicago in accordance with the terms of the purchase agreement. Treasury Stock In December 1993, the Company repurchased 810,587 shares of its Class B Common Stock from certain stockholders for $4,019,735. In September 1996, the 810,587 shares held as treasury stock were retired. Preferred Stock The Company is authorized to issue 5,000,000 shares of $.001 par value Preferred Stock, 2,600,000 of which is designated as Series A Preferred Stock and the remaining 2,400,000 shares are undesignated. Series A Preferred Stock dividends are payable quarterly and have a cumulative annual rate of $.08 per share. As of September 30, 1996, there were no issued or outstanding shares of Series A Preferred Stock. As of September 30, 1995, cumulative unpaid dividends totaled $20,138. The Series A Preferred Stock is superior to common stock in liquidation in the amount of $1 per share plus cumulative unpaid dividends and is redeemable at the option of the Company at $1 per share plus cumulative unpaid dividends. During fiscal 1996, the Company's Board of Directors periodically approved the payment of cumulative unpaid dividends on the outstanding Series A Preferred Stock. The aggregate of such dividend payments totaled $40,276. In August 1996, the Company redeemed all of the outstanding Series A Preferred Stock and paid cumulative unpaid dividends through the redemption date of $2,685. In January 1995, the Company redeemed and retired 1,960,290 shares of its outstanding Series A Preferred Stock owned by the Company's then current Chairman and Co-Chief Executive Officer and certain of his children. The redemption price was equal to $1 per share plus cumulative unpaid dividends through the date of redemption of $2,861,278. The dividends paid included $1,142,495 of cumulative dividends relating to Preferred Stock retired in June 1992 for which the payment of related cumulative dividends had been deferred pursuant to an agreement between the Company and the holder of the retired Preferred Stock. In April 1995, the Company paid approximately $251,000 in cumulative unpaid dividends on its outstanding Series A Preferred Stock held by the daughter of the Company's then current Chairman and Co-Chief Executive Officer. Second Amended and Restated Certificate of Incorporation In September 1996, the Company's Board of Directors approved a Second Amended and Restated Certificate of Incorporation (Second Amended Certificate), which upon filing will increase the total number of authorized shares of the Company to 105,000,000 shares consisting of three classes of capital stock as follows; (i) 50,000,000 shares of Class A Common Stock, par value $.001 per share; (ii) 50,000,000 shares of Class B Common Stock, par value $.001 per share; and (iii) 5,000,000 shares of Preferred Stock, par value $.001 per share. The rights of the Class A and Class B Common Stock will be identical except that the Class B Common Stock shall have no voting rights, except in certain matters. The Second Amended Certificate is expected to be filed immediately prior to the consummation of the Tichenor Merger, which is expected to close during the first quarter of calendar 1997. 40 41 9. MANAGEMENT INCENTIVE STOCK OPTIONS In January 1995, the Company granted options to purchase 160,000 shares of common stock to an officer of the Company at an exercise price of $10.50 per share. The officer subsequently exercised his option to purchase the 160,000 shares and delivered to the Company an 8.75% interest bearing promissory note due June 2005 as payment for the stock. This note and related accrued interest were paid in full on August 5, 1996. Stock Option Plan In July 1994, the Company adopted a stock option plan (Stock Option Plan) under which a maximum of 750,000 shares of Class A Common Stock may be issued upon exercise of options granted to directors, officers or other key employees of the Company or its subsidiaries. The Stock Option Plan is administered by the Board of Directors or, at the discretion of the Board of Directors, a committee of not less than two directors. The Board of Directors or this committee determines employees to whom options will be granted, the timing and manner of grant, the exercise price, the number of shares and all other terms of options granted. Generally, options granted under the Stock Option Plan vest over a two or three year period. In August 1994 the Company granted options to purchase 5,000 shares each of Class A Common Stock to two directors of the Company and options to purchase 25,000 shares of Class A Common Stock to an officer, all at an exercise price of $10.00 per share. In December 1995, the Company issued an aggregate of 519,339 stock options to various employees of the Company under its Stock Option Plan. The exercise price ranged from $15.25 to $15.50 per share, the market price at the date of issuance. The options vest over a period ranging from two to three years. On August 5, 1996, all unexercised and outstanding employee stock options were tendered in connection with the Tender Offer Agreement described in Note 2. Other fully vested options and warrants were exercised during the months of June and July 1996. As of September 30, 1996, there were no outstanding options or warrants. Following is a summary of employee stock options and warrants granted, exercised and outstanding for the three years ended September 30, 1996:
NUMBER OPTION PRICE OF SHARES PER SHARE ---------- -------------- Options outstanding at September 30, 1993 1,078,631 $ 1.05-$ 4.51 Granted 153,800 $ 4.51-$ 10.00 Exercised (188,925) $ 4.51 Cancelled -- -- ---------- -------------- Options outstanding at September 30, 1994 1,043,506 $ 1.05-$ 10.00 Granted 237,100 $ 4.51-$ 14.00 Exercised (160,000) $ 10.50 Cancelled (198,000) $ 4.51 ---------- -------------- Options outstanding at September 30, 1995 922,606 $ 1.05-$ 14.00 Granted 524,339 $15.25-$18.625 Exercised (1,441,945) $ 1.05-$18.625 Cancelled (5,000) $ 10.00 ---------- -------------- Options outstanding at September 30, 1996 -- -- ========== ==============
41 42 10. OTHER FINANCIAL INFORMATION Accrued Expenses
SEPTEMBER 30, 1996 1995 ----------- ----------- Wages, salaries and benefits $ 1,861,745 $ 2,347,107 Commissions payable 3,057,275 2,237,857 Interest payable 756,348 664,399 Liabilities assumed in business acquisitions -- 1,166,813 Restructuring charges 5,747,843 -- Other accrued operating expenses 2,000,680 1,298,668 ----------- ----------- $13,423,891 $ 7,714,844 =========== =========== Allowance for Doubtful Accounts Receivable Balance at September 30, 1993 $ 930,654 Provision charged to expense 855,220 Amounts charged to reserve (1,275,471) Other (arising from business acquisitions) 431,883 ----------- Balance at September 30, 1994 942,286 Provision charged to expense 1,522,235 Amounts charged to reserve (972,644) ----------- Balance at September 30, 1995 1,491,877 Provision charged to expense 2,871,700 Amounts charged to reserve (2,705,717) ----------- Balance at September 30, 1996 $ 1,657,860 ===========
Supplemental Disclosures of Noncash Transactions Noncash transactions for the year ended September 30 included the following:
1996 1995 1994 ---------- ---------- ---------- Issuance of common stock in connection with business acquisition $ 692,330 $ -- $ -- Issuance of promissory note in connection with the acquisition of real property 1,499,250 -- -- Reissuance of treasury stock in exchange for note receivable -- -- 1,000,000 Repurchase of common stock in exchange for note payable -- -- 1,332,000 Issuance of common stock upon exercise of stock options in exchange for note receivable -- 1,680,000 852,052 ---------- ---------- ---------- $2,191,580 $1,680,000 $3,184,052 ========== ========== ==========
In addition to the above, in fiscal 1994 the Company issued common stock with a fair value of $12,283,000 and assumed long-term debt and other liabilities totaling $33,437,000 in connection with certain business acquisitions. 42 43 In fiscal 1995, the Company cancelled a $900,000 note receivable and assumed long-term debt and other liabilities totaling $3,521,000 in connection with certain business acquisitions. 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended September 30, 1996 and 1995 (in thousands, except per share data):
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1996 1995 1996 1996 1996 - --------------------------------- --------- --------- --------- --------- Net revenues 17,457 15,696 19,900 18,679 Station operating expenses 11,818 10,948 13,069 13,061 Corporate expenses, depreciation and amortization 1,798 2,589 2,874 2,951 --------- --------- --------- --------- Operating Income 3,841 2,159 3,957 2,667 Income (loss) from continuing operations 1,302 (308) (362) (37,250) Net income (loss) 858 (971) (863) (45,630) Income (loss) from continuing operations per common and common equivalent shares $ 0.12 $ (0.03) $ (0.04) $ (3.38) ========= ========= ========= ========= Net income (loss) per common and common equivalent shares $ 0.08 $ (0.10) $ (0.09) $ (4.14) ========= ========= ========= =========
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1995 1994 1995 1995 1995 - --------------------------------- --------- --------- --------- --------- Net revenues 16,806 13,208 16,630 17,516 Station operating expenses 10,902 9,795 10,300 12,644 Corporate expenses, depreciation and amortization 1,867 2,393 2,015 1,792 --------- --------- --------- --------- Operating Income 4,037 1,020 4,315 3,080 Income (loss) from continuing operations 1,768 (423) 2,473 501 Net income (loss) 1,367 (849) 3,162 11 Income (loss) from continuing operations per common and common equivalent shares $ 0.16 $ (0.04) $ 0.22 $ 0.05 ========= ========= ========= ========= Net income (loss) per common and common equivalent shares $ 0.13 $ (0.08) $ 0.29 $ 0.00 ========= ========= ========= =========
43 44 12. SUBSEQUENT EVENTS Secondary Public Stock Offering On October 18, 1996, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission to register the sale of 4,025,000 shares of Class A Common Stock to be offered in a secondary public offering. The proceeds from this stock offering will be used to repay outstanding debt under the Company's credit agreement. The registration statement has not yet been declared effective by the Securities and Exchange Commission. 44 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS The current directors and executive officers of the Company are as follows:
Name Age Position ---- --- -------- L. Lowry Mays................ 61 President, Chief Executive Officer and Director John T. Kendrick............. 44 Senior Vice President and Chief Financial Officer Ernesto Cruz................. 42 Director B.J. McCombs................. 68 Director James M. Raines.............. 56 Director John H. Williams............. 62 Director
All directors hold office until the annual meeting of stockholders next following their election, or until their successors are elected and qualified. Except for Mr. John Kendrick, officers are elected annually by the Board of Directors and serve at the discretion of the Board. (See "Item 11- Employment Agreements"). Information with respect to the business experience and affiliations of the current directors and executive officers of the Company is set forth below. Mr. Mays became President, Chief Executive Officer and director of the Company on August 5, 1996. Mr. Mays is also President, Chief Executive Officer and director of Clear Channel and has served as such since 1972. Mr. Kendrick joined the Company as Vice President, Finance in September 1993. In December 1993, he was promoted to Senior Vice President and Chief Financial Officer. From October 1992 through September 1993, Mr. Kendrick provided financial consulting to the entertainment and computer software industries. From June 1988 through October 1992, Mr. Kendrick served as Senior Vice President and Chief Financial Officer of Skouras Pictures, Inc. Mr. Cruz became a director of the Company on August 5, 1996. Mr. Cruz has been a Managing Director of Credit Suisse First Boston Corp. for more than five years. Mr. McCombs became a director of the Company on August 5, 1996. Mr. McCombs also serves as a director of Clear Channel. Mr. McCombs is and has been a private investor for more than five years. 45 46 Mr. Raines became a director of the Company on August 5, 1996. Mr. Raines has been the President of James M. Raines & Company and has served in such a position for more than five years. Mr. Raines also serves as a director of 50-OFF Stores, Inc. Mr. Williams became a director of the Company on August 5, 1996. Mr. Williams also serves as a director of Clear Channel and of GAINSCO, Inc. Mr. Williams is Senior Vice President of Everen Securities, Inc., and has served in such a position for more than five years. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16 of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers and persons who own more than 10% of a registered class of the Company's equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions in, securities of the Company. Copies of these filings must be furnished to the Company. Based on a review of the copies of such forms furnished to the Company and written representations from the Company's executive officers and directors, the Company notes Messrs. Lowry Mays, Ernesto Cruz, B.J. McCombs, James M. Raines and John H. Williams failed to file a Form 3 on a timely basis after they were elected to the Company's Board of Directors. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information concerning the compensation of the Chief Executive Officer, the former Co-Chief Executive Officers and the other most highly compensated executive officers of the Company for the fiscal years ended September 30, 1996, 1995 and 1994: 46 47 SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards -------------------- ------------- Securities Under- All Other Name and Principal Position Salary Bonus ying Option Compensation --------------------------- ------- ----- ---------------- ------------ L. Lowry Mays, President and Chief Executive Officer .................................... 1996 $ -- $ -- $ -- $ -- Cecil Heftel, former Chairman of the Board and Co-Chief Executive Officer ............. 1996 $428,205 $806,808 271,075 $ --(1) 1995 $500,000 $170,002 -- $ -- 1994 $416,667(2) -- $ -- H. Carl Parmer, former President and Co-Chief Executive Officer ................. 1996 $485,897 $471,224 48,264 $420,819(1)(3) 1995 $500,000 $467,897 160,000 $ -- 1994 $452,985(2) $300,000 -- $ -- John T. Kendrick, Senior Vice President and Chief Financial Officer .................................... 1996 $183,194 $ 42,500 30,000 $ -- 1995 $160,615(4) $ 14,754 -- $ -- 1994 $128,846 $ 25,000 -- $ --
- -------------------- (1) Does not include payments made to Messrs. Heftel and Parmer under the Settlement Agreements relating to the termination of their employment or the agreements not to compete entered into in connection with the completion of the Tender Offer. See "Item 1: Business - Recent Developments - Clear Channel Tender Offer." (2) Does not include amounts received by Messrs. Heftel and Parmer from Heftel Management Group, of which they were the sole beneficial owners during the applicable period, which received fees of $133,400 for management services rendered during the period from October 1, 1993 until December 1, 1993. Effective December 1, 1993, the Management Agreement was terminated and the Company entered into employment agreements with Messrs. Heftel and Parmer. (3) Includes bonuses paid of $384,849 to reimburse Mr. Parmer for interest paid to the Company under loans made by the Company to Mr. Parmer to pay the exercise price of certain warrants, the exercise of which was made at the request and for the benefit of the Company. (4) On August 1, 1995, the Company entered into an Employment Agreement with Mr. Kendrick. WARRANTS AND OPTIONS The following sets forth information concerning the grants of stock options to the executive officers named in the "Summary Compensation Table" under the Company's Stock Option Plan. The vesting of all of these options was accelerated to the date of the closing of the Tender Offer. All of these options were exercised on such closing date and the shares acquired upon exercise were sold to Clear Channel in the Tender Offer. 47 48 Option Grants In Last Fiscal Year
Potential Realizable % of Total Value at Assumed Number of Options Annual Rates of Stock Shares Granted to Price Appreciation for Underlying Employees Exercise Option Term Option in Fiscal Price Expiration ---------------------- Name Granted Year ($/Sh) Date 5% 10% ---- ------- ---- ---------- -------- ---- ---- Cecil Heftel 271,075 53% $15.25 12/14/05 $2,599,784 $6,588,362 H. Carl Parmer 48,264 9% $15.25 12/14/05 $ 462,883 $1,173,036 John T. Kendrick 30,000 6% $15.25 12/14/05 $ 287,719 $ 729,137
The following table provides certain information concerning exercises of warrants and options in the last fiscal year, and unexercised options and warrants held as of September 30, 1996, by the executive officers named in the Summary Compensation Table: Aggregate Option and Warrant Exercises In Last Fiscal Year and Fiscal Year End Values
Number of Unexercised Value of Unexercised Options and Warrants In-the-Money Options and at September 30, 1996 Warrants at September 30, 1996 Shares Acquired Value ---------------------------- ------------------------------ Name Upon Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- ------------- -------- ----------- ------------- ----------- ------------- L. Lowry Mays --- --- --- --- --- --- Cecil Heftel 806,678 $11,454,828 --- --- --- --- Cecil Heftel 271,075 2,100,831 --- --- --- --- H. Carl Parmer 48,264 374,046 --- --- --- --- John T. Kendrick 16,667 216,671 --- --- --- --- John T. Kendrick 8,333 133,328 --- --- --- --- John T. Kendrick 5,000 50,000 --- --- --- --- John T. Kendrick 25,000 193,750 --- --- --- ---
EMPLOYMENT AGREEMENTS The Company had ten-year Employment Agreements with each of Messrs. Cecil Heftel and Carl Parmer which were terminated in connection with the closing of the Tender Offer. See "Item 1. Business - Recent Developments - Clear Channel Tender Offer." 48 49 On August 1, 1995, the Company and Mr. John Kendrick entered into a three-year Employment Agreement pursuant to which Mr. Kendrick currently receives a yearly salary of $190,000 (subject to increases in the third year and each year thereafter) plus bonuses determined by the Company subject to a minimum bonus of $45,000 for the second year (the minimum bonus is increased in the third year and each year thereafter). The Company may terminate the Employment Agreement upon the occurrence of any of the following events: (i) fraud, negligence, wilful misconduct or embezzlement, (ii) Mr. Kendrick is indicted or convicted of a crime constituting a felony, (iii) any act or omission by Mr. Kendrick which causes a material adverse effect on the Company's business or jeopardizes any FCC license for any of the Company's radio stations, (iv) Mr. Kendrick fails to perform his duties within 15 business days after notice, (v) unlawful drug use, (vi) receipt of payments or gifts in excess of $250 from advertisers for Mr. Kendrick's own benefit, or (vii) commission of a crime of moral turpitude. If such a termination occurs, Mr. Kendrick will be entitled to receive all amounts payable by the Company under his Employment Agreement to the date of termination. If the Company terminates the Employment Agreement for a reason other than the occurrence of the events set forth in the Employment Agreement, Mr. Kendrick will be entitled to receive his salary and minimum bonus through the later of the one year anniversary of the termination date or the end of the term of the Employment Agreement (the "Period") (which the Company may pay in a lump sum payment equal to the present value of such amounts) and monthly premiums payable for allowing Mr. Kendrick and his family to participate in the Company's health insurance for the shorter of the Period or the maximum COBRA continuation coverage period mandated by law. At the end of the initial three year term, the Employment Agreement is automatically extended for one year unless the Company gives notice of non-renewal at least six months prior to the end of the initial three year period. If a change in control of the Company occurs, the term of the Employment Agreement is automatically extended for three years from the date of the change of control. The Tender Offer was deemed a change of control, and therefore the term of the Employment Agreement has been automatically extended to August 4, 1999. DIRECTOR COMPENSATION Each member of the Board of Directors who is not an employee of the Company receives a fee of $2,500 for each board or committee meeting attended. The Company also reimburses directors for expenses related to attending board or committee meetings. COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION During the fiscal year ended September 30, 1996, Messrs. Jeffrey Amling, Madison Graves and John Mason, former directors of the Company, and Messrs. L. Lowry Mays, James H. Raines, and Ernesto Cruz, current directors of the Company, served on the Compensation Committee. During the year ended September 30, 1996, the Company obtained legal services from the law firm of Jeffer, Mangels, Butler & Marmaro LLP. Mr. John Mason is of-counsel to this law firm. L. Lowry Mays is an executive officer and director of the Company and is also a stockholder, director, and member of the compensation committee of Clear Channel. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT STOCK OWNERSHIP The following table sets forth certain information regarding ownership of the Company's Class A Common Stock as of December 5, 1996, by each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Class A Common Stock: 49 50
Name and Address Number Percent of Class ---------------- ------------- ----------------- Clear Channel Communications, Inc. 7,297,821 (1) 63.2% 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Ronald Baron 987,000 (2) 14.5% 767 Fifth Avenue, 24th Floor New York, New York 10153
-------------------- (1) Includes shares held by Clear Channel Radio, Inc., a wholly-owned subsidiary of Clear Channel Communications, Inc. (2) Includes 20,000 shares owned by Baron Investment Partners, L.P., of which Mr. Baron is the general partner, 870,000 shares owned by Baron Asset Fund and Baron Growth & Income Fund (collectively the "Funds"), which are registered investment companies advised by BAMCO, Inc., and 97,000 shares owned by Baron Capital Management, Inc. ("BCMI"). Mr. Baron controls BAMCO, Inc. and BCMI. Mr. Baron disclaims beneficial ownership of the shares owned by the Funds and BCMI. No directors or executive officers of the Company own any shares of Class A Common Stock. No shares of the Company's Class B Common Stock are outstanding. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Tower Company, Inc. ("TTC"), a wholly subsidiary of the Company, previously loaned $293,303 to Mr. Christopher Heftel, the son of Mr. Cecil Heftel, the former Co-Chief Executive Officer and Chairman of the Board of the Company. This loan accrued interest at 7% per annum, with principal and interest due on demand. All amounts owed were repaid on August 5, 1996. TTC previously loaned $100,000 to Mr. Cecil Heftel. This loan accrued interest at 7% per annum, with principal and interest due on demand. All amounts owed were repaid on August 5, 1996. On February 11, 1992, the predecessor-in-interest to the Company granted to Mr. Carl Parmer, the former Co-Chief Executive Officer and President of the Company, as part of his employment agreement the right to purchase 188,925 shares of Class B Common Stock at a per share price of $4.51. In connection with entering into Mr. Parmer's Employment Agreement in December 1993, the Company issued to Mr. Parmer a warrant to purchase 188,925 shares of Class B Common Stock at the same exercise price as a replacement of the rights of Mr. Parmer to purchase the 188,925 shares of Class B Common Stock under his previous employment agreement. On August 3, 1994, Mr. Parmer exercised these warrants and in connection with such exercise, the Company made a loan in the amount of $1.25 million, approximately $852,000 of which was used to pay the exercise price of the warrants and the remainder of which was used to pay income taxes payable by Mr. Parmer upon exercise of the warrants. The loan accrued interest at a rate of 7.67% per annum and was due on August 3, 2004. All amounts owed were repaid on August 5, 1996. On June 3, 1993, Messrs. Carl Parmer and Richard Heftel, a former director of the Company and the current general manager of the Company's Los Angeles stations, each borrowed $366,000 from the Company and used the proceeds to purchase 94,462 shares of Class B Common Stock from a third-party stockholder. These loans accrued interest at a rate of 4.5% per annum. Interest and principal were due on June 2, 2002. On October 8, 1993, Mr. Carl Parmer borrowed $1 million from the Company and used the proceeds to 50 51 purchase 226,695 shares of Class B Common Stock. This loan accrued interest at 4.5% per annum. Interest and principal were due on October 8, 2003. All amounts owed were repaid on August 5, 1996. On December 30, 1993, the Company repurchased 220,000 shares of Class B Common Stock from the daughter of Mr. Cecil Heftel. The purchase price for these shares was payable in 60 installments of $10,000 beginning in August 1994 and one installment of $1 million on the first day of the month after the month in which the 60th installment is paid. On August 5, 1996, the Company repaid this obligation in full. During the year ended September 30, 1996, the Company advanced funds to Heftel Management Group, of which Mr. Cecil Heftel is the sole beneficial owner. These advances did not bear interest. On August 5, 1996, all of such advances were repaid. On January 10, 1995, the Company granted to Mr. Carl Parmer a warrant to purchase 160,000 shares of Class A Common Stock at an exercise price of $10.50 per share (which was the closing price for the Class A Common Stock on January 9, 1995). On January 24, 1995, Mr. Parmer exercised this warrant in full. The exercise price was payable on or before June 30, 1995. On June 30, 1995, Mr. Parmer borrowed $1,680,000 from the Company to pay the exercise price and granted to the Company a security interest in these shares to secure his obligation to repay the loan. This loan accrued interest at 8.75% per annum. All amounts owed were repaid on August 5, 1996. On January 10, 1996, pursuant to an Agreement of Purchase and Sale, dated September 7, 1995, between the Company and Mambisa Broadcasting Corporation ("Mambisa"), the Company purchased the entire parcel of real property on which the radio transmission towers for WAQI-AM (the "WAQI Towers") are located for approximately $1.5 million in cash and a note for approximately $1.5 million (the "Note"). The Company has the right to subdivide such parcel and resell to Mambisa the portion of the parcel on which the WAQI Towers are not located for the same per acre price paid by the Company to Mambisa. The parties currently are attempting to complete such a subdivision. The Note is due on the later of the date on which all rights to subdivide the parcel expire or the date on which the resale of the subdivided portion of the parcel is completed. Amancio Victor Suarez and Charles Fernandez, former directors of the Company, own part of Mambisa. On December 3, 1995, the Company, Marcos A. Rodriguez, Jr. ("Rodriguez") and Hispanic Coalition, Inc. ("HCI") entered into certain agreements relating to HCI and a new FM radio station in Haltom City, Texas (for which HCI was seeking a construction permit from the FCC) (the "Haltom Station") (the "Haltom City Agreements"). As a result of disputes relating to the Haltom City Agreements, Rodriguez and the Company entered into a Settlement Agreement pursuant to which the Company released all claims and rights it may have to acquire the construction permit for the Haltom Station, including all rights under the Haltom City Agreements. Mr. Cecil Heftel and the Company entered into an agreement under which Mr. Heftel agreed to indemnify the Company against any losses arising out of the Haltom City Agreements. The Company has sent written demand to Mr. Heftel for indemnification of $1,383,187. In connection with the Tender Offer, each of Messrs. Cecil Heftel and Carl Parmer entered into agreements not to compete and a Settlement Agreement relating to the termination of their employment. Approximately $25.8 million was paid to Messrs. Heftel and Parmer under these agreements (see "Item 1. Business - - Recent Developments - Clear Channel Tender Offer"). 51 52 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements The consolidated financial statements are filed as Item 8 of Part II of this Form 10-K. (a) (2) List of Financial Statement Schedules Information required by Schedule VIII - Valuation and Qualifying Accounts is included in Note 10 of the consolidated financial statements filed as Item 8 of Part II of this Form 10-K. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (a) (3) List of Exhibits The exhibits listed in the accompanying Index to Exhibits are filed as part of this Form 10-K. (b) Reports on Form 8-K The Company filed a report on Form 8-K dated August 19, 1996, relating to the Company entering into a $155 million credit facility with Nations Bank of Texas, N.A. and other lenders. This matter is described under the Caption "Recent Developments" in Item 1 of Part I of this Form 10-K. The Company filed a report on Form 8-K dated September 23, 1996, as amended October 15, 1996, relating to the discontinuance of the operations of the radio network owned by the Company's wholly owned subsidiary, Spanish Coast-to- Coast Ltd., dba Cadena Radio Centro, effective August 5, 1996. This matter is described under the Caption "Recent Developments" in Item 1 of Part I of this Form 10-K. 52 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 20 day of December, 1996. HEFTEL BROADCASTING CORPORATION By: /s/ L. Lowry Mays -------------------------------- L. Lowry Mays, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ L. Lowry Mays President, Chief December 20, 1996 - -------------------------------- Executive Officer L. Lowry Mays and Director /s/ John T. Kendrick Senior Vice President, December 20, 1996 - -------------------------------- Chief Financial Officer John T. Kendrick and Assistant Secretary (principal accounting officer) /s/ Ernesto Cruz Director December 20, 1996 - -------------------------------- Ernesto Cruz /s/ B.J. McCombs Director December 20, 1996 - -------------------------------- B.J. McCombs /s/ James M. Raines Director December 20, 1996 - -------------------------------- James M. Raines /s/ John H. Williams Director December 20, 1996 - -------------------------------- John H. Williams 53 54 Index to Exhibits
Exhibit Sequentially Number Description Numbered Page ------- ------------------ ------------- 2.1.1 Amended and Restated Agreement and Plan of Reorganization, dated September 7, 1995, among Registrant, Viva Acquisition Corporation, Mambisa Broadcasting Corporation ("Mambisa"), SFS Management Corporation, Amancio Victor Suarez, Charles Fernandez and Amancio Jorge Suarez, Jr., (such three individuals are referred to herein collectively as the ("Stockholders") (the "Purchase Agreement") (Schedules omitted) (incorporated by reference to Exhibit 1.1.1 to Registrant's Form 8-K filed on September 22, 1995) 2.1.2 Escrow Agreement, dated September 7, 1995, among the Registrant, Mambisa, the Stockholders and Citibank, N.A.(incorporated by reference to Exhibit 1.1.2 to Registrant's Form 8-K filed on September 22, 1995) 2.1.3 Mutual Release, dated September 7, 1995, among the parties to the Purchase Agreement and other parties (incorporated by reference to Exhibit 1.1.3 to Registrant's Form 8-K filed on September 22, 1995) 2.1.4 Agreement of Purchase and Sale, dated September 7, 1995, among the Registrant, Mambisa, Amancio Victor Suarez and Amancio Jorge Suarez, Jr. (incorporated by reference to Exhibit 1.1.4 to Registrant's Form 8-K filed on September 22, 1995) 2.1.5 Promissory Note dated January 9, 1996, executed by Registrant and HBC Florida, Inc. to the order of Mambisa Broadcasting Corporation 2.2.1 Tender Offer Agreement, dated June 1, 1996, between the Company and Clear Channel Radio, Inc. ("Clear Channel") (incorporated herein by reference to Exhibit 99(c)(1) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.2.2 Amendment No. 1 to Tender Offer Agreement, dated June 6, 1996 (incorporated herein by reference to Exhibit 99(c)(9) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.2.3 Amendment No. 2 to Tender Offer Agreement, dated June 20, 1996 (incorporated by reference to Exhibit (c)(3) of the Company's Schedule 14D-9 dated June 20, 1996) 2.2.4 Amendment No. 3 to Tender Offer Agreement, dated July 2, 1996
54 55
(incorporated by reference to Exhibit 99(c)(15) of Amendment No. 2 to the Schedule 14D-1 of Clear Channel filed on July 9, 1996) 2.3 Confidentiality Letter Agreement dated May 31, 1996, between the Company and Clear Channel (incorporated herein by reference to Exhibit 99(c)(12) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 2.4.1 Asset Purchase Agreement, dated November 1, 1995, between HBC New York, Inc. and Park Radio of Greater New York, Inc. (incorporated by reference to Exhibit 2.2 of Registrant's Form 10-K filed on December 29, 1995) 2.4.2 First Amendment to Asset Purchase Agreement, dated March 25, 1996 between HBC New York, Inc. and Park Radio of Greater New York, Inc. (incorporated by reference to Exhibit 1.1.2 of Registrant's Form 8-K filed on March 28, 1996) 2.5.1 Agreement and Plan of Merger, dated July 9, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. with Exhibits (Schedules omitted) (incorporated by reference to Exhibit 99(c)(16) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.2 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Sr. (incorporated by reference to Exhibit 99(c)(17) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.3 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 99(c)(18) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.4 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Warren Tichenor (incorporated by reference to Exhibit 99(c)(19) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.5 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and William Tichenor (incorporated by reference to Exhibit 99(c)(20) of Amendment No. 2
55 56
to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.6 Stock Purchase Agreement dated as of July 9, 1996, by and among Clear Channel Communications, Inc., and Jean Russell (incorporated by reference to Exhibit 99(c)(21) of Amendment No. 2 to Schedule 14D-1 of Clear Channel Communications, Inc., filed on July 9, 1996) 2.5.7 Amended and Restated Agreement and Plan of Merger, dated October 10, 1996, between Clear Channel Communications, Inc. and Tichenor Media System, Inc. without Exhibits (Schedules omitted) 2.5.8 Assignment Agreement, dated October 10, 1996 by Registrant and Heftel Merger Sub, Inc. 2.5.9 Form of Registration Rights Agreement by and among the Registrant, McHenry T. Tichenor, Sr., McHenry T. Tichenor, Jr., Warren W. Tichenor, William E. Tichenor, Jean T. Russell, McHenry T. Tichenor, Jr., as Custodian for David T. Tichenor, Alta Subordinated Debt Partners III, L.P., Prime II Management, LP, PrimeComm, LP, Ricardo A. del Castillo, Jeffrey T. Hinson and David D. Lykes (included in Exhibit 2.5.1) 2.5.10 Form of Employment Agreement by and between the Registrant and McHenry T. Tichenor, Jr. (included in Exhibit 2.5.1) 2.5.11 Form of Stockholders Agreement by and among the Registrant and each of the stockholders listed on the signature pages thereto (included in Exhibit 2.5.1) 2.5.12 Form of the Registrant's Indemnification Agreement (included in Exhibit 2.5.1) 2.5.13 Form of Registration Rights Agreement by and among the Registrant and Clear Channel Communications, Inc. (included in Exhibit 2.5.1) 3.1 Restated Certificate of Incorporation of the Registrant (1)
56 57
3.2 Amended and Restated Bylaws of the Registrant (1) 4.1 Specimen certificate for the Class A Common Stock (1) 4.2 Article 4 of the Restated Certificate of Incorporation (included in Exhibit 3.1) 4.3 Credit Agreement, dated August 5, 1996, among the Registrant, Nations Bank of Texas, N.A. and the other lenders signatory thereto (incorporated by reference to Exhibit 1.0 of Registrant's Form 8-K filed on August 20, 1996) 4.4 Form of Second Amended and Restated Certificate of Incorporation of the Registrant (included in Exhibit 2.5.7) 4.5 Loan Agreement, dated July 9, 1996, between Clear Channel Communications, Inc., as the lender, and TMS Assets California, Inc., as the borrower (2) 4.6 Guarantee, dated July 9, 1996, by Tichenor Media System, Inc., in favor of Clear Channel Communications, Inc. (2) 10.1 Agreement Not To Compete, dated June 1, 1996, between the Company and Carl Parmer (incorporated herein by reference to Exhibit 99(c)(4) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.2 Agreement Not To Compete, dated June 1, 1996, between the Company and Cecil Heftel (incorporated herein by reference to Exhibit 99 (c)(3) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.3 Settlement Agreement, dated June 1, 1996, between the Company and Carl Parmer (incorporated herein by reference to Exhibit 99 (c)(6) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.4 Settlement Agreement, dated June 1, 1996, between the Company and Cecil Heftel (incorporated herein by reference to Exhibit 99 (c)(5) of Clear Channel's Schedule 14D-1 filed on June 7, 1996) 10.5 Stock Option Plan (incorporated by reference to Exhibit 10.4 of Registrant's Registration Statement on Form S-1 (Registration No. 33-78370) filed on April 29, 1994, as amended ("Registrant's S-1")) 10.6 Lease dated April 26, 1994, between the Registrant and Tropicana Trail Limited Partnership (incorporated by reference to Exhibit 10.14 of Registrant's S-1)
57 58
10.7 Lease dated May 15, 1987, between the Registrant and Hollywood and Vine Development Co. (incorporated by reference to Exhibit 10.15 of Registrant's S-1) 10.8 Tower Lease Agreement, dated April 13, 1990, between the Registrant and KTNQ/KLVE, Inc. (formerly Heftel Broadcasting of California, Inc.), together with the Assignment and Assumption Agreement dated April 13, 1990 between the Registrant and The Tower Company (incorporated by reference to Exhibit 10.16 of Registrant's S-1) 10.9 Lease Agreement dated June 18, 1991 between Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.17 of Registrant's S-1) 10.10 Reciprocal Easement Agreement, dated June 18, 1991, between Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.18 of Registrant's S-1) 10.11 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 of Registrant's S-1) 10.12 Employment Agreement between KTNQ/KLVE, Inc. and Richard Heftel (incorporated by reference to Exhibit 10.23 of Registrant's S-1) 10.13 Amendment No. 1 to Employment Agreement dated May 31, 1996, between KTNQ/KLVE, Inc. and Richard Heftel (incorporated by reference to Exhibit 10.5 of Registrant's Form 10-Q/A filed on November 6, 1996) 10.14 Lease Agreement, dated July 17, 1995, between the Registrant and 485 Madison Associates, a New York Limited Partnership (incorporated by reference to Exhibit 10.20 of Registrant's Form 10-K filed on December 29, 1995) 10.15 Employment Agreement dated August 1, 1995 between the Registrant and John T. Kendrick. 11 Statement regarding Computations of Per Share Earnings 21 Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP 23.1 Consent of Ernst & Young LLP
- ----------------------------------------------------- Registrant agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. (1) Incorporated by reference to the identically numbered Exhibit to the Company's Registration Statement on Form S-1, as amended (Reg. No. 33-78370) (2) Not a current obligation of the Registrant. Will remain an obligation of a subsidiary of the Registrant upon consummation of the Tichenor Merger. 58 EX-2.1.5 2 EXHIBIT 2.1.5 1 EXHIBIT 2.1.5 PROMISSORY NOTE $1,499,250.00 Miami, Florida January 9, 1996 FOR VALUE RECEIVED the undersigned, HBC FLORIDA, INC., a Delaware corporation ("HBC") and HEFTEL BROADCASTING CORPORATION, a Delaware corporation ("Heftel") (HBC and Heftel are hereinafter collectively referred to as "Maker") jointly and severally promise to pay to the order of MAMBISA BROADCASTING CORPORATION, a Florida corporation, or its successors or assigns (hereinafter referred to as the "Payee"), at 1790 Coral Way, Suite 200, Miami, Florida 33145 or such other place as the holder hereof may from time to time designate in writing, the principal sum of ONE MILLION FOUR HUNDRED NINETY NINE THOUSAND TWO HUNDRED FIFTY and No/100 ($1,499,250.00) Dollars bearing no interest (except in the event of maturity or default). The aforesaid principal sum and interest, if applicable, shall be paid in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment. Upon the Maturity Date (as hereinafter defined) such principal shall be due and payable in full. This Note is prepayable in whole or in part at any time without penalty or premium. For purposes hereof, the "Maturity Date" shall be the date upon the earlier to occur of either: (i) the closing of the "Resale" of the Mortgaged Property (as defined below) in accordance with the terms and definitions contained in that certain Agreement of Purchase and Sale between HBC, as successor to Heftel, and Payee dated September 7, 1995, as amended (the "Agreement"), or (ii) the expiration of all rights to effectuate a "Subdivision" pursuant to Section 18 of the Agreement. It is agreed that if any payment of principal or interest or any installment thereof, not be made within five (5) days following the date that same is due as above provided; or if a default occurs under paragraph 12 of the Mortgage (as hereinafter defined) which default remains uncured for a period of fifteen (15) days following receipt by Maker of written notice thereof from Payee; then, in any or all such events, the entire amount of principal of this Note with all interest then accrued, shall, at the option of Payee and without further notice (the Maker expressly waives notice of such default), become and be due and collectible, time being of the essence of this Note. If this Note shall not be paid at maturity or according to the tenor thereof and strictly as above provided, it may be placed in the hands of an attorney at law for collection, and in that event, 1 2 each party liable for the payment hereof, as Maker, endorser, guarantor, or otherwise, hereby agrees to pay Payee in addition to the sums above stated, a reasonable sum as an attorney's fee, which shall include attorney's fees at trial level and on appeal, together with all reasonable costs incurred in connection therewith, whether suit be brought or not. After maturity and during a period of default, this Note shall bear interest at a rate equal to the lesser of: (i) fifteen (15%) percent per annum, or (ii) the highest rate permitted under then applicable law. Nothing herein contained, nor in any instrument or transaction related hereto, shall be construed or so operate as to require the Maker, or any person liable for the payment of the loan made pursuant to this Note, to pay interest in an amount or at a rate greater than the highest rate permissible under applicable law. Should any interest or other charges paid by the Maker, or any parties liable for the payment of the loan made pursuant to this Note, result in the computation or earning of interest in excess of the highest rate permissible under applicable law, then any and all such excess shall be and the same is hereby waived by Payee, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of said excess which exceeds the principal balance shall be paid by Payee to the Maker and any parties liable for the payment of the loan made pursuant to this Note, it being the intent of the parties hereto that under no circumstances shall the Maker, or any parties liable for the payment of the loan hereunder, be required to pay interest in excess of the highest rate permissible under applicable law. This Note is secured by a Purchase Money Mortgage and Security Agreement (the "Mortgage") of even date herewith from HBC in favor of Payee encumbering and conveying real estate and property (the "Mortgaged Property") therein described and duly recorded among the Public Records of Broward County, Florida, the terms and provisions of which are incorporated herein by this reference. As to this Note and the Mortgage and any other instruments securing the indebtedness evidenced under the Note and/or Mortgage, the Maker, endorsers and guarantors severally waive all applicable exemption rights, whether under the State Constitution, Homestead laws or otherwise, and also severally waive presentment, protest and demand, notice of protest, demand and any other notice of any kind, dishonor and nonpayment of this Note, and expressly agree that the Maturity Date of this Note, or any payment hereunder, may be extended from time to time without in any way affecting the liability of the Maker, endorsers or guarantors. 2 3 Maker agrees to pay all filing fees and similar charges and all costs incurred by Payee in collecting or securing or attempting to collect or secure this Note, including attorney's fees, whether or not involving litigation and/or appellate, administrative or bankruptcy proceedings. In any action or proceeding brought in connection with this Note, Maker hereby: (a) waives demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold Maker liable with respect to the Loan; (b) waives any right to immunity from any such action or proceeding; and waives any immunity or exemption of any property, wherever located, from garnishment, levy, execution, seizure or attachment prior to or in execution of judgment, or sale under execution or other process for the collection of debts; (c) waives any right to interpose any set-off or non-compulsory counterclaim or to plead laches or any statute of limitations as a defense in any such action or proceeding; (d) submits to the jurisdiction of the state and federal courts in the State of Florida for purposes of any such action or proceeding; (e) agrees that the venue of any such action or proceeding may be laid in Dade County, Florida and waives any claim that the same is an inconvenient forum; and (f) stipulates that service of process in any such action or proceeding shall be properly made if mailed by any form of registered or certified mail (airmail if international), postage prepaid, to the address then registered in the holder's records for Payee, and that any process so served shall be effective ten (10) days after mailing. No provision of this Note shall limit Payee's right to serve legal process in any other manner permitted by law or to bring any such action or proceeding in any other competent jurisdiction. The sums due under this Note shall not be subject to offset, deduction, or claims in the nature thereof which any maker, endorser or guarantor hereof may have against the holder hereof, other than the claims arising out of the sale of the Mortgaged Property pursuant to the Agreement or any other claims under or pursuant to the Agreement. 3 4 This Note is to be construed according to the applicable laws of the State of Florida. HEFTEL BROADCASTING CORPORATION, a Delaware corporation By:/s/ John Kendrick -------------------------------- Name:John Kendrick ------------------------------- Title:SVP CFO ----------------------------- [CORPORATE SEAL] HBC FLORIDA, INC., a Delaware corporation By:/s/ John Kendrick -------------------------------- Name:John Kendrick ------------------------------- Title:SVP CFO ----------------------------- [CORPORATE SEAL] 4 EX-2.5.7 3 EXHIBIT 2.5.7 1 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER BETWEEN CLEAR CHANNEL COMMUNICATIONS, INC. ("PARENT") AND TICHENOR MEDIA SYSTEM, INC. ("TICHENOR") OCTOBER 10, 1996 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS.......................................................................... 2 1.1 Defined Terms............................................................... 2 1.2 References and Titles....................................................... 11 ARTICLE 2 THE MERGER........................................................................... 11 2.1 The Merger. ......................................................................... 11 2.2 Effect of the Merger................................................................. 11 2.3 Governing Instruments, Directors and Officers of the Surviving Corporation ......................................................................... 11 2.4 Effect on Securities................................................................. 12 2.5 Exchange of Certificates............................................................. 15 2.6 Closing.............................................................................. 19 2.7 Effective Time of the Merger......................................................... 19 2.8 Taking of Necessary Action; Further Action........................................... 20 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TICHENOR........................................... 20 3.1 Organization......................................................................... 20 3.2 Authority and Enforceability......................................................... 20 3.3 Consents and Approvals............................................................... 20 3.4 FCC Matters.......................................................................... 21 3.5 Financial Statements................................................................. 22 3.6 Capital Structure.................................................................... 22 3.7 Absence of Certain Changes or Events................................................. 23 3.8 Litigation. ......................................................................... 25 3.9 Environmental Matters................................................................ 25 3.10 Brokers.............................................................................. 26 3.11 Vote Required........................................................................ 26 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT, HEFTEL AND HEFTEL SUB................................................................ 27 4.1 Representations and Warranties of Parent............................................. 27 4.2 Representations and Warranties of Heftel and Heftel Sub.............................. 28 ARTICLE 5 COVENANTS............................................................................ 30 5.1 Conduct by Parent Pending Closing.................................................... 30 5.2 Conduct of Business by Tichenor Pending Closing...................................... 31 5.3 Conduct of Business by Heftel Pending Closing........................................ 33 5.4 Access to Assets, Personnel and Information.......................................... 36 5.5 No Solicitation...................................................................... 38 5.6 Heftel Stockholders Meeting.......................................................... 38 5.7 Tichenor Shareholders Meeting........................................................ 39 5.8 Registration Statement and Proxy Statement/Prospectus................................ 39 5.9 Stock Exchange Listing............................................................... 41 5.10 Additional Arrangements.............................................................. 41 5.11 Agreements of Affiliates............................................................. 41 5.12 Public Announcements................................................................. 41 5.13 Notification of Certain Matters...................................................... 42 5.14 Payment of Expenses.................................................................. 42
i 3 5.15 Registration Rights Agreement........................................................ 42 5.16 Employment Agreement................................................................. 42 5.17 Stockholders Agreement............................................................... 42 5.18 Indemnity Agreement.................................................................. 42 5.19 Insurance; Indemnification........................................................... 43 5.20 Parent Registration Rights Agreement................................................. 45 5.21 FCC Approval......................................................................... 45 5.22 Composition of the Board of Directors................................................ 46 ARTICLE 6 CONDITIONS........................................................................... 46 6.1 Conditions to Each Party's Obligation to Effect the Merger........................... 46 6.2 Conditions to Obligations of Parent, Heftel and Heftel Sub. ......................... 47 6.3 Conditions to Obligation of Tichenor................................................. 49 ARTICLE 7 TERMINATION.......................................................................... 49 7.1 Termination Rights................................................................... 49 7.2 Effect of Termination................................................................ 51 ARTICLE 8 MISCELLANEOUS........................................................................ 52 8.1 Nonsurvival of Representations and Warranties. ...................................... 52 8.2 Amendment. .......................................................................... 52 8.3 Notices.............................................................................. 52 8.4 Counterparts. ....................................................................... 52 8.5 Severability......................................................................... 52 8.6 Entire Agreement; No Third Party Beneficiaries....................................... 53 8.7 Applicable Law. ..................................................................... 53 8.8 No Remedy in Certain Circumstances. ................................................. 53 8.9 Assignment........................................................................... 53 8.10 Indemnification for Negligence....................................................... 54 8.11 Confidentiality Agreements........................................................... 54 8.12 Waivers.............................................................................. 54 8.13 Incorporation........................................................................ 55 Disclosure Letter EXHIBITS 1.1(a) - Form of Heftel's Second Amended and Restated Certificate of Incorporation 5.11 - Form of Affiliate Letter 5.15 - Registration Rights Agreement 5.16 - Employment Agreement 5.17 - Stockholders Agreement 5.18 - Indemnity Agreement 5.20 - Parent Registration Rights Agreement 8.9 - Assignment Agreement
ii 4 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered into as of the 10th day of October 1996, by and between CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation ("PARENT"), and TICHENOR MEDIA SYSTEM, INC., a Texas corporation ("TICHENOR"). Recitals A. Parent has acquired a majority interest in Heftel Broadcasting Corporation ("HEFTEL"), a Delaware corporation, by way of a concurrent stock purchase and tender offer (the "HEFTEL ACQUISITION"). B. The board of directors of each of Parent and Tichenor determined that it was in the best interests of its respective shareholders to approve the merger of Heftel and Tichenor by means of the merger of a to-be-named wholly owned subsidiary of Heftel, to be formed under the laws of the State of Texas immediately following the completion of the Heftel Acquisition ("HEFTEL SUB"), with and into Tichenor upon the terms and subject to the conditions set forth in an Agreement and Plan of Merger (the "ORIGINAL AGREEMENT") made and entered into as of the 9th day of July 1996, by and between Parent and Tichenor. C. To facilitate such merger, upon completion of the Heftel Acquisition, Parent agrees to propose to Heftel and Heftel Sub that such entities agree to be bound by the terms of this Agreement as they relate to such entities and use its reasonable efforts to cause the execution of the documentation reflecting such agreement to be bound hereby. D. For federal income tax purposes, it is intended that such merger qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. E. Parent and Tichenor desire to make certain modifications to the terms of the Original Agreement relating to certain covenants and agreements in connection with such merger. NOW, THEREFORE, for and in consideration of the recitals and 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 to this Agreement hereby agree as follows: 5 Statement of Agreement ARTICLE 1 DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, each of the following terms has the meaning given in this Section 1.1 or in the Sections referred to below: "AFFILIATE" means, with respect to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with such Person. "AGREEMENT" means this Agreement and Plan of Merger, as amended, supplemented or modified from time to time. "ALIEN" means (a) a person who is a citizen of a country other than the United States; (b) 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; (c) a government other than the government of the United States or of any state, territory or possession of the United States; and (d) a representative of, or an individual or entity controlled by, any of the foregoing. "ARTICLES OF MERGER" means the articles of merger, prepared and executed in accordance with the applicable provisions of the TBCA, filed with the Secretary of State of Texas to reflect the consummation of the Merger. "ASSIGNMENT AGREEMENT" has the meaning specified in Section 8.9(b). "BANK CREDIT AGREEMENT" means that certain Second Amended and Restated Credit Agreement, dated as of August 9, 1994, as amended through the date of the Original Agreement, among Tichenor and the other parties thereto. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any successor statutes and any regulations promulgated thereunder. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System List. "CLOSING" means the closing of the Merger and the consummation of the other transactions contemplated by this Agreement. "CLOSING DATE" means the date on which the Closing occurs, which date shall be the business day immediately following the day on which all conditions precedent have been fully satisfied or waived (or such later date as is agreed upon by the parties). 2 6 "CLOSING MATERIAL ADVERSE EFFECT" means (a) when used with respect to Tichenor, (i) the loss of any Tichenor FCC License or the inability of Tichenor to operate any Tichenor Station due to the failure to obtain the consent of any person other than the FCC or any other Governmental Authority (in either case for which reinstatement or waiver within 90 days is not reasonably likely) accounting for, in the aggregate, 10% of Tichenor's consolidated gross revenue stated on Tichenor's consolidated income statement for the prior quarter, (ii) the failure of Tichenor to either (A) refinance the outstanding indebtedness under the Bank Credit Agreement or any successor credit facility at or prior to the Effective Time or (B) obtain appropriate waivers so that, in either case, no defaults will exist thereunder as of the Effective Time arising out of the transactions contemplated by this Agreement or (iii) any other event, liability, obligation, judgment or consequence having an adverse economic impact on Tichenor and its Affiliates, taken as a whole, in excess of $20 million; and (b) when used with respect to Heftel, (i) the loss of any Heftel FCC License or the inability of Heftel to operate any Heftel Station due to the failure to obtain the consent of any person other than the FCC or any other Governmental Authority (in either case for which reinstatement or waiver within 90 days is not reasonably likely) accounting for, in the aggregate, 10% of Heftel's consolidated gross revenue stated on Heftel's consolidated income statement for the prior quarter, (ii) the failure of Heftel to either (A) refinance the outstanding indebtedness under the Heftel Credit Agreement or any successor credit facility at or prior to the Effective Time or (B) obtain appropriate waivers so that, in either case, no defaults will exist thereunder as of the Effective Time arising out of the Heftel Acquisition or the Merger or (iii) any other event, liability, obligation, judgment or consequence having an adverse economic impact on Heftel and its Affiliates, taken as a whole, in excess of $40 million. With respect to clauses (a) and (b) above, a Closing Material Adverse Effect shall not be deemed to have occurred based upon any change in the financial condition of Tichenor or Heftel, as the case may be, resulting from (a) increased competition, (b) events or conditions that affect the radio broadcasting industry generally and affect all other similarly situated companies in the radio broadcasting industry or (c) general economic conditions. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMUNICATIONS ACT" means the Communications Act of 1934, as amended. "CONVERSION NUMBER" means 7.8261. "COSTS" has the meaning specified in Section 5.19(b). "DGCL" means the Delaware General Corporation Law. "DISCLOSURE LETTER" means the DISCLOSURE LETTER attached hereto and any documents listed on such DISCLOSURE LETTER and expressly incorporated therein by reference. "DISSENTING SHAREHOLDER(S)" means holder(s) of Tichenor Common Stock, Tichenor Junior Preferred and Tichenor Senior Preferred who have validly perfected dissenters' rights under Article 5.12 of the TBCA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 3 7 "EFFECTIVE TIME" has the meaning specified in Section 2.7. "EMPLOYMENT AGREEMENT" has the meaning specified in Section 5.16. "ENVIRONMENTAL LAW" means any federal, state, local or foreign statute, code, ordinance, rule, regulation, policy, guideline, permit, consent, approval, license, judgment, order, writ, decree, common law, injunction or other authorization in effect on the date of the Original Agreement or at a previous time applicable to Tichenor's operations relating to (a) emissions, discharges, releases or threatened releases of Hazardous Materials into the natural environment, including into ambient air, soil, sediments, land surface or subsurface, buildings or facilities, surface water, groundwater, publicly-owned treatment works, septic systems or land; (b) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Materials; (c) occupational health and safety; or (d) otherwise relating to the pollution of the environment, solid waste handling treatment or disposal, or operation or reclamation of oil and gas operations or mines. "EXCHANGE AGENT" means the transfer agent for shares of Heftel Common Stock or such other entity selected by Heftel and consented to by Tichenor, which consent shall not be unreasonably withheld. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE FUND" has the meaning specified in Section 2.5(a). "FCC" means the Federal Communications Commission. "GAAP" means generally accepted accounting principles, as recognized by the U.S. Financial Accounting Standards Board (or any generally recognized successor). "GOVERNMENTAL ACTION" means any authorization, application, approval, consent, exemption, filing, license, notice, registration, permit or other requirement of, to or with any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any national, state, county or municipal government, domestic or foreign, any agency, board, bureau, commission, court, department or other instrumentality of any such government, or any arbitrator in any case that has jurisdiction over any of the Tichenor Companies, Parent, the Heftel Companies or any of their respective properties or assets, including the FCC. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "HAZARDOUS MATERIAL" means (a) any "hazardous substance," as defined by CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by the Resource Conservation and Recovery Act, as amended; (c) any solid, hazardous, dangerous or toxic chemical, material, waste or substance, within the meaning of and regulated by any Environmental Law; (d) any radioactive material, including any naturally occurring radioactive 4 8 material, and any source, special or byproduct material as defined in 42 U.S.C. 2011 et seq. and any amendments or authorizations thereof; (e) any asbestos-containing materials in any form or condition; (f) any polychlorinated biphenyls in any form or condition; or (g) petroleum, petroleum hydrocarbons, or any fraction or byproducts thereof. "HEFTEL" means Heftel Broadcasting Corporation, a Delaware corporation. "HEFTEL CERTIFICATE" means a certificate representing shares of Heftel Common Stock. "HEFTEL COMMON STOCK" means the Class A Common Stock, par value $.001 per share, of Heftel. "HEFTEL COMPANIES" means Heftel and the Heftel Subsidiaries. "HEFTEL CREDIT AGREEMENT" means that certain Credit Agreement, dated August 19, 1994, among Heftel, its subsidiaries and The Chase Manhattan Bank (National Association), on its own behalf and as agent. "HEFTEL DESIGNEES" has the meaning specified in Section 5.22. "HEFTEL DISCLOSURE DOCUMENTS" means Heftel's Annual Report on Form 10-K for the fiscal years ended September 30, 1994 and 1995, and Quarterly Reports for the quarters ended December 31, 1995 and March 31, 1996, and all other forms, reports, registration statements and other statements and documents filed by Heftel with the SEC from July 27, 1994 to the date of this Agreement. "HEFTEL FCC LICENSES" has the meaning specified in Section 5.3(b). "HEFTEL MATERIAL AGREEMENT(S)" means (a) any written or oral agreement, contract, commitment or understanding to which Heftel is a party, by which Heftel is directly or indirectly bound, or to which any asset of Heftel may be subject, involving total value or consideration in excess of $600,000 and/or, (b) the Heftel Credit Agreement, as amended and supplemented as of the date hereof. "HEFTEL MEETING" means the meeting of the stockholders of Heftel called for the purpose of voting on the Heftel Proposal. "HEFTEL PROPOSAL" means, collectively, (a) the proposal to amend and restate the Restated Certificate of Incorporation of Heftel to read as set forth in EXHIBIT 1.1(A) hereto, (b) the proposal to approve the issuance of Heftel Common Stock and New Heftel Class B Common Stock in connection with the Merger and (c) such other proposals as may be necessary or desirable, including without limitation, such proposals to approve further amendments of Heftel's certificate of incorporation to facilitate the transactions contemplated in this Agreement, which proposals are to be presented to the stockholders of Heftel in the Proxy Statement/Prospectus. "HEFTEL STATION" has the meaning specified in Section 5.3(b). 5 9 "HEFTEL SUB" means a to-be-named wholly owned subsidiary of Heftel to be formed under the laws of the State of Texas. "HEFTEL SUB COMMON STOCK" means the common stock, par value $.001 per share, of Heftel Sub. "HEFTEL SUBSIDIARIES" means Broadcast Investment, Inc., a Florida corporation; HBC Florida, Inc., a Delaware corporation; HBC Texas, Inc., a Delaware corporation; KESS-AM License Corp., a Delaware corporation; KICI-AM License Corp., a Delaware corporation; KLVE-FM License Corp., a Delaware corporation; KMRT-AM License Corp., a Delaware corporation; KTNQ/KLVE, Inc., a California corporation; KTNQ-AM License Corp., a Delaware corporation; Mi Casa Publications, Inc., a California corporation; Radio WADO, Inc., a New Jersey corporation; Rodriguez Broadcasting, Inc., a Texas corporation; Rodriguez-Heftel- Texas, Inc., a Texas corporation; Spanish Coast to Coast, Ltd., a Delaware corporation; Spanish Radio Network, a Florida general partnership; SRN Texas, Inc., a Texas corporation; The Tower Company, Inc., a Hawaii corporation; Viva Acquisition Corporation, a Florida corporation; Viva Broadcasting Corporation, a Florida corporation; WADO-AM License Corp., a Delaware corporation; WGLI-AM License Corp., a Delaware corporation; WQBA-AM License Corp., a Delaware corporation; WQBA-FM License Corp., a Delaware corporation; Heftel Broadcasting Texas, L.P.; Heftel GP Texas, Inc.; HBC Broadcasting Texas, Inc.; HBC Chicago, Inc.; HBC- Las Vegas, Inc.; HBC New York, Inc.; KCYT-FM License Corp.; KECS-FM License Corp.; KESS-AM License Corp.; KESS-TV License Corp.; KHCK-FM License Corp.; KICI-FM License Corp; KLSQ-AM License Corp.; La Oferta, Inc.; License Corp. No. 1; License Corp. No. 2; Viva America Media Group; WLXX-AM License Corp.; and WPAT-AM License Corp. "INDEMNIFIED PARTIES" has the meaning specified in Section 5.19(c). "INDEMNIFYING PARTY" has the meaning specified in Section 5.19(d). "INDEMNITY AGREEMENT" has the meaning specified in Section 5.18. "LIEN" means any lien, mortgage, security interest, pledge, deposit, restriction, burden, encumbrance, rights of a vendor under any title retention or conditional sale agreement, or lease or other arrangement substantially equivalent thereto. "MAJOR TICHENOR SHAREHOLDER" means, collectively, McHenry T. Tichenor, Sr., McHenry T. Tichenor, Jr., McHenry T. Tichenor, Jr., as Custodian for David T. Tichenor, Warren W. Tichenor, William E. Tichenor, Jean T. Russell, David Lykes, Jeffrey T. Hinson, Ricardo A. del Castillo, Alta Subordinated Debt Partners III, L.P., Prime II Management, L.P. and PrimeComm, L.P. "MATERIAL ADVERSE EFFECT" means (a) when used with respect to Tichenor, a result or consequence that would materially adversely affect the condition (financial or otherwise), results of operations or business of the Tichenor Companies (taken as a whole) or the aggregate value of their assets, would materially impair the ability of the Tichenor Companies (taken as a whole) to own, hold, develop and operate their assets, or would impair Tichenor's ability to perform its obligations hereunder or consummate the transactions contemplated hereby; and (b) when used 6 10 with respect to Heftel, a result or consequence that would materially adversely affect the condition (financial or otherwise), results of operations or business of Heftel and its subsidiaries (taken as a whole) or the aggregate value of their assets, would materially impair the ability of the Heftel Companies (taken as a whole) to own, hold and operate their assets, or would impair Heftel's or Heftel Sub's ability to perform its respective obligations hereunder or consummate the transactions contemplated hereby. "MERGER" has the meaning specified in Section 2.1. "MERGER CONSIDERATION" means the product of the Conversion Number and the Share Price. "MERGER INDEMNIFIED PARTIES" has the meaning specified in Section 5.19(c). "NASDAQ" means the National Market System of The Nasdaq Stock Market, Inc. "NEW HEFTEL CLASS B COMMON STOCK" means the Class B Common Stock, par value $.001 per share, of Heftel having the terms, rights and privileges set forth in EXHIBIT 1.1(A) hereto. "PARENT" means Clear Channel Communications, Inc., a Texas corporation. "PARENT REGISTRATION RIGHTS AGREEMENT" has the meaning specified in Section 5.20. "PARENT REPRESENTATIVE" means any director, officer, employee, agent, advisor (including legal, accounting and financial advisors), Affiliate (including Heftel and Heftel Sub) or other representative of Parent or its subsidiaries. "PERMITTED ENCUMBRANCES" means (a) with respect to Tichenor, (i) Liens for Taxes, assessments or other governmental charges or levies if the same shall not at the particular time in question be due and delinquent or (if foreclosure, distraint, sale or other similar proceedings shall not have been commenced or, if commenced, shall have been stayed) are being contested in good faith by appropriate proceedings and if any of the Tichenor Companies shall have set aside on its books such reserves (segregated to the extent required by sound accounting practices) as may be required by or consistent with GAAP and, whether reserves are set aside or not, are listed on the DISCLOSURE LETTER; (ii) Liens of carriers, warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen and operators arising by operation of law in the ordinary course of business or by a written agreement existing as of the date of the Original Agreement and necessary or incident to the proper operation of such Person's business, properties and related facilities and assets for sums not yet due or being contested in good faith by appropriate proceedings, if any of the Tichenor Companies shall have set aside on its books such reserves (segregated to the extent required by sound accounting practices) as may be required by or consistent with GAAP and, whether reserves are set aside or not, are listed on the DISCLOSURE LETTER; (iii) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance and other social security legislation (other than ERISA) which would not, individually or in the aggregate, result in a Material Adverse Effect on the Tichenor Companies; (iv) Liens incurred in the ordinary course of business to secure the 7 11 performance of bids, tenders, trade contracts, leases, statutory obligations, surety and appeal bonds, performance and repayment bonds and other obligations of a like nature; (v) Liens, easements, rights-of-way, restrictions, servitudes, permits, conditions, covenants, exceptions, reservations and other similar encumbrances incurred in the ordinary course of business or existing on property and not materially impairing the value of the assets of any of Tichenor Companies or interfering with the ordinary conduct of the business of any of the Tichenor Companies or rights to any of their assets; (vi) Liens arising under or created pursuant to the Bank Credit Agreement or the Term Loan; and (vii) Liens described on the DISCLOSURE LETTER and (b) with respect to Heftel, (i) Liens for Taxes, assessments or other governmental charges or levies if the same shall not at the particular time in question be due and delinquent or (if foreclosure, distraint, sale or other similar proceedings shall not have been commenced or, if commenced, shall have been stayed) are being contested in good faith by appropriate proceedings and if any of the Heftel Companies shall have set aside on its books such reserves (segregated to the extent required by sound accounting practices) as may be required by or consistent with GAAP and, whether reserves are set aside or not, are listed on the Heftel Disclosure Documents; (ii) Liens of carriers, warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen and operators arising by operation of law in the ordinary course of business or by a written agreement existing as of the date of the Original Agreement and necessary or incident to the proper operation of such Person's business, properties and related facilities and assets for sums not yet due or being contested in good faith by appropriate proceedings, if any of the Heftel Companies shall have set aside on its books such reserves (segregated to the extent required by sound accounting practices) as may be required by or consistent with GAAP and, whether reserves are set aside or not, are listed on the Heftel Disclosure Documents; (iii) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance and other social security legislation (other than ERISA) which would not, individually or in the aggregate, result in a Material Adverse Effect on the Heftel Companies; (iv) Liens incurred in the ordinary course of business to secure the performance of bids, tenders, trade contracts, leases, statutory obligations, surety and appeal bonds, performance and repayment bonds and other obligations of a like nature; (v) Liens, easements, rights-of-way, restrictions, servitudes, permits, conditions, covenants, exceptions, reservations and other similar encumbrances incurred in the ordinary course of business or existing on property and not materially impairing the value of the assets of any of Heftel Companies or interfering with the ordinary conduct of the business of any of the Heftel Companies or rights to any of their assets; (vi) Liens arising under or created pursuant to the Heftel Credit Agreement; and (vii) Liens described on the Heftel Disclosure Documents. "PERSON" means any natural person, corporation, company, limited or general partnership, joint stock company, joint venture, association, limited liability company, trust, bank, trust company, land trust, business trust or other entity or organization, whether or not a Governmental Authority. "PROXY STATEMENT/PROSPECTUS" means a proxy statement of Heftel in definitive form relating to the Heftel Meeting, which proxy statement will be included as a prospectus in the Registration Statement. "REGISTRATION RIGHTS AGREEMENT" has the meaning specified in Section 5.15. 8 12 "REGISTRATION STATEMENT" means the Registration Statement to be filed with the SEC by Heftel in connection with the issuance of Heftel Common Stock and New Heftel Class B Common Stock pursuant to the Merger. "RESPONSIBLE OFFICER" means, with respect to any Tichenor Company, McHenry T. Tichenor, Jr. or Jeffrey T. Hinson, and with respect to any other corporation, the Chief Executive Officer, President or any Vice President of such corporation. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARE PRICE" means the per share closing sales price of the Heftel Common Stock on Nasdaq (as reported by The Wall Street Journal, or if not so reported, by another authoritative source) on the trading day immediately preceding the Closing Date. "STOCKHOLDERS AGREEMENT" has the meaning specified in Section 5.17. "SURVIVING CORPORATION" has the meaning specified in Section 2.2. "TBCA" means the Texas Business Corporation Act. "TAXES" means taxes of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, including income, gross receipts, ad valorem, value added, excise, real or personal property, asset, sales, use, license, payroll, transaction, capital, net worth and franchise taxes, estimated taxes, withholding, employment, social security, workers compensation, utility, severance, production, unemployment compensation, occupation, premium, windfall profits, transfer and gains taxes or other governmental taxes imposed or payable to the United States or any state, local or foreign governmental subdivision or agency thereof, and in each instance such term shall include any interest, penalties or additions to tax attributable to any such Tax, including penalties for the failure to file any federal, state, local or foreign returns, declarations, reports, estimates, information returns or statements required to be filed by a Person with respect to any Taxes. "TENDER OFFER AGREEMENT" means the Tender Offer Agreement, dated June 1, 1996, between Parent and Heftel relating to the Heftel Acquisition, as amended through the date hereof. "TENDER OFFER INDEMNIFIED PARTIES" has the meaning specified in Section 5.19(b). "TERM LOAN" means that certain Loan Agreement, dated as of the date of the Original Agreement, between TMS Assets California, Inc., a Delaware corporation, and Parent, as in effect on the date hereof. "THIRD-PARTY CONSENT" means the consent or approval of any Person other than Tichenor, Parent or any Governmental Authority. "TICHENOR" means Tichenor Media System, Inc., a Texas corporation. 9 13 "TICHENOR CERTIFICATE" means a certificate representing shares of Tichenor Common Stock, shares of Tichenor Junior Preferred or shares of Tichenor Senior Preferred, or documents or agreements representing the Tichenor Warrant. "TICHENOR COMMON STOCK" means the common stock, par value $1.00 per share, of Tichenor. "TICHENOR COMPANIES" means Tichenor and the Tichenor Subsidiaries. "TICHENOR FCC LICENSES" has the meaning specified in Section 5.2(b). "TICHENOR FINANCIAL STATEMENTS" means the audited and unaudited consolidated financial statements of Tichenor and its subsidiaries (including the related notes with respect to such audited financial statements) for the years ended December 31, 1994 and 1995, and for the five months ended May 31, 1996. "TICHENOR JUNIOR PREFERRED" means the Junior Preferred Stock, par value $10 per share, of Tichenor. "TICHENOR MATERIAL AGREEMENT(S)" means (a) any written or oral agreement, contract, commitment or understanding to which any of the Tichenor Companies is a party, by which any of the Tichenor Companies is directly or indirectly bound, or to which any asset of any of the Tichenor Companies may be subject, involving total value or consideration in excess of $400,000, (b) the Bank Credit Agreement and/or (c) the Term Loan, in each case as amended and supplemented as of the date of the Original Agreement. "TICHENOR REPRESENTATIVE" means any director, officer, employee, agent, advisor (including legal, accounting and financial advisors), Affiliate or other representative of any of the Tichenor Companies. "TICHENOR SENIOR PREFERRED" means the 14% Senior Redeemable Cumulative Preferred Stock, par value $1,000 per share, of Tichenor. "TICHENOR STATION" has the meaning specified in Section 5.2(b). "TICHENOR SUBSIDIARIES" means WADO Radio, Inc., a Texas corporation; Tichenor License Corporation, a Texas corporation; TC Television, Inc., a Texas corporation; Tichenor Assets California, Inc., a Delaware corporation; Tichenor License California, Inc., a Delaware corporation; Tall Tower Partnership, a Texas general partnership; and KDOS Limited Partnership, a Texas limited partnership. "TICHENOR WARRANT" means that certain Warrant Agreement, dated June 15, 1993, entitling Alta Subordinated Debt Partners III, L.P. to purchase such number of shares of Tichenor Common Stock as shall equal 4% of the total number of shares of Tichenor Common Stock of all classes outstanding on a fully diluted basis after giving effect to the exercise of all other warrants, options and rights to acquire any shares of Tichenor Common Stock and the 10 14 conversion of any convertible securities issued by Tichenor (including without limitation the Tichenor Junior Preferred). 1.2 REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words "THIS AGREEMENT," "HEREIN," "HEREBY," "HEREUNDER" and "HEREOF," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "THIS ARTICLE," "THIS SECTION" and "THIS SUBSECTION," and words of similar import, refer only to the Article, Section or subsection hereof in which such words occur. The word "OR" is not exclusive, and the word "INCLUDING" (in its various forms) means "INCLUDING WITHOUT LIMITATION." Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. As used in the representations and warranties contained in this Agreement, the phrase "TO THE KNOWLEDGE" of the representing party shall mean that Responsible Officers of such representing party, individually or collectively, either (a) know that the matter being represented and warranted is true and accurate or (b) have no reason, after reasonable inquiry, to believe that the matter being represented and warranted is not true and accurate. ARTICLE 2 THE MERGER 2.1 THE MERGER. Subject to the terms and conditions set forth in this Agreement and assuming the consummation of the Assignment Agreement pursuant to Section 8.9, at the Effective Time, Heftel Sub shall be merged with and into Tichenor in accordance with the provisions of this Agreement. Such merger is referred to herein as the "MERGER." 2.2 EFFECT OF THE MERGER. Upon the effectiveness of the Merger, the separate existence of Heftel Sub shall cease and Tichenor, as the surviving corporation in the Merger (the "SURVIVING CORPORATION"), shall continue its corporate existence under the laws of the State of Texas. The Merger shall have the effects specified in this Agreement and the TBCA. 2.3 GOVERNING INSTRUMENTS, DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. (a) The articles of incorporation of Tichenor, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation until duly amended in accordance with its terms and applicable law. 11 15 (b) The bylaws of Tichenor, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until duly amended in accordance with their terms and applicable law. (c) The directors and officers of the Surviving Corporation from the Effective Time until their respective successors have been duly elected or appointed in accordance with the articles of incorporation and bylaws of the Surviving Corporation and applicable law shall be the directors and officers of Tichenor. 2.4 EFFECT ON SECURITIES. (a) HEFTEL SUB COMMON STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof, each share of Heftel Sub Common Stock outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid share of Tichenor Common Stock. (b) TICHENOR SECURITIES. (i) TICHENOR COMMON STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof (but subject to the provisions of Section 2.5(e)), each share of Tichenor Common Stock that is issued and outstanding immediately prior to the Effective Time (other than shares of Tichenor Common Stock held by Dissenting Shareholders and Tichenor Common Stock held by Parent or any Affiliate of Parent) shall be converted into the right to receive shares of validly issued, fully paid and nonassessable Heftel Common Stock, with each such share of Tichenor Common Stock being converted into the number of shares of Heftel Common Stock equal to the Conversion Number. Each share of Tichenor Common Stock, when so converted, shall automatically be cancelled and retired, shall cease to exist and shall no longer be outstanding; and the holder of any certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Heftel Common Stock to be issued in exchange therefor (along with any cash in lieu of fractional shares of Heftel Common Stock as provided in Section 2.5(e) and any unpaid dividends and distributions with respect to such shares of Heftel Common Stock as provided in Section 2.5(c)), without interest, upon the surrender of such certificate in accordance with Section 2.5. (ii) TICHENOR SENIOR PREFERRED. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof, each share of Tichenor Senior Preferred (other than shares of Tichenor Senior Preferred held by Dissenting Shareholders) that is issued and outstanding shall be converted into the right to receive cash in the amount of $1,000 per share plus all accrued and unpaid dividends through December 31, 1995. Each share of Tichenor Senior Preferred, when so converted, shall automatically be cancelled and retired, shall cease to exist and shall no longer be outstanding; and the holder of any certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the cash to be paid in exchange therefor, without interest, upon the surrender of such certificate in accordance with Section 2.5. 12 16 (iii) TICHENOR JUNIOR PREFERRED. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof, each share of Tichenor Junior Preferred (other than shares of Tichenor Junior Preferred held by Dissenting Shareholders) that is issued and outstanding prior to the Effective Time shall be converted into the right to receive shares of validly issued, fully paid and nonassessable Heftel Common Stock, with each such share being converted into 4.3478 shares of Heftel Common Stock. Each share of Tichenor Junior Preferred, when so converted, shall automatically be cancelled and retired, shall cease to exist and shall no longer be outstanding; and the holder of any certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Heftel Common Stock to be issued in exchange therefor (along with any cash in lieu of fractional shares of Heftel Common Stock as provided in Section 2.5(e) and any unpaid dividends and distributions with respect to such shares of Heftel Common Stock as provided in Section 2.5(c)), without interest, upon the surrender of such certificate in accordance with Section 2.5. (iv) TICHENOR TREASURY STOCK. At the Effective Time, by virtue of the Merger, all shares of Tichenor Common Stock and Tichenor Junior Preferred that are issued and held as treasury stock shall be cancelled and retired and shall cease to exist, and no shares of Heftel Common Stock or other consideration shall be paid or payable in exchange therefor. (v) TICHENOR COMMON STOCK HELD BY PARENT. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof (but subject to the provisions of Section 2.5(e)), each share of Tichenor Common Stock that is issued and outstanding immediately prior to the Effective Time and held by Parent or any Affiliate of Parent shall be converted into the right to receive shares of validly issued, fully paid and nonassessable New Heftel Class B Common Stock, with each such share of Tichenor Common Stock being converted into the number of shares of New Heftel Class B Common Stock equal to the Conversion Number. Each share of Tichenor Common Stock, when so converted, shall automatically be cancelled and retired, shall cease to exist and shall no longer be outstanding; and the holder of any certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of New Heftel Class B Common Stock to be issued in exchange therefor (along with any cash in lieu of fractional shares of New Heftel Class B Common Stock as provided in Section 2.5(e) and any unpaid dividends and distributions with respect to such shares of New Heftel Class B Common Stock as provided in Section 2.5(c)), without interest, upon the surrender of such certificate in accordance with Section 2.5. (vi) TICHENOR WARRANT. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, the Tichenor Warrant, if outstanding as of the Effective Time, shall be converted into the right to receive 180,000 shares of validly issued, fully paid and nonassessable Heftel Common Stock. The Tichenor Warrant, when so converted, shall automatically be cancelled and retired, shall cease to exist and shall no longer be outstanding; and the holder of the Tichenor Warrant shall cease to have any rights with respect thereto, except the right to receive the 13 17 shares of Heftel Common Stock to be issued in exchange therefor and any unpaid dividends and distributions with respect to such shares of Heftel Common Stock as provided in Section 2.5(c), without interest, upon the surrender of such warrant in accordance with Section 2.5. (vii) NO ADDITIONAL RIGHTS. Except as provided in this Section 2.4(b) or as otherwise agreed to by the parties, (A) the provisions of any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of the Tichenor Companies shall become null and void, and (B) the Tichenor Companies shall use all reasonable efforts to ensure that, following the Effective Time, no holder of options or rights or any participant in any plan, program or arrangement shall have any right thereunder to acquire any equity securities of the Tichenor Companies, Parent, Heftel, Heftel Sub or any direct or indirect subsidiary thereof. (viii) SHARES OF DISSENTING SHAREHOLDERS. Any issued and outstanding shares of Tichenor Common Stock, Tichenor Senior Preferred or Tichenor Junior Preferred held by a Dissenting Shareholder shall be converted into the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the TBCA; provided, however, shares of Tichenor Common Stock, Tichenor Senior Preferred or Tichenor Junior Preferred outstanding at the Effective Time and held by a Dissenting Shareholder who shall, after the Effective Time, withdraw his demand for payment or lose his dissenters' right as provided in the TBCA, shall be deemed to be converted, as of the Effective Time, into the right to receive the shares of Heftel Common Stock or cash specified in Section 2.4(b)(i), (ii) and (iii), respectively, in accordance with the procedures specified in Section 2.5(b). Tichenor shall give Parent (or, if after consummation of the Assignment Agreement, Heftel) (A) prompt notice of any written demands for such payment, withdrawals of demands for such payment and any other instruments served pursuant to the TBCA received by Tichenor, and (B) the opportunity to direct all negotiations and proceedings with respect to demands for such payment under the TBCA. Tichenor will not voluntarily make any payment with respect to any demands for dissenters' rights and will not, except with the prior written consent of Parent (or, if after consummation of the Assignment Agreement, Heftel), settle or offer to settle any such demands. (ix) HEFTEL COMMON STOCK HELD BY PARENT. At the Effective Time, by virtue of the Merger and without any action on the part of Parent or any Affiliate of Parent (but subject to the provisions of Section 2.5(e)), each share of Heftel Common Stock that is issued and outstanding immediately prior to the Effective Time and held by Parent or any Affiliate of Parent shall be converted into the right to receive one (1) share of validly issued, fully paid and nonassessable New Heftel Class B Common Stock. Each share of Heftel Common Stock, when so converted, shall automatically be cancelled and retired, shall cease to exist and shall no longer be outstanding; and the holder of any certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of New Heftel Class B Common Stock to be issued in exchange therefor (along with any unpaid dividends and distributions with respect to such shares of New Heftel Class B Common Stock as provided in Section 2.5(c)), without interest, upon the surrender of such certificate in accordance with Section 2.5. 14 18 2.5 EXCHANGE OF CERTIFICATES. (a) EXCHANGE FUND. At or prior to the Effective Time, Heftel shall deposit with the Exchange Agent: (i) for the benefit of the holders of (A) shares of Tichenor Common Stock (other than Parent and Affiliates of Parent), (B) shares of Tichenor Junior Preferred and (C) the Tichenor Warrant, if outstanding as of the Effective Time, and for exchange in accordance with this Agreement, certificates representing the shares of Heftel Common Stock to be issued in exchange for such Tichenor securities pursuant to Section 2.4(b)(i), (iii) and (vi), respectively; (ii) for the benefit of the holders of Tichenor Senior Preferred, cash in the amount of $3,000,000; (iii) for the benefit of Parent and Affiliates of Parent, certificates representing shares of New Heftel Class B Common Stock to be issued pursuant to Section 2.4(b)(v) and (ix); and (iv) cash in an amount sufficient to provide for the payments to be made in lieu of issuing any fractional shares of Heftel Common Stock or New Heftel Class B Common Stock as provided in Section 2.5(e). Additionally, subject to the provisions of Section 2.5(f), Heftel shall, if and when a payment date has occurred with respect to a dividend or distribution that has been declared subsequent to the Effective Time, deposit with the Exchange Agent an amount in cash (or property of like kind to that which is the subject of such dividend or distribution) equal to the dividend or distribution per share of Heftel Common Stock times the number of shares of Heftel Common Stock evidenced by Tichenor Certificates theretofore representing Tichenor Common Stock, Tichenor Junior Preferred and the Tichenor Warrant that have not theretofore been surrendered for exchange in accordance with this Section 2.5. The cash to be paid in conversion of the Tichenor Senior Preferred, such shares of Heftel Common Stock and New Heftel Class B Common Stock, together with any dividends or distributions with respect thereto (as provided in Section 2.5(c)), are referred to herein as the "EXCHANGE FUND." The Exchange Agent, pursuant to irrevocable instructions consistent with the terms of this Agreement, shall deliver the Heftel Common Stock to be issued pursuant to Section 2.4(b)(i), (iii) and (vi), respectively, the New Heftel Class B Common Stock to be issued pursuant to Section 2.4(b)(v) and (ix), the cash to be paid pursuant to Section 2.4(b)(ii), and cash in an amount sufficient to provide for the payments to be made in lieu of issuing any fractional shares of Heftel Common Stock or New Heftel Class B Common Stock as provided in Section 2.5(e) out of the Exchange Fund, and the Exchange Fund shall not be used for any other purpose whatsoever. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the Heftel Common Stock or the New Heftel Class B Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect thereto for the account of Persons entitled thereto. (b) EXCHANGE PROCEDURES. (i) As soon as reasonably practicable after the Effective Time, Heftel shall cause the Exchange Agent to mail to each holder of record of a Tichenor Certificate that, immediately prior to the Effective Time, represented (A) shares of Tichenor Common Stock, (B) shares of Tichenor Junior Preferred, (C) the Tichenor Warrant, if outstanding as of the Effective Time, or (D) Tichenor Senior Preferred, which was converted pursuant to Section 2.4(b), a letter of transmittal to be used to effect the exchange of such Tichenor Certificate, along with instructions for using such letter of transmittal to effect such exchange. As soon as reasonably practicable after the Effective Time, Heftel shall cause the Exchange Agent to mail to Parent and each Affiliate of 15 19 Parent that holds Heftel Common Stock that immediately prior to the Effective Time was converted into the right to receive New Heftel Class B Common Stock pursuant to Section 2.4(b)(ix), a letter of transmittal to be used to effect the exchange of such Heftel Common Stock, along with instructions for using such letter of transmittal to effect such exchange. The letter of transmittal (or the instructions thereto) shall specify that delivery of any Tichenor Certificate or Heftel Common Stock, as applicable, shall be effected, and risk of loss and title thereto shall pass, only upon delivery of thereof to the Exchange Agent and shall be in such form and have such other provisions as Heftel may reasonably specify. (ii) Upon surrender to the Exchange Agent of a Tichenor Certificate for cancellation, together with a duly completed and executed letter of transmittal and any other required documents (including, in the case of any Person constituting an "affiliate" of Tichenor for purposes of Rule 145(c) and (d) under the Securities Act, a written agreement from such Person as described in Section 5.11, if not theretofore delivered to Heftel), (A) (x) the holder (other than Parent and Affiliates of Parent) of such Tichenor Certificate (other than Tichenor Certificates representing Tichenor Senior Preferred) shall be entitled to receive in exchange therefor a Heftel Certificate representing the number of whole shares of Heftel Common Stock that such holder has the right to receive pursuant to Section 2.4(b)(i), (iii), or (vi), as the case may be, any cash in lieu of fractional shares of Heftel Common Stock as provided in Section 2.5(e), and any unpaid dividends and distributions that such holder has the right to receive pursuant to Section 2.5(c) (after giving effect to any required withholding of taxes), (y) Parent and Affiliates of Parent holding a Tichenor Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of New Heftel Class B Common Stock that such holder has the right to receive pursuant to Section 2.4(b)(i)(v), any cash in lieu of fractional shares of New Heftel Class B Common Stock as provided in Section 2.5(e), and any unpaid dividends and distributions that such holder has the right to receive pursuant to Section 2.5(c) (after giving effect to any required withholding of taxes), and (z) the holder of such Tichenor Certificate representing Tichenor Senior Preferred shall be entitled to receive in exchange therefor cash pursuant to Section 2.4(b)(ii); and (B) the Tichenor Certificate so surrendered shall forthwith be cancelled. No interest shall be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of Tichenor Certificates. Upon surrender to the Exchange Agent by Parent or an Affiliate of Parent of a certificate representing Heftel Common Stock for cancellation, together with a duly completed and executed letter of transmittal and any other required documents, the holder of such certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of New Heftel Class B Common Stock that such holder has the right to receive pursuant to Section 2.4(b)(ix), and any unpaid dividends and distributions that such holder has the right to receive pursuant to Section 2.5(c) (after giving effect to any required withholding of taxes) and the certificate so surrendered shall forthwith be cancelled. No interest shall be paid or accrued on the unpaid dividends and distributions, if any, payable to holders of the certificates representing Heftel Common Stock surrendered for cancellation. 16 20 (iii) In the event of a transfer of ownership of Tichenor Common Stock, Tichenor Junior Preferred or the Tichenor Warrant, if outstanding as of the Effective Time, that is not registered in the transfer records of Tichenor, a Heftel Certificate representing the appropriate number of shares of Heftel Common Stock (along with any cash in lieu of fractional shares and any unpaid dividends and distributions that such holder has the right to receive) may be issued or paid to a transferee if the Tichenor Certificate representing such Tichenor securities is presented to the Exchange Agent accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer or similar taxes have been paid. (iv) Until surrendered as contemplated by this Section 2.5(b), (A) each Tichenor Certificate (other than Tichenor Certificates representing Tichenor Senior Preferred and Tichenor Certificates representing Heftel Common Stock owned by Parent and Affiliates of Parent) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender a Heftel Certificate representing shares of Heftel Common Stock as provided in Section 2.4(b)(i), (iii) or (vi), as the case may be (along with any cash in lieu of fractional shares and any unpaid dividends and distributions), (B) each Tichenor Certificate representing Tichenor Senior Preferred shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender cash as provided in Section 2.4(b)(ii), (C) each certificate representing Heftel Common Stock held by Parent and any Affiliate of Parent shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender a certificate representing shares of New Heftel Class B Common Stock as provided in Section 2.4(b)(ix) (along with any unpaid dividends and distributions), and (D) each Tichenor Certificate held by Parent and Affiliates of Parent shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender a certificate representing New Heftel Class B Common Stock as provided in Section 2.4(b)(v) (along with any cash in lieu of fractional shares and any unpaid dividends and distributions). (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions with respect to Heftel Common Stock declared or made after the Effective Time with a record date after the Effective Time shall be paid to the holder of any unsurrendered Tichenor Certificate. Subject to the effect of applicable laws, (i) at the time of the surrender of a Tichenor Certificate for exchange in accordance with the provisions of this Section 2.5, there shall be paid to the surrendering holder, without interest, the amount of dividends or other distributions (having a record date after the Effective Time but on or prior to surrender and a payment date on or prior to surrender) theretofore paid with respect to the number of whole shares of Heftel Common Stock or New Heftel Class B Common Stock, as applicable, that such holder is entitled to receive (less the amount of any withholding taxes that may be required with respect thereto); and (ii) at the appropriate payment date, there shall be paid to the surrendering holder, without interest, the amount of dividends or other distributions (having a record date after the Effective Time but on or prior to surrender and a payment date subsequent to surrender) payable with respect to the number of whole shares of Heftel Common Stock or New Heftel Class B Common Stock, as applicable, that such holder receives (less the amount of any withholding taxes that may be required with respect thereto). Subject to the effect of applicable laws, (i) at the time Parent or an Affiliate of Parent surrenders Heftel Common Stock for 17 21 exchange in accordance with the provisions of Section 2.4(b)(ix) and this Section 2.5, there shall be paid to the surrendering holder, without interest, the amount of dividends or other distributions (having a record date after the Effective Time but on or prior to surrender and a payment date on or prior to surrender) theretofore paid with respect to the number of whole shares of New Heftel Class B Common Stock that such holder is entitled to receive (less the amount of any withholding taxes that may be required with respect thereto); and (ii) at the appropriate payment date, there shall be paid to the surrendering holder, without interest, the amount of dividends or other distributions (having a record date after the Effective Time but on or prior to surrender and a payment date subsequent to surrender) payable with respect to the number of whole shares of New Heftel Class B Common Stock that such holder receives (less the amount of any withholding taxes that may be required with respect thereto). (d) NO FURTHER OWNERSHIP RIGHTS IN TICHENOR SECURITIES. All shares of Heftel Common Stock and New Heftel Class B Common Stock, as applicable, issued upon the surrender for exchange of (i) shares of Tichenor Common Stock, (ii) shares of Tichenor Junior Preferred and (iii) the Tichenor Warrant, if outstanding as of the Effective Time, in accordance with the terms hereof (including any cash paid pursuant to Section 2.5(c) or (e)) and the cash paid upon the surrender for exchange of Tichenor Senior Preferred shall be deemed to have been issued in full satisfaction of all rights pertaining to such Tichenor securities. After the Effective Time, there shall be no further registration of transfers on the Surviving Corporation's stock transfer books or other records of the shares of Tichenor Common Stock, Tichenor Senior Preferred, Tichenor Junior Preferred or the Tichenor Warrant, in each case that were outstanding immediately prior to the Effective Time. If, after the Effective Time, a Tichenor Certificate is presented to the Surviving Corporation for any reason, it shall be cancelled and exchanged as provided in this Section 2.5. (e) TREATMENT OF FRACTIONAL SHARES. No Heftel Certificates or scrip representing fractional shares of Heftel Common Stock or New Heftel Class B Common Stock, as applicable, shall be issued in the Merger and, except as provided in this Section 2.5(e), no dividend or other distribution, stock split or interest shall relate to any such fractional share, and such fractional share shall not entitle the owner thereof to vote or to any other rights of a stockholder of Heftel. In lieu of any fractional share of Heftel Common Stock or New Heftel Class B Common Stock, as applicable, to which a holder of Tichenor Common Stock, Tichenor Junior Preferred or the Tichenor Warrant, if outstanding as of the Effective Time, would otherwise be entitled, such holder, upon surrender of a Tichenor Certificate as described in this Section, shall be paid an amount in cash (without interest) determined by multiplying (i) the Share Price by (ii) the fraction of a share of Heftel Common Stock or New Heftel Class B Common Stock to which such holder would otherwise be entitled, in which case Heftel shall make available to the Exchange Agent, without regard to any other cash being provided to the Exchange Agent, the amount of cash necessary to make such payments. (f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund and cash held by the Exchange Agent in accordance with the terms of this Section 2.5 that remains unclaimed by the former shareholders of Tichenor for a period of one year following the Effective Time shall be delivered to Heftel, upon demand. Thereafter, any former securityholders of Tichenor who have not theretofore complied with the provisions of this Section 2.5 shall look only to Heftel for payment of their claim for Heftel Common Stock or New Heftel 18 22 Class B Common Stock, any cash in lieu of fractional shares of Heftel Common Stock or New Heftel Class B Common Stock and any dividends or distributions with respect to Heftel Common Stock or New Heftel Class B Common Stock (all without interest). (g) NO LIABILITY. Neither Parent, Heftel, Heftel Sub, Tichenor, the Surviving Corporation, the Exchange Agent nor any other Person shall be liable to any former holder of Tichenor securities for any amount properly delivered to any public official pursuant to any applicable abandoned property, escheat or similar law. Any amounts remaining unclaimed by former holders of Tichenor Common Stock, Tichenor Junior Preferred, Tichenor Senior Preferred or the Tichenor Warrant, if outstanding as of the Effective Time, for a period of three years following the Effective Time (or such earlier date immediately prior to the time at which such amounts would otherwise escheat to or become property of any governmental entity) shall, to the extent permitted by applicable law, become the property of Heftel, free and clear of any claims or interest of any such holders or their successors, assigns or personal representatives previously entitled thereto. (h) LOST, STOLEN, OR DESTROYED TICHENOR CERTIFICATES. If any Tichenor Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Tichenor Certificate to be lost, stolen or destroyed and, if required by Heftel, the posting by such Person of a bond, in such reasonable amount as Heftel may direct, as indemnity against any claim that may be made against it with respect to such Tichenor Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Tichenor Certificate the shares of Heftel Common Stock (along with any cash in lieu of fractional shares pursuant to Section 2.5(e) and any unpaid dividends and distributions pursuant to Section 2.5(c)) or cash (with respect to Tichenor Senior Preferred) deliverable with respect thereto pursuant to this Agreement. (i) EXCHANGE AT CLOSING. Notwithstanding the provisions of Section 2.5(b), each record holder of a Tichenor Certificate who surrenders such Tichenor Certificate for cancellation to the Surviving Corporation at the Closing, together with a duly executed letter of transmittal (which shall be available at the Closing), shall be entitled to receive in exchange therefor (i) cash in the amount such holder has the right to receive pursuant to Section 2.4(b)(ii), payable in cash or by wire transfer of immediately available funds on the Closing Date, or (ii) certificates representing Heftel Common Stock in the amount such holder has the right to receive pursuant to Section 2.4(b)(i), (iii), (v) or (vi). 2.6 CLOSING. The Closing shall take place on the Closing Date at such time and place as is agreed upon by Heftel and Tichenor. 2.7 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective immediately when a Certificate of Merger is issued by the Secretary of State of Texas or at such time thereafter as is provided in the Articles of Merger (the "EFFECTIVE TIME"). As soon as practicable after the Closing, the Articles of Merger shall be filed, and the Effective Time shall occur, on the Closing Date; provided, however, that the Articles of Merger may be filed prior to the Closing Date or prior to the Closing so long as it provides for an effective time that occurs on the Closing Date immediately after the Closing. 19 23 2.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. Subject to the provisions of Section 8.9, each of Parent, Heftel, Heftel Sub and Tichenor shall use all reasonable efforts to take all such actions as may be necessary or appropriate in order to effectuate the Merger under the TBCA as promptly as commercially practicable. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of either of Heftel Sub or Tichenor, the officers and directors of the Surviving Corporation are fully authorized, in the name of the Surviving Corporation or otherwise to take, and shall take, all such lawful and necessary action. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TICHENOR Tichenor hereby represents and warrants to Parent (and upon consummation of the Assignment Agreement, to Heftel and Heftel Sub), as of the date of the Original Agreement, as follows: 3.1 ORGANIZATION. Each of the Tichenor Companies (a) is a corporation or partnership duly organized, validly existing and in good standing under the laws of its state of organization, (b) has the requisite power and authority to own, lease and operate its properties and to conduct its business as it is presently being conducted, and (c) is duly qualified to do business as a foreign entity, and is in good standing, in each jurisdiction where the character of the properties owned or leased by it or the nature of its activities makes such qualification necessary (except where any failure to be so qualified as a foreign entity or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect on Tichenor). Copies of the certificate or articles of incorporation and bylaws, or partnership agreement of each of the Tichenor Companies have heretofore been delivered to Parent, and such copies are accurate and complete as of the date of the Original Agreement. Tichenor has no corporate or other subsidiaries other than the Tichenor Subsidiaries. 3.2 AUTHORITY AND ENFORCEABILITY. Tichenor has the requisite corporate power and authority to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Tichenor, and no other corporate proceedings on the part of Tichenor are necessary to authorize the execution or delivery of this Agreement or, other than the approval of the Merger and this Agreement by the shareholders of Tichenor, to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Tichenor and (assuming that this Agreement constitutes a valid and binding obligation of Parent and, upon consummation of the Assignment Agreement, Heftel and Heftel Sub) constitutes a valid and binding obligation of Tichenor enforceable against Tichenor in accordance with its terms. 3.3 CONSENTS AND APPROVALS. No consent, approval, order or authorization of, registration, declaration or filing with, or permit from, any Governmental Authority is required 20 24 by or with respect to any of the Tichenor Companies in connection with the execution and delivery of this Agreement by Tichenor or the consummation by Tichenor of the transactions contemplated hereby, except for the following: (a) any such consent, approval, order, authorization, registration, declaration, filing or permit which the failure to obtain or make would not, individually or in the aggregate, have a Material Adverse Effect on Tichenor; (b) the filing of the Articles of Merger with the Secretary of State of Texas pursuant to the provisions of the TBCA; (c) the filing of a pre-merger notification report by Tichenor under the HSR Act and the expiration or termination of the applicable waiting period; (d) compliance with the Exchange Act and the Securities Act and the rules and regulations of the SEC thereunder as may be required in connection with this Agreement and the transactions contemplated hereby and the obtaining from the SEC of such orders as may be so required; (e) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws or Environmental Laws; (f) such filings and approvals as may be required by any foreign pre-merger notification, securities, corporate or other law, rule or regulation; and (g) such filings and approvals as may be required by the FCC and the Communications Act. Except as set forth in the DISCLOSURE LETTER, no Third-Party Consent is required by or with respect to any of the Tichenor Companies in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.4 FCC MATTERS. (a) Tichenor holds the Tichenor FCC Licenses set forth and described in the DISCLOSURE LETTER. The Tichenor FCC Licenses constitute all of the licenses, permits and authorizations from the FCC that are necessary or required for and/or used in the business and operations of the Tichenor Stations, except where the failure to hold any such Tichenor FCC License would not have a Material Adverse Effect on Tichenor. The Tichenor FCC Licenses are valid and in full force and effect through the dates set forth in the DISCLOSURE LETTER unimpaired by any condition which could have a Material Adverse Effect on Tichenor. Except as set forth in the DISCLOSURE LETTER, no application, action or proceeding is pending for the renewal or modification of any of the Tichenor FCC Licenses, and, except for actions or proceedings affecting radio broadcast stations generally, no application, complaint, action or proceeding is pending or, to Tichenor's knowledge, threatened that may result in the (i) denial of an application for renewal, (ii) the revocation, modification, non-renewal or suspension of any of the Tichenor FCC Licenses, (iii) the issuance of a cease-and-desist order or (iv) the imposition of any administrative or judicial sanction with respect to any of the Tichenor Stations. (b) There is not now issued or outstanding or, to Tichenor's knowledge, threatened any investigation, proceeding, notice of violation or material complaint against Tichenor at the FCC. Tichenor has no knowledge of any Person who has manifested an intention to contest the renewal of any Tichenor FCC License for any of the Tichenor Stations. (c) The Tichenor Stations, their respective physical facilities, electrical and mechanical systems and transmitting and studio equipment are being operated in all material respects in compliance with the specifications of the applicable Tichenor FCC Licenses. Tichenor has complied in all material respects with all requirements of the FCC and the Federal Aviation Administration with respect to the construction and/or alteration of Tichenor's antenna structures, and "no hazard" determinations for each antenna structure have been obtained. 21 25 (d) Tichenor and the Tichenor Stations are in compliance in all material respects with the Communications Act. (e) Tichenor knows of no facts, conditions or events relating to Tichenor or the Tichenor Stations that might cause the FCC to have a legally valid basis to refuse to approve the change of control of the Tichenor FCC Licenses as provided for in this Agreement or not to renew any of the Tichenor FCC Licenses in the ordinary course. (f) In accordance with the Communications Act, (i) Tichenor has not issued to Aliens, either individually or in the aggregate, in excess of 25% of the total number of shares of capital stock of Tichenor outstanding at any time and has not permitted the transfer on the books of Tichenor of any capital stock to any Alien that would result in Aliens holding in excess of 25% of the total number of shares of capital stock of Tichenor then outstanding and (ii) no Alien or Aliens are entitled to vote or direct or control the vote of more than 25% of (A) the total number of shares of capital stock of Tichenor outstanding and entitled to vote generally for the election of directors, or (B) the total voting power of all shares of capital stock of Tichenor outstanding and entitled to vote generally for the election of directors. 3.5 FINANCIAL STATEMENTS. The Tichenor Financial Statements were prepared in conformity with GAAP applied on a consistent basis during the periods involved (except the unaudited statements do not account for income taxes in conformity with GAAP and other items as may be indicated in the notes thereto) and present fairly, in all material respects, the consolidated financial position of Tichenor and the Tichenor Subsidiaries as of their respective dates and for the periods then ended, and the consolidated results of their operations and, with respect to the audited Tichenor Financial Statements, their consolidated cash flows for the years then ended. 3.6 CAPITAL STRUCTURE. (a) The authorized capital stock of Tichenor consists of 9,897,000 shares of Tichenor Common Stock, 100,000 shares of Tichenor Junior Preferred and 3,000 shares of Tichenor Senior Preferred. (b) There are issued and outstanding (i) 684,168.93 shares of Tichenor Common Stock, (ii) 35,772.48 shares of Tichenor Junior Preferred, (iii) 3,000 shares of Tichenor Senior Preferred and (iv) the Tichenor Warrant relating to 28,161.70 shares of Tichenor Common Stock. 59,535.16 shares of Tichenor Common Stock and 1,057 shares of Tichenor Junior Preferred are held by Tichenor as treasury stock. (c) Except as set forth in Section 3.6(b), there are outstanding (i) no shares of capital stock or other voting securities of Tichenor, (ii) no securities of Tichenor or any other Person convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of Tichenor, and (iii) except as set forth in the DISCLOSURE LETTER, no subscriptions, options, warrants, calls, rights (including preemptive rights), commitments, understandings or agreements to which Tichenor is a party or by which it is bound obligating Tichenor to issue, deliver, sell, purchase, redeem, acquire or register shares of capital stock or other voting securities of Tichenor (or securities convertible into or exchangeable or exercisable for shares 22 26 of capital stock or other voting securities of Tichenor) or obligating Tichenor to grant, extend or enter into any such subscription, option, warrant, call, right, commitment, understanding or agreement. (d) All outstanding shares of Tichenor capital stock are validly issued, fully paid and nonassessable and, except as set forth in the DISCLOSURE LETTER, are not subject to any preemptive right. (e) Except as set forth in the DISCLOSURE LETTER, all outstanding shares of capital stock and other voting securities of each of the Tichenor Subsidiaries are owned, directly or indirectly, by Tichenor, free and clear of all Liens, claims and options of any nature (except for Permitted Encumbrances). Except as set forth in the DISCLOSURE LETTER, there are outstanding (i) no securities of the Tichenor Subsidiaries or any other Person convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of the Tichenor Subsidiaries, and (ii) no subscriptions, options, warrants, calls, rights (including preemptive rights), commitments, understandings or agreements to which any of the Tichenor Subsidiaries is a party or by which it is bound obligating any of the Tichenor Subsidiaries to issue, deliver, sell, purchase, redeem or acquire shares of capital stock or other voting securities of any of the Tichenor Subsidiaries (or securities convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of any of the Tichenor Subsidiaries) or obligating any of the Tichenor Subsidiaries to grant, extend or enter into any such subscription, option, warrant, call, right, commitment, understanding or agreement. (f) Except as otherwise set forth in the DISCLOSURE LETTER, there is no shareholder agreement, voting trust or other agreement or understanding to which Tichenor is a party or by which it is bound relating to the voting of any shares of the capital stock of any of the Tichenor Companies. 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise set forth in the DISCLOSURE LETTER or as contemplated by this Agreement, since May 31, 1996, the Tichenor Companies, taken as a whole, have not suffered any Material Adverse Effect resulting from any activities pursuant to which the Tichenor Companies: (a) Discharged or satisfied any Lien or paid any obligation or liability, absolute or contingent, other than current liabilities incurred and paid in the ordinary course of business and consistent with past practices; (b) Paid or declared any dividends or distributions, purchased, redeemed, acquired or retired any indebtedness, stock or other securities from its shareholders, other securityholders or any other Person, made any loans or advances or guaranteed any loans or advances to any Person (other than loans, advances or guaranties made to subsidiaries or in the ordinary course of business and consistent with past practices); (c) Except for Permitted Encumbrances, suffered or permitted any Lien to arise or be granted or created against or upon any of its assets; 23 27 (d) Cancelled, waived or released any rights or claims against, or indebtedness owed by, third parties in excess of $25,000; (e) Amended its certificate or articles of incorporation or bylaws; (f) Made or permitted any amendment, supplement, modification or termination of any Tichenor Material Agreement; (g) Sold, leased, transferred, assigned or otherwise disposed of any assets that, individually or in the aggregate, had a value at the time of such lease, transfer, assignment or disposition of $500,000 or more (and, in each case where a sale, lease, transfer, assignment or other disposition was made, it was made for fair consideration in the ordinary course of business); (h) Paid, loaned or advanced (other than the payment, advance or reimbursement of expenses in the ordinary course of business) any amounts to, or sold, transferred or leased any of its assets to, or entered into any other transactions with, any of its Affiliates, other than loans and advances to Tichenor Subsidiaries; (i) Made any material change in any of the accounting principles followed by it or the method of applying such principles; (j) Entered into any material transactions (other than as contemplated by this Agreement) except in the ordinary course of business and consistent with past practices; (k) Accelerated, terminated or cancelled any agreement, contract, lease or license (or series of related agreements, contracts, leases and licenses) involving more than $100,000 to which any of the Tichenor Companies is a party or by which any of them is bound; (l) Issued any note, bond or other debt security or created, incurred, assumed or guaranteed any indebtedness for borrowed money or capitalized lease obligations involving more than $100,000 in the aggregate (other than pursuant to the Bank Credit Agreement or the Term Loan); (m) Delayed or postponed the payment of accounts payable and other liabilities outside the ordinary course of business; (n) Issued, sold or otherwise disposed of any of its capital stock or granted any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital stock; (o) Expended or committed to expend capital in excess of $500,000; (p) Made any change in tax elections or the manner taxes are reported; (q) Accelerated the vesting period of any option or warrant; or 24 28 (r) Agreed, whether in writing or otherwise, to do any of the foregoing. 3.8 LITIGATION. Except as otherwise set forth in the DISCLOSURE LETTER, (a) no litigation, arbitration, investigation or other proceeding of any Governmental Authority is pending or, to the knowledge of Tichenor, threatened against any of the Tichenor Companies or their respective assets which, if adversely determined, could reasonably be expected to have a Material Adverse Effect on Tichenor; (b) Tichenor has no knowledge of any facts that are likely to give rise to any litigation, arbitration, investigation or other proceeding of any Governmental Authority which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Tichenor; and (c) no Tichenor Company is subject to any outstanding injunction, judgment, order, decree or ruling. There is no litigation, proceeding or investigation pending or, to the knowledge of Tichenor, threatened against or affecting any of the Tichenor Companies that questions the validity or enforceability of this Agreement or any other document, instrument or agreement to be executed and delivered by Tichenor in connection with the transactions contemplated hereby. 3.9 ENVIRONMENTAL MATTERS. Except as set forth in the DISCLOSURE LETTER, to the knowledge of Tichenor: (a) Each of the Tichenor Companies has conducted its business and operated its assets, and is conducting its business and operating its assets, in material compliance with all applicable Environmental Laws; (b) None of the Tichenor Companies has been notified by any Governmental Authority or other third party that any of the operations or assets of any of the Tichenor Companies is the subject of any investigation or inquiry by any Governmental Authority or other third party evaluating whether any material remedial action is needed to respond to a release or threatened release of any Hazardous Material or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Material; (c) None of the Tichenor Companies and no other Person has filed any notice under any federal, state or local law indicating that (i) any of the Tichenor Companies is responsible for the improper release into the environment, or the improper storage or disposal, of any Hazardous Material, or (ii) any Hazardous Material is improperly stored or disposed of upon any property of any of the Tichenor Companies; (d) None of the Tichenor Companies has any material contingent liability in connection with (i) the release or threatened release into the environment at, beneath or on any property now or previously owned or leased by any of the Tichenor Companies, or (ii) the storage or disposal, of any Hazardous Material; (e) None of the Tichenor Companies has received any claim, complaint, notice, inquiry or request for information involving any matter which remains unresolved as of the date of the Original Agreement with respect to any alleged violation of any Environmental Law or regarding potential liability under any Environmental Law relating to operations or conditions of any facilities or property (including off-site storage or disposal of any Hazardous Material 25 29 from such facilities or property) currently or formerly owned, leased or operated by any of the Tichenor Companies; (f) No property now or previously owned, leased or operated by any of the Tichenor Companies is listed on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any other federal or state list as sites requiring investigation or cleanup; (g) None of the Tichenor Companies is directly transporting, has directly transported, is directly arranging for the transportation of, or has directly arranged for the transportation of any Hazardous Material to any location which is listed on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar federal or state list or which is the subject of federal, state or local enforcement actions or other investigations that may lead to material claims against such company for remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) There are no sites, locations or operations at which any of the Tichenor Companies is currently undertaking, or except as disclosed in the DISCLOSURE LETTER, has completed, any remedial or response action relating to any such disposal or release, as required by Environmental Laws; and (i) All underground storage tanks and solid waste disposal facilities owned or operated by the Tichenor Companies are used and operated in material compliance with Environmental Laws. 3.10 BROKERS. Except as set forth on the DISCLOSURE LETTER, no broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder's or other fee or compensation based on any arrangement or agreement made by or on behalf of Tichenor and for which Parent, Heftel, Heftel Sub or any of the Tichenor Companies will have any obligation or liability. 3.11 VOTE REQUIRED. The affirmative vote or written consent of the holders of a majority of the outstanding shares of each of the Tichenor Common Stock, Tichenor Junior Preferred and Tichenor Senior Preferred and the affirmative vote of the Tichenor Common Stock and the Tichenor Junior Preferred voting together as a single class, as provided in Tichenor's articles of incorporation, as amended, are the only votes of the holders of any class or series of Tichenor capital stock or other voting securities necessary to approve this Agreement, the Merger and the transactions contemplated hereby. As of the date hereof, the affirmative written consent of the Tichenor Senior Preferred to approve this Agreement and the Merger has been obtained. 26 30 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT, HEFTEL AND HEFTEL SUB 4.1 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby represents and warrants to Tichenor as follows: (a) ORGANIZATION. Parent (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of Texas, (ii) has the requisite power and authority to own, lease and operate its properties and to conduct its business as it is presently being conducted, and (iii) is duly qualified to do business as a foreign corporation, and is in good standing, in each jurisdiction where the character of the properties owned or leased by it or the nature of its activities makes such qualification necessary (except where any failure to be so qualified as a foreign corporation or to be in good standing would not, individually or in the aggregate, have a material adverse effect on Parent). Copies of the articles of incorporation and bylaws of Parent have heretofore been delivered to Tichenor, and such copies are accurate and complete as of the date of the Original Agreement. (b) AUTHORITY AND ENFORCEABILITY. Parent has the requisite corporate power and authority to enter into and deliver this Agreement and to consummate the transactions applicable to Parent contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions applicable to Parent contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Parent, and, other than the approval of the Heftel Proposal by the board of directors and stockholders of Heftel, no other corporate proceedings on the part of Parent are necessary to authorize the execution or delivery of this Agreement. This Agreement has been duly and validly executed and delivered by Parent and (assuming that this Agreement constitutes a valid and binding obligation of Tichenor) constitutes a valid and binding obligation of Parent enforceable against Parent in accordance with its terms. (c) CONSENTS AND APPROVALS. No consent, approval, order or authorization of, registration, declaration or filing with, or permit from, any Governmental Authority is required by or with respect to Parent in connection with the execution and delivery of this Agreement by Parent, except for the following: (i) any such consent, approval, order, authorization, registration, declaration, filing or permit which the failure to obtain or make would not, individually or in the aggregate, have a material adverse effect on Parent and its subsidiaries taken as a whole; (ii) the filing of the Articles of Merger with the Secretary of State of Texas pursuant to the provisions of the TBCA; (iii) the filing of a pre-merger notification report by Parent under the HSR Act and the expiration or termination of the applicable waiting period; (iv) compliance with the Exchange Act and the Securities Act and the rules and regulations of the SEC thereunder as may be required in connection with this Agreement and the transactions contemplated hereby and the obtaining from the SEC of such orders as may be so required; (v) the filing with Nasdaq of a listing application relating to the shares of Heftel Common Stock to be issued pursuant to the Merger and the obtaining from Nasdaq of its approvals thereof; (vi) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws or Environmental Laws; and (vii) such filings and approvals as may be required 27 31 by any foreign pre-merger notification, securities, corporate or other law, rule or regulation and (viii) such filings and approvals as may be required by the FCC and the Communications Act. No Third-Party Consent is required by or with respect to Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) any such Third-Party Consent which the failure to obtain would not, individually or in the aggregate, have a material adverse effect on Parent, and (ii) the valid approval of the Heftel Proposal by the stockholders of Heftel. (d) BROKERS. No broker, finder, investment banker or other Person is or will be, in connection with the Merger, entitled to any brokerage, finder's or other fee or compensation based on any arrangement or agreement made by or on behalf of Parent and for which Parent, Heftel or Heftel Sub or any of the Tichenor Companies will have any obligation or liability. 4.2 REPRESENTATIONS AND WARRANTIES OF HEFTEL AND HEFTEL SUB. Upon consummation of the Assignment Agreement pursuant to Section 8.9, Heftel and Heftel Sub shall be deemed to have jointly and severally represented and warranted to Tichenor as of such date as follows: (a) ORGANIZATION. Each of the Heftel Companies (i) is a corporation or partnership duly organized, validly existing and in good standing under the laws of its state of organization, (ii) has the requisite power and authority to own, lease and operate its properties and to conduct its business as it is presently being conducted, and (iii) is duly qualified to do business as a foreign entity, and is in good standing, in each jurisdiction where the character of the properties owned or leased by it or the nature of its activities makes such qualification necessary (except where any failure to be so qualified as a foreign corporation or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect on Heftel). Copies of the certificate or articles of incorporation and bylaws, or partnership agreement, of each of the Heftel Companies have heretofore been delivered to Tichenor, and such copies are accurate and complete as of the date of the Assignment Agreement. (b) AUTHORITY AND ENFORCEABILITY. Each of Heftel and Heftel Sub has the requisite corporate power and authority to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. The Board of Directors of Heftel has taken all necessary action to exempt the transactions contemplated herein from the provisions of Section 203 of the DGCL. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Heftel and Heftel Sub, including approval by the board of directors and stockholders of Heftel and Heftel Sub, and, other than the approval of the Heftel Proposal by the stockholders of Heftel and Heftel Sub, no other corporate proceedings on the part of Heftel or Heftel Sub are necessary to authorize the execution or delivery of this Agreement. This Agreement has been duly and validly executed and delivered by Heftel and Heftel Sub and (assuming that this Agreement constitutes a valid and binding obligation of Tichenor) constitutes a valid and binding obligation of Heftel enforceable against Heftel in accordance with its terms. (c) CONSENTS AND APPROVALS. No consent, approval, order or authorization of, registration, declaration or filing with, or permit from, any Governmental Authority is required by or with respect to Heftel or Heftel Sub in connection with the execution and delivery 28 32 of this Agreement by Heftel and Heftel Sub or the consummation by Heftel and Heftel Sub of the transactions contemplated hereby, except for the following: (i) any such consent, approval, order, authorization, registration, declaration, filing or permit which the failure to obtain or make would not, individually or in the aggregate, have a Material Adverse Effect on Heftel; (ii) the filing of the Articles of Merger with the Secretary of State of Texas pursuant to the provisions of the TBCA; (iii) the filing of a pre-merger notification report by Heftel under the HSR Act and the expiration or termination of the applicable waiting period; (iv) the filing with the SEC of the Registration Statement and such reports under Section 13(a) of the Exchange Act and such other compliance with the Exchange Act and the Securities Act and the rules and regulations of the SEC thereunder as may be required in connection with this Agreement and the transactions contemplated hereby and the obtaining from the SEC of such orders as may be so required; (v) the filing with Nasdaq of a listing application relating to the shares of Heftel Common Stock to be issued pursuant to the Merger and the obtaining from Nasdaq of its approvals thereof; (vi) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws or Environmental Laws; (vii) such filings and approvals as may be required by any foreign pre-merger notification, securities, corporate or other law, rule or regulation; and (viii) such filings and approvals as may be required by the FCC and the Communications Act. No Third-Party Consent is required by or with respect to Heftel or Heftel Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) consent of the lenders pursuant to the Heftel Credit Agreement, (ii) any such Third-Party Consent which the failure to obtain would not, individually or in the aggregate, have a Material Adverse Effect on Heftel, and (iii) the valid approval of the Heftel Proposal by the stockholders of Heftel. (d) CAPITALIZATION. As of June 1, 1996, the authorized capital stock of Heftel and the number, class and/or series of the shares of the capital stock of Heftel outstanding or reserved as of the date thereof was as set forth below. All of the outstanding shares of the capital stock of Heftel are validly issued, fully paid, nonassessable and free of preemptive rights, and all outstanding securities convertible into Heftel Common Stock are duly authorized and validly issued. Except as set forth below, as of June 1, 1996, there were no shares of capital stock or other securities of Heftel outstanding and no outstanding options, warrants, rights (including any preemptive rights), calls or commitments of any character whatsoever to which Heftel is a party or is bound, requiring the issuance, sale, transfer or registration by Heftel of any shares of capital stock of Heftel or any securities convertible into or exchangeable or exercisable for, or rights to purchase or otherwise acquire, any shares of capital stock of Heftel. HEFTEL CAPITALIZATION
Class Authorized Outstanding ----- ---------- ----------- Class A Common Stock 30,000,000 6,336,610 $0.001 par value Class B Common Stock 7,000,000 3,769,176 $0.001 par value
29 33 Preferred Stock 5,000,000 335,634 $0.001 par value shares of Series A
As of June 1, 1996, Heftel has outstanding options to purchase 591,839 shares of Class A Common Stock and outstanding warrants to purchase 850,106 shares of Class B Common Stock. (e) FINANCIAL STATEMENTS OF HEFTEL. As of their respective dates, Heftel's Annual Report on Form 10-K for the fiscal years ended September 30, 1994 and 1995, and Quarterly Reports for the quarters ended December 31, 1995 and March 31, 1996, and all other forms, reports, registration statements and other statements and documents filed by Heftel with the SEC since July 27, 1994 did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. All of the consolidated financial statements of Heftel included or incorporated by reference in the Forms 10-K and 10-Q filed with the SEC prior to the date of the Original Agreement were prepared in accordance with generally accepted accounting principles consistently applied (except, as to the quarterly financials, for normal year-end adjustments), and present fairly the financial position, results of operations and changes in financial position of Heftel and its consolidated subsidiaries as of the dates and for the periods indicated. All of the consolidated financial statements of Heftel included or incorporated by reference in the Forms 10-K and 10-Q filed with the SEC between the date of the Original Agreement and the Closing Date will be prepared in accordance with generally accepted accounting principles consistently applied (except, as to the quarterly financials, for normal year-end adjustments), and will present fairly the financial position, results of operations and changes in financial position of Heftel and its consolidated subsidiaries as of the dates and for the periods indicated. (f) BROKERS. No broker, finder, investment banker or other Person is or will be, in connection with Merger, entitled to any brokerage, finder's or other fee or compensation based on any arrangement or agreement made by or on behalf of Heftel or Heftel Sub and for which Parent, Heftel or Heftel Sub or any of the Tichenor Companies will have any obligation or liability. (g) VOTE REQUIRED. The affirmative votes or written consents of the holders of a majority of the outstanding shares of Heftel Common Stock and Heftel Sub Common Stock are the only votes of the holders of any class or series of Heftel or Heftel Sub, respectively, capital stock or other voting securities necessary to approve the Heftel Proposal. ARTICLE 5 COVENANTS 5.1 CONDUCT BY PARENT PENDING CLOSING. Subject to Section 8.9(b), Parent covenants and agrees with Tichenor that, from the date of this Agreement until the earlier to occur of the termination of this Agreement pursuant to Section 7 and the Effective Time, without the prior written consent of Tichenor: 30 34 (a) Parent will (i) use its reasonable efforts to cause Heftel to approve and execute the Assignment Agreement and (ii) use its reasonable best efforts to obtain all required approvals from the FCC in connection with this Agreement and the transactions contemplated herein. (b) Parent will not (i) waive the performance by Heftel of any covenants of Heftel contained in the Tender Offer Agreement, (ii) waive the satisfaction of any conditions precedent of Parent or Clear Channel Radio, Inc. to the obligation to close the transactions contemplated by the Tender Offer Agreement, or (iii) amend any of the covenants, conditions, or termination provisions contained in the Tender Offer Agreement, in each case without the prior consent of Tichenor, which consent shall not be unreasonably withheld. (c) Parent will not engage in any practice or take any action that would cause, or permit by inaction, any of the representations and warranties contained in Section 4.1(a), (c) or (d) to become untrue. 5.2 CONDUCT OF BUSINESS BY TICHENOR PENDING CLOSING. Tichenor covenants and agrees with Parent and, upon consummation of the Assignment Agreement pursuant to Section 8.9, with Heftel and Heftel Sub, that, from the date of this Agreement until the Effective Time, each of the Tichenor Companies will conduct its business only in the ordinary and usual course consistent with past practices, except as set forth in the DISCLOSURE LETTER. Notwithstanding the preceding sentence, Tichenor covenants and agrees with Parent and, upon consummation of the Assignment Agreement pursuant to Section 8.9, with Heftel and Heftel Sub, that, except as specifically contemplated in this Agreement, from the date of this Agreement until the Effective Time, without the prior written consent of Parent (or Heftel subsequent to the consummation of the Assignment Agreement pursuant to Section 8.9): (a) None of the Tichenor Companies will (i) amend its certificate or articles of incorporation or bylaws; (ii) split, combine or reclassify any of its outstanding capital stock; (iii) except as set forth in the DISCLOSURE LETTER, declare, set aside or pay any dividends or other distributions (whether payable in cash, property or securities) with respect to its capital stock; (iv) issue, sell or agree to issue or sell any securities, including its capital stock, any rights, options or warrants to acquire its capital stock, or securities convertible into or exchangeable or exercisable for its capital stock (other than shares of Tichenor Common Stock issued pursuant to the exercise of the Tichenor Warrant); (v) except as set forth in the DISCLOSURE LETTER, purchase, cancel, retire, redeem or otherwise acquire any of its outstanding capital stock or other securities; (vi) merge or consolidate with, or transfer all or substantially all of its assets to, another corporation or other business entity; (vii) liquidate, wind-up or dissolve (or suffer any liquidation or dissolution); or (viii) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (b) None of the Tichenor Companies will (i) except as set forth in the DISCLOSURE LETTER, acquire any corporation, partnership or other business entity or any interest therein having a transaction value, individually or in the aggregate, in excess of $15 million; (ii) except as set forth in the DISCLOSURE LETTER, sell, lease or sublease, transfer or otherwise dispose of or mortgage, pledge or otherwise encumber any assets that have a value at the time of such sale, lease, sublease, transfer or disposition in excess of $600,000, individually, or 31 35 $3 million, in the aggregate; (iii) except as set forth in the DISCLOSURE LETTER, sell, transfer or otherwise dispose of or mortgage, pledge or otherwise encumber any securities of any other Person (including any capital stock or other securities in the Tichenor Subsidiaries); (iv) except as set forth in the DISCLOSURE LETTER, make any material loans, advances or capital contributions to, or investments in, any Person in excess of $7.5 million in the aggregate (other than loans or advances made to Tichenor Subsidiaries, or made in the ordinary course of business and consistent with past practices); (v) apply to the FCC for any construction permit that would have a Material Adverse Effect on the current operations of any of the radio stations owned by any of the Tichenor Companies (individually, a "TICHENOR STATION"); (vi) terminate or fail to renew any FCC licenses for the Tichenor Stations (the "TICHENOR FCC LICENSES"); (vii) fail to operate any Tichenor Station in accordance with the Communications Act, the rules, regulations and policies of the FCC and the terms of the Tichenor FCC Licenses, which failure would result in a Material Adverse Effect on Tichenor; (viii) fail to file in a timely manner any applications to renew a Tichenor FCC License; (ix) enter into any agreement or transaction with any, or modify the terms of any existing agreement with any, Affiliate; or (x) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (c) None of the Tichenor Companies, other than with respect to intercompany transactions, will (i) permit to be outstanding at any time under the Bank Credit Agreement indebtedness for borrowed money in excess of an aggregate of $50 million; (ii) except as set forth in the DISCLOSURE LETTER, incur any indebtedness for borrowed money other than under the Bank Credit Agreement or the Term Loan; (iii) except as set forth in the DISCLOSURE LETTER, assume, endorse (other than endorsements of negotiable instruments in the ordinary course of business), guarantee or otherwise become liable or responsible (whether directly, contingently or otherwise) for the liabilities or obligations of any Person other than another Tichenor Company; or (iv) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (d) The Tichenor Companies will operate, maintain and otherwise deal with their property and assets in accordance with good and prudent business practices and in accordance with all applicable contracts and agreements and all applicable laws, rules and regulations, except where any failure would not have a Material Adverse Effect on Tichenor. (e) None of the Tichenor Companies will (i) enter into, or otherwise become liable or obligated under or pursuant to, (A) any employee benefit, pension or other plan (whether or not subject to ERISA), or (B) any other stock option, stock purchase, incentive or deferred compensation plans or arrangements or other fringe benefit plan (other than obligations that are mandated by the terms of agreements or plans existing as of the date of the Original Agreement); (ii) except for payments made pursuant to any employee benefit plan of Tichenor or any plan, agreement or arrangement described in the DISCLOSURE LETTER, grant, or otherwise become liable for or obligated to pay, any severance or termination payments, bonuses or increases in compensation or benefits (other than payments, bonuses or increases that are mandated by the terms of agreements or plans existing as of the date of the Original Agreement or that are paid in the ordinary course of business, consistent with past practices, and not individually or in the aggregate material in amount) to, or forgive any indebtedness of, any employee or consultant; or (iii) enter into any contract, agreement, commitment or arrangement to do any of the foregoing. 32 36 (f) None of the Tichenor Companies will create, incur, assume or permit to exist any Lien on any of its assets, except for Permitted Encumbrances, and except in the ordinary course of business. (g) The Tichenor Companies will (i) pay all Taxes, assessments and other governmental charges imposed upon any of their assets or with respect to their franchises, business, income or assets before any penalty or interest accrues thereon; (ii) pay all claims (including claims for labor, services, materials and supplies) that have become due and payable and which by law have or may become a Lien upon any of their assets prior to the time when any penalty or fine shall be incurred with respect thereto or any such Lien shall be imposed thereon; and (iii) comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, obtain or take all Governmental Actions necessary in the operation of their businesses, and comply with and enforce the provisions of all Tichenor Material Agreements, except where the failure to so comply, obtain, take or enforce will not have a Material Adverse Effect on Tichenor, including paying, when due, all rentals, royalties, expenses and other liabilities relating to their businesses or assets; provided, however, that the Tichenor Companies may contest the imposition of any such Taxes, assessments and other governmental charges, any such claim, or the requirements of any applicable law, rule, regulation or order or any Tichenor Material Agreement if done so in good faith by appropriate proceedings and if adequate reserves are established in accordance with GAAP or as may be determined as sufficient by Tichenor's board of directors. (h) The Tichenor Companies will maintain adequate insurance consistent with industry practice. (i) The Tichenor Companies will at all times preserve and keep in full force and effect their corporate existence and rights and franchises material to their performance under this Agreement. (j) Tichenor will not engage in any practice or take any action that would cause, or permit by inaction, any of the representations and warranties made by it in Article 3 to become untrue. (k) Tichenor shall use its reasonable best efforts to obtain all necessary lender approval required under the Bank Credit Agreement to the consummation of the Merger or, with the cooperation of Heftel, to refinance such indebtedness on terms reasonably acceptable to Heftel to the extent that the parties determine that it is reasonably foreseeable that such approval will not be forthcoming. Tichenor shall keep Heftel fully informed of the status of obtaining such consent, or the likelihood of obtaining such refinancing, as the case may be, promptly upon the occurrence of any material developments relating thereto. 5.3 CONDUCT OF BUSINESS BY HEFTEL PENDING CLOSING. Heftel covenants and agrees with Tichenor that, from the date of the consummation of the Heftel Acquisition until the Effective Time, each of the Heftel Companies will conduct its business only in the ordinary and usual course consistent with past practices, except as set forth in the Heftel Disclosure Documents. Notwithstanding the preceding sentence, Heftel covenants and agrees with Tichenor 33 37 that, except as specifically contemplated in this Agreement, from the date of the consummation of the Heftel Acquisition until the Effective Time, without the prior written consent of Tichenor: (a) Heftel will not (i) amend its certificate of incorporation or bylaws, except as set forth in the Heftel Proposal; (ii) split, combine or reclassify any of its outstanding capital stock, except as contemplated by this Agreement; (iii) except as set forth in the Heftel Disclosure Documents, declare, set aside or pay any dividends or other distributions (whether payable in cash, property or securities) with respect to its capital stock; (iv) issue, sell or agree to issue or sell any securities, including its capital stock, any rights, options or warrants to acquire its capital stock, or securities convertible into or exchangeable or exercisable for its capital stock (other than securities issued pursuant to obligations disclosed in the Tender Offer Agreement); (v) except pursuant to obligations disclosed in the Tender Offer Agreement, purchase, cancel, retire, redeem or otherwise acquire any of its outstanding capital stock or other securities; (vi) merge or consolidate with, or transfer all or substantially all of its assets to, another corporation or other business entity; (vii) liquidate, wind-up or dissolve (or suffer any liquidation or dissolution); or (viii) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing, except as set forth in this Agreement. (b) The Heftel Companies will not (i) except as set forth in the Heftel Disclosure Documents, acquire any corporation, partnership or other business entity or any interest therein having a transaction value, individually or in the aggregate, in excess of $15 million; (ii) except as set forth in the Heftel Disclosure Documents, sell, lease or sublease, transfer or otherwise dispose of or mortgage, pledge or otherwise encumber any assets that have a value at the time of such sale, lease, sublease, transfer or disposition in excess of $600,000, individually, or $3 million, in the aggregate; (iii) except as set forth in the Heftel Disclosure Documents, sell, transfer or otherwise dispose of or mortgage, pledge or otherwise encumber any securities of any other Person (including any capital stock or other securities in the Heftel Subsidiaries); (iv) except as set forth in the Heftel Disclosure Documents, make any material loans, advances or capital contributions to, or investments in, any Person in excess of $7.5 million in the aggregate (other than loans or advances made to the Heftel Subsidiaries, or made in the ordinary course of business and consistent with past practices); (v) apply to the FCC for any construction permit that would have a material adverse effect on the current operations of any of the radio stations owned by Heftel (individually, a "HEFTEL STATION"); (vi) terminate or fail to renew any FCC licenses for the Heftel Stations (the "HEFTEL FCC LICENSES"); (vii) fail to operate any Heftel Station in accordance with the Communications Act, the rules, regulations and policies of the FCC and the terms of the Heftel FCC Licenses, which failure would result in a Material Adverse Effect on Heftel; (viii) fail to file in a timely manner any applications to renew a Heftel FCC License; (ix) enter into any agreement or transaction with any, or modify the terms of any existing agreement with any, Affiliate; or (x) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (c) Neither Heftel nor any Heftel Subsidiary will, other than with respect to intercompany transactions, (i) permit to be outstanding at any time under the Heftel Credit Agreement indebtedness for borrowed money in excess of an aggregate of $175 million; (ii) except as set forth in the Heftel Disclosure Documents, incur any indebtedness for borrowed money other than under the Heftel Credit Agreement; (iii) except as set forth in the Heftel Disclosure Documents, assume, endorse (other than endorsements of negotiable instruments in 34 38 the ordinary course of business), guarantee or otherwise become liable or responsible (whether directly, contingently or otherwise) for the liabilities or obligations of any Person other than another Heftel Company; or (v) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (d) Heftel and each Heftel Subsidiary will operate, maintain and otherwise deal with their property and assets in accordance with good and prudent business practices and in accordance with all applicable contracts and agreements and all applicable laws, rules and regulations, except where any failure would not have a Material Adverse Effect on Heftel. (e) Neither Heftel nor any Heftel Subsidiary will (i) enter into, or otherwise become liable or obligated under or pursuant to, (A) any employee benefit, pension or other plan (whether or not subject to ERISA), or (B) any other stock option, stock purchase, incentive or deferred compensation plans or arrangements or other fringe benefit plan (other than obligations mandated by the terms of agreements or plans existing as of the date of the Original Agreement); (ii) except for payments made pursuant to any employee benefit plan of Heftel or any plan, agreement or arrangement in effect as of the date of the Assignment Agreement and described in the Heftel Disclosure Documents, grant, or otherwise become liable for or obligated to pay, any severance or termination payments, bonuses or increases in compensation or benefits (other than payments, bonuses or increases that are mandated by the terms of agreements or plans existing as of the date of the Assignment Agreement or that are paid in the ordinary course of business, consistent with past practices, and not individually or in the aggregate material in amount) to, or forgive any indebtedness of, any employee or consultant; or (iii) enter into any contract, agreement, commitment or arrangement to do any of the foregoing. (f) Neither Heftel nor any Heftel Subsidiary will create, incur, assume or permit to exist any Lien on any of its assets, except for Permitted Encumbrances, and except in the ordinary course of business. (g) Heftel and each Heftel Subsidiary will (i) pay all Taxes, assessments and other governmental charges imposed upon any of their assets or with respect to their franchises, business, income or assets before any penalty or interest accrues thereon; (ii) pay all claims (including claims for labor, services, materials and supplies) that have become due and payable and which by law have or may become a Lien upon any of their assets prior to the time when any penalty or fine shall be incurred with respect thereto or any such Lien shall be imposed thereon; and (iii) comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, obtain or take all Governmental Actions necessary in the operation of their businesses, and comply with and enforce the provisions of all Heftel Material Agreements, except where the failure to so comply, obtain, take or enforce will not have a Material Adverse Effect on Heftel, including paying, when due, all rentals, royalties, expenses and other liabilities relating to their businesses or assets; provided, however, the Heftel Companies may contest the imposition of any such Taxes, assessments and other governmental charges, any such claim, or the requirements of any applicable law, rule, regulation or order or any Heftel Material Agreement if done so in good faith by appropriate proceedings and if adequate reserves are established in accordance with GAAP or as may be determined as sufficient by Heftel's board of directors. 35 39 (h) The Heftel Companies will maintain adequate insurance consistent with industry practice. (i) Heftel and each Heftel Subsidiary will at all times preserve and keep in full force and effect their corporate existence and rights and franchises material to their performance under this Agreement. (j) Heftel will not engage in any practice or take any action that would cause, or permit by inaction, any of the representations and warranties made by it in Section 4.2 to become untrue. (k) Heftel shall use its reasonable best efforts to obtain all necessary lender approval required under the Heftel Credit Agreement to the consummation of the Merger or, with the cooperation of Tichenor, to refinance such indebtedness on terms reasonably acceptable to Heftel to the extent that Heftel determines that it is reasonably foreseeable that such approval will not be forthcoming. Heftel shall keep Tichenor fully informed of the status of obtaining such consent, or the likelihood of obtaining such refinancing, as the case may be, promptly upon the occurrence of any material developments relating thereto. 5.4 ACCESS TO ASSETS, PERSONNEL AND INFORMATION. (a) From the date of the Original Agreement until the Effective Time, Tichenor shall, upon reasonable notice, afford to Parent and the Parent Representatives, at Parent's sole risk and expense, reasonable access during normal business hours to any of the assets, books and records, contracts, executive officers, management employees, representatives, agents and facilities of the Tichenor Companies and shall, upon request, furnish promptly to Parent (at Parent's expense) a copy of any file, book, record, contract, permit, correspondence, or other written information, document or data concerning any of the Tichenor Companies (or any of their respective assets) that is within the possession or control of Tichenor. During such period, upon reasonable notice, Tichenor will make available to a reasonable number of Parent Representatives adequate office space and facilities at the principal office facility of Tichenor in Dallas, Texas. (b) Upon request by Tichenor, Parent shall use its reasonable best efforts to cause Heftel to afford to Tichenor and the Tichenor Representatives prior to the consummation of the Assignment Agreement such access to Heftel and the Heftel Subsidiaries as described in Section 5.4(c) and (e), subject to the execution of a mutually acceptable confidentiality agreement between Heftel and Tichenor. (c) From the date of the consummation of the Assignment Agreement until the Effective Time, Heftel shall, upon reasonable notice, afford to Tichenor and the Tichenor Representatives, at Tichenor's sole risk and expense, reasonable access during normal business hours to any of the assets, books and records, contracts, management employees, representatives, agents and facilities of Heftel and the Heftel Subsidiaries and shall, upon request, furnish promptly to Tichenor (at Tichenor's expense) a copy of any file, book, record, contract, permit, correspondence, or other written information, document or data concerning Heftel (or any of its assets) that is within the possession or control of Heftel. During such period, upon reasonable 36 40 notice, Heftel will make available to a reasonable number of Tichenor Representatives adequate office space and facilities at the principal office facility of Heftel in Las Vegas, Nevada. (d) From the date of the Original Agreement until the Effective Time, Tichenor will fully and accurately disclose, and will cause each of the Tichenor Subsidiaries to fully and accurately disclose, to Parent and the Parent Representatives all information that is (i) reasonably requested by Parent or any of the Parent Representatives, (ii) known to any of the Tichenor Companies and (iii) relevant in any manner or degree to the value, ownership, use, operation, development or transferability of the assets of any of the Tichenor Companies. (e) From the date of the consummation of the Assignment Agreement until the Effective Time, Heftel will fully and accurately disclose, and will cause each of the Heftel Subsidiaries to fully and accurately disclose, to Tichenor and the Tichenor Representatives all information that is (i) reasonably requested by Tichenor or any of the Tichenor Representatives, (ii) known to Heftel and the Heftel Subsidiaries and (iii) relevant in any manner or degree to the value, ownership, use, operation, development or transferability of the assets of Heftel and the Heftel Subsidiaries. (f) From the date of the consummation of the Assignment Agreement until the Effective Time, Heftel shall (i) furnish to Tichenor, promptly upon receipt or filing (as the case may be), a copy of each communication between Heftel and the SEC after such date relating to the Merger or the Registration Statement and each report, schedule, registration statement or other document filed by Heftel with the SEC after such date relating to the Merger and (ii) promptly advise Tichenor of the substance of any oral communications between Heftel and the SEC relating to the Merger or the Registration Statement. (g) Tichenor will (and will cause the Tichenor Subsidiaries and the Tichenor Representatives to) fully cooperate in all reasonable respects with Parent and the Parent Representatives in connection with Parent's examinations, evaluations and investigations described in this Section 5.4. (h) Heftel will (and will cause the Heftel Subsidiaries and the Heftel Representatives to) fully cooperate in all reasonable respects with Tichenor and the Tichenor Representatives in connection with Tichenor's examinations, evaluations and investigations described in this Section 5.4. (i) Tichenor agrees that it will not (and will cause the Tichenor Representatives not to), Parent agrees that it will not (and will cause the Parent Representatives not to), and Heftel agrees that it will not (and will cause the Heftel Representatives not to), use any confidential information obtained pursuant to this Section 5.4 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement and will maintain the confidential nature of such information. (j) Notwithstanding anything in this Section 5.4 to the contrary, (i) Tichenor shall not be obligated under the terms of this Section 5.4 to disclose to Parent or the Parent Representatives, or grant Parent or the Parent Representatives access to, information that is within Tichenor's possession or control but subject to a valid and binding confidentiality 37 41 agreement with a third party without first obtaining the consent of such third party, and Tichenor, to the extent reasonably requested by Parent, will use its reasonable best efforts to obtain any such consent, and (ii) Heftel shall not be obligated under the terms of this Section 5.4 to disclose to Tichenor or the Tichenor Representatives, or grant Tichenor or the Tichenor Representatives access to, information that is within Heftel's possession or control but subject to a valid and binding confidentiality agreement with a third party without first obtaining the consent of such third party, and Heftel, to the extent reasonably requested by Tichenor, will use its reasonable best efforts to obtain any such consent. 5.5 NO SOLICITATION. (a) TICHENOR. (i) Immediately following the execution of this Agreement, Tichenor will (and will cause each of the Tichenor Representatives to) terminate any and all existing activities, discussions and negotiations with third parties (other than Parent) with respect to any possible transaction involving the acquisition of the Tichenor Common Stock or the merger or other business combination of Tichenor with or into any such third party. (ii) Tichenor will not (and will cause the Tichenor Representatives not to) solicit, initiate or knowingly encourage the submission of, any offer or proposal to acquire all or any part of the Tichenor Common Stock or all or any material portion of the assets or business of Tichenor (other than the transactions contemplated by this Agreement), whether by merger, purchase of assets, tender offer, exchange offer or otherwise. (b) HEFTEL. (i) Immediately following the consummation of the Assignment Agreement, Heftel will (and will cause each of the Heftel Representatives to) terminate any and all existing activities, discussions and negotiations with third parties (other than Parent and Tichenor) with respect to any possible transaction involving the acquisition of the Heftel Common Stock or the merger or other business combination of Heftel with or into any such third party. (ii) Until the earlier to occur of the termination of this Agreement pursuant to Section 7 and the Effective Time, Heftel will not (and will cause the Heftel Representatives not to) solicit, initiate or knowingly encourage the submission of, any offer or proposal to acquire all or any part of the Heftel Common Stock or all or any material portion of the assets or business of Heftel (other than the transactions contemplated by the Heftel Acquisition or this Agreement), whether by merger, purchase of assets, tender offer, exchange offer or otherwise. 5.6 HEFTEL STOCKHOLDERS MEETING. Subject to Section 8.9(b), Parent shall use its reasonable best efforts to cause Heftel to take all action necessary in accordance with applicable 38 42 law and Heftel's certificate of incorporation and bylaws to convene a meeting of its stockholders as promptly as practicable after the successful completion of the Heftel Acquisition for the purpose of voting on the Heftel Proposal. Subject to the exercise of its fiduciary duties as described in Section 8.9(b), the board of directors of Heftel shall recommend approval of the Heftel Proposal and shall take all lawful action to solicit such approval, including timely mailing the Proxy Statement/Prospectus to the stockholders of Heftel. Notwithstanding the above, however, the following shall be conditions to the mailing of the Proxy Statement/Prospectus: (a) Heftel shall have received an opinion from a nationally recognized firm of investment bankers or financial advisors selected by Heftel (which opinion shall be acceptable in form and substance to Heftel) to the effect that the Merger consideration to be paid by Heftel is fair to the Heftel stockholders from a financial point of view, and such opinion shall not have been withdrawn, revoked or modified. (b) Heftel and Tichenor shall have received a letter from a nationally recognized firm of independent public accountants, dated as of the date the Proxy Statement/Prospectus is first mailed to Heftel's stockholders, addressed to Heftel and Tichenor, in form and substance reasonably satisfactory to Heftel and Tichenor, in connection with such accountants' review of certain financial and accounting matters contained in the Proxy Statement/Prospectus and the Registration Statement. 5.7 TICHENOR SHAREHOLDERS MEETING. Tichenor shall take all necessary action in accordance with applicable law and its articles of incorporation and bylaws to convene a meeting of its shareholders as promptly as practicable after the date hereof for the purpose of voting on a proposal to approve this Agreement and the Merger. 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. (a) Heftel and Tichenor shall cooperate and promptly prepare the Registration Statement, and Heftel shall file the Registration Statement with the SEC as soon as practicable after the execution and delivery of the Assignment Agreement and in any event not later than 45 days after such date. Heftel shall use its reasonable best efforts, and Tichenor shall cooperate with Heftel (including furnishing all information concerning Tichenor and the holders of Tichenor Common Stock as may be reasonably requested by Heftel), to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. Heftel shall use its reasonable efforts, and Tichenor shall cooperate with Heftel to obtain all necessary state securities laws or "blue sky" permits, approvals and registrations in connection with the issuance of Heftel Common Stock pursuant to the Merger. (b) Heftel and Tichenor will cause the Registration Statement (including the Proxy Statement/Prospectus), at the time it becomes effective under the Securities Act, to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations of the SEC thereunder. (c) Tichenor hereby covenants and agrees with Parent and Heftel that (i) the Registration Statement (at the time it becomes effective under the Securities Act and at the Effective Time) will not contain an untrue statement of a material fact or omit to state a material 39 43 fact required to be stated therein or necessary to make the statements therein not misleading (provided, however, that this clause (i) shall apply only to information contained in the Registration Statement that was supplied by Tichenor specifically for inclusion therein); and (ii) the Proxy Statement/Prospectus (at the time it is first mailed to stockholders of Heftel, at the time of the Heftel Meeting, and at the Effective Time) will not contain an untrue statement of a material fact or omit 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 are made, not misleading (provided, however, that this clause (ii) shall apply only to information contained in the Registration Statement that was supplied by Tichenor specifically for inclusion therein). If, at any time prior to the Effective Time, any event with respect to Tichenor, or with respect to other information supplied by Tichenor specifically for inclusion in the Registration Statement, occurs and such event is required to be described in an amendment to the Registration Statement, Tichenor shall promptly notify Heftel of such occurrence and shall cooperate with Heftel in the preparation and filing of such amendment. If, at any time prior to the Effective Time, any event with respect to Tichenor, or with respect to other information included in the Proxy Statement/Prospectus, occurs and such event is required to be described in a supplement to the Proxy Statement/Prospectus, such event shall be so described and such supplement shall be promptly prepared, filed and disseminated. (d) Heftel, upon consummation of the Assignment Agreement, covenants and agrees with Tichenor that (i) the Registration Statement (at the time it becomes effective under the Securities Act and at the Effective Time) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (provided, however, that this clause (i) shall not apply to any information contained in the Registration Statement that was supplied by Tichenor specifically for inclusion therein); and (ii) the Proxy Statement/Prospectus (at the time it is first mailed to shareholders of Heftel, at the time of the Heftel Meeting, and at the Effective Time) will not contain an untrue statement of a material fact or omit 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 are made, not misleading (provided, however, that this clause (ii) shall not apply to any information contained in the Registration Statement that was supplied by Tichenor specifically for inclusion therein). If, at any time prior to the Effective Time, any event with respect to Heftel, or with respect to other information included in the Registration Statement, occurs and such event is required to be described in an amendment to the Registration Statement, such event shall be so described and such amendment shall be promptly prepared and filed. If, at any time prior to the Effective Time, any event with respect to Heftel, or with respect to other information supplied by Heftel specifically for inclusion in the Proxy Statement/Prospectus, occurs and such event is required to be described in a supplement to the Proxy Statement/Prospectus, Heftel shall promptly notify Tichenor of such occurrence and shall prepare, file and disseminate such supplement. (e) Heftel shall use its reasonable efforts to advise Tichenor, promptly after it receives notice thereof, of the time when the Registration Statement has become effective under the Securities Act, the issuance of any stop order with respect to the Registration Statement, the suspension of the qualification of the Heftel Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any comments or requests for additional information by the SEC with respect to the Registration Statement. 40 44 5.9 STOCK EXCHANGE LISTING. Heftel shall cause the shares of Heftel Common Stock to be issued in the Merger to be approved for listing on Nasdaq, subject to official notice of issuance, prior to the Closing Date. 5.10 ADDITIONAL ARRANGEMENTS. Subject to the terms and conditions herein provided, each of Parent, Tichenor and Heftel shall take, or cause to be taken, all action and shall do, or cause to be done, all things necessary, appropriate or desirable under the HSR Act, the Communications Act and any other applicable laws and regulations or under applicable governing agreements to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable efforts to obtain all necessary waivers, consents and approvals and effecting all necessary registrations and filings. Parent and Tichenor agree to commence, within 15 days after the date of the Original Agreement, the filing and approval process with the FCC with respect to the transactions contemplated by this Agreement. Each of Parent, Tichenor and Heftel shall use reasonable best efforts to take, or cause to be taken, all action or shall do, or cause to be done, all things necessary, appropriate or desirable to cause the covenants and conditions applicable to the transactions contemplated hereby to be performed or satisfied as soon as practicable, including all filings and approvals required by the FCC and the Communications Act. If Closing does not occur within 20 days after the date of the FCC's Final Order, each of Parent, Heftel and Tichenor agree to request approval from the FCC to extend the Closing so that the Closing contemplated hereunder will not violate any FCC rules or regulations. In addition, if any Governmental Authority shall have issued any order, decree, ruling or injunction, or taken any other action that would have the effect of restraining, enjoining or otherwise prohibiting or preventing the consummation of the transactions contemplated hereby, each of Tichenor and Heftel shall use its reasonable efforts to have such order, decree, ruling or injunction or other action declared ineffective as soon as practicable. Nothing contained in this Agreement shall require Parent to take any action that would result in a violation of Section 203 of the DGCL. 5.11 AGREEMENTS OF AFFILIATES. At least 30 days prior to the Effective Time, Tichenor shall cause to be prepared and delivered to Heftel a list identifying all Persons who, at the time of the approval of this Agreement and the Merger by the shareholders of Tichenor, may be deemed to be "affiliates" of Tichenor as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act. Tichenor shall use its best efforts to cause each Person who is identified as an affiliate of Tichenor in such list to execute and deliver to Heftel, on or prior to the Closing Date, a written agreement, in the form attached hereto as EXHIBIT 5.11 (if such Person has not executed and delivered an agreement substantially to the same effect contemporaneously with the execution of this Agreement). Heftel shall be entitled to place legends as specified in such agreements on the Heftel Certificates representing any Heftel Common Stock to be issued to such Persons in the Merger. 5.12 PUBLIC ANNOUNCEMENTS. Prior to the Closing, Tichenor and Parent (and Heftel after consummation of the Assignment Agreement) will consult with each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement and shall not issue any press release or make any such public statement prior to obtaining the approval of the other party; provided, however, that such approval shall not be required where such release or announcement is required by applicable law; and provided further, that Tichenor, Parent or Heftel may respond to inquiries by the press or 41 45 others regarding the transactions contemplated by this Agreement, so long as such responses are consistent with such party's previously issued press releases. 5.13 NOTIFICATION OF CERTAIN MATTERS. Tichenor shall give prompt notice to Parent (or Heftel after consummation of the Assignment Agreement) of (a) any representation or warranty contained in Article 3 being untrue or inaccurate when made, (b) the occurrence of any event or development that would cause (or could reasonably be expected to cause) any representation or warranty contained in Article 3 to be untrue or inaccurate on the Closing Date, or (c) any failure of Tichenor to comply with or satisfy any covenant, condition, or agreement to be complied with or satisfied by it hereunder. Parent shall give prompt notice to Tichenor of (a) any representation or warranty made by Parent in Section 4.1 being untrue or inaccurate when made, (b) the occurrence of any event or development that would cause (or could reasonably be expected to cause) any representation or warranty made by Parent in Section 4.1 to be untrue or inaccurate on the Closing Date, or (c) any failure of Parent to comply with or satisfy any covenant, condition, or agreement to be complied with or satisfied by it hereunder. Heftel shall give prompt notice to Tichenor of (a) any representation or warranty by Heftel contained in Section 4.2 being untrue or inaccurate when made, (b) the occurrence of any event or development that would cause (or could reasonably be expected to cause) any representation or warranty by Heftel contained in Section 4.2 to be untrue or inaccurate on the Closing Date, or (c) any failure of Heftel to comply with or satisfy any covenant, condition, or agreement to be complied with or satisfied by it hereunder. 5.14 PAYMENT OF EXPENSES. Each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby, whether or not the Merger shall be consummated, except that (a) the fee for filing the Registration Statement with the SEC shall be borne by Heftel; (b) the costs and expenses associated with printing the Proxy Statement/Prospectus shall be borne by Heftel; and (c) the costs and expenses associated with mailing the Proxy Statement/Prospectus to the stockholders of Heftel, and soliciting the votes of the stockholders of Heftel, shall be borne by Heftel. 5.15 REGISTRATION RIGHTS AGREEMENT. Heftel, Parent and the Major Tichenor Shareholders shall enter into a Registration Rights Agreement in the form attached hereto as EXHIBIT 5.15 (the "REGISTRATION RIGHTS AGREEMENT"), at the Closing. 5.16 EMPLOYMENT AGREEMENT. Heftel and McHenry T. Tichenor, Jr. shall enter into an Employment Agreement, in the form attached hereto as EXHIBIT 5.16 (the "EMPLOYMENT AGREEMENT"), at the Closing. 5.17 STOCKHOLDERS AGREEMENT. Heftel and Parent shall enter into a stockholders Agreement, in the form attached hereto as EXHIBIT 5.17 (the "STOCKHOLDERS AGREEMENT"). 5.18 INDEMNITY AGREEMENT. Heftel shall enter into an Indemnity Agreement (each, an "INDEMNITY AGREEMENT") in the form of EXHIBIT 5.18 hereto, with each of Heftel Designees. 42 46 5.19 INSURANCE; INDEMNIFICATION. (a) INSURANCE. Heftel shall cause the Surviving Corporation to, at or immediately prior to the Effective Time, maintain a six year director and officer liability insurance run-off policy from the same carrier as the carrier providing such coverage to Tichenor at the Effective Time and to not terminate such policy prior to the sixth anniversary of the Effective Time. Heftel shall use its reasonable best efforts to maintain the director and officer liability insurance policy for directors and officers of Heftel as in effect as of the date of the Original Agreement or such other director and officer liability insurance policy containing terms and coverage reasonably acceptable to Tichenor and Heftel, and such policy shall remain in full force and effect immediately following the Effective Time. (b) INDEMNIFICATION BY PARENT. Parent shall indemnify and hold harmless (i) Tichenor, (ii) each Person who is, has been at any time prior to the date of the Original Agreement, or becomes prior to the Effective Time, an officer or director of any of the Tichenor Companies, and (iii) each Person who is, has been at any time prior to the date of the Original Agreement or becomes prior to the Effective Time a shareholder of Tichenor (collectively, the "TENDER OFFER INDEMNIFIED PARTIES") against all losses, claims, damages, liabilities, costs or expenses (including attorneys' fees), judgments and amounts paid in settlement (collectively, "COSTS") in connection with any claim, action, suit, proceeding or investigation by any Person other than any party hereto, any Tender Offer Indemnified Party or their respective Affiliates arising out of or pertaining to acts, omissions, misstatements or omissions of material facts, or alleged acts or omissions, or alleged misstatements or omissions of material facts, by Tichenor or by such officer, director or shareholder acting in such capacity of any of the Tichenor Companies, which acts, omissions, misstatements or omissions of material facts, relate to the Heftel Acquisition; provided, however, that Parent shall be under no obligation to indemnify any Tender Offer Indemnified Party pursuant to this Section 5.19(b) for any Costs resulting from the gross negligence or willful misconduct of the Tender Offer Indemnified Party. (c) INDEMNIFICATION BY HEFTEL. From and after the Effective Time, Heftel shall indemnify and hold harmless (i) each Person who is, has been at any time prior to the date of the Original Agreement, or becomes prior to the Effective time, an officer or director of any of the Tichenor Companies, and (ii) each Person who is, has been at any time prior to the date of the Original Agreement or becomes prior to the Effective Time a shareholder of Tichenor (collectively, the "MERGER INDEMNIFIED PARTIES" and, together with the Tender Offer Indemnified Parties, the "INDEMNIFIED PARTIES") against all Costs in connection with any claim, action, suit, proceeding or investigation by any Person other than any party hereto, any Indemnified Party or their respective Affiliates arising out of or pertaining to acts, omissions, misstatements or omissions of material facts, or alleged acts or omissions or alleged misstatements or omissions of material facts, by him acting in his capacity as an officer, director or shareholder of any of the Tichenor Companies, which acts, omissions, misstatements or omissions of material facts, relate to the Merger or the Proxy Statement/Prospectus; provided, however, that Heftel shall be under no obligation to indemnify any Merger Indemnified Party pursuant to this Section 5.19(c) for any Costs resulting from the gross negligence or willful misconduct of the Merger Indemnified Party or (y) information provided by the Merger Indemnified Party for inclusion in the Proxy Statement/Prospectus. 43 47 (d) INDEMNIFICATION PROCEDURES. The procedures associated with the indemnification set forth in Sections 5.19(b) and (c) shall be as follows: (i) Promptly after receipt by an Indemnified Party of notice of the commencement of any action, suit or proceeding, such Indemnified Party shall, if a claim in respect of Section 5.19(b) or (c) is to be made against Parent or Heftel, as the case may be (the "INDEMNIFYING PARTY"), under this Agreement, notify the Indemnifying Party of the commencement thereof. With respect to any such action, suit or proceeding as to which an Indemnified Party notifies the Indemnifying Party of the commencement thereof: (A) Except as otherwise provided below, to the extent that it may wish, the Indemnifying Party shall be entitled to assume the defense thereof and to employ counsel chosen by it. After notice from the Indemnifying Party to the Indemnified Party of its election to so assume the defense thereof, the Indemnifying Party shall not be liable to the Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Indemnified Party shall have the right to employ counsel of his or its own choosing in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Indemnifying Party of assumption by the Indemnifying Party of the defense thereof shall be at the expense of the Indemnified Party unless (x) the employment of counsel by the Indemnified Party has been specifically authorized by the Indemnifying Party, such authorization to be conclusively established by action by disinterested members of the board of directors of the Indemnifying Party; (y) representation by the same counsel of both the Indemnified Party and the Indemnifying Party would, in the reasonable judgment of either of the Indemnified Party or the Indemnifying Party, be inappropriate due to an actual or potential conflict of interest between the Indemnifying Party and the Indemnified Party in the conduct of the defense of such action, such conflict of interest to be conclusively established by an opinion of counsel to either the Indemnifying Party or the Indemnified Party to such effect; or (z) the Indemnifying Party shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be paid by the Indemnifying Party. Notwithstanding the foregoing, if an insurance company has supplied directors' and officers' liability insurance covering an action, suit or proceeding, then such insurance company shall employ counsel to conduct the defense of such action, suit or proceeding unless the Indemnified Party and the Indemnifying Party reasonably concur in writing that such counsel is unacceptable. (B) The Indemnified Party shall cooperate with the Indemnifying Party in all aspects of the conduct of the defense of any action and in connection therewith shall, among other things, make its books, records, executive 44 48 officers, representatives and agents available as reasonably requested or required by the Indemnifying Party. (C) The Indemnifying Party shall not be liable to indemnify the Indemnified Party under Section 5.19(b) or (c) for any amounts paid in settlement of any action or claim effected without its written consent. The Indemnifying Party may settle any action or claim without the consent of the Indemnified Party provided that such settlement would not impose any liability, penalty or limitation on the Indemnified Party and that the parties bringing such claim release the Indemnified Party from all liability relating to such claim in connection with such settlement. Neither the Indemnifying Party nor the Indemnified Party shall unreasonably withhold consent to any proposed settlement. (ii) The Indemnifying Party shall not be liable to make any payment under Sections 5.19(b) or (c) of this Agreement in connection with any action, suit or proceeding against the Indemnified Party to the extent the Indemnified Party has otherwise received payment of the amounts otherwise payable by the Indemnifying Party hereunder. (iii)In the event the Indemnifying Party makes any payment under this Agreement, the Indemnifying Party shall be subrogated, to the extent of such payment, to all rights of recovery of the Indemnified Party with respect thereto, and the Indemnified Party shall execute all agreements, instruments, certificates or other documents and do or cause to be done all things necessary or appropriate to secure such recovery rights to the Indemnifying Party including, without limitation, executing such documents as shall enable the Indemnifying Party to bring an action or suit to enforce such recovery rights. (iv) The provisions of this Section 5.19 are intended to be for the benefit of, and shall be enforceable by, the parties hereto and each Indemnified Party and their respective Affiliates and each of their respective heirs and representatives. 5.20 PARENT REGISTRATION RIGHTS AGREEMENT. Heftel and Parent shall enter into a Registration Rights Agreement in the form attached hereto as EXHIBIT 5.20 (the "PARENT REGISTRATION RIGHTS AGREEMENT"), at or prior to Closing, and the Parent Registration Rights Agreement shall be in full force and effect on the Closing Date. 5.21 FCC APPROVAL. Subject to the terms and conditions herein provided, Parent and Heftel will use their respective commercially reasonable efforts to comply with the cross-interest policy of the FCC upon consummation of the Merger, including taking commercially reasonable steps to reduce Parent's ownership of the Heftel Common Stock and the New Heftel Class B Common Stock to 331/3% or less of the total number of such shares outstanding at the Effective Time of the Merger or otherwise taking commercially reasonable steps to comply with or obtain a waiver from such cross-interest policy of the FCC, provided that it shall not be considered commercially reasonable efforts of Parent or Heftel for Parent to take action that would cause 45 49 it to incur short-swing profit liability under Section 16(b) of the Exchange Act. In the event Parent and Heftel have not complied with such or obtained a waiver from such policy prior to the Effective Time, Parent may place any shares of New Heftel Class B Common Stock above 33-1/3% of the total number of shares of Heftel Common Stock and New Heftel Class B Common Stock outstanding at the Effective Time in a disposition trust for sale thereunder, the terms of which trust would be subject to FCC approval. Each party hereto agrees and consents to make certain changes and modifications to any certificate or document, including, but not limited to, the Second Amended and Restated Certificate of Incorporation of Heftel, the Registration Rights Agreement, the Employment Agreement, the Stockholders Agreement, the Indemnity Agreement, the Parent Registration Rights Agreement and the Assignment Agreement, in order to conform such documents to the provisions set forth in this Section 5.21. 5.22 COMPOSITION OF THE BOARD OF DIRECTORS. Immediately prior to the Effective Time, Heftel will take such actions necessary such that five designees of Tichenor (such designees being herein referred to as the "HEFTEL DESIGNEES") shall constitute the entire Board of Directors of Heftel immediately after the Effective Time; provided, that each Heftel Designee shall consent to his designation and provide Heftel for inclusion in the Proxy Statement/Prospectus such information concerning himself as is required to comply with the Securities Act and the rules and regulations promulgated thereunder. ARTICLE 6 CONDITIONS 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligations of each party to effect the Merger shall be subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) COMPLETION OF HEFTEL ACQUISITION. Parent shall have consummated the Heftel Acquisition. (b) HEFTEL AND HEFTEL SUB BOARD APPROVAL. The boards of directors of each of Heftel and Heftel Sub shall have approved the Merger and this Agreement and have executed the Assignment Agreement, and such approval shall be in full force and effect at the Closing. (c) SHAREHOLDER APPROVAL. The Merger and this Agreement shall have been duly and validly approved and adopted by the shareholders of Tichenor, and the Heftel Proposal shall have been duly and validly approved and adopted by the shareholders of Heftel and Heftel Sub, all as required by the TBCA, the DGCL (to the extent necessary to exempt such transactions from the provisions of Section 203 thereof), Nasdaq and the charter and bylaws of Tichenor, Heftel and Heftel Sub. (d) OTHER APPROVALS. The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated and all filings required to be made prior to the Effective Time with, and all consents, approvals, permits and authorizations required to be obtained prior to the Effective Time from the FCC or any other Governmental Authority in connection with the execution and delivery of this Agreement and the consummation 46 50 of the transactions contemplated hereby by Tichenor, Parent, Heftel and Heftel Sub shall have been made or obtained (as the case may be), except where the failure to obtain such consents, approvals, permits and authorizations would not be reasonably likely to result in a Material Adverse Effect on Heftel (assuming the Merger has taken place) or to materially adversely affect the consummation of the Merger. (e) SECURITIES LAW MATTERS. The Registration Statement shall have been declared effective by the SEC under the Securities Act and shall be effective at the Effective Time, and no stop order suspending such effectiveness shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend such effectiveness shall have been initiated and be continuing, and all necessary approvals under state securities laws relating to the issuance or trading of the Heftel Common Stock to be issued in the Merger shall have been received. (f) 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 prior to invoking this condition, each party shall have complied fully with its obligations under Section 5.9 and, in addition, shall use all reasonable efforts to have any such decree, ruling, injunction or order vacated, except as otherwise contemplated by this Agreement. (G) ACCOUNTANTS' LETTER. Heftel and Tichenor shall have received a letter from a nationally recognized firm of independent public accountants, immediately prior to the Effective Date, in form and substance reasonably satisfactory to Heftel, dated as of the Effective Date and addressed to Heftel and Tichenor, which letter shall address matters as are customary for transactions similar to those contemplated in this Agreement. (h) FCC LICENSES. All FCC licenses, approvals and authorizations contemplated by this Agreement shall have been granted and shall have become final (except that the requirement that such licenses, approvals and authorizations be final may be waived by Heftel and Tichenor). 6.2 CONDITIONS TO OBLIGATIONS OF PARENT, HEFTEL AND HEFTEL SUB. The obligations of Parent (or Heftel and Heftel Sub upon consummation of the Assignment Agreement pursuant to Section 8.9) to effect the Merger are subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by Parent (or Heftel and Heftel Sub, as the case may be): (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Tichenor set forth in Article 3 shall be true and correct as of the Closing Date as though made on and as of that time, and Heftel shall have received a certificate signed by the chief executive officer or chief financial officer of Tichenor to such effect; provided, however, that this Section 6.2(a) shall be deemed to have been satisfied even if such representations and warranties are not true and correct, unless the failure of any such representations and warranties to be so true and correct would have a Material Adverse Effect on Tichenor. 47 51 (b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY TICHENOR. Tichenor shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Heftel shall have received a certificate signed by the chief executive officer or chief financial officer of Tichenor to such effect. (c) LETTERS FROM TICHENOR AFFILIATES. Heftel shall have received from each Person named in the list referred to in Section 5.11 an executed copy of the agreement described in Section 5.11. (d) NO ADVERSE CHANGE. From the date of this Agreement through the Closing, there shall not have occurred any change in the condition (financial or otherwise), operations or business of any of the Tichenor Companies that would have or would be reasonably likely to result in a Closing Material Adverse Effect on Tichenor. (e) FAIRNESS OPINION. The fairness opinion described in Section 5.6(a) shall not have been withdrawn, revoked, or modified. (f) STOCKHOLDERS AGREEMENT. The Major Tichenor Shareholders shall have executed the Stockholders Agreement, which shall be in full force and effect on the Closing Date. (g) EMPLOYMENT AGREEMENT. McHenry T. Tichenor, Jr. shall have executed the Employment Agreement, which shall be in full force and effect on the Closing Date. (h) WARRANT HOLDER AGREEMENT. The holder of the Tichenor Warrant and Tichenor shall have executed an agreement, dated as of the date of the Original Agreement, pursuant to which such holder shall, among other things, agree (i) neither to exercise (except as set forth in such agreement) nor transfer the Tichenor Warrant at any time on or prior to the Effective Time and (ii) to exchange such Tichenor Warrant pursuant to this Agreement, and such agreement shall be in full force and effect on the Closing Date. (i) AGREEMENT WITH SHAREHOLDER. Prime II Management, L.P., a Delaware limited partnership, and PrimeComm, L.P., a Delaware limited partnership (together, "PRIMECOMM"), shall have executed an agreement, dated the date of the Original Agreement, pursuant to which PrimeComm, among other things, consents to the Merger and the Merger Agreement and agrees (a) not to transfer its Tichenor Common Stock and (b) that its rights and obligations under certain agreements with Tichenor shall terminate at the Effective Time, and such agreement shall be in full force and effect on the Closing Date. (j) DISSENTING SHAREHOLDERS. Holders of not more than three percent (3%) of any outstanding class of Tichenor capital stock (Tichenor Common Stock, Tichenor Junior Preferred and Tichenor Senior Preferred) shall have exercised their right to dissent from the Merger under the TBCA. (k) HEFTEL ACQUISITION. At least six months and one day shall have passed subsequent to the consummation of the Heftel Acquisition. 48 52 6.3 CONDITIONS TO OBLIGATION OF TICHENOR. The obligation of Tichenor to effect the Merger is subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by Tichenor: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent, Heftel and Heftel Sub set forth in Article 4 shall be true and correct as of the closing date as though made on and as of that time, and tichenor shall have received a certificate signed by the chief executive officer or the chief financial officer of Parent to such effect with regard to the representations and warranties of Parent contained in Section 4.1 and of Heftel to such effect with regard to the representations and warranties of Heftel and Heftel Sub contained in Section 4.2; provided, however, that this Section 6.3(a) shall be deemed to have been satisfied even if such representations and warranties are not true and correct, unless the failure of any such representations and warranties to be so true and correct would have a Material Adverse Effect on Heftel. (b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY PARENT. Parent shall have performed in all material respects all covenants and agreements required to be performed by them under this Agreement at or prior to the Closing Date, and Tichenor shall have received a certificate signed by the chief executive officer or the chief financial officer of Parent to such effect. (C) PERFORMANCE OF COVENANTS AND AGREEMENTS BY HEFTEL AND HEFTEL SUB. Heftel and Heftel Sub shall have performed in all material respects all covenants and agreements required to be performed by them under this Agreement at or prior to the Closing Date, and Tichenor shall have received a certificate signed by the chief executive officer or the chief financial officer of Heftel to such effect. (d) NO ADVERSE CHANGE. From the date of the Original Agreement through the Closing, there shall not have occurred any change in the condition (financial or otherwise), operations or business of Heftel that would have or would be reasonably likely to result in a Closing Material Adverse Effect on Heftel. (E) NASDAQ LISTING. The shares of Heftel Common Stock issuable pursuant to the Merger shall have been authorized for listing on Nasdaq, subject to official notice of issuance. ARTICLE 7 TERMINATION 7.1 TERMINATION RIGHTS. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a) Automatically pursuant to Section 8.9; 49 53 (b) By mutual written consent of Parent and Tichenor prior to the consummation of the Assignment Agreement or of Heftel and Tichenor thereafter; (c) By either Tichenor or Parent (or Heftel after consummation of the Assignment Agreement) if (i) the Merger has not been consummated by March 31, 1997 (provided, however, that the right to terminate this Agreement pursuant to this clause (i) shall not be available to any party whose breach of any representation or warranty or failure to perform any covenant or agreement under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date); (ii) any Governmental Authority shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable (provided, however, that the right to terminate this Agreement pursuant to this clause (ii) shall not be available to any party until such party has used all reasonable efforts to remove such injunction, order or decree); or (iii) if the Heftel Proposal shall fail to receive the requisite vote for approval at the Heftel Meeting; (d) By parent (or Heftel after consummation of the Assignment Agreement) if (i) there has been a breach of the representations and warranties made by Tichenor in Article 3 of this Agreement which will have a Material Adverse Effect on Tichenor (provided, however, that Parent (or Heftel after consummation of the Assignment Agreement) shall not be entitled to terminate this Agreement pursuant to this clause (i) unless Parent (or Heftel after consummation of the Assignment Agreement) has given Tichenor at least 30 days prior notice of such breach, Tichenor has failed to cure such breach within such 30-day period, and the condition described in Section 6.2(a), other than the provision thereof relating to the certificate signed by the chief executive officer or chief financial officer of Tichenor, would not be satisfied if the Closing were to occur on the day on which Parent (or Heftel after consummation of the Assignment Agreement) gives Tichenor notice of such termination); or (ii) Tichenor has failed to comply in any material respect with any of its covenants or agreements contained in this Agreement and such failure has not been, or cannot be, cured within a reasonable time after notice and demand for cure thereof; (e) By Tichenor if (i) there has been a breach of the representations and warranties made by Parent in Section 4.1 of this Agreement which will have a Material Adverse Effect on Tichenor (provided, however, that Tichenor shall not be entitled to terminate this Agreement pursuant to this clause (i) unless Tichenor has given Parent at least 30 days prior notice of such breach, Parent has failed to cure such breach within such 30-day period, and the condition described in Section 6.3(a), other than the provision thereof relating to the certificate signed by the chief executive officer or chief financial officer of Parent, would not be satisfied if the Closing were to occur on the day on which Tichenor gives Parent notice of such termination); (ii) there has been a breach of the representations and warranties made by Heftel and Heftel Sub in Section 4.2 of this Agreement (provided, however, that Tichenor shall not be entitled to terminate this Agreement pursuant to this clause (i) unless Tichenor has given Heftel at least 30 days prior notice of such breach, Heftel has failed to cure such breach within such 30- day period, and the condition described in Section 6.3(a), other than the provision thereof relating to the certificate signed by the chief executive officer or chief financial officer of Heftel, would not be satisfied if the Closing were to occur on the day on which Tichenor gives Heftel notice of such termination); (iii) Parent, Heftel or Heftel Sub has failed to comply in any material 50 54 respect with any of its respective covenants or agreements contained in this Agreement, and, in either such case, such breach or failure has not been, or cannot be, cured within a reasonable time after notice and a demand for cure thereof; or (iv) if prior to the execution of the Assignment Agreement but subsequent to the consummation of the Heftel Acquisition, Heftel would have failed to comply in any material respect with any of its covenants or agreements under this Agreement had the Assignment Agreement been executed at the time of such failure to comply, and, in either such case, such breach or failure has not been, or cannot be, cured within a reasonable time after notice and a demand for cure thereof; (f) By Tichenor if, subsequent to the consummation of the Heftel Acquisition, the aggregate number of shares of Heftel Common Stock owned by Parent and its Affiliates is more than 90% of the Heftel Common Stock then outstanding; (g) By Tichenor if, prior to consummation of the Assignment Agreement, Heftel breaches any covenant contained in the Tender Offer Agreement which will result in a Material Adverse Effect on Heftel; and (h) Automatically upon termination of the Tender Offer Agreement prior to the consummation of the Heftel Acquisition. 7.2 EFFECT OF TERMINATION. If this Agreement is terminated by either Tichenor or Parent (or Heftel after consummation of the Assignment Agreement) pursuant to the provisions of Section 7.1, this Agreement shall forthwith become void except for, and there shall be no further obligation on the part of any party hereto or its respective Affiliates, directors, officers, or shareholders, except pursuant to, the provisions of Sections 5.4(i), 5.14, 5.19(b) and (d), Article 8 and any confidentiality agreement between any of the parties hereto (which shall continue pursuant to their terms). The parties acknowledge that the sole and exclusive remedy of any party to this Agreement with respect to a breach of a representation or warranty contained herein shall be the right to terminate this Agreement in accordance with and subject to the provisions of this Section 7; provided, however, that a termination of this Agreement shall not relieve any party hereto from any liability for damages incurred as a result of a breach by such party of its covenants hereunder occurring prior to such termination other than those covenants contained in Sections 5.1(c), 5.2(j) and 5.3(j), and the provisions of Section 5.13 regarding notification of inaccuracies with respect to representations and warranties and the occurrence events or developments that could cause (or could reasonably be expected to cause) any representation or warranty contained in this Agreement to be untrue or inaccurate on the Closing Date. Each party hereby covenants never to institute, directly or indirectly, any action or proceeding of any kind against any other party hereto based on or arising out of, or in any manner related to, the breach of a representation or warranty contained herein or the covenants contained in Sections 5.1(c), 5.2(j) or 5.3(j) or the provisions of Sections 5.13 referenced in the immediately preceding sentence. 51 55 ARTICLE 8 MISCELLANEOUS 8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties contained in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the consummation of the Merger. 8.2 AMENDMENT. This Agreement may be amended by the parties hereto at any time before or after approval of the Merger and this Merger Agreement by the shareholders of Tichenor; provided, however, that after any such approval, no amendment shall be made that by law requires further approval by such shareholders without such further approval. This Agreement may not be amended except by a written instrument signed on behalf of each of the parties hereto. 8.3 NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and either delivered personally, by facsimile transmission or by registered or certified mail (postage prepaid and return receipt requested) and shall be deemed given when received (or, if mailed, five business days after the date of mailing) at the following addresses or facsimile transmission numbers (or at such other address or facsimile transmission number for a party as shall be specified by like notice): (a) If to Parent: 200 Concord Plaza, Suite 600, San Antonio, Texas 78216, Attention: Randall T. Mays (facsimile transmission number: 210-822-2299), with a copy (which shall not constitute notice) to Akin, Gump, Strauss, Hauer & Feld, L.L.P., NationsBank Plaza, 300 Convent Street, Suite 1500, San Antonio, TX 78205, Attention: Stephen C. Mount (facsimile transmission number: 210-224-2035). (b) If to Tichenor: 100 Crescent Court, Suite 1777, Dallas, Texas 75201, Attention: McHenry T. Tichenor, Jr. (facsimile transmission number: (214) 855-8881), with a copy (which shall not constitute notice) to Michael D. Wortley, Vinson & Elkins L.L.P., 3700 Trammel Crow Center, 2001 Ross Avenue, Dallas, TX 75201-2975 (facsimile transmission number: 214-220-7716). 8.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 8.5 SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 52 56 8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement (together with the confidentiality agreements and the documents and instruments delivered by the parties in connection with this Agreement) (a) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (b) except as provided in Article 2 and Section 5.19, is solely for the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns and does not confer on any other person any rights or remedies hereunder. Furthermore, Heftel and Heftel Sub shall have no rights or obligations under this Agreement until such time as the Assignment Agreement has been consummated. 8.7 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF TEXAS REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 8.8 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby, unless the foregoing inconsistent action or the failure to take an action constitutes a material breach of this Agreement or makes this Agreement impossible to perform, in which case this Agreement shall terminate pursuant to Article 7. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant to an order or judgment of a court or other competent Governmental Authority, such party shall not incur any liability or obligation unless such party breached its obligations under Section 5.9 or did not in good faith seek to resist or object to the imposition or entering of such order or judgment. 8.9 ASSIGNMENT. (a) ASSIGNMENT BY TICHENOR. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by Tichenor (whether by operation of law or otherwise) without the prior written consent of the other parties. (b) ASSIGNMENT BY PARENT. Within ten (10) business days of the consummation of the Heftel Acquisition, Parent shall submit this Agreement to Heftel and Heftel Sub for approval and execution of an agreement in the form attached hereto as EXHIBIT 8.9 (the "ASSIGNMENT AGREEMENT") pursuant to which Heftel and Heftel Sub will agree that the terms and provisions of this Agreement relating to them shall be binding upon them as if Heftel and Heftel Sub were original parties to this Agreement. Promptly after such submission, the board of directors of each of Heftel and Heftel Sub shall, in their own independent exercise of their respective fiduciary obligations, either approve the Merger and submit the Heftel Proposal to the stockholders of Heftel for approval and the Merger and this Agreement to the shareholders of Heftel Sub for their approval, or reject the Merger, in which case this Agreement shall terminate without liability to any party hereto except to the extent expressly otherwise provided herein. 53 57 Subject to the boards of directors of Heftel and Heftel Sub exercising their respective fiduciary obligations with respect to their approval or rejection of the Merger, the exercise of which shall be made solely by such boards of directors, Parent shall use its reasonable efforts to cause Heftel and Heftel Sub to consummate the Merger. Upon execution of the Assignment Agreement by Heftel and Heftel Sub, all parties hereto shall be deemed to have accepted the assumption of obligations and rights by Heftel and Heftel Sub and no other action on the part of any such party is intended to be required; provided that all parties hereto shall execute such instruments and otherwise provide such cooperation as shall reasonably be requested by Parent to implement such assignment. Subject to the foregoing, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. 8.10 INDEMNIFICATION FOR NEGLIGENCE. THE INDEMNITIES CONTAINED IN SECTION 5.19(B) AND (C) SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF THE INDEMNIFIED PARTY. 8.11 CONFIDENTIALITY AGREEMENTS. Any confidentiality agreement between any of the parties hereto shall remain in full force and effect following the execution of this Agreement until terminated as described in Section 7.2, is hereby incorporated herein by reference and shall constitute a part of this Agreement for all purposes; provided, however, that any standstill provisions contained therein will, effective as of the Closing, be deemed to have been waived to the extent necessary for the parties to consummate the Merger in accordance with the terms of this Agreement. 8.12 WAIVERS. At any time prior to the Effective Time, the parties hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive performance of any of the covenants or agreements, or satisfaction of any of the conditions, contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Except as provided in this Agreement, no action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereof shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provisions hereof. 54 58 8.13 INCORPORATION. Exhibits and Schedules referred to herein are attached to and by this reference incorporated herein for all purposes. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] 55 59 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives, on the date first written above. "Tichenor" "Parent" TICHENOR MEDIA SYSTEM, INC. CLEAR CHANNEL COMMUNICATIONS, INC. By:/s/ MCHENRY T. TICHENOR, JR. By:/s/ L. LOWRY MAYS -------------------------------- -------------------------------- Name: McHenry T. Tichenor, Jr. Name: L. Lowry Mays Title: President and Chief Title: President and Chief Executive Officer Executive Officer 56 60 EXHIBIT 1.1(A) SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HEFTEL BROADCASTING CORPORATION 1. Name. The name of the Corporation is Heftel Broadcasting Corporation. 2. Registered Office. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. Business. The nature of the business or purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. Capital Structure. 4.1 Authorized Shares. The total number of shares of capital stock which the Corporation shall have authority to issue is 105,000,000 shares, consisting of three classes of capital stock: (a) 50,000,000 shares of Class A Common Stock, par value $.001 per share (the "Class A Shares"); (b) 50,000,000 shares of Class B Common Stock, par value $.001 per share (the "Class B Shares" and, together with the Class A Shares, the "Common Shares"); and (c) 5,000,000 shares of Preferred Stock, par value $.001 per share (the "Preferred Stock"). 4.2 Designations, Preferences, etc. (a) Preferred Stock. The Preferred Stock may be issued in one or more series. The provisions of this Paragraph 4.2 are subject to the provisions of Paragraph 5.10 hereof. The Corporation's Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to determine the powers, designations, preferences and relative, participating, optional or other special rights, including voting rights, and the qualifications, limitations or restrictions thereof, of each series of Preferred Stock and may increase or decrease the number of shares within each such series; provided, however, that the Corporation's Board of Directors may not decrease the number of 61 shares within a series to less than the number of shares within such series that are then outstanding and may not increase the number of shares within a series above the total number of authorized shares of Preferred Stock for which the powers, designations, preferences and rights have not otherwise been set forth herein. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (iii) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; and (vii) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series. (b) Common Shares. The designations, preferences, powers, qualifications and privileges of the Common Shares shall be as set forth in Article Five below. 5. Common Shares. 5.1 Identical Rights. Except as herein otherwise expressly provided in this Article Five, all Common Shares shall be identical and shall entitle the holders thereof to the same rights and privileges. 5.2 Dividends. (a) When, as, and if dividends are declared by the Corporation's Board of Directors, whether payable in cash, property, securities or rights of the Corporation or any other entity, the holders of Common Shares shall be entitled to share equally in and to receive, in accordance with the number of Common Shares held by each such holder, all such dividends, 2 62 except that if dividends are payable in Common Shares, such stock dividends shall be payable at the same rate on each class of Common Shares and shall be payable only in Class A Shares to holders of Class A Shares and in Class B Shares to holders of Class B Shares. (b) Dividends payable under this Paragraph 5.2 shall be paid to the holders of record of the outstanding Common Shares as their names shall appear on the stock register of the Corporation on the record date fixed by the Board of Directors in advance of declaration and payment of each dividend. Any Common Shares issued as a dividend pursuant to this Paragraph 5.2 shall, when so issued, be duly authorized, validly issued, fully paid and non-assessable, and free of all liens and charges. The Corporation shall not issue fractions of Common Shares on payment of such dividend but shall issue a whole number of shares to such holder of Common Shares rounded up or down in the Corporation's sole discretion to the nearest whole number, without compensation to the stockholder whose fractional share has been rounded down or from any stockholder whose fractional share has been rounded up. 5.3 Stock Splits. The Corporation shall not in any manner subdivide (by any stock split, reclassification, stock dividend, recapitalization or otherwise) or combine the outstanding shares of one class of Common Shares unless the outstanding shares of all classes of Common Shares shall be proportionately subdivided or combined. 5.4 Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, after payment shall have been made to holders of outstanding Preferred Stock, if any, of the full amount to which they are entitled pursuant to this Second Restated Certificate of Incorporation and any resolutions that may be adopted from time to time by the Corporation's Board of Directors (for the purpose of fixing the designations, preferences, rights and restrictions of any series of Preferred Stock), the holders of Common Shares shall be entitled to share ratably in accordance with the number of Common Shares held by each such holder, in all remaining assets of the Corporation available for distribution among the holders of Common Shares, whether such assets are capital, surplus or earnings. For purposes of this Paragraph 5.4, neither the consolidation or merger of the Corporation with or into any other corporation or corporations pursuant to which the stockholders of the Corporation receive capital stock and/or other securities (including debt securities) of the acquiring corporation (or of the direct or indirect parent corporation of the acquiring corporation), nor the sale, lease or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation as those terms are used in this Paragraph 5.4. 5.5 Voting Rights. The holders of the Class A Shares shall vote on all matters submitted to a vote of the stockholders, with each Class A Share entitled to one vote. The holders of Class B Shares shall have no voting rights, except as provided in Paragraph 5.10 and as otherwise provided by law. The holders of Common Shares are not entitled to cumulate votes in the election of any directors. 5.6 No Preemptive or Subscription Rights. No holder of Common Shares shall be entitled to preemptive or subscription rights. 3 63 5.7 Conversion Rights. (a) Automatic Conversion of Class B Shares. Each Class B Share shall convert automatically into one fully paid and non-assessable Class A Share upon its sale, gift or other transfer to a person or entity other than Clear Channel Communications, Inc., a Texas corporation ("CCC") or an Affiliate of CCC (an "Event of Automatic Conversion"). For purposes of this Article 5, an "Affiliate of CCC" shall mean (i) any corporation of which CCC is, directly or indirectly, the beneficial owner of 50% or more of the combined voting power of all classes of equity securities, (ii) any partnership, joint venture or unincorporated organization for which CCC possesses, directly or indirectly, the power to direct or cause the direction of the management and policies, whether through the ownership of voting securities, by contract or otherwise or (iii) any person or other entity that controls, is controlled by, or is under common control with CCC. Notwithstanding anything to the contrary set forth herein, any holder of Class B Shares may pledge his Class B Shares to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee without causing an automatic conversion into Class A Shares. In the event of foreclosure or other similar action by a pledgee, such pledged Class B Shares shall be converted automatically, without any act or deed on the part of the Corporation or any other person, into Class A Shares as provided in this Paragraph 5.7, unless such foreclosure or similar action is taken by CCC or an Affiliate of CCC. (b) Automatic Conversion Procedure. Promptly upon the occurrence of an Event of Automatic Conversion, the holder of Class B Shares shall surrender the certificate or certificates therefor, duly endorsed in blank or accompanied by proper instruments of transfer, at the office of the Corporation, or of any transfer agent for the Class A Shares, and shall give written notice to the Corporation, at such office: (i) stating that the shares are being converted pursuant to an Event of Automatic Conversion into Class A Shares as provided in Paragraph 5.7(a), (ii) specifying the Event of Automatic Conversion (and, if the occurrence of such event is within the control of the transferor, stating the transferor's intent to effect an Event of Automatic Conversion), (iii) identifying the number of Class B Shares being converted, and (iv) setting out the name or names (with addresses) and denominations in which the certificate or certificates for Class A Shares shall be issued and shall include instructions for delivery thereof. Delivery of such notice together with the certificates representing the Class B Shares shall obligate the Corporation or its transfer agent to issue and deliver at such stated address to such stated transferee a certificate or certificates for the number of Class A Shares to which such transferee is entitled, registered in the name of such transferee. To the extent permitted by law, conversion pursuant to an Event of Automatic Conversion shall be deemed to have been effected as of the date on which the Event of Automatic Conversion occurred (such time being the "Conversion Time"). The person entitled to receive the Class A Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Class A Shares at and as of the Conversion Time, and the right of such person as a holder of Class B Shares shall cease and terminate at and as of the Conversion Time, in each case without regard to any failure by the holder to deliver the certificates or the notice required by this subparagraph (b). 4 64 (c) Voluntary Conversion of Class B Shares. Each Class B Share shall be convertible, at the option of its holder, into one fully paid and non-assessable Class A Share at any time. (d) Voluntary Conversion Procedure for Class B Shares. At the time of a voluntary conversion, the holder of Class B Shares shall deliver to the office of the Corporation or any transfer agent for the Class A Shares (i) the certificate or certificates representing the Class B Shares to be converted, duly endorsed in blank or accompanied by proper instruments of transfer, and (ii) written notice to the Corporation stating that such holder elects to convert such share or shares and stating the name and addresses in which each certificate for Class A Shares is to be issued. Conversion shall be deemed to have been effected at the close of business on the date the Corporation received the Class B Shares to be converted and such notice, and the person exercising such voluntary conversion shall be deemed to be the holder of record of the number of Class A Shares issuable upon such conversion at such time. The Corporation shall promptly deliver certificates evidencing the appropriate number of Class A Shares to the person set forth in the notice. (e) Voluntary Conversion of Class A Shares. Each Class A Share held by CCC or any Affiliate of CCC shall be convertible, at the option of its holder, into one fully paid and non-assessable Class B Share at any time. (f) Voluntary Conversion Procedure for Class A Shares. At the time of a voluntary conversion, the holder of Class A Shares shall deliver to the office of the Corporation or any transfer agent for the Class B Shares (i) the certificate or certificates representing the Class A Shares to be converted, duly endorsed in blank or accompanied by proper instruments of transfer, and (ii) written notice to the Corporation stating that such holder elects to convert such share or shares and stating the name and addresses in which each certificate for Class B Shares is to be issued. Conversion shall be deemed to have been effected at the close of business on the date the Corporation received the Class A Shares to be converted and such notice, and the person exercising such voluntary conversion shall be deemed to be the holder of record of the number of Class B Shares issuable upon such conversion at such time. The Corporation shall promptly deliver certificates evidencing the appropriate number of Class B Shares to the person set forth in the notice. (g) Unconverted Shares. In the event of the conversion of less than all of the Class B Shares evidenced by a certificate surrendered to the Corporation in accordance with the procedures of Paragraph 5.7(b) or 5.7(d), the Corporation shall execute and deliver to, or upon the written order of the holder of such certificate, without charge to such holder, a new certificate evidencing the number of Class B Shares not converted. In the event of the conversion of less than all of the Class A Shares evidenced by a certificate surrendered to the Corporation in accordance with the procedures of Paragraph 5.7(f), the Corporation shall execute and deliver to, or upon the written order of the holder of such certificate, without charge to such holder, a new certificate evidencing the number of Class A Shares not converted. (h) Reissue of Shares. Class B Shares that are exchanged for Class A Shares as provided herein shall continue to be authorized Class B Shares and available for reissue by the Corporation as determined by the Board of Directors. Class A Shares that are 5 65 exchanged for Class B Shares as provided herein shall continue to be authorized Class A Shares and available for reissue by the Corporation as determined by the Board of Directors. (i) Reservation. The Corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued Class A Shares, for the purposes of effecting conversions, such number of duly authorized Class A Shares as shall from time to time be sufficient to effect the conversion of all outstanding Class B Shares. The Corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued Class B Shares, for the purposes of effecting conversions, such number of duly authorized Class B Shares as shall from time to time be sufficient to effect the conversion of all outstanding Class A Shares. The Corporation covenants that all the Class A Shares or the Class B Shares, as the case may be, so issuable shall, when so issued, be duly and validly issued, fully paid and non-assessable, and free from liens and charges with respect to the issue. 5.8 Consideration on Merger, Consolidation, etc. In any merger, consolidation or business combination, the consideration to be received per share by the holders of Class A Shares and Class B Shares must be identical for each class of stock, except that in any such transaction in which shares of common stock are to be distributed, such shares may differ as to voting rights to the extent that voting rights now differ among the Class A Shares and the Class B Shares. 5.9 Transfer of Class B Shares. If a holder of Class B Shares desires to transfer Class B Shares to CCC or an Affiliate of CCC, such holder shall deliver to the Secretary of the Corporation (a) the certificate or certificates representing the Class B Shares, duly endorsed in blank or accompanied by proper instruments of transfer and (b) written notice to the Corporation stating that such holder elects to transfer such shares and stating the name and addresses in which each certificate for Class B Shares is to be issued. Class B Shares shall not be transferred on the books of the Corporation until all of the conditions set forth in the foregoing clauses (a) and (b) are satisfied. 5.10 Restrictions and Limitations. So long as CCC and any Affiliate of CCC collectively own 20% of the outstanding Class A Shares (calculated as if all Class B Shares owned, or deemed as owned, by CCC and any Affiliate of CCC had been converted to outstanding Class A Shares), the Corporation shall not, and shall not permit any subsidiary to, without the vote or written consent by the holders of a majority of the Class B Shares voting as a single class, with each Class B Share entitled to one vote: (a) Effect any sale, lease, assignment, transfer or other conveyance of all or substantially all of the assets of the Corporation, or any merger or consolidation involving the Corporation where the stockholders of the Corporation immediately prior to such merger or consolidation do not own at least 50% of the capital stock of the surviving entity immediately thereafter, or any reclassification or any recapitalization, or any dissolution, liquidation, or winding up of the Corporation; (b) Authorize, issue, or obligate itself to issue, any shares of Preferred Stock; 6 66 (c) Make or permit any amendment to the Corporation's certificate of incorporation, as amended from time to time, that adversely affects the rights of the holders of Class B Shares; (d) Declare or pay any non-cash dividends on or declare or make any other non-cash distribution, direct or indirect, on account of the Common Shares or set apart any amount other than cash for any such purpose; or (e) Make or permit any amendment or modification to any Article of the Corporation's certificate of incorporation, as amended from time to time, concerning the Corporation's capital stock, including, but not limited to, Article Four or Article Five hereof. 6. Existence. The Corporation is to have perpetual existence. 7. Bylaws. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the bylaws of the Corporation. 8. Elections, Meetings and Books. Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the bylaws of the Corporation. 9. Amendment. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Second Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 10. Limitation on Director Liability. No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitations on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of this Article shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. 7 67 11. Indemnification. 11.1 General. Each person who was or is made a party to or threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding and an action by the Corporation (individually, a "Proceeding") by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974 or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with the Proceeding (collectively, "Covered Expenses") and such indemnification shall continue as to the person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Paragraph 11.2, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that if required by the Delaware General Corporation Law, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. 11.2 Failure to Pay Claims. If a claim under Paragraph 11.1 is not paid in full by the Corporation within thirty (30) days after the Corporation has received a written claim, 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 part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition when the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify 8 68 the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 11.3 Not Exclusive. The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Article 11 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Second Amended and Restated Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. 11.4 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any Covered Expenses, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 11.5 Definition of the Corporation. As used in this Article, references to "the Corporation" shall include, in addition to the resulting or surviving corporation, any constituent corporation absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 11.6 Severability. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee and agent of the Corporation as to any Covered Expenses to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated or by any other applicable law. 12. Participation of Non-Citizens. The following provisions are included for the purpose of ensuring that control and management 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: 12.1 The Corporation shall not issue to "Aliens" (which term shall include (a) a person who is a citizen of a country other than the United States; (b) any entity organized under 9 69 the laws of a government other than the government of the United States or any state, territory or possession of the United States; (c) a government other than the government of the United States or of any state, territory or possession of the United States; and (d) a representative of, or an individual or entity controlled by, any of the foregoing), either individually or in the aggregate, in excess of 25% of the total number of shares of capital stock of the Corporation outstanding at any time and shall seek not to permit the transfer on the books of the Corporation of any capital stock to any Alien that would result in Aliens holding in excess of 25% of the total number of shares of capital stock of the Corporation then outstanding. 12.2 Notwithstanding Paragraph 12.1, no Alien or Aliens shall be entitled to vote or direct or control the vote of more than 25% of (a) 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 (b) 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, generally, in the election of directors. 12.3 The Board of Directors of the Corporation shall have all powers necessary to implement the provisions of this Article 12. 10 EX-2.5.8 4 EXHIBIT 2.5.8 1 EXHIBIT 2.5.8 ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT (the "Agreement"), dated as of October 10, 1996, is made by Heftel Broadcasting Corporation, a Delaware corporation ("Heftel"), and Heftel Merger Sub, Inc., a Texas corporation and wholly owned subsidiary of Heftel ("Heftel Sub"). Recitals A. Clear Channel Communications, Inc., a Texas corporation ("Parent"), and Tichenor Media System, Inc., a Texas corporation ("Tichenor"), are parties to that certain Agreement and Plan of Merger, dated as of July 9, 1996 (the "Merger Agreement"; capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Merger Agreement), pursuant to which Heftel Sub will be merged with and into Tichenor (the "Merger"). B. Parent has completed the Heftel Acquisition and upon completion thereof, Parent agreed, pursuant to the terms of the Merger Agreement, to propose to Heftel and Heftel Sub that such entities agree to be bound by the terms of the Merger Agreement as they relate to such entities and use its reasonable efforts to cause the execution of this Agreement by Heftel and Heftel Sub. C. Pursuant to the terms of this Agreement, Heftel and Heftel Sub each desire to become a party to the Merger Agreement as if they were original parties to the Merger Agreement in accordance with Section 8.9(b) of the Merger Agreement. D. The board of directors of each of Heftel and Heftel Sub have determined that the Merger is in the best interests of Heftel Sub, respectively, and that it is advisable and in the best interests of each of Heftel and Heftel Sub to become a party to the Merger Agreement. E. Accordingly, the board of directors of each of Heftel and Heftel Sub have approved the Merger Agreement and recommended that their respective stockholders approve and authorize the Merger Agreement and the Merger. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: Statement of Agreement 1. Assignment and Assumption. Heftel and Heftel Sub hereby agree that, effective as of the date hereof, the terms and provisions of the Merger Agreement relating to them shall be binding upon them as if Heftel and Heftel Sub were original parties to the Merger Agreement. Upon execution of this Agreement, Heftel and Heftel Sub hereby agree to assume all of the rights and obligations set forth in the Merger Agreement relating to each of them, respectively. 2 2. Captions. The captions and headings used in this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. 3. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF TEXAS REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 4. Further Assurances. From time to time hereafter and without additional consideration, the parties hereto hereby agree to execute and deliver, or cause to be executed and delivered, such additional or further instruments, and otherwise provide such cooperation, as shall reasonably be requested by any party to the Merger Agreement for the purpose of effectively carrying out the transactions contemplated by this Agreement. 5. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. HEFTEL BROADCASTING CORPORATION By: /s/ L. LOWRY MAYS ---------------------------- Name: L. Lowry Mays Title: President and Chief Executive Officer HEFTEL MERGER SUB, INC. By: /s/ L. LOWRY MAYS -------------------------- Name: L. Lowry Mays Title: President -2- EX-4.5 5 EXHIBIT 4.5 1 LOAN AGREEMENT BETWEEN TMS ASSETS CALIFORNIA, INC., AS THE BORROWER AND CLEAR CHANNEL COMMUNICATIONS, INC., AS THE LENDER DATED: AS OF JULY 9, 1996 2 TABLE OF CONTENTS ARTICLE 1 GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.01 Terms Defined Above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 AMOUNT AND TERMS OF LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.02 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.03 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.04 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.05 Payment Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.06 Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 3 REPRESENTATIONS AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.01 Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.02 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 4 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 4.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 4.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4.03 Notice of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 5 CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 6 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6.01 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6.03 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.04 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.06 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.07 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6.09 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 6.10 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 6.11 Titles of Articles, Sections and Subsections; References . . . . . . . . . . . . . . . . . . . . . . . 8 Section 6.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 6.13 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
i 3 Section 6.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 6.15 Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Schedule I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 1. Corporate Existence and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 2. Compliance with Laws; No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 3. Corporate Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 4. Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 5. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -1 6. Location of Business and Offices; Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -2 7. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -2 8. Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -2 9. Business Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule I -2 Schedule II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 1. Negative Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 2. Other Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 3. Dividends, Distributions and Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 4. Investments, Loans and Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 5. Nature of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 6. Amendments to Articles of Incorporation and By-laws. . . . . . . . . . . . . . . . . . . . . Schedule II -1 7. Dispositions of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 8. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II -1 Schedule III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 Conditions precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 1. Corporate Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 2. Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 3. Note and Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 4. Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 5. Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 6. Copy of Sixth Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule III -1 Exhibit A Form of Note Exhibit B Form of Letter of Credit
ii 4 LOAN AGREEMENT THIS LOAN AGREEMENT is dated as of this 9th day of July, 1996 between TMS ASSETS CALIFORNIA, INC., a Delaware corporation ("BORROWER"), and CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation (the "LENDER"). RECITALS A. Borrower desires Lender to make available to Borrower certain amounts to fund the costs associated with cost of acquisition of the assets subject of the Asset Purchase Agreement; and B. Lender is willing to make such financing available to Borrower upon the terms and subject to the conditions set forth herein. C Now, therefore, in consideration of the mutual covenants and agreements herein contained, Borrower and Lender agree as follows: ARTICLE 1 GENERAL TERMS Section 1.01 Terms Defined Above. As used in this Agreement, the terms "Borrower" and "Lender" shall have the meanings indicated above. Section 1.02 Certain Definitions. As used in this Agreement, the following terms shall have the following meanings, unless the context otherwise requires: "Agreement" shall mean this Loan Agreement, as the same may from time to time be amended or supplemented. "Asset Purchase Agreement" shall mean that certain Asset Purchase Agreement dated as of May 3, 1996 between Crescent Communications L.P., a Delaware limited partnership, and Guarantor, as assigned by Guarantor to Borrower, as the same has been amended, modified or supplemented prior to the date hereof. "Business Day" shall mean a day other than a Saturday, Sunday or legal holiday for commercial banks under the laws of the State of Texas. "Commitment" shall mean the obligation pursuant to Section 2.01 of Lender to cause to be issued a letter of credit and upon the drawing of such letter of credit to make a term loan in the amount drawn on such letter of credit to Borrower. "Debt" shall mean, for any Person any of the following: (a) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable (other than for borrowed money) arising in the ordinary course of business of such Person; (d) all obligations under leases which shall 5 have been, or should have been, in accordance with generally accepted accounting principles in effect on the date of this Agreement, recorded as capital leases in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss; (e) all Debt of others secured by a lien on any asset of such Person, whether or not such Debt is assumed by such Person; and (f) all Debt of others guaranteed by such Person or upon which such Person is otherwise liable as a partner or otherwise. "Event of Default" shall mean the occurrence of any of the events specified in Section 4.01. "Guarantor" shall mean Tichenor Media System, Inc., a Texas corporation. "Guaranty" shall mean that certain Guaranty dated of even date herewith by Guarantor in favor of Lender, as the same may be amended, modified or supplemented from time to time. "Highest Lawful Rate" shall mean the maximum nonusurious interest rate that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Note or on other Indebtedness, as the case may be, under applicable law. "Indebtedness" shall mean any and all amounts owing or to be owing by Borrower to Lender in connection with the Note, this Agreement or any Security Document, and all renewals, extensions and/or rearrangements thereof. "Loan Documents" shall mean this Agreement, the Note and the Security Documents, and any other agreement or instrument now or hereafter given to secure this Agreement and the Note. "Note" shall mean the promissory note of Borrower evidencing Borrower's obligations in respect of the Loan and being in the form of Exhibit A, together with any and all replacements, renewals, extensions for any period, increases or rearrangements thereof. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other form of entity. "Pledge Agreements" shall mean, collectively, that certain Security Agreement (Stock Pledge) dated of even date herewith by Guarantor in favor of Lender pursuant to which Guarantor has pledged 100% of the issued and outstanding shares of stock of Borrower to secure the Indebtedness, as the same may be amended, modified or supplemented from time to time; and that certain Security Agreement (Stock Pledge) dated of even date herewith by Borrower in favor of Lender pursuant to which Borrower has pledged 100% of the issued and outstanding shares of stock of TLC to secure the Indebtedness, as the same may be amended, modified or supplemented from time to time. "Security Documents" shall mean the Guaranty and the Pledge Agreements. "Senior Credit Agreement" shall mean that certain Second Amended and Restated Credit Agreement dated as of August 9, 1994 among Guarantor, the subsidiaries of Guarantor from time to time signatory thereto, NationsBank of Texas, N.A., as administrative lender for the lenders, and each of such lenders, as now or hereafter amended, modified or supplemented. 2 6 "Senior Creditors" shall mean each of the lenders now or hereafter signatory to the Senior Credit Agreement. "TLC" shall mean Tichenor License California, Inc., a Delaware corporation. ARTICLE 2 AMOUNT AND TERMS OF LOAN Section 2.01 Term Loan. Lender agrees on the terms of this Agreement to cause to be issued an irrevocable, letter of credit having a face amount of $40,000,000 issued by an investment grade financial institution which permits Borrower to draw upon presentation a statement that each of the conditions to closing specified in Section 1.4 of the Asset Purchase Agreement has been satisfied. Such letter of credit shall otherwise be in substantially the Form of Exhibit B hereto. Upon (i) a presentation of a draft or demand by Borrower requesting a draw under the letter of credit and (ii) the financial institution issuing such letter of credit honoring such presentation, Lender shall be deemed to have made a loan in the amount of such draft. Such loan by Lender to Borrower shall be evidenced by the Note, in substantially the form of Exhibit A hereto. Section 2.02 Interest Rate. (a) The outstanding amount of the Note shall bear interest from the date Borrower makes a draw under the letter of credit referred to in Section 2.01 until maturity at the following rates: (i) during the period commencing on the date Borrower makes a draw under the letter of credit referred to in Section 2.01 and ending on September 30, 1996, nine percent (9%) per annum; (ii) during the period commencing on October 1, 1996 and ending on December 31, 1996, ten percent (10%) per annum; (iii) during the period commencing on January 1, 1997 and ending on March 31, 1997, eleven percent (11%) per annum; (iv) during the period commencing on April 1, 1997 and ending on June 30, 1997, twelve percent (12%) per annum; and (v) during the period commencing on July 1, 1997 and ending on September 30, 1997, thirteen percent (13%) per annum. (b) Notwithstanding the foregoing, upon the failure of Borrower to pay to Lender on the date due any amount due and owing under this Agreement, the Note or the Security Documents, such past due amount shall bear, as liquidated damages and not as a penalty, additional delay interest at a rate of 2% per annum in excess of the otherwise applicable rate. (c) Interest shall be payable quarterly on each the first day of each January, April, July and October, commencing October 1, 1996, and the maturity date of the Note as set forth in this Section 2.03. Post-default interest shall be payable on demand. 3 7 Section 2.03 Repayment. The Note shall be due and payable in full, together with all accrued interest, on September 30, 1997. Section 2.04 Prepayments. Borrower may, at its option, prepay the principal amount of the Note together with all accrued interest at any time in whole or, from time to time, in part, without premium or penalty. Section 2.05 Payment Procedure. All payments made by Borrower under the Note or this Agreement shall be made to Lender, at a bank account described by Lender in writing to Borrower not less than one Business Day prior to the date of such payment, in lawful currency of the United States of America in immediately available funds before 2:00 p.m., Dallas time, on the date that such payment is required to be made. Any payment received and accepted by Lender after such time shall be considered for all purposes (including the calculation of interest, to the extent permitted by law) as having been made on the next following Business Day. Section 2.06 Business Days. If the date for any payment hereunder falls on a day which is not a Business Day, then for all purposes of the Note and this Agreement the same shall be deemed to have fallen on the next following Business Day, and such extension of time shall, in such case, be included in the computation of the payment of interest. ARTICLE 3 REPRESENTATIONS AND COVENANTS Section 3.01 Representations. Borrower makes Lender the representations and warranties contained in Schedule I hereto. Section 3.02 Covenants. Until the repayment in full of the Note and all other amounts owing to Lender under this Agreement, Borrower shall comply with the covenants set forth in Schedule II hereto. ARTICLE 4 EVENTS OF DEFAULT Section 4.01 Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) Borrower shall (i) default in the payment when due of any principal on the Note or any expenses or other amounts payable hereunder or under any other Loan Document, or (ii) default in the payment when due of any interest on the Note and such default shall continue unremedied for a period of 45 days; or (b) Borrower shall default in the payment when due of any principal of or interest on any of its other Debt aggregating $100,000 or more or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur and the result of either such payment default or event is to cause such Debt to become due prior to its stated maturity; or (c) Any representation or warranty made by either Borrower or Guarantor in Schedule I or in any other Loan Document shall prove to have been false or misleading as of the time made or furnished in 4 8 any material respect and such default is not cured for a period of 30 days after notice thereof to Borrower or Guarantor by Lender; or (d) Borrower or Guarantor shall default in the performance of any of their respective obligations under this Agreement or under any Loan Document and such default shall continue unremedied for a period of 30 days after notice thereof to Borrower or Guarantor by Lender; or (e) Any of Guarantor, Borrower or TLC shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due, or shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (f) A proceeding or case shall be commenced, without the application or consent of any of Guarantor, Borrower or TLC, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for it or for all or any substantial part of its assets, or (iii) similar relief in respect of any of Guarantor, Borrower or TLC under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 days; or (iv) any order for relief against any of Guarantor, Borrower or TLC shall be entered in an involuntary case under the Federal Bankruptcy Code; or (g) Guarantor shall default in the payment when due of any principal of or interest on any of its Debt evidenced by the Senior Credit Agreement and such payment default shall not be remedied or waived or otherwise cured within a period of 45 days from the date of default; or any event specified in the Senior Credit Agreement shall occur and the result of such event is to cause such Debt to become due prior to its stated maturity; or (h) A final judgment or judgments for the payment of money in excess of $100,000 in the aggregate (which is not fully covered by insurance, subject to customary deductibles) shall be rendered by a court against either Borrower or TLC and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 45 days from the date of entry thereof and either Borrower or TLC shall not, within said period of 45 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal. Section 4.02 Remedies. (a) If any Event of Default has occurred and is continuing, other than under Sections 4.01(e) and (f), then Lender may, by notice to Borrower, require Borrower to repay the Indebtedness or such part thereof as is specified in that notice. On receipt of any such notice, Borrower shall immediately repay the 5 9 Indebtedness (or that part of the Indebtedness specified in that notice) and all interest accrued thereon and any other amounts then payable under this Agreement, the Note and the Security Documents. In connection with any notice and demand for payment, Borrower waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind. (b) If any Event of Default referred to under Sections 4.01(e) and (f) has occurred and is continuing, then the Indebtedness shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by Borrower. Section 4.03 Notice of Events. Upon the occurrence of any Event of Default, Borrower shall immediately notify Lender by facsimile specifying the nature of such Event of Default and any steps Borrower is taking to remedy the same. ARTICLE 5 CONDITIONS OF LENDING The obligation of Lender to make any disbursement pursuant to this Agreement is subject to the conditions set forth in Schedule III. ARTICLE 6 MISCELLANEOUS Section 6.01 Expenses. Borrower agrees to pay, and save Lender harmless against liability for the payment of the costs and expenses, including reasonable attorneys' and consultants' fees, and all actual costs incurred by Lender in connection with: recording or filing any of the Loan Documents, the preservation of rights under any Loan Document, the responding to any default or Event of Default or enforcing any rights under, and the refinancing, restructuring or renegotiation following a default of, this Agreement, the Note or any other Loan Document or in complying with any subpoena or other legal process served upon Lender in connection with this Agreement or any other Loan Document, or in any bankruptcy or insolvency case. In addition, Borrower agrees to reimburse Lender upon demand for all out-of-pocket costs and expenses (including commitment fees, issuing fees and any other fees assessed by and expenses reimbursed to the issuing bank) paid or payable by Lender to obtain the letter of credit referred to in Section 2.05(a). Section 6.02 Notices. Any notice required or permitted to be given under or in connection with this Agreement or the Note shall be in writing and shall be mailed by first class or express mail, postage prepaid, or sent by telecopy or other similar form of rapid transmission confirmed by mailing (by first class or express mail, postage prepaid) written confirmation at substantially the same time as such rapid transmission, or personally delivered to an officer of the receiving party. All such communications shall be mailed, sent or delivered, (a) if to Borrower, to: TMS Assets California, Inc. c/o Tichenor Media System, Inc. 100 Crescent Court Suite 1777 6 10 Dallas, Texas 75201-6991 Attention: Jeffrey T. Hinson Facsimile: (214) 855-8881 or to such other address or to such individual's or department's attention as it may have furnished Lender in writing; or (b) if to Lender, to: Clear Channel Communications, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: Randall Mays Facsimile: (210) 822-2299 or to such other address or to such individual's or department's attention as it may have furnished Borrower in writing. (c) Any communication so addressed and mailed shall be deemed to be given when so mailed; and any notice so sent by rapid transmission shall be deemed to be given when receipt of such transmission is acknowledged, and any communication so delivered in person shall be deemed to be given when receipted for by, or actually received by, an authorized officer of Borrower or Lender, as the case may be. Section 6.03 Amendments and Waivers. Any provision of this Agreement or the Note may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by Borrower and Lender. Section 6.04 Invalidity. In the event that any one or more of the provisions contained in the Note or this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Note or this Agreement. Section 6.05 Successors and Assigns. Neither Borrower nor Lender shall have the right to assign its rights under this Agreement or any interest herein. Section 6.06 Waivers. No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement, the Note or any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement, the Note or any Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Section 6.07 Cumulative Rights. Rights and remedies of Lender under the Note, this Agreement and the Security Documents shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy. Section 6.08 Interest. It is the intention of the parties hereto to conform strictly to usury laws applicable to Lender and the transactions contemplated hereunder. Accordingly, if such transactions would 7 11 be usurious under applicable law, then, notwithstanding anything to the contrary in the Note, this Agreement or otherwise, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under the Note, this Agreement or otherwise in connection with such transactions shall under no circumstances exceed the maximum amount allowed by such applicable law, (ii) in the event that the maturity of the Note is accelerated for any reason, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under applicable law may never include more than the maximum amount allowed by such applicable law, and (iii) excess interest, if any, provided for in this Agreement or otherwise in connection with such transactions shall be canceled automatically and, if theretofore paid, shall be credited by Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by Lender to Borrower). The right to accelerate the maturity of the Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender do not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums included in the Indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Note until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the applicable usury ceiling, if any. Section 6.09 Entire Agreement. THE NOTE, THIS AGREEMENT AND THE SECURITY DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN LENDER AND BORROWER AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Section 6.10 Exhibits and Schedules. The exhibits and schedules attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein, except that in the event of any conflict between any of the provisions of any such exhibit or schedule and the provisions of this Agreement, the provisions of this Agreement shall prevail. Section 6.11 Titles of Articles, Sections and Subsections; References. All titles or headings to articles, sections, subsections or other divisions of this Agreement or the exhibit hereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a Section or Subsection shall be deemed to refer to the applicable Section or Subsection of this Agreement unless otherwise stated herein. Any reference herein to an exhibit shall be deemed to refer to the applicable exhibit attached hereto unless otherwise stated herein. Section 6.12 Governing Law. This Agreement is governed by, and shall be construed in accordance with, the laws of the State of Texas without giving effect to the principles thereof relating to conflicts of laws. Section 6.13 Reinstatement. If at any time any payment made by Borrower in connection with this Agreement, the Note or the Security Documents must be returned by Lender or its successors and assigns for any reason, the obligation to make such payment under this Agreement, the Note or the Security Documents shall continue to be effective and shall be reinstated. 8 12 Section 6.14 Counterparts. This Agreement may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 6.15 Subordination. Lender acknowledges that the obligations of Guarantor in favor of Lender under the Guaranty are subject to the terms set forth in that certain Subordination Agreement of even date herewith by Lender and Guarantor in favor of the Senior Creditors. Lender agrees to execute and deliver such Subordination Agreement to the Senior Creditors. Section 6.16 Indemnities. Borrower agrees to: (a) pay and hold Lender harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes; and (b) INDEMNIFY LENDER, ITS OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES (COLLECTIVELY, THE "INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST, PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, AND REFRAIN FROM CREATING OR ASSERTING AGAINST ANY OF THEM, ANY AND ALL ACTIONS, SUITS, PROCEEDINGS (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES), CLAIMS, DEMANDS, CAUSES OF ACTION, COSTS, LOSSES, LIABILITIES, DAMAGES OR EXPENSES OF ANY KIND OR NATURE WHATSOEVER (COLLECTIVELY, THE "INDEMNITY MATTERS") WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY BORROWER OR TLC OF THE PROCEEDS OF ANY OF THE NOTE OR LETTER OF CREDIT OR (II) ANY OTHER ASPECT OF THIS AGREEMENT, THE NOTE, THE LETTER OF CREDIT AND THE OTHER LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM, BUT EXCLUDING HEREFROM ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF LENDER OR ANY OTHER INDEMNIFIED PARTY AND DERIVATIVE CLAIMS FROM SHAREHOLDERS OF LENDER OR ANY OF ITS SHAREHOLDERS WHETHER OR NOT RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. (c) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF THE INDEMNIFIED PARTY. 9 13 (d) In the case of any indemnification hereunder, Lender shall give notice to Borrower of any such claim or demand being made against the Indemnified Party and Borrower shall have the non-exclusive right to join in the defense against any such claim or demand. (e) Borrower's obligations under this Section 6.16 shall survive any termination of this Agreement and the payment of the Note and shall continue thereafter in full force and effect. Borrower shall pay any amounts due under this Section 6.16 within thirty (30) days of the receipt by Borrower of notice of the amount due. Section 6.17 Waiver of Jury Trial. BORROWER AND LENDER HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR TO DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their authorized representatives as of the date first above written. TMS ASSETS CALIFORNIA, INC. By: /s/ Jeffrey T. Hinson ----------------------------- Name: Jeffrey T. Hinson Title: Vice President 10 14 CLEAR CHANNEL COMMUNICATIONS, INC. By: /s/ Randall Mays ----------------------------- Name: Randall Mays Title: Vice President 11 15 SCHEDULE I REPRESENTATIONS 1. Corporate Existence and Authority. Each of Borrower and TLC: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of Delaware; (b) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary; and (c) has all requisite power and authority to conduct their business as presently conducted and, upon obtaining the consents referred to in the Asset Purchase Agreement, as proposed to be conducted. 2. Compliance with Laws; No Breach. (a) Except for the approvals set forth in the Asset Purchase Agreement as conditions to the closing of the Asset Purchase Agreement, Borrower has not violated any governmental requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of its properties or the conduct of its business which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a material adverse effect. (b) Neither the execution and delivery of this Agreement, the Note or the other Security Documents to which either Borrower or TLC is a party nor compliance with the terms and provisions thereof will conflict with or result in a breach of, or require any consent under, the respective charter or by-laws of either Borrower or TLC, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority, or any agreement or instrument to which Borrower or TLC is a party or by which Borrower or TLC is bound other than those consents or waivers which have been obtained on or before the date hereof. 3. Corporate Action. Borrower is duly authorized and empowered to execute, deliver and perform the Loan Documents to which it is a party; and Borrower is duly authorized and empowered to issue the Note. All corporate action on the Borrower's part requisite for the issuance of the Note and the due execution, delivery and performance of each Loan Document to which it is a party has been duly and effectively taken; and this Agreement, the Note and other Loan Documents to which Borrower is a party constitute valid and binding obligations of Borrower, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the rights of creditors and to general principles of equity. 4. Consents. Each of Borrower and TLC has obtained all authorizations, approvals, orders, licences, permits and consents of, and have made all filings and registrations with, any Person necessary for the execution, delivery or performance by it of the Loan Documents to which it is a party, or for the validity or enforceability thereof; provided that certain consents and approvals of the Federal Communication Commission (together with any successor agency thereto the "FCC") may be required in connection with the exercise of the rights and remedies granted Lender under the Pledge Agreements; and this Agreement and certain of the Loan Documents should be filed with the FCC pursuant to FCC rules within the required time period after the date hereof. 5. Use of Proceeds. The proceeds of the drawing of the letter of credit shall be used by Borrower to purchase the assets identified in the Asset Purchase Agreement and for no other purpose. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, Schedule I -1 16 whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulations U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of the Loan will be used to buy or carry any margin stock. 6. Location of Business and Offices; Name. Borrower's principal place of business and chief executive offices are located at the address stated on the signature page of this Agreement. Borrower has not, during the last five (5) years, entered into any contract, agreement, security instrument or other document using a name other than, or been known by or otherwise used any name other than, the name used by Borrower herein. 7. Defaults. Neither Borrower nor TLC is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default (in any respect which would have a material adverse effect) under any material agreement or other instrument to which it is a party or by which it is bound. 8. Asset Purchase Agreement. Lender has been previously furnished a true, correct and complete copy of the Asset Purchase Agreement; and except as disclosed in writing to Lender, there have been no amendments, modifications or supplements thereto. 9. Business Activities. Each of Borrower and TLC have been recently incorporated and have carried on no business activities prior to the date of this Agreement other than executing and delivering assignment and assumption agreements relating to the Asset Purchase Agreement and the Loan Documents to which Borrower is a party. Schedule I -2 17 SCHEDULE II COVENANTS Until the repayment in full of the Note and all other amounts owing to Lender hereunder, Borrower shall not, and shall not permit TLC to: 1. Negative Pledge. Create, incur, assume or permit to exist any lien, security interest or encumbrance other than (a) liens in favor of Lender; and (b) inchoate liens existing by statute or operation of law. 2. Other Debt. Create, incur, assume or permit to exist any Debt other than: (a) the Note and other indebtedness in favor of Lender; and (b) loans, advances or extensions of credit, which are subordinated to the Note and the other obligations of Borrower hereunder pursuant to a subordination agreement, in form and substance reasonably satisfactory to Lender, made by Guarantor to Borrower, in accordance with the Senior Credit Agreement, not to exceed $8,000,000 in the aggregate. 3. Dividends, Distributions and Redemptions. Declare or pay any dividend, purchase, redeem or otherwise acquire for value any of its capital stock now or hereafter outstanding, return any capital to its stockholders, or make any distribution of its assets to its stockholders, or permit it to purchase or otherwise acquire for value any stock (including, without limitation, any options, warrants or other rights to acquire shares of capital stock) of Borrower. 4. Investments, Loans and Advances. Directly or indirectly, make or permit to remain outstanding any loans or advances to or investments in any Person, other than: (a) investments, loans or advances acquired under the Asset Purchase Agreement; (b) accounts receivable arising in the ordinary course of business; (c) deposits maturing within one year from the date of creation thereof with any other bank or trust company which is organized under the laws of the United States or any state thereof; and (d) investments by Borrower in TLC. 5. Nature of Business. Allow any material change to be made in the character of the business as carried on as of the date of this Agreement or, following their acquisition pursuant to the Asset Purchase Agreement, any change in the radio broadcast business of KSOL-FM or KYLZ-FM as presently conducted. 6. Amendments to Articles of Incorporation and By-laws. Amend, modify or supplement in any respect its articles or certificate of incorporation or by-laws. 7. Dispositions of Assets. Sell, lease, abandon or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets or otherwise sell assets of the radio broadcast business of KSOL-FM or KYLZ-FM, other than in the ordinary course of business of such stations as currently being conducted.. 8. Transactions with Affiliates. Directly or indirectly, enter into any transaction (including, but not limited to, the lease, purchase, sale or exchange of property or the rendering of services) with any of its affiliates other than the loans, advances or extensions of credit described in paragraph 1 of this Schedule II. All transactions with affiliates must be in the ordinary course of business of Borrower or TLC and upon fair and reasonable terms no less favorable than Borrower or TLC could obtain, or could become entitled to, in an arm's length transaction with a Person which was not an affiliate. Schedule II -1 18 9. Use of Proceeds. Borrower will not permit the proceeds of the drawing under the letter of credit to be used for any purpose other than the purpose permitted by paragraph 5 of Schedule I. 10. Mergers and Acquisitions. Neither Borrower nor TLC will, directly or indirectly, (a) enter into any agreement to acquire, or acquire, any radio station(s) except as contemplated by the Asset Purchase Agreement, (b) enter into any agreement to acquire, or acquire, all or any substantial portion of the assets or stock of, or interest in, any Person, (c) merge or consolidate with any Person, or (d) liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). Schedule II -2 19 SCHEDULE III CONDITIONS PRECEDENT The obligation of Lender deliver the letter of credit under this Agreement hereunder is subject to its receipt of the following documents, each of which shall be satisfactory to Lender in form and substance: 1. Corporate Documents. Certificates of the Secretary or Assistant Secretary of each of Guarantor and Borrower setting forth (i) resolutions of its board of directors in form and substance satisfactory to Lender with respect to the authorization of the Note, this Agreement and the other Loan Documents to which each is a party; (ii) the officers of each (y) who are authorized to sign this Agreement, the Note, and the other Loan Documents to which it is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the other Loan Documents to which it is a party and the transactions contemplated hereby and thereby, (iii) specimen signatures of the officers so authorized, and (iv) the articles or certificate of incorporation and the bylaws of each of Guarantor and Borrower, certified as being true and complete. Lender may conclusively rely on such certificate until it receives notice in writing from Borrower or Guarantor to the contrary. 2. Good Standing. Certificates of the appropriate state agencies with respect to the valid existence and good standing of Guarantor, Borrower and TLC. 3. Note and Loan Documents. This Agreement and the Note, duly completed and executed; and each of the following Loan Documents, duly completed and executed in sufficient number of counterparts, in recordable form, for recording purposes, as applicable: (i) the Guaranty Agreement; (ii) the Pledge Agreement by Guarantor relating to the stock of Borrower, together with a stock powers executed in blank; (iii) the Pledge Agreement by Borrower relating to the stock of TLC, together with a stock powers executed in blank; and (iv) UCC-1 Financing Statements to the collateral described in clauses (ii) and (iii). 4. Asset Purchase Agreement. A copy of the executed Asset Purchase Agreement, certified as true, correct and complete. 5. Legal Opinion. A legal opinion in form and substance satisfactory to the Lender. 6. Copy of Sixth Amendment. A copy of the executed Sixth Amendment to the Senior Credit Facility. 7. Officers' Certificate. A certificate of each of Borrower and Guarantor setting forth (i) the representations and warranties made in this Agreement and the other Loan Documents shall be true and correct and (ii) no Event of Default or event which, with the passage of time or the giving of notice or both, would become an Event of Default, shall have occurred and be continuing. 8. Agreement and Plan of Merger. The Agreement and Plan of Merger shall have been executed and delivered by all parties thereto. Schedule III -1 20 EXHIBIT A FORM OF NOTE $40,000,000.00 July 9, 1996 FOR VALUE RECEIVED, TMS ASSETS CALIFORNIA, INC., a Delaware corporation ( "Borrower"), hereby promises to pay to the order of CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation ("Lender"), the principal sum of Forty Million and No/100 Dollars ($40,000,000.00) in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in that certain Loan Agreement dated of even date herewith between Borrower and Lender (the "Loan Agreement"), and to pay interest on the unpaid principal amount of such loan in like money and funds as provided in the Loan Agreement. This Note is issued pursuant to the Loan Agreement and is entitled to the benefits provided for in the Loan Agreement and the Loan Documents. The Loan Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events of default specified therein. THIS NOTE (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. TMS ASSETS CALIFORNIA, INC. By: -------------------------------- Name: Title: Exhibit A-1 21 NOTE $40,000,000.00 July 9, 1996 FOR VALUE RECEIVED, TMS ASSETS CALIFORNIA, INC., a Delaware corporation ( "Borrower"), hereby promises to pay to the order of CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation ("Lender"), the principal sum of Forty Million and No/100 Dollars ($40,000,000.00) in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in that certain Loan Agreement dated of even date herewith between Borrower and Lender (the "Loan Agreement"), and to pay interest on the unpaid principal amount of such loan in like money and funds as provided in the Loan Agreement. This Note is issued pursuant to the Loan Agreement and is entitled to the benefits provided for in the Loan Agreement and the Loan Documents. The Loan Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events of default specified therein. THIS NOTE (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. TMS ASSETS CALIFORNIA, INC. By: /s/ Jeffrey T. Hinson --------------------------- Name: Jeffrey T. Hinson Title: Vice President EX-4.6 6 EXHIBIT 4.6 1 GUARANTY Dated as of July 9, 1996 by TICHENOR MEDIA SYSTEM, INC., as Guarantor in favor of CLEAR CHANNEL COMMUNICATIONS, INC. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER ARE SUBJECT TO THE TERMS SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT OF EVEN DATE HEREWITH BY CLEAR CHANNEL COMMUNICATIONS, INC. AND TICHENOR MEDIA SYSTEM, INC. IN FAVOR OF NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER AND EACH OF THE LENDERS REFERRED TO THEREIN. 2 GUARANTY This Guaranty (as amended, modified or supplemented from time to time, this "Guaranty"), dated effective as of July 9, 1996, is made by TICHENOR MEDIA SYSTEM, INC., a Texas corporation ("Guarantor"), in favor of CLEAR CHANNEL COMMUNICATIONS, INC., a Texas corporation ("Lender"). RECITALS A. TMS Assets California, Inc., a California corporation ("Borrower"), and Lender have entered into that certain Loan Agreement dated of even date herewith (said Loan Agreement, as amended, modified or supplement from time to time, the "Loan Agreement") pursuant to which Lender has agreed to cause to be issued a letter of credit in the face amount of $40,000,000, and upon the draw on such letter of credit, to loan such amount as may be drawn thereunder to Borrower, such loan being evidenced by that certain promissory note of even date herewith in the original principal amount of $40,000,000 issued by Borrower to Lender (the "Note"). Capitalized terms not defined herein shall have the meaning ascribed such term in the Loan Agreement. B. Borrower is a direct wholly owned subsidiary of Guarantor. C. In order to induce Lender to enter into the Loan Agreement and to cause to be issued such letter of credit and to lend money to Borrower as described above, the Guarantor has agreed to enter into this Guaranty. D. The guaranties provided in this Guaranty are reasonably expected to benefit, directly or indirectly, the Guarantor. Further, it is in the best interest of the Guarantor to provide the guaranties set forth hereunder, and such guaranties are necessary or convenient to the conduct, promotion or attainment of the business of the Guarantor and are also necessary or convenient to the conduct, promotion or attainment of the business of other directly or indirectly wholly-owned Subsidiaries of the Guarantor. NOW, THEREFORE, in consideration of the premises and in order to induce Lender to enter into the Loan Agreement, the Guarantor hereby agrees as follows: ARTICLE I GUARANTY Section 1.01 Guaranty. The Guarantor hereby unconditionally guarantees to Lender the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Note and all other payment obligations of Borrower now or hereafter existing under the Loan Agreement and the other Loan Documents, including pre-petition and post-petition interest in the event of a bankruptcy of Borrower (all of indebtedness and payment obligations being referred to herein as the "Obligations"). Section 1.02 Guaranty Absolute. This Guaranty is an absolute, irrevocable, completed and continuing guaranty of payment and not a guaranty of collection. The Guarantor guarantees that the Obligations will be paid strictly in accordance with the terms of the Loan Agreement. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Loan Agreement, the Note or any other Loan Document or instrument relating thereto for any reason whatsoever, including without limitation the fact that the Obligations or any part thereof exceed the amount permitted by law, the act of creating the Obligations 1 3 or any part thereof is ultra vires, the officers or representatives executing the documents or otherwise creating the Obligations acted in excess of their authority, the Obligations violate applicable usury laws, Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Obligations wholly or partially uncollectible from Borrower, the creation, performance or repayment of the Obligations (or the execution, delivery and performance of any document or instrument representing part of the Obligations or executed in connection with the Obligations, or given to secure the repayment of the Obligations) are illegal, uncollectible, legally impossible or unenforceable, or the Loan Agreement or other documents or instruments pertaining to the Obligations have been forged or otherwise are irregular or not genuine or authentic; (b) any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the terms of the Loan Agreement, the Note, any Loan Document or the rights of the Lender with respect thereto; (c) any change in the time, manner or place of performance or payment of, or in any other term of, the Obligations, any increase in the amount of the Obligations or any other amendment, modification, supplement, extension or waiver of or any consent to departure from the Loan Agreement or any Loan Document; (d) the existence of, or any release or amendment or waiver of or consent to departure from, any other guaranty, for all or any of the Obligations; (e) any adjustment, indulgence, forbearance, waiver, departure or compromise that might be granted or given by Lender or any other Person primarily or contingently liable on the Obligations; (f) any release of Borrower or any other Person now or hereafter liable for the payment of the Obligations or any part thereof, or taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Obligations, or any sale, release, surrender, exchange, subordination, deterioration, waste, loss or impairment of any collateral or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Obligations; (g) the failure of Lender to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral or security, other than the gross negligence or wilful misconduct of Lender; (h) the fact that any collateral, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien; or (i) any other action taken or omitted to be taken with respect to the Loan Agreement, the Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Obligations pursuant to the terms hereof; it being the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Obligations. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Lender for any reason, including, without limitation, the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made, and, in such event, Guarantor will pay to Lender an amount equal to any such payment that has been rescinded or returned. This Guaranty shall be absolute and unconditional 2 4 notwithstanding the occurrence of any event or the existence of any other circumstances which might constitute a defense available to a guarantor or Borrower or a legal or equitable discharge of a surety or guarantor except indefeasible payment in full of the Obligations. The provisions of this paragraph will survive any release or termination of this Guaranty. Section 1.03 Waiver. Except as otherwise set forth herein, the Guarantor hereby waives, to the extent permitted by law, promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guaranty and any requirement that Lender protect, secure, perfect or insure any collateral or exhaust any right or take any action against Borrower or any other person or any collateral. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of Borrower or any other guarantor of the Obligations, and shall remain liable hereon regardless of whether Borrower or any other guarantor be found not liable thereon for any reason. To the fullest extent permitted by applicable law, Guarantor hereby expressly waives presentment, demand, notice of non-payment, protest and notice of protest and dishonor, notice of default, notice of intent to accelerate the maturity and notice of acceleration of the maturity and any other notice in connection with the Obligations. Guarantor waives any right to require Lender to proceed against Borrower, enforce its rights against any other guarantor of the Obligations, have Borrower joined with Guarantor in any suit arising out of this Guaranty and/or the Obligations, or pursue any other remedy in its powers whatsoever. Until the Obligations shall have been paid in full, Guarantor shall have no right of subrogation, and waives any right to enforce any remedy which Lender now has or may hereafter have against Borrower and waives the benefit of any right to participate in any security now or hereafter held by Lender. Section 1.04 Subordination of Guaranty. The provisions of this Guaranty and the obligations of Guarantor are subject to the terms set forth in that certain Subordination Agreement of even date herewith by Lender and Guarantor in favor of the Senior Creditors (the "Subordination Agreement"). For purposes of this Guaranty, "Senior Creditors" shall mean NationsBank of Texas, N.A., as administrative lender for the lenders now or hereafter signatory to that certain Second Amended and Restated Credit Agreement dated as of August 9, 1994, as now or hereafter amended, modified or supplemented, and each of such lenders. Section 1.05 Maturity of Obligations; Payment. Guarantor agrees that if the maturity of the Obligations is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Guaranty without demand or notice to Guarantor. Subject to the terms of the Subordination Agreement, Guarantor will, forthwith upon notice from Lender of Borrower's failure to pay the Obligations at maturity, pay to Lender the amount due and unpaid by Borrower and guaranteed hereby. The failure of Lender to give this notice shall not in any way release Guarantor hereunder. Section 1.06 Lender's Expenses. If Guarantor fails to pay the Obligations after notice from Lender of Borrower's failure to pay any Obligations at maturity, and if Lender obtains the services of an attorney for collection of amounts owing by Guarantor hereunder, or obtaining advice of counsel in respect of its rights under this Guaranty, or if suit is filed to enforce this Guaranty, or if proceedings are had in any bankruptcy, receivership or other judicial proceedings for the establishment or collection of any amount owing by Guarantor hereunder, or if any amount owing by Guarantor hereunder is collected through such proceedings, Guarantor agrees to pay to Lender all court costs and its reasonable attorneys' fees. ARTICLE 2 REPRESENTATIONS AND WARRANTIES Section 2.01 Representations and Warranties. In order to induce Lender to accept this Guaranty, Guarantor represents and warrants to Lender (which representations and warranties will survive the creation of the Obligations and any extension of credit thereunder) that: 3 5 (a) The Guarantor's guaranty pursuant to this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. (b) Guarantor is a corporation duly organized, legally existing and in good standing under the laws of the State of Texas, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure to so qualify would have a material adverse effect. (c) Guarantor is duly authorized and empowered to execute, deliver and perform this Guaranty and all corporate action on Guarantor's part requisite for the due execution, delivery and performance of this Guaranty has been duly and effectively taken. (d) This Guaranty constitutes valid and binding obligations of Guarantor, enforceable in accordance with its terms, except that enforcement may be subject to any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights and general principles of equity. (e) This Guaranty will not violate any provisions of Guarantor's articles of incorporation, bylaws, or any material contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which Guarantor is subject other than any contract or agreement for which consents, waivers or amendments have been obtained. (f) Guarantor's execution, delivery and performance of this Guaranty does not require the consent or approval of any other Person which has not been obtained, including, without limitation, any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof which consent has not been obtained. (g) The Guarantor hereby represents that (i) it is not insolvent as of the date hereof and will not be rendered insolvent as a result of this Guaranty, (ii) it is not engaged in business or a transaction, or about to engage in a business or a transaction, for which any property or assets remaining with such Guarantor is unreasonably small capital, and (iii) it does not intend to incur, or believe it will incur, debts that will be beyond its ability to pay as such debts mature. (h) Neither Lender nor any other person has made any representation, warranty or statement to the Guarantor in order to induce the Guarantor to execute this Guaranty. ARTICLE 3 MISCELLANEOUS Section 3.01 Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto. Section 3.02 Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied or delivered, to the Guarantor at its address specified on the signature page hereto, or the Lender at its address specified in the Loan Agreement. Section 3.03 No Waiver; Cumulative Rights and Remedies. No failure on the part of Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any 4 6 other right. Each of the rights and remedies herein provided are cumulative and not exclusive of any rights and remedies provided by law or in any other documents. Section 3.04 Execution in Counterparts. This Guaranty may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 3.05 Governing Law. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to principles of conflicts of laws thereof. Section 3.06 Entire Agreement. THIS GUARANTY AND THE SUBORDINATION AGREEMENT EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN LENDER AND GUARANTOR RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Section 3.07 Waiver of Jury Trial. GUARANTOR AND LENDER HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR TO DEFEND ANY RIGHTS UNDER THIS GUARANTY, THE LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY, THE LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 5 7 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. TICHENOR MEDIA SYSTEM, INC. By: /s/ Jeffrey T. Hinson ---------------------------- Name: Jeffrey T. Hinson Title: Chief Financial Officer and Treasurer Address of Guarantor: Tichenor Media System, Inc. 100 Crescent Court Suite 1777 Dallas, Texas 75201-6991 Attention: Jeffrey T. Hinson Facsimile: (214) 855-8881 6 EX-10.15 7 EXHIBIT 10.15 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 1, 1995, between HEFTEL BROADCASTING CORPORATION, a Delaware corporation (the "Employer"), and JOHN T. KENDRICK (the "Executive"). The Employer wishes to employ the Executive, and the Executive wishes to accept such employment, on the terms and conditions set forth in this Agreement. Accordingly, the Employer and the Executive hereby agree as follows: 1. Employment. Effective August 1, 1995 (the "Effective Date"), the Employer hereby employs the Executive and the Executive hereby accepts employment by the Employer on the terms hereinafter set forth. 2. Term. 2.1 The initial term of the Executive's employment hereunder shall commence on the Effective Date and continue until the third anniversary of the Effective Date (the "Initial Term"). 2.2 At the end of the Initial Term, this Agreement shall automatically be extended for an additional one year period, unless the Employer gives written notice to the Executive no less than six months prior to the end of the Initial Term. 2.3* In the event (a) any person or group of persons acting in concert acquires, by contract or otherwise, the ability to elect a majority of the board of directors of the Employer or the ability to vote shares of stock having 50% or more of the voting power of the Employer, (b) Mr. Cecil Heftel ceases to serve as the Chairman and Co-Chief Executive Officer of the Employer, or (c) Mr. Carl Parmer ceases to serve as the Co-Chief Executive Officer and President of the Employer (the matters referred to in clauses (a), (b) and (c) are referred to herein as a "Change in Control"), this Agreement shall automati- cally be extended for a three-year period commencing on the date the Change in Control occurs. Notwithstanding the foregoing, a change in control shall not be deemed to have occurred upon a change of the voting trustees under the Amended and Restated Voting Trust dated July 5, 1994, as amended. * A,B and C must all happen before a change in control is deemed to occur. 2.4 Notwithstanding Sections 2.1, 2.2 and 2.3, this Agreement may be terminated in accordance with the provisions of Section 9. 2 2.5 The Initial Term and any additional terms of employment under Sections 2.2 and 2.3 collectively are referred to herein as the "Term." 3. Executive's Position, Duties and Authority. 3.1 The Executive shall serve as Senior Vice President and Chief Financial Officer of the Employer and shall have such powers and duties as may from time to time be prescribed by either Co-Chief Executive Officer of the Company, the Board of Directors of the Company or the Bylaws of the Company. 3.2 Should the Executive be appointed as a director and/or officer of one or more of the Employer's subsidiaries or parent, he shall serve in such position(s) without additional remuneration. 4. Full-time Services. The Executive's services hereunder shall be performed on a full-time basis and in a diligent and competent fashion to the best of the Executive's abilities. The Executive shall not undertake outside employment, business or charitable activities that require more than minimal amounts of the Executive's time without the consent of the Employer. 5. Living Arrangements. The Employer requires the Executive to relocate to Las Vegas, Nevada. In connection with such relocation, the Employer shall reimburse the Executive up to $65,000 for costs of relocating to Las Vegas. At the option of the Executive, the Employer shall pay such costs (up to $65,000) directly to third-parties. 6. Compensation. 6.1 The Executive's base salary (the "Salary") for services to the Company for the following years during the Term shall be as follows: (a) First Year - $180,000; (b) Second Year - $190,000; and (c) Third Year and each year thereafter - the amount determined by the Employer; provided, however, the annual salary for each year shall not be less than the annual salary for the prior year adjusted to reflect any increase in the CPI from the first day of such prior year to the first day of the then current year. For purposes hereof, "CPI" shall mean the Consumer Price Index for all urban consumers for Los Angeles- Anaheim-Riverside (1982-1984 = 100), All Items. The Salary shall be payable in accordance with the Employer's normal payroll policies. -2- 3 6.2 From time to time during the Term, the Employer may pay, in addition to the Salary, a bonus for services rendered by the Executive to the Employer hereunder; provided, however, the Executive shall be entitled to receive the following minimum bonuses during the Term: (a) First Year - $35,000; (b) Second Year - $45,000; and (c) Third Year and each year thereafter - the amount determined by the Employer; provided, however, the minimum bonus for each year shall not be less than the minimum bonus for the prior year adjusted to reflect any increase in the CPI from the first day of the prior year to the first day of the then current year. Such bonus, if any, shall be payable at such time as the Employer, in the exercise of its sole discretion, shall determine; provided, however, the minimum bonus shall be payable on or before the last day of each year during the Term. 7. Expenses. The Executive shall be entitled to receive reimbursement for all reasonable business expenses incurred by him (which have been approved by his supervisor) upon presentation of expense statements or vouchers or such other supporting information as the Employer may reasonably require of the Executive. 8. Vacation and Other Benefits. The Executive shall be entitled to paid vacation in accordance with the Employer's policies for its senior executives. During the Term, the Executive shall be eligible to participate in any bonus, pension or profit-sharing plan or program of the Employer now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. The Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Employer, now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof, and the Employer shall pay all monthly premiums in excess of $100 for providing such insurance to Executive's wife and children. During the Term, the Employer shall reimburse the Executive for all reasonable costs associated with the operation and maintenance of an automobile to be furnished by the Executive, and the Employer shall reimburse the Executive for dues for a membership in one country club in Las Vegas, Nevada. -3- 4 9. Termination. 9.1 This Agreement shall terminate by delivery of written notice to the Executive, upon the occurrence of any of the following events: (i) Any act or omission by the Executive constituting fraud, negligence, wilful misconduct or embezzlement in connection with Executive's employment by the Employer; (ii) Executive's indictment of a crime constituting a felony or conviction by, or entry of a plea of guilty or nolo contendere in, a court of competent jurisdiction of a crime constituting a felony; (iii) Any act or omission by the Executive in connection with his employment by the Employer causing a material adverse effect on the business of the Employer or jeopardizing any FCC license for a radio station owned by the Employer or any of its direct or indirect subsidiaries or joint ventures; (iv) subject to Section 9.2, the failure by Executive to perform his duties or obligations hereunder or under any of the Company's policies or procedures which is not cured within 15 business days following written notice of such failure from the Employer to the Executive; (v) unlawful drug use; (vi) Executive receiving payments or gifts in excess of $250.00 from advertisers for Executive's own benefit; or (vii) Executive committing a crime of moral turpitude. This Agreement may also be terminated by mutual agreement of the parties. 9.2 If the Executive shall be unable with reasonable accommodations provided by the Employer to perform his duties hereunder by reason of a physical or mental disability, whether totally or partially, his failure so to perform his duties will not be grounds for termination of his employment by the Employer pursuant to Section 9.1; provided, however, should the period of such disability exceed 45 days, or if on 50% or more of the normal working days throughout three (3) consecutive months the Executive is unable to perform his duties fully due to such disability, then the Employer may terminate the Executive's employment hereunder by delivery of written notice to the Executive. 9.3 Upon the death of the Executive, this Agreement shall terminate. -4- 5 9.4 The Executive may terminate his employment hereunder voluntarily upon 45 days' prior notice to the Employer. Such termination shall be effective as of the date specified in such notice (which shall not be less than 30 business days after the delivery of such notice). 9.5 Upon termination of this Agreement or Executive's employment hereunder pursuant to Section 9.1, 9.2, 9.3 or 9.4, all compensation and benefits payable by the Employer hereunder shall be immediately terminated; provided, however, the Executive shall be entitled to receive a lump sum payment in an amount equal to the sum of (a) any unpaid Salary and other benefits in respect of the period through the date of termination and (b) the minimum bonus payable under Section 6.2 pro-rated based on the number of days elapsed from the beginning of the year of the Term during which the termination occurred until the date of termination. Notwithstanding the foregoing, the Executive or his estate, as the case may be, shall also be entitled to receive any payments under any applicable life or disability insurance plans and any other benefit plans. Such payments, if any, shall be made at the time and in accordance with the terms and conditions of such plans. 9.6 Should the Employer terminate this Agreement for reasons other than those specified in Section 9.1, 9.2 or 9.3 herein, Executive shall be entitled to receive, as liquidated damages, the sum of the following: (a) A lump sum payment equal to the unpaid Salary through the date of termination; (b) On the last day of each year during the period commencing on the date of termination and ending on the later of (i) the one year anniversary of the date of termination or (ii) the end of the Term (the "Period"), an amount equal to the minimum bonus payable under Section 6.2 for the year in which the termination occurs; provided, however, the Employer, in its sole discretion, may pay at any time the present value of the total of such amounts; (c) The Salary in effect on the date of termination for the Period, which shall be payable in accordance with the Employer's normal payroll policies; provided, however, the Employer, in its sole discretion, may pay in a lump sum the present value of the total amount payable for the Period; and (d) Monthly premiums payable for allowing Executive and his family to participate, under the Comprehensive Omnibus Budget Reconciliation Act of 1985, in the Employer's group medical plans in the same manner, including coverage, as they participated on the date of termination less the portion of the premiums which Executive was paying on the termination date. These premiums shall be payable for the shorter of the Period or -5- 6 the maximum COBRA continuation coverage period mandated by law and shall be paid directly to the applicable insurance company. For purposes of calculating present values hereunder, the interest rate shall be assumed to equal the prime rate published in the Wall Street Journal. Other than amounts payable under this Section, the Executive shall not be entitled to any payments from the Employer as a result of a termination of this Agreement by the Employer for reasons other than those specified in Section 9.1, 9.2 or 9.3 hereof. 10. Deductions and Withholdings. All amounts payable or which become payable under any provision of this Agreement shall be subject to any deductions authorized by the Executive and any deductions and withholdings required by law. 11. Confidentiality. Executive acknowledges that the Employer holds as confidential certain information, material and knowledge respecting the intimate and confidential affairs of the Employer in the various phases of its business, including, but not limited to, trade secrets, techniques, marketing plans, strategy, forecasts, advertiser lists and mailing lists ("Proprietary Information"). The Executive hereby agrees as follows: 11.1 All Proprietary Information shall be the sole property of the Employer and its assigns. The Executive hereby assigns to the Employer any rights he may have or acquire in all Proprietary Information during his performance of services hereunder. 11.2 The Executive represents that his performance of all the terms of this Agreement as an employee of the Employer does not and will not breach any agreement to keep in confidence proprietary information of others acquired by him in confidence or in trust prior to his employment. The Executive has not entered into, and agrees that he will not enter into, any agreement, either written or oral, in conflict with this Section 11. 11.3 The Executive agrees not to disclose to any person, other than in furtherance of the Employer's business, or use, other than in the Employer's business, any Proprietary Information, either during or after his employment or the termination of this Agreement, except with the express written permission of either Co-Chief Executive Officer of the Employer. The Executive understands that information and materials received in confidence by the Executive from third parties either within or outside of the Employer with regard to the business of the Employer is included within the meaning of this Section 11. Upon termination of his employment, the Executive agrees not to make copies of written Proprietary Information and the Executive agrees to return all written Proprietary Information to the Employer. -6- 7 12. Non-Solicitation. The Executive agrees that for a one-year period beginning on the date the employment of the Executive hereunder ceases (such date is referred to herein as the "Termination Date"), he will not, directly or indirectly, (a) induce any advertiser or customer of the Employer or its successors to patronize any business similar to the business conducted by the Employer on the Termination Date; (b) request or advise any customer, advertiser or supplier of the Employer or its successors to withdraw, curtail or cancel such customer's, advertiser's or supplier's business with the Employer or its successors; (c) disclose to any other person or entity the names or addresses of any of the customers or advertisers of the Employer or its successors; or (d) induce or encourage any employee to terminate his or her relationship with the Employer. 13. Notices. Unless applicable law requires a different method of giving notice, any and all notices, demands or other communications required or desired to be given hereunder by either party shall be in writing. Assuming that the contents of a notice meet the requirements of the specific paragraph of this Agreement which mandates the giving of that notice, a notice shall be validly given or made to another party if served either personally or if deposited in the United States mail, certified or registered, postage prepaid, or if transmitted by telegraph, telecopy or other electronic written transmission device or if sent by overnight courier service, and if addressed to the applicable party as set forth below. If such notice, demand or other communication is served personally, service shall be con clusively deemed made at the time of such personal service. If such notice, demand or other communication is given by mail ser vice shall be conclusively deemed made seventy-two (72) hours after the deposit thereof in the United States mail. If such notice, demand or other communication is given by overnight courier, or electronic transmission, service shall be conclu sively deemed made at the time of confirmation of delivery. The addresses for the parties are as follows: If to the Employer: Heftel Broadcasting Corporation 6767 West Tropicana Avenue Las Vegas, Nevada 89103 Attention: Mr. Carl Parmer Telecopier No.: (702) 248-1097 with a copy to: Jeffer, Mangels, Butler & Marmaro 2121 Avenue of the Stars, 10th Floor Los Angeles, California 90067 Attention: Bruce P. Jeffer, Esq. Telecopier No.: (310) 203-0567 -7- 8 If to the Executive: To the address of the Executive on personnel records of the Employer. 14. General. 14.1 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 14.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 14.3 Entire Agreement. This Agreement including the Exhibits attached hereto sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, except as specifically provided herein. 14.4 Successors and Assigns. This Agreement, and the Executive's rights and obligations hereunder, may not be assigned by the Executive, except that the Executive may designate pursuant to Section 14.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to Executive's estate. This Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. The term "Employer," as used in this Agreement, shall include all such successors. 14.5 Amendments; Waivers. This Agreement may not be changed, modified or amended except in a writing signed by the Executive and the Employer. No waiver of any provision or requirement hereof shall be effective unless made in writing by the party entitled to the benefits of the provision or requirement being waived. The failure of a party at any time or times to require performance of any provision thereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be construed as a further continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 14.6 Beneficiaries. Whenever this Agreement provides for any payment to the Executive's estate, such payment -8- 9 may be made instead to such beneficiary or beneficiaries as the Executive may have designated in a writing filed with the Employer. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and to any applicable insurance company) to such effect. 14.7 Arbitration. (a) All disputes between the parties hereunder, other than injunctive relief, shall be submitted to arbitration in accordance with this Section. (b) Within five (5) days after notice of submitting the applicable issue to arbitration (the "Arbitration Notice") is given by a party (the "Initial Period"), each party shall designate three arbitrators in priority from one to three, who are currently available for arbitration of disputes in Las Vegas, Nevada, as a potential arbitrator. Any arbitrator designated by both parties shall be selected as the arbitrator pursuant to this subsection. If both parties designate more than one arbitrator, then the arbitrator with the highest common priority shall be selected. In the event that no arbitrator has been designated by both parties, within five (5) days after the expiration of the Initial Period, each party will designate three additional arbitrators. In the event that the parties are unable to agree upon an arbitrator with ten (10) days after delivery of the Arbitration Notice, the parties agree to accept an arbitrator selected by the American Arbitration Association. If a party fails to submit a list of three arbitrators within any five (5) day designation period, the arbitration shall be conducted solely by the arbitrator with the highest priority designated by the other party. (c) The parties agree to apportion the fees charged by the arbitrator and other costs of the arbitration (other than attorneys' fees) equally between them. (d) The parties agree to request that the arbitrator appointed pursuant to the procedure agreed upon above shall, as soon as reasonably practicable after his or her appointment, and after consultation with the parties, set an arbitration date of no later than ten days after his or her appointment. If the arbitrator is unable to conduct the arbitration during such ten day period then the parties shall select a new arbitrator in accordance with Section 14.7(b). (e) The arbitration shall be conducted pursuant to the rules of the American Arbitration Association, as then in effect; provided, however, no discovery shall be allowed and the arbitrator shall not entitled to award punitive or exemplary damages. The parties agree that a final order from the arbitrator relating to any arbitration shall be rendered on or before the tenth day after submission of each side's arguments, -9- 10 unless circumstances not within the control of either party make rendering of such an order by this date impossible. (f) The decision of the arbitrator shall be binding upon all parties and no appeal may be taken therefrom. The decision of the arbitrator shall be enforced and honored by the parties hereto without the necessity of confirmation by a court, but the parties hereto expressly reserve the right to seek such confirmation in accordance with the laws of the State of California. (g) The arbitration shall be conducted in Las Vegas, Nevada. 14.8 Remedies. Upon a breach of either Section 11 or 12 hereof by the Executive, the Employer shall be entitled to injunctive relief, both pendente lite and permanently, without posting a bond or other security or proving actual damages, in addition to any other remedy it may have at law. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. HEFTEL BROADCASTING CORPORATION By /s/ Carl Parmer --------------------------------- Name: Carl Parmer ------------------------------ Title: President ---------------------------- /s/ John T.Kendrick ----------------------------------- JOHN T. KENDRICK -10- 11 EX-11 8 EXHIBIT 11 1 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
Year Ended September 30, ------------------------------------------- 1996 1995 1994 ------------ ------------ ----------- PRIMARY Weighted average shares outstanding 10,294,967 10,010,564 4,568,525 Net effect of dilutive stock options - based on the treasury stock method using average market price -- 794,782 816,154 ------------ ------------ ----------- Total 10,294,967 10,805,346 5,384,678 ------------ ------------ ----------- Net income (loss) $(46,605,812) $ 3,692,578 $ 465,894 ============ ============ =========== Subtract $0.08 cumulative preferred stock dividends (22,823) (26,850) (183,674) ------------ ------------ ----------- Total (46,628,635) $ 3,665,728 $ 282,220 ============ ============ =========== Per-share amount $ (4.53) $ 0.34 $ 0.05 ============ ============ =========== FULLY DILUTED (Notes 1 and 2) Weighted average shares outstanding 10,294,967 10,010,564 4,568,525 Net effect of dilutive stock options - based on the treasury stock method using the year-end market price, if higher than average market price -- 820,335 939,010 ------------ ------------ ----------- Total 10,294,967 10,830,899 5,507,535 ============ ============ =========== Net income (loss) $(46,605,812) $ 3,692,578 $ 465,894 Subtract $0.08 cumulative preferred stock dividends (22,823) (20,138) (183,674) ------------ ------------ ----------- Total $(46,628,635) $ 3,672,440 $ 282,220 ============ ============ =========== Per-share amount $ (4.53) $ 0.34 $ 0.05 ============ ============ ===========
- ------------------ Notes (1) For fiscal 1994 and 1995, the per share amounts are the same under primary and fully diluted computations even though the number of weighted average shares outstanding differs. (2) For fiscal 1996, a net loss was incurred, therefore the effect of common stock equivalents is anti-dilutive. EX-21 9 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES HBC Broadcasting Texas, Inc. HBC Chicago, Inc. HBC Florida, Inc. HBC-Las Vegas, Inc. HBC New York, Inc. HBC Texas, Inc. Heftel Broadcasting Texas, L.P. Heftel GP Texas, Inc. KCYT-FM License Corp. KECS-FM License Corp. KESS-AM License Corp. KESS-TV License Corp. KHCK-FM License Corp. KICI-AM License Corp. KICI-FM License Corp. KLSQ-AM License Corp. KLVE-FM License Corp. KMRT-AM License Corp. KTNQ-AM License Corp. KTNQ/KLVE, Inc. La Oferta, Inc. License Corp. No. 1 License Corp. No. 2 Mi Casa Publications, Inc. Spanish Coast-to-Coast Ltd. The Tower Company, Inc. WADO-AM License Corp. WGLI-AM License Corp. WLXX-AM License Corp. WPAT-AM License Corp. WQBA-AM License Corp. WQBA-FM License Corp. EX-23 10 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-05887) pertaining to the Heftel Broadcasting Corporation Stock Option Plan of our report dated November 7, 1996, with respect to the consolidated financial statements of Heftel Broadcasting Corporation included in the Annual Report (Form 10-K) for the year ended September 30, 1996. ERNST & YOUNG LLP Los Angeles, California December 20, 1996 EX-23.1 11 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-1060) of Heftel Broadcasting Corporation and in the related Prospectus of our report dated November 7, 1996, with respect to the consolidated financial statements of Heftel Broadcasting Corporation included in this Annual Report (Form 10-K) for the year ended September 30, 1996. ERNST & YOUNG LLP Los Angeles, California December 20, 1996 EX-27 12 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND CASH FLOWS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS SEP-30-1996 OCT-01-1995 SEP-30-1996 5,131,960 0 17,015,323 0 0 23,159,515 26,855,898 7,019,970 165,751,126 15,991,159 0 0 0 11,548 12,089,841 165,751,126 71,732,032 71,732,032 0 59,108,246 49,177,061 1,657,860 11,240,835 (36,553,275) (65,000) (36,618,275) (9,987,537) 0 0 (46,605,812) (4.94) 0
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